Most of the time, an entrepreneur starts off as a small start-up with limited resources and a lot of constraints. Compared to other big and established companies, the need to maximize your resources and minimize your risks becomes even greater.
Your resources include your employees, inventory, cash flow, property, and other infrastructure such as IT software and hardware. Each of these has its own functions/benefits, and at the same time, risks. Being able to maximize your resources properly will go to great lengths in ensuring your company’s steady growth.
Employees are the most important resource in every company. Not only do they carry out the operations of the company, but they also bring ideas and innovations to the table. Maximizing your human resources will result in the biggest dividend to the company in time to come.
Start by hiring slow, and firing fast. This will ensure a lean but quality workforce. Prioritize periodic public compliments and personal motivation before giving direct material rewards. Encourage new idea incubation and innovation, and your company will never go stale! Allow for some perks; send them to seminars and training courses, give free company coffee and tea, allow flexible work from home programs when there is the opportunity, etc. More often than not, it is the consistent small things rather than one rare big occasion that will help to retain your employees.
Minimize your risk through a prudent recruitment system by hiring experienced HR personnel. Filter all unconvincing candidates and only recruit the best ones. Give competitive employee benefits based on performance evaluation and not just through some random decision. Allow for 3 months trial period before you make someone a permanent employee. All these are just some of the many useful ideas in minimizing risks related to your workforce.
Inventory determines your revenue, and for each product you sell, you want to maximize the dollar you get. Most people assume that bigger inventory results in bigger revenue. However, we always tend to forget that for each piece of inventory we hold, the greater the risk to our cash flow as a result. Always remember that inventory is a cash generator, but it is also a cost to you, depending on how you deal with it. Unfortunately, your inventory can also erode in value over time. Thus, you need to find the perfect balance through prudent inventory management and optimization.
Invest in good IT software and a qualified Supply Chain Analyst that can help you manage and optimize your inventory level. Establish collaboration between your sales team and your inventory management team to plan the inventory level across different times of the year. Remember inventory is always dynamic, as is sales revenue!
A good benchmark for inventory level is 3-6 months worth of sales, depending on what your industry is in. Allocate a bigger budget for fast-moving items, and a smaller budget for slow-moving items. It is a delicate balance between sales and inventory, but for beginners, lost sales due to lack of inventory is always better than lack of cash flow due to excess inventory, or worse still, piling debt when sales are down!
Cash flow is needed to allocate for vital spending for company operations. Salary, inventory, utilities, transportation, etc. all require cash to run, thus you need a healthy cash flow at all times. Maximize your cash flow by prioritizing cash transactions over credit transactions. Some companies are able to do this when the nature of their businesses has both retail (mostly cash) and corporate customers. Prioritize cash customers through special pricing and other benefits such as free delivery. For credit customers, minimize the risk to your cash flow through shorter credit terms. When in need of cash, negotiate with banks for shorter term, but lower interest rate.
If your company has excess, unused cash, you can maximize it through internal and external investments. In this era of low interest bank rates, it is vital to invest in other instruments other than bank related ones. Make sure you invest wisely in this sector! A good way of internal investment is negotiating for lower prices with suppliers when ordering bulk quantity for your future inventory.
More ideas on how to implement good resource maximization and lower your risks include:
- For retail stores, invest in suitable high-traffic location.
- For a start-up, rent is key and size per square foot matters.
- Invest in a location facing the sun and green. This will do wonders for your atmosphere and mood.
- Invest in a non-matured location and aim for capital gain in years ahead.
- It is vital to be situated near customers to save on delivery costs.
- Integrate your warehouse and office to save cost and increase efficiency.
- When your location is far away from customers, establish relationships and negotiate for special prices with designated couriers or logistics companies
- Invest in long-term IT software, because it is not only costly to replace, but also time consuming to adjust to a new system.
- Prioritize laptops over desktops and wireless connections over fixed connections.
- Use available free tools for businesses such as Google Drive, AnyMeeting, MailChimp, etc.
Alfian Teng is an aspiring entrepreneur and investor. Currently leading PT. Bukit Mas Bearindo, a humble family business serving industrial clients throughout Indonesia. Follow him @tengalfian.
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Category: Startup Advice