INTEREST RATE HIKE SPURS BUSINESS TUNE-UPS

When an interest rate rise took over the news this week, one Melbourne, Australia radio station ran a “Best Deals” special, to brighten up the business outlook. Here are three things you can do to brighten up your own business outlook when interest rates rise. Doing these will apply a real “tune-up” for your business!

When interest rates rise, it’s not an increase in business expense that presents the greatest threat.  With profit running at about 5% - 10% of sales, every dollar drop in sales has ten to twenty times the impact of a dollar increase in expense.  The business managers who decide to save their way out of  interest rate rises are on the wrong track.  Maintaining and increasing sales and gross profit is the high priority response, with the ever-present attention to cost reduction rolling along as before.  Here are three steps to take right now!

One -  Re-jig Prices:
You may not think there is anything wrong with your pricing plan, and you may be right.  But that does not mean you can’t improve it.  Tweaking the prices of your main volume lines to give you a competitive advantage will pay handsome dividends, and you can profile your prices to increase your overall gross margin too.  It takes good information, market knowledge, and a deep understanding of your customers.  Here’s a clue:  One menswear retailer had a fantastic range of shirts, but was “too expensive”.  The price was $79.95.  The other retailer sold them for $79.90!

Two - Reduce Stock:
This is a straightforward way to use the trigger of an interest rate rise to improve your business.  Less stock will mean less funds tied up in your enterprise.  That leaves more for investment elsewhere, or at least it means a lower interest bill.  How do yo do that?  Try a revolutionary idea.  Every inventory (stock) management plan we’ve ever seen is based on buying what you sell.  This must work somewhere, but every case we have considered has seen stock values rise.  See if you can buy (for stock) only what you have bought in the last two months!  That’s radical! It's a real challenge, but it does reduce your stock.  Try it!

Three - Increase Physical Stock Turn:
If you increase sales and reduce stock, you can’t avoid increasing the stock turn.  But watch out!  You will certainly increase the financial stock turn, but very likely will see smaller, more frequent ordering, rather than an increasing physical stock turn.  The equation is quite simple.  If you have a mark-up of 100% and a stock value of $100,000, you will gross $100,000 every time you turn the stock.  A four times (physical) stock turn (common) means the money invested in stock is earning $400,000 gross in a year.  A six times stock turn (much better) means the same investment is earning $600,000 gross.  Wow!  An extra two hundred grand!  “Physical stock turn” does repay some attention, doesn't it!



These three steps will help you improve the earning capacity of your business.  If there is any help you need, remember we are only a phone call away, and if you click the link below, that won’t even cost you a phone call.


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Any advice, information or comment contained in this document is general in nature, and should not be relied on as the basis for any specific commercial, business, employment, or financial decision. Specific advice should always be obtained for each individual circumstance. Accordingly any advice, information or comment contained herein is for general guidance only.