Lyle Hill Advises IWFC Attendees on Business ManagementSeptember 20th, 2012 by Editor
In his seminar, Managing Your Business, Lyle R. Hill, managing director of Keytech North America and Window Film Magazine sister site USGNN.com blogger, discussed financial reporting, financial ratio calculations, pricing, planning and trends. The seminar, given at the International Window Film Conference in Louisville, Ky., offered financial business insight for window film shop owners.
Hill explained that companies need to account for employees that earn company revenue versus employees the cost company revenue.
“The guy or gal in the office is not necessarily producing revenue. It’s the guy or gal in the field producing the revenue,” said Hill.
He explained that for every one person out in the field producing revenue, there are several office employees who do not generate that type of income. Many companies have found they need to downsize the nonrevenue-boosting employees to ensure company survival. The ratios Hill cites to determine employee productivity are sales per employee and sales per hour. To determine, Lyle recommends, “divid[ing] a company’s total revenue (sales) by its number of employees (preferably ‘full-time’ equivalent employees) to get a sales per employee measurement/ratio. Even better, divide revenue by hours reported in a given period to get a sales per hour ratio.”
Accounts receivable turnover, or “days outstanding,” is the ratio that determines the number of days taken to collect money owed from jobs completed. Hill explained, “take the accounts receivable figure from the last accounting cycle (year end), then add it to the accounts receivable figure from this year’s accounting cycle (year end), the divide this amount by 2. Next, divide this amount by the company’s revenue amount. Finally, multiply this sum by 365.” The result of this equation will produce the average number of days the company takes to receive full payment for services.
“This is a very handy ratio/analysis for several reasons not the least of which is that money owed is money that could be used to pay down debts, invest, expand, enhance a marketing campaign or buy/repair equipment,” he said.
The next consideration Hill explained is the break even analysis. The formula, fixed expenses divided by average gross margin (percent), offers the target revenue. Target revenue will then show the sales volume needed to break even.
One additional point Hill offered to the break even analysis is, “the impact of fixed expense reductions and/or increases in gross profit margins should never be underestimated or misunderstood.”
The fixed cost dilemma occurs when company owners considers “should I take on additional work (added volume) at a lower price than my standard/normal price structure dictates?” Hill replied, “when you add incremental volume at lower gross margins and your fixed cost structure does not change, the answer is almost always yes.”
One of the most interesting pieces of advice Hill offered is to not be afraid to raise prices. “Raising prices is not a bad thing,” he said. He related a story of his former supervisor who raised prices 3 percent each quarter, or 12 percent annually. Though he lost some customers, he relied on his salespeople to get that business to return while continuing to generate new business at the higher prices. Hill said that even if his former boss cut the percent hike for some returning customers, he still made the same, if not slightly more, than what he was making from them before they left.
Finally, Hill’s presentation ended with four questions every business owner or manager should consider each week: “do I have enough money to make payroll this week, is it possible to raise my prices this week (even a little), what can I do this week to lower my costs (even a little) and what in the world am I doing here?”
“I think business can be fun. I think it can be financially rewarding. I look back over a span of several years and I see some of the mistakes I made; I can’t emphasize enough the importance of planning and understanding your business on a higher level.”