Tag: logistics

Part 2: Why Businesses Fail

The economic slowdown, tight credit and high fuel costs are placing a sometimes fatal strain on businesses. This week we’re taking a look at why businesses fail. Those who learn from the unfortunate mistakes of others are more likely to succeed.  

Continuing our list from Monday of the most likely reasons businesses fail:

  • Inadequate sales. Inaccurate market analysis can lead to inadequate or inappropriate marketing/sales efforts. A business’ potential market share equals the total market potential for your product or service divided by the total number of competitors in your market area. When sales volume exceeds normal market share, you achieve market dominance and move beyond the break-even point into profit. Naturally, this is every businessman’s goal. While sales are the key barometer of business success, base business decisions on weekly and monthly averages, not daily volume. It’s business trends that drive future sales so concentrate on longer-term market analysis. 
  • High expenses. Failure to properly anticipate and budget potential expenses, failure to adequately control expenses and/or failure to constantly review and update purchasing/service contracts are all common money pits. Expenses should ever exceed income. Never consider any expense as fixed; every expense is negotiable. Be prudent in your purchasing policies. Stockpiling supplies, buying additional product already in stock and failing to decrease order quantities as demand decreases are common mistakes. Limit buying to what you need, what you’re using and what will increase sales.
  • Poor credit policies. Credit keeps business clicking along, but over-extended credit can lead to bankruptcy, particularly in today’s economy. Maintain good credit policies in your own borrowing and be clear about credit policies to customers. Clearly communicate credit policies to customers before finalizing a sale and don’t continue to offer credit to slow-paying customers. You could be left holding the bag.

To be continued

Logistics Tops 10% of U.S. GPD

U.S. logistics costs just topped 10% of the country’s gross domestic product (GDP) in 2007. The recently released 19th Annual State of Logistics Report revealed that logistics costs for 2007 were just under $1.4 trillion. The report is sponsored by the Council of Supply Chain Management Professionals.

GDP figures for 2007 were up from 9.9% in 2006 and matched 1998 figures. In the intervening years, only 2000 resulted in a GDP figure above 10%. With the exception of 10.3% in 2000, total spending as a percentage of GDP declined steadily from 1998 to a low of 8.6% in 2003 before beginning a slow rise. Financial experts predict a drop in GDP spending figures for 2008 citing the slow economy, high fuel costs, the mortgage crisis and the resulting credit crisis.

The report indicated significant increases in total business inventories. In 2007 inventories rose 8.7% and an additional 3.7% in the first quarter of 2008. At 5%, commercial interest rates were at 5-year highs. Commercial paper rates were just 1% in 2003 and 2004.

Not surprisingly, motor carriage led logistics spending at $671 billion or 79% of transport costs and 48% of total costs. Motor carriage costs rose 6.1% in 2007. With diesel prices edging past $5 per gallon, 2008 carriage costs are expected to be significantly higher. Logistics companies and shipping firms are feeling the pinch of rising fuel prices. With no relief in sight, shipping companies are hurting and many smaller firms are going under.

Increased fuel prices are expected to have a deleterious effect on 2008 GDP figures. Logistics industry gains realized in 2007 may well be lost. How desperately the overall economic picture will be affected remains to be seen, but experts don’t think it’s looking good. Losses are expected across the board.

Part 3: Why Businesses Fail

The business section of the newspaper seems to carry daily notices of failing businesses. Despite tighter requirements, bankruptcies are up. Businesses are succumbing to a combination of the economic slowdown, tighter credit and high fuel costs. Today we continue our series on why businesses fail (see our July 14 and 16 posts).

Most business fail for a combination of reasons, including:

  • Poor collection practices. It’s not enough to make the sale; you have to collect the money. While this should be obvious, many businesses fail to initiate or maintain good collection practices. Just like sales, collections should be a daily task. The biggest mistake many businessmen make is to allow late accounts to go too long before starting the collection process. Many customers will take advantage of the traditional 30-, 60-,  90-day payment schedule. Try aging your accounts receivable by the 15th and month end or even weekly. The sooner you start collections, the better the chance of collecting and the faster your money turns over.
  • Lack of experience in basic business know-how. On-the-job experience is an effective teacher, but the lessons can be costly. Develop an ability to learn from the experiences of others. Education, keeping up with industry journals and publications and attending professional conferences and seminars can offset a lack of personal experience. Meeting with other businessmen through professional organizations or social/community service groups provides a valuable opportunity to discuss common business problems and issues.
  • Poor location. For retail businesses that depend upon walk-in or drive-by trade, poor location can be disastrous. Manufacturing and industrial concerns require easy access to freeways and other transportation routes for both delivery of raw materials and shipment of finished product. Convenience and visibility are key. 

    To be continued