Summit speakers share their best business advice

Thursday, July 22, 2010

How do you determine what is profitable business for your company? If you rely solely upon gross profit, you could be missing some valuable intelligence on the true winners or losers.  A lot happens between the gross profit and net profit line on a P&L. But we often don’t have the ability to do separate analysis by product or service category.  Here are seven things to consider and incorporate into your profitability decision process:

Size and quality matter

When it comes to a product or service category, “size up” the market potential along with your ability to capture a reasonable share of it. No matter how high the gross profit, you need to determine if there are enough actual dollars in it to be attractive for your company. The number of competitors may not matter if you can service the market in a commercially different or better way. Understand the sales channels and the sales and marketing requirements. Change the game and go for the big fish.

Diving in barrier reefs requires skill

Difficult requirements pose barriers to entry so assess your core competencies before expanding. Don’t try to enter a market if you don’t have the required skills unless you plan to obtain them. If a category is too risky and doesn’t make business sense, avoid it. Don’t get snagged in treacherous waters. 

COGS in the wheel

Review the product formulary before you enter a new market. Look for economies and for synergies with existing product lines and services. Review all your formularies every six to 12 months to streamline, partner and negotiate contracts with your suppliers. Reduce your costs of goods sold (COGS). Find natural product expansions and keep costs low for a smooth ride.

ROCC if you can 

Evaluate return on committed capital (ROCC) carefully, both before you enter new markets and for current offerings. Today, a lot of businesses wouldn’t think of delivering products and tying up capital with delivery trucks. UPS, USPS and FedEx already commit capital to this activity and do a fantastic job. Some companies use drop shipping to streamline overhead requirements. Outsource operational activities where it makes sense.

It’s not a sale until you get paid 

Know the cost per day for days sales outstanding (DSO) for every category by payer, and benchmark it against the industry metrics. Don’t risk nonpayment or returned payments: Get all documentation up front before you provide the product or service. Develop this discipline and you will achieve lower DSO. This is imperative for your fiscal survival. DSO is time and each day is real money.

Outlook is not software 

If only we had a crystal ball for investing in our future, everything would be much easier. Health care reform is upon us.  It will create havoc and opportunity at the same time. Dedicate time to understanding how the market will change. Be ready to make choices and strategic decisions to position your company well.

One last bit of advice but the most important

Invest in compliance. You need good legal and compliance counsel every step of the way. Start early in the process for new business so you can build it on a solid foundation. Ongoing maintenance is imperative. The rules are often complicated even for the experts and change often. So rely upon the best, most qualified help you can get. Never cut corners here or you will have a house of cards.

HME Business Summit speaker Carol Muratore has served as a division president for McKesson and as an HME executive. She is an adjunct faculty member at the University of Richmond.