Maximizing Resource Utilization and Minimizing Risk

Most of the time, an entrepreneur starts as a small startup with limited resources and many restrictions. Compared to other large and established companies, the need to maximize resource utilization and minimize risk is even greater.

Your resources include your employees, inventory, cash flow, property, and other infrastructure such as IT software and hardware. Each of them has its own functions/benefits and at the same time risks. The ability to properly maximize your resources will go a long way in ensuring the sustainable growth of your company.

Employees are the most important resource in every company. They not only carry out the activities of the company, but also bring ideas and innovations. The maximum use of your human resources will lead to the biggest dividends for the company in the future.

Work force

Start by hiring slowly and firing quickly. This will provide a meager but high-quality workforce. Prioritize occasional public compliments and personal motivation before giving direct material rewards. Encourage the incubation of new ideas and innovations and your company will never get old! Allow some perks; send them to seminars and training courses, give free coffee and tea to the company, allow flexible work-from-home programs when possible, and so on. More often than not, it’s the little things, rather than one rare big event, that help retain your employees.

Minimize your risk with a smart hiring system by hiring experienced HR people. Filter out all unconvincing candidates and recruit only the best. Provide competitive employee benefits based on performance, not just random decisions. Allow 3 months of probation before making someone a permanent employee. These are just some of the many useful ideas for minimizing the risks associated with your workforce.

Inventory

Inventory determines your income, and for every product you sell, you want to make the most profit. Most people believe that more inventory equals more income. However, we always tend to forget that each item of inventory we own increases the risk to our cash flow as a result. Always remember that inventory is a cash generator, but it also costs you, depending on how you manage it. Unfortunately, your inventory can also depreciate over time. So you need to find the perfect balance through smart inventory management and optimization.

Invest in good IT software and a skilled supply chain analyst to help you manage and optimize inventory levels. Establish collaboration between the sales department and the inventory management department to plan inventory levels at different times of the year. Remember that inventory is always dynamic, and so is sales revenue!

A good benchmark for inventory levels is 3-6 month sales, depending on what industry you’re in. Allocate a larger budget for fast-moving products and a smaller budget for slow-moving products. It’s a delicate balance between sales and inventory, but for newbies, losing sales due to lack of inventory is always better than no cash flow due to excess inventory, or worse, accumulating debt when sales drop!

Cash flow is necessary to allocate vital expenses for the company’s operations. Payroll, inventory, utilities, transportation, etc. all require cash, so you always need a healthy cash flow. Maximize your cash flow by prioritizing cash transactions over credit transactions. Some companies may do this when the nature of their business includes both retail (mostly cash) and corporate customers. Prioritize cash shoppers with special pricing and other benefits like free shipping. For credit clients, minimize the risk to your cash flow through shorter loan terms. When you need cash, negotiate with banks for a shorter term but a lower interest rate.

If your company has excess unused cash, you can maximize it through internal and external investment. In this era of low interest rates, it is vital to invest in instruments other than banking. Make sure you invest in this sector wisely! A good way to invest internally is to negotiate price cuts with suppliers when ordering large quantities for future inventory.

Additional ideas on how to make the most of resources and mitigate risks include:

Property

• For retail stores, invest in a suitable location with high traffic.
• For a startup, rent is key, and square footage matters.
• Invest in a place facing the sun and greenery. It will work wonders with your atmosphere and mood.
• Invest in an immature location and aim for capital appreciation in the coming years.
• It is very important to be close to customers in order to save on shipping.
• Combine your warehouse and office to cut costs and improve efficiency.
• If your location is far from customers, establish relationships and negotiate special prices with designated couriers or logistics companies.

Infrastructure

• Invest in long-term IT software because not only is it expensive to replace, it also takes a long time to adapt to the new system.
• Prioritize laptops over desktops and wireless connections over fixed connections.
• Use available free business tools like Google Drive, AnyMeeting, MailChimp, etc.

Alfian Teng is an aspiring entrepreneur and investor. Currently heads PT. Bukit Mas Bearindo, a modest family business serving industrial clients across Indonesia. Follow him @tengalfian.

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