Is Your Company Rightsized? (Sponsored Content)

Get this: 2 out of 3 businesses in Springfield Business Journal’s 2022 Economic Growth Survey reported higher revenue in their fiscal 2021 compared with the year prior. OK, it’s maybe not too surprising given the unusual year of 2020.

But the same percentage of companies also reported higher net income in 2021. That says local companies are performing well – efficiently well.

However, economic headwinds are threatening and creating a bit of uncertainty.

According to Central Trust Co. Chief Investment Officer Jason Flores, now’s the time to do something in business that may seem counterintuitive: rightsize.

“It’s always important. But right now, with potential onset of a recession and the economic environment we’re going through, a lot of employers have potentially overhired,” he says, citing Walmart, Target and Amazon. “I’m taking a cue from bigger companies that have realized they’ve overhired.”

Flores says now’s the time to take a hard look at staffing levels and internal processes – always aligning with the goals of gaining and retaining clients and operating as profitably as possible.

Other items on the short list of planning, he says, are to address wages, inventory and customer needs vs. wants. The latter can seem simple to company leaders and therefore is often overlooked, he says.

“Knowing your core customer base and what they’re looking for is important to rightsizing your business,” Flores says.

He recommends starting by surveying customers – and it doesn’t have to be formal.

“May even be a phone call, something more personal than an email survey,” he says, noting to start with the regular customers, those who spend the most money for your product or service.

That’s an approach used by Pavel “Paul” Bosovik, founder and CEO at Everest Conversions Inc., a builder of high-end conversion vans for over-the-road traveling.

Following each purchase of the mostly six-figure vehicles, the Everest team sends the customer a $100 thank-you basket and asks for some demographic information.

“Marketing will essentially interview them,” Bosovik says.

They come away knowing customers’ occupations, neighborhoods, salaries, pets and kids – down to their coffee preferences.

“We have our core client,” he says, adding after building relationships with them, referrals have become the main source of marketing – 75% versus the 25% through online platforms. 

“With higher-end clientele, you have to go deep,” Bosovik says. “It’s simple but complex; you build a relationship.”

Another strategy for companies to consider when addressing hiring and rising inflation is the wage factor. Some have been increasing pay to attract talent and stay ahead of the inflation rate. Flores cautions against those moves right now.

“The downside of that is when your margins compress or you have a downturn and customers turn away, now you can’t afford those employees, and you’re forced to make layoffs,” he says. “As you’re doing these broad-based wage increases, you could be setting yourself up for difficult decisions down the road.”

Instead, Flores suggests bonuses or profit sharing. It boils down to fixed versus variable costs – and salaries are fixed costs that may be compounded because they’re tied to other expenses like payroll taxes, Social Security and 401(k) contributions.

“There’s a lot of benefit to keeping your fixed costs low,” he says, “and adjusting your variable costs. It may be better for a lot of companies looking to hunker down and stay lean for a potential recession to look at a bonus strategy or profit sharing,” he adds, “rather than wage increases that are sticky for life.”

Ultimately, it comes down to what’s best for each business and the factors within their industries. Now’s the time to analyze and strategize.

“You want to rightsize your business before we head into a downturn,” Flores says.

This content is brought to you by Central Bank.