Today, I would like to share my experience in helping to improve my family business, which has been running for decades. I am not saying that I am the most influential person in this endeavor; there are many people who have helped with this work. However, this is what I did in facing the challenges that arose.
Everything I write is based on my personal experience. I am not saying that the solutions I have found will work for everyone, but I always believe that there may be someone somewhere in the world who needs this information.
Prologue
My family’s business is in distribution. Over the years, the business has experienced several points where it was on the verge of bankruptcy, and this happened several times, not just once. At that time, I was only nine years old and did not understand the situation or how to solve it. After graduating from college, I wanted to at least provide a more solid foundation for my family’s business.
My family has not properly mapped out the problems in our business. The business has gone bankrupt two or more times, and we have been unable to compete with various competitors. I often hear employees say, “It’s amazing that we’ve managed to survive until now.” Every day, more and more brands are opening new warehouses and penetrating various stores directly. In any case, everyone will lose if we go head-to-head with a company that has significantly more capital than we do.
Exploration
The first step I took was to just go through with everything. I participated in deliveries to various regular stores, I participated in receiving product deliveries at the store, I participated in direct contact with customers, I paid bills, I did almost everything in my family business. Soundsboring right? In order to improve, we must know what needs to be improved.
After several months of observation, there are several things that I feel need to be improved if we want this business to survive longer. First, our business does not keep any accounting records. Second, there are no clear standard operating procedures (SOPs) for shipping. Third, there is no debt management.
Problems
The first thing I realized was that our business did not keep proper records. The staff recorded every transaction only in a book, and if they lost that book, the records of several customers’ debts would disappear. This situation was very inconvenient because losing one transaction record made it difficult to find it again.
The next problem I noticed in our business was the lack of clear SOPs on how to deliver products using land transportation. After observing a delivery, I realized that we scheduled the delivery too late in the day. As a result, many customers had already closed their stores by the time we arrived, which prevented us from delivering the products.
The last and most important issue is the lack of accounts receivable management. Accounts receivable are the lifeblood of a company engaged in distribution. Our company made a big mistake by carelessly granting credit without exercising control.
Solution
Preparing financial statements
The first thing that came to mind was to keep digital records, so that I would still be able to access today’s transactions two years from now. To solve this problem, I focused on the resources we had available. We happened to have an administrator, but the problem was that he was not familiar with digital record keeping.
I trained him for six months until she could do the accounting independently. I encountered a very unique case where our admin was basically used to typewriting, but when I asked her to type using a keyboard, she couldn’t. I tried everything until finally, the only solution was to raise her salary. That was the only solution. Sometimes, some people feel more responsible when given more money. So, get to know your coworkers. And learn how to maximize their potential.
Improving distribution efficiency
As a solution to the delivery problem, I decided to cut the loading time by one hour. Previously, handwritten invoices took one to one and a half hours to complete. Now that they are digital, it only takes twenty minutes.
I think this change has had a positive domino effect on many people. Initially, deliveries were only made three or four times a week. Now we can make deliveries every day. In addition, drivers can also go home earlier. Initially, they finished at 5 p.m., but after this change, they finished at 3 p.m.
Debt management
The last issue is accounts receivable management. To be honest, I have not been able to completely resolve this issue yet. All I can do is recommend which customers need more attention due to their inability to pay their debts.
Actually, entrepreneurs will definitely be careful in giving loans to people, but sometimes entrepreneurs forget people’s ability to pay debts. After observing, I found that there are two types of customers who owe debts.
- First: Customers who are in debt and have the capital to pay off their debts.
- Second: Customers who are in debt and are financially unable to pay their debts.
The first characteristic of this customer is that they always maintain their debt ratio at a certain level. For example, someone owes us five million rupiah. Then, in the next transaction, they may increase their debt to five million three hundred thousand rupiah, but in the following transaction, they will pay off their debt to five million rupiah.
The second type of customer has a tendency to always increase their debt ratio. I urge everyone to be careful with this type of person. Sometimes they are very good at building personal relationships, which makes us feel that we can increase their debt ratio.
The best way to resolve accounts receivable management issues is through credit scoring. In my opinion, the formula for healthy debt is very simple: if someone makes a transaction on a given day, then the maximum amount of debt they can have is twice the amount of that day’s transaction.
Epilogue
I am very sure that most people would be very reluctant to do bookkeeping, as this task requires a lot of time, and the results cannot be seen in a relatively short period of time. This is different from, for example, running a discount program for your products, where you can see the results within a few weeks.
When you want to make a decision, it is very helpful to know the position of your business. Is it in a healthy condition to take on additional debt? Can your business still maintain its existing salary structure? All these questions can be answered properly if you have the necessary data. Perform a simple analysis using EDA to understand why sales are falling and why sales are rising, find the variables that influence them, and make improvements.
That’s all from me. There’s so much I want to share, but considering this is a light article, I don’t think it’s a good idea to make it too long. I hope this article can provide you with some additional information.
Also read: Understanding p-values in statistics for beginners