Finance Column: Tips for Success

There are lots of reasons why some individuals find success where others do not, but often it is the simple stuff that makes the difference.

A question I get asked from a lot of customers is what do I see others doing that contributes to their success. Since most of my customers are in essence doing the same things it is easy to spot the differences between the successful shops and ones who have stayed flat or become stagnant.

I have been lucky enough to do business with some of the most successful shops and individuals in the manufacturing industry, so I thought this month I’d share some of best business practices.

Focus on what you do well

I know this is a simplistic and obvious statement, but it is amazing how quickly shops can get caught up in 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 too. Often I 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. There were many life lessons taught to me by my grandfather, but the one which seems to be most applicable for both life and business is: “Good people always tend to attract both business and opportunities for other good people.”

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 does not face as much competition, made it an obvious choice. From a business perspective, the revenue the machine would generate far outweighed the monthly payment.

Find the right people and  hold onto them

A business owner is always its best salesman, and particularly in the manufacturing industry where experience and expertise attracts customers and gives them confidence. That said, it is almost impossible to run every facet of a business. There are many reasons why machine inquiries do not 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 do find them do what you can to hold onto them. Most business owners I deal with know how to program, set-up and run a machine, but if you are in the shop running a machine then who is out there securing new business or looking after existing customers?

Don’t try to hit home runs

It’s every entrepreneur’s dream to land the big fish, but I have seen successful companies, including my own family business, get into trouble because they took a large order that they just did not 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 did not 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.

Re-invest in your company

Wherever possible it is 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 cannot 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 that is 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 is the simple stuff that makes the difference.

Ken Hurwitz is the Senior Account Manager with Blue Chip Leasing Corp. in Toronto. With years of experience in the machine tool industry, Ken now helps all kinds of manufacturers with their capital needs. Contact Ken at (416) 614-5878 or ken@bluechipleasing.com.

About the Author
Equilease

Ken Hurwitz

Vice-President

41 Scarsdale Road Unit 5

Toronto, M3B2R2 Canada

416-499-2449

Ken Hurwitz is the Vice-President of Equilease Corp.