If you are a distributor, and the business has been struggling, you might be thinking:
- Why should I hunker down and try to ride this economic downturn only to have to start all over trying to rebuild my wealth?
- I’ve worked hard and fought the good fight and watched sales drop like a hot rock in snow and here it is spring and I just don’t think I’m up to it.
- All my industry friends and competitors are fighting over a smaller market and I think there is too much capacity in my marketplace.
- I love my employees but why should I cash in savings and CD’s to re-invest in this firestorm of a business? It is like nothing I have seen before.
- Do I just walk away and say to my self, “I just couldn’t do it anymore.”
In the April 2008 (keep in mind this is April 2010) issue of Electrical Wholesaling magazine, I wrote an article entitled “Analyzing Your Business”. I shared then that many electrical distributors were expressing back and front office problems and that we had completed a metrics study for distributors that bench marked them as they moved forward. Click here to read the article on EW’s website or here to read the article published at Allen Ray’s website that you can download or print.
That was then and now is now.
That was then and now is now.
In looking back on the notes we took from calls that we received at the time, many calls expressed a tone like ”You must be nuts! We fill out our PAR report every year. We are in great shape. We are just getting the orders booked!” And if you were one of those people who contacted my office, you heard a reply like “PAR is good, but we don’t care what associations are saying. They have their reasons. We feel like this is a recession, we are headed into a recession and back office computerization will help. You need to look around at your business now!”
Well, here we are almost 2 years later to the month and many are wondering if they should reinvest in their business or throw in the towel.
There are some things that we know for sure that distributors who want to stay in business need to consider:
-
Get your back office ready to grow. Stop hiring people to do the work that a computer can do. Paper is for loggers and newspapers. Use these people to collect DSO’s and/or keep your pricing updated.
- Clean up your inventory. Why? Most have 50% of their inventory (dollars) in the wrong product.
- Incidentally, most of your prices are probably wrong for most of your slow moving items and customers. But you could take the attitude that since, I’m not selling any of those slowing moving items, why change the prices. And you wonder how you got into this situation.
So, if you are a distributor seeking the path back to profitability, the question becomes “How do you get your company ready to go forward? What are the steps you need to take?” And remember, if you want to sell, buyers expect some profit if you want a multiple of EBITDA, otherwise … don’t expect much. What do you think? Are you up to it?
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