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Think About It… the e-book version » Financial Anlaysis

Archive for the ‘Financial Anlaysis’ Category.

Do you speak the universal language of business?

by Todd Youngblood

Communication is one of the obvious cornerstones of a successful sales career. You need to speak the language of the country where you’re doing business. You need to know and understand each industry’s specific lingo. You need to have a solid grip on the unique dialect of executives with different functional responsibilities. You need to be particularly fluent in the one language common to every decision-making executive.

Of course it’s important to speak Japanese in Japan, French in France and English in the U.S. Of course it’s important to speak manufacturing to manufacturers, distribution to distributors and construction to builders. Of course it’s important to use Engineering terminology with the Engineers, HR terminology with the Human Resources folks, and IT terminology with the computer crowd.

But wouldn’t it be a lot easier for all of us if everybody just spoke the same language? Well, realistically, that will never happen, however…

…there is, in fact, a universal language of business. It’s called “Finance.” Think of it this way: Regardless of the customer’s country of origin, SIC code, or job, every single one of them is in the money-making business!

Think about having value propositions along the lines of the following for every one of your proposals: “Investment in an ABC can give you a 79% ROI with a net present value of $140,000. You could pay for it in cash and break even in just over 2 years, or with the right financing, generate positive cash flow immediately.” (Who cares what an ABC is? I want one!)

A short newsletter like this one can’t cover all the detail you need, but it can get surprisingly close. Here are the key terms and concepts:

  • Net Cash Flow - For any given year the amount you end up with after paying all the bills and collecting all the benefits (Could be + or -)
  • Cumulative Cash Flow - The sum of all the cash flows for all the years included in your analysis
  • Payback Period – The number of months it takes to recoup the initial investment
  • Net Present Value – A calculation that enables an apples-to-apples comparison of the value of cash today vs. the interest-adjusted value of cash for different times in the future
  • Internal Rate of Return - The most common calculation for Return on Investment or ROI

Do you have a spreadsheet installed on your PC? Can you read? (the spreadsheet “Help” files that is…) If the answer to both of these questions is, “Yes,” you have everything required to achieve basic financial fluency in an hour or two.

Or is learning the universal language of business just too much trouble?

Think about it…

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It might be counter-intuitive, but it works

by Todd Youngblood

Applying the economic principle of Comparative Advantage to sales yields a surprisingly powerful insight. Using it, a rep can demonstrate that in virtually every situation, doing business makes hard, cold dollars and cents sense. It will, however, probably require a good bit more creativity, flexibility and thought than is familiar to you, your company and your customer. (But aren’t those the things that generate differentiation???)

Explaining the details of why Comparative Advantage has been universally embraced as valid by economists since 1817 would take a while. I’ll leave you to your own study habits to thoroughly understand why. For the moment, consider an example. The moral of the story by the way, is that your role as a sales rep is to continuously improve the financial health of your customer.

Let’s say you have a customer who as part of their current operations makes Widgets and executes Process X. Making Widgets and X, while not core competencies, are required. You are a sales rep for a distributor of Widgets that also happens to sell execution of Process X as a service.

You make a call and discover that this customer can both produce widgets and execute Process X at a lower cost than you can. Do you A) Walk away, or B) Get excited because it is obvious that you can improve their financial health? The answer, surprisingly, is B. Even though your cost for both is higher! Here’s the situation:

Note that the total, combined cost for both of you is $7,000. As rep, you propose working together, pooling resources to enhance the customer’s financial performance. (Remember, the rep’s job is to enhance financial performance for both the customer and the rep’s company. It’s NOT, as a traditional rep would believe, about selling widgets and X.) Here’s the after picture:
Total combined cost for the same 200 widgets and same 200 units of X is now $6,780, a 3.1% reduction. Since your customer is the low cost source of both, you would probably structure the deal in their favor. For example, let them keep the $120, 4% savings, while you keep the lesser $100, 2.5% savings.

Counter-intuitive? You bet! Their costs are lower than yours for both widgets and X, but look at the numbers… It’s a better deal for both of you to trade 156 units of your service for 100 units of their widgets. Period. Go ahead and substitute any combination of products and/or services you want. Instead of just two items, go ahead and make it three or four or more.

It’s about your comparative advantage, not your absolute advantage. In this worst case example, you are at an absolute disadvantage for both. You are 50% less efficient at Widget production and 25% less efficient at executing X. But, here’s the key point – you are comparatively better at X. In other words, you are relatively “less lousy” at X, so the trade-off makes money.

The keys to making this strategy work, as noted in the headline above, are creativity, flexibility and thought on the part of you, your customer and your company. It begins with uncovering appropriate pairs of production and/or process capabilities. It’s not anything like business as usual. It’s about “partnering” at a whole new level. It’s about differentiating yourself by putting more money in your customer’s pocket.

No matter what is in your catalogue or your customer’s catalogue – widgets, nuclear reactors, trip-to-the-moon services, whatever – you are both in the money making business. You ARE NOT in the widget, nuclear reactor or whatever business.

Think about it…

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