05 November 2006

Profits - it's all food and drink to him (repost)

I recently met the MD of a niche manufacturing business in the food industry. He specialises in short-run production from lab-scale to production batches. He is pretty busy. He has doubled sales in the last 3 years and has two friendly companies who act as suppliers of last resort so that if he takes on more production than his capacity he can offload the job to someone he trusts. Conversely, if orders drop back then he is still able to run close to capacity by simply cutting the number of jobs which are produced by his friendly associates.

That's a good model for maintaining the profitability and cash generation in a small business, but he has ambitions to grow the business substantially. It is harder to maintain that level of utilisation in a larger business so the initial profitability improvements in a business growing by acquisition will normally have to come from cost savings rather than revenue improvements. At some stage though, there will have to be a structured business development activity to build the utilisation in the enlarged business.

It will be interesting to see how his business develops.

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