Get More Money Now
We are in a challenging time. How do publishers cope? Creativity and innovation are more important than ever. For publishers to have the financial flexibility to focus on the things that will really drive their businesses forward, it is particularly important that the basics get done well.
This article provides 12 actionable suggestions to help you increase profitability and cash flow, including:
- Suggestions for improving your cash flow through better working capital management.
- Cost efficiency and getting the basics right. For example, does your rate base make sense?
- Owner-operator compensation strategy. Don't overpay your taxes.
- Thinking about your business strategically. Do not allow your organization to become complacent in this challenging environment.
Improve Your Cash Flow
1. Better collection of advertising and other receivables. Remember, the sale is not closed until the money is in your bank. If your receivables are $500,000 and the days sales outstanding (DSO) are 50 days, gradually improve your DSOs over a number of months to 45 days. If you have DSOs of 40 days, gradually improve them to 35 days. In each case, this would result in additional cash flow of $50,000.
How do you do this? In the case of collecting receivables, the "squeaky wheel" gets oiled. But diplomacy is also essential. A few quick suggestions:
- There should be a collection person who makes collection calls and does credit checking on new customers. Salespeople should never be the primary collectors; they should be selling.
- The entrepreneur or CFO should spend an hour once or twice a month with the collector to review the status of accounts. Most people do not like to make collection calls, and this internal meeting will reinforce the importance of collecting receivables.
- Make a "customer service"-oriented call before the invoice is due. The purpose of this call is to check whether the client payable person has received your invoice and tearsheet. Why wait until the invoice is past due to find out?
- There should be a (polite) call shortly after the due date—again, from the publisher's receivable person to the client's payable clerk.
- There should be additional calls at two- to three-week intervals.
Remember that your goal is to reduce DSOs by five days. For example, moving the 80-day DSO client to 75 days helps greatly with the averages. You are not, however, going to move the 80-day DSO customer to 45 days; take some "baby steps" with the entire portfolio of accounts. They add up.
2. More aggressive management of payables. This is the same concept as receivables. If you average 45 days, can they be moved to 50 days? Do not expect to take a vendor from 45 days to 90 days, and avoid not paying your vendors. No payment for several weeks gets suppliers nervous. Pay all of your vendors on regular intervals; just pay them a little less often. Again, take "baby steps" with everyone. And remember to oil the "squeaky wheel."
Boost Your Profitability
3. Get written, competitive bids for all vendor services: printers, fulfillment house, etc. It takes time to do written, competitive bids, but it can really pay off. Develop a negotiating strategy for each type of vendor. Tell them what you want: great pricing, great quality and outstanding customer service.
While you can use a low-quality vendor to negotiate a good price from a high-quality vendor, do not move to a vendor with a poor-quality track record. During the process of meeting each potential new vendor, you should be marketing your publishing company:
- Is your book a great-looking product?
- Is it the leader in its field?
- Do you pay your vendors on time?
- Do you have a huge volume of printing?
4. Sometimes you may be in the fortunate position of having several high-quality, potential vendors bidding for your work. Give them feedback, and ask for a lower price. Wait until you hear them say, "No." Then, you might want to ask for non-price concessions such as payment terms or help with financing your publisher-owned paper inventory (see below).
5. Purchase your own paper to avoid markups from printers. I have heard it said that some printers make more money from selling paper than from printing. In order to purchase your own paper most profitably, as part of the competitive bid process discussed above, you should try to negotiate away printer storage charges.
Start the paper-purchasing process by developing a schedule of paper consumption by month for the past 12 months. This schedule should show the trim size, grade and printer involved. Since you will want to minimize your investment in paper, you should reduce investment in paper inventory through use of common trim sizes and grades, and fewer printers. Send your paper requirements to a number of paper merchants. Be prepared to meet with them to negotiate a discount off list price.
6. Don't forget your bankers. Besides interest, banks' fees include credit card processing, foreign exchange collections and other services. All of these fees add up. Today, many banks will offer package pricing. To get a deal, you need to consolidate your business under one bank.
7. Don't forget the basics in this weak advertising environment.
- Is your rate base too high? (The big cost of maintaining too high a rate base is the cost of circulation acquisition.)
- Can you cut trim size or the basis weight of your paper?
- Does the frequency make sense?
- Should you lower your newsstand draw?
8. Can you bring home more money? In the case of owner-operated companies, consult your tax advisor to take a look at owner's compensation (salary and bonus) versus taking dividends. Once an IRS acceptable compensation is taken by the owners, there may be a tax savings in taking dividends instead of salary and bonus. Dividends are not subject to the FICA or Medicare tax. While FICA taxes end at salaries of $106,800, there is no cap on Medicare tax. The Medicare tax is currently 1.45 percent for the employee, and an additional 1.45 percent for the employer. In the case of an owner-operated company, this totals 2.90 percent.
Also, salary is subject to state and city tax withholdings. For a pass-through entity (S Corporation, LLC, partnership, etc.)—where the partners are taxed, not the entity itself—most dividends would not be subject to additional tax above and beyond the pass-through tax. Much of the pass-through entity taxable income covered by the dividend may be allocated to other states, but the salary would be allocated 100 percent to the owner operator state of residence.
Think Strategically About Your Business
9. Rethink your Internet strategy. This may seem basic to some, but many publishers still simply put their print product on the Web. This lack of innovation then produces low Internet CPMs. Put new, innovative products on the Internet. Don't let your legacy print products hold back innovation online.
10. Put less ink on paper through effective use of the Internet and live events. In direct mail and print advertising, there is often a "push" strategy (i.e., pushing magazine copies and direct mail out to existing or new readers). Your Internet strategy should be a "pull model." If your content and products are unique and properly targeted, new readers will find you on the Internet. Print is more limiting; usually only those mailed to will see your promotion.
11. Take a fresh look at your legacy products, especially the "money losers." You should have a P&L on every product that you produce. Ask the question: "Why are we publishing this publication?" The world is changing, and the good, old days are over. Eliminate your losers.
12. Set your goals high. There should be excellence in everything that you do. In today's difficult times, it is easy to accept mediocrity due to heavy workloads and lower budgets. But competition is also higher than ever. Avoid talking or thinking about the good, old days. Reminiscing is non-productive. Be forward-looking and question/re-evaluate everything that you've done in the past. PE
John (Jack) Craven is president of John F. Craven, Certified Public Accountant LLC, a financial advisory accounting firm. He has consulted as a senior media advisor to Conway, Del Genio, Gries & Co. LLC, the financial advisory and restructuring firm. Formerly, he served as executive vice president and CFO of American Media, group controller of the Working Woman/McCall's Group, senior vice president and CFO of Lear Publishing, senior vice president of operations and CFO of Jobson Publishing, among others.