Small Business Opportunities To Boost Profits And Productivity

Small and medium-sized companies have many challenges, which are opportunities for improvement. Time-tested improvements were shared recently by the founder and managing partner of Riverlake Partners, a private equity firm that owns smaller and medium-sized businesses. Erik Krieger noted three opportunities for improvement common to many of the companies his firm has owned over the years, relating to billing, pricing and employee management.

Poor accounting systems are common, which creates significant problems, especially if billing and collecting are delayed. Krieger has seen companies doing good work that were slow to invoice their customers. And when those customers are large corporations, they often won’t pay until 90 or 120 days after being invoiced. Many corporate customers will use invoice modifications as a reason to re-start the payment clock, so change orders and additions need to be handled carefully in order to get payments promptly.

person holding pencil near laptop computer

Image Source: Unsplash

Some businesses are slow to actually ask for payment. They cannot blame their customers if they are not shooting out invoices promptly and if they are not following up on outstanding receivables. A good system for promptly sending invoices and for monitoring collections is vital. (A past article provides advice for managing working capital with customers who have long payment terms.)

Many businesses operate with tight cash flow, so receiving money promptly is crucial. For some companies, slow payment from customers means a larger balance on their loan (or on the business owner’s credit card), which translates into interest expense. Even worse, some small businesses are maxed out on their credit lines or have no credit, so slow payment limits the company’s growth. Either way, it’s vital to collect quickly.

The second opportunity comes from setting prices too low, Krieger says. After his company buys a business, he often begins a conversation with the CEO about raising prices. Quite predictably he hears, “You don’t understand our business.” Nobody wants to risk losing customers, but more often than not the company is providing good value and the buyers recognize that. After finally raising prices, it takes a while to see whether customers continue to buy. After a couple of months (or whatever the appropriate time lag for the particular business), it’s usually obvious that the price increase was a good move. Then Krieger starts encouraging another price increase.

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