'Tis the Season To Take a Hard Look at Your P&L

"More Inventory That is Less Collectible."

This is the common theme we are hearing from agencies across practically every consumer market. As a result of worsening economic conditions, many agency owners and executives are contemplating some tough decisions going into the New Year to profitably manage increases in inventory.

Many of the tough decisions center on the following topics:

Collectors – Staffing continues to be an agency’s biggest cost and throwing more collectors at increased inventories that are less collectible is a recipe for disaster. To offset potential losses, some agencies are utilizing near-shore/offshore locations to take advantage of a cheaper cost structure and a surplus of personnel.

Cutting Clients That are Not Profitable – It is important to continually evaluate whether your clients are profitable by looking at the contribution margin by each of your clients. Get rid of or renegotiate fee rates with clients that are costing you more to service. 

Management and Sales Staff – I know it is sometimes hard but try to objectively evaluate each of your managers as well as your sales people and determine if they are contributing to the success of your business and whether they are needed to fulfill your business goals in 2009.

Satellite Offices – If you have a satellite office that is underperforming but you have a long-term lease obligation, it is quite possible to find another collection agency or a service business (telemarketing, business process outsourcer, etc.) that is looking for that geographic coverage and experienced personnel. They may have an interest in taking over the lease and assuming the payroll expense.

Technology – The IT infrastructure is the backbone of agency. Do a review with your IT team by year-end to understand how you can trim costs associated with software, hardware, phone support and staff.

Marketing and Advertising – Year-end is a great time to take a look at what worked and what didn’t in 2008 and figure out the most cost effective plan to keep in front of your clients and prospects. A common strategy in a down market is to rein in spending on new client development, evaluate which conferences are really productive for you and your staff, and focus on building business from existing clients, which may include offering expanded or new services. Be careful not to cut marketing costs for the sake of simply cutting costs!

What are you seeing in the market? What are your plans for returning to profitability in 2009?

Michael Lamm manages M&A transactions for Kaulkin Ginsberg’s Strategic Advisory Group. Michael can be reached at 240-499-3808 or by email.