Taking Stock of 2017: 3 tips for improving your 2018 budgeting process, Part IV

Submitted on: Fri, 11.17.2017 07:00pm - Annie Eissler |
Taking Stock of 2017: 3 tips for improving your 2018 budgeting process, Part IV

Earlier this week I hosted a webinar with our new VP of Sales, Brian Friedle, on using analytics to do a better job of planning and budgeting. What I really liked about the content Brian put together is that it is very much grounded in the realities of those of you that are running, or working in, a distribution business. Prior to joining MITS, Brian worked in distribution for 24 years, 13 of which he spent as the president of an electrical distributor.

Here are 3 of the many tips he gave during the webinar:

Economic Outlook
When it comes to thinking about what reasonable growth should look like for your distribution business, be sure to consider the economic outlook. A great place to get insight on that is the economics firm, ITR Economics, run by the Beaulieu brothers. According to Brian Friedle, “the Beaulieu brothers have done an amazing job at predicting the economic forces at work over the last two decades. When they speak, I listen.” Your vendors are also another great source of economic trend data.

GMROI
Gross Margin Return on Investment (GMROI) is not a metric all distributors use. “I was not one of those that did,” Brian Friedle confessed during the webinar, “and have come to appreciate what you can do with it when it comes to planning and budgeting.” If your plans for the coming year include incremental growth by adding a new product line, you want to make sure that it is going to return a GMROI of average—or better. If not, you might be setting yourself up for challenges down the road. Extra tip: GMROI can also be a bargaining tool during vendor negotiations.

Sustainable Growth Rate
While this made my head swim a little, the equation for sustainable growth rate is a good one to consider as you think about how much you can afford to grow organically without outside financing. Take a look at this example from our webinar:

 

The company in this example can grow 6% based on current performance without looking for outside financing or taking steps to capture more cash from existing assets and relationships. Extra tip: Analytics are instrumental when it comes to capturing more cash.

To learn more about using analytics to build a plan and budget for 2018 that is based on fact, and not fiction, sit back, relax, and watch the full recording of our webinar:
 

Webinar: From Fiction to Fact: Planning for Growth in 2018