—Sponsored article by Blue Chip Leasing
Working in the industrial financing market, I often encounter a common question: What do I see others doing that contributes to their success? Since most of my customers are in essence doing the same things, it’s easy to spot the differences between the successful plants and those who have stayed flat or are stagnating.
I’ve been lucky enough to do business with some of the most successful shops and individuals in the manufacturing industry, and gathered a few best business practices, outlined below:
1. Focus on what you do well
This is a simplistic and obvious statement, but it’s amazing how quickly shops can get caught up trying to be all things to their customers. The most successful shops have a product, or a family of products they do extremely well and this is what they stick to.
I often see customers who predominantly do milling work go out and buy a CNC lathe to try and diversify, but ultimately the lathe doesn’t get used to its optimum capacity. This leads to people and/or money getting tied up in a machine when scarce resources are best focused elsewhere.
2. Distinguish yourself and your products
To continue from point one, hopefully your specialty is not commonplace in the industry. The other day I was talking with a potential client who wanted to put financing in place for both a large 3-axis bridge-type vertical machining centre and a 5-axis CNC milling machine. There were very good reasons for both machines, plus the bridge machine was considerably less expensive and could be delivered from the dealer’s stock.
However, we started to talk about what he could generate with each machine from a monthly revenue standpoint, and it became obvious putting financing in place for the 5-axis machine made the most sense even though it was more expensive and was a factory order with a five-month delivery. The amount he can charge for the 5-axis work, which is much more complicated—and where he doesn’t face as much competition— made it an obvious choice. From a business perspective, the revenue the machine would generate far outweighed the monthly payment.
3. Find the right people and hold onto them
A business owner is always its best salesman, particularly in the manufacturing industry where experience and expertise attracts customers and gives them confidence. That said, it’s almost impossible to run every facet of a business. There are many reasons machine inquiries don’t turn into sales, but the one I hear more than any other sounds something like this: “Ken, I know you’ll get the financing in place, but who will run the machine once it gets here?”
Finding good people is very difficult—maybe the toughest part of the industry, so when you find them it’s important to retain them. Most business owners I deal with know how to program, set-up and run a machine, but if you’re in the shop running a machine, who is out there securing new business or looking after existing customers?
4. Don’t try to hit home runs
It’s every entrepreneur’s dream to land the big fish, but I’ve seen successful companies, including my own family business, get into trouble because they took a large order that they just didn’t have the capacity to handle. In our case, we sold a huge package of machine tools to a good customer. The company started a division to do automotive production (unfortunately they didn’t follow point one), and we guaranteed the financing, which they could not secure on their own.
When the deal went bad and the customer closed, we had to take all the machines back and pay off the funder, which crippled our cash flow. Decisions for equipment should be based on a long-term vision and accumulated slowly over time.
5. Re-invest in your company
Wherever possible, it’s best to keep profits within the company and use them to finance product development and growth. Many assets can be financed—not only equipment but tooling packages, accessories, software, etc. However, when it comes to growth, like new product development or hiring a new salesman, these things can’t be financed and really are the best use of company’s resources. The ancillary benefit of having retained earnings, defined as the portion of net income retained by the company as opposed to being distributed to shareholders, is it keeps your lenders very happy.
There are lots of reasons why some individuals find success where others do not, but often it’s the simple stuff that makes the difference.
Ken Hurwitz is senior account manager with Blue Chip Leasing Corporation, an equipment finance company in Toronto. Ken has years of experience in the machine tool industry and now works to help all types of manufacturers either source or tap into their own capital to optimize their operations. Contact Ken at (416) 614-5878 or at via email. Learn more at www.bluechipleasing.com
This article is part of the Financial Management Success Centre, showcasing strategies to access working capital, reduce costs, and leverage the value of shop floor equipment.