During this time of year, we often reflect upon the past year and set goals to make progress to achieve more in the New Year. At the onset, it all seems good. But over time, do we let our strategies and plans be overtaken by day-to-day duties? Seeking growth in a low growth economy can be a challenge; and prioritizing and differentiating business strategies from sales tactics is critical.

In addition to helping customers increase their success through financial solutions and sales coaching, teaching future business leaders is a passion of mine. Teaching gets me back around young people, refreshes my memory regarding finance theory and keeps some best practices top of mind. In my current class, we covered the theory of maximization of shareholder value. The book stated that this was the goal of every company. Is it really?

At Univest we understand successful companies have a healthy balance between goals tied to pure profits and those that will maximize sales and services to our employees, customers, shareholders and communities.

While some companies focus equally on shareholder value and maximizing sales value, others may fall victim to focusing solely on shareholder value. And yet others lose sight of shareholder value by focusing solely on sales value. So which is better and what should you be considering as a business owner?

To help bring clarity, we looked at the economics by performing a case study. Our study showed that companies doing more sales, albeit at a lower gross profit margin, realized a substantial pickup in shareholder value.

I come across far too many companies whose salespeople are commissioned only by profit per sale and therefore focus only on gross profit per sale. This maximizes sales person value, but may not also maximize shareholder value. I also come across companies who let their salespeople run amok; meaning that the salespeople are allowed to do anything they want and what they want is commission maximization. It seems that the better the salesperson, the more freedom they seem to get, which can create the perfect conditions for “Agency Risk” to breed. You may recall “Agency Risk” is the possibility a firm’s managers will act in their best interest and not in the best interest of their stockholders.

So as we end the year I ask you, “Is your company maximizing shareholder value or sales value?” If you’re not sure, Univest Capital can help. As your financial partner, we can provide consultative services and financing to help you realize your business growth goals. Unlike many small ticket leasing companies, our approach will help you maximize the volume of approved sales as compared to lessors with the lowest rates who only approve the very best credits.

Are you ready to make a New Year’s Resolution that can help you maximize your profits in 2012? If so, please contact us at capital@univest.net or by calling 866.604.8160.

More About Hugh W. Connelly

Hugh W. Connelly is President of Univest Capital, Inc. He is a Chartered Financial Analyst, Certified Fund Specialist and graduate finance professor. Mr. Connelly is a frequent writer/speaker on equipment finance and banking topics.

QE2 – What was it?

According to economists, under a policy of quantitative easing (QE) the Federal Reserve prints money and uses the newly created cash to buy treasuries.  As the Fed creates more demand for bonds it drives the bond prices up, and bond yields down.  So by artificially increasing demand for treasuries QE2 will drive interest rates down, lower than they might otherwise be.

The business case for lower interest rates is that low rates will motivate more businesses to buy plant and equipment using the low cost of funds to pay for them.  A by-product of the QE process is an increase in the money supply as the Fed pumps more dollars into the economy.  With an increase in supply of dollars, and no real change in demand a secondary effect of QE2 occurs; namely, the value of the dollar against foreign currencies declines.  A weaker dollar is supposed to help increase foreign demand for US goods thereby stimulating economic activity here at home.

What did QE2 Accomplish?

If QE2 succeeds in stimulating exports it will do little to help small businesses.  According to the Small Business Administration, small companies represent only about 31% of exports.

Meanwhile, the weaker dollar and low US interest rates are now stoking inflation concerns.  Commodity prices are on the rise, gas prices at the pump are too, and so are food prices.  So in the end, whether or not QE2 is successful in helping pull the economy out of the Great Recession, it is clear that small businesses received little direct benefit.

What should a small business do?

The great strength of small businesses has always been their nimbleness and ability to react to change.  The best way for your small business to survive these current volatile times is to maintain a high level of financial flexibility.  This is a good time to make sure you have credit capacity without overextending your business.

No one knows for certain what will happen in July 2011 when QE2 ends.  Some say rates and inflation will rise.  Others say the stock market will crash.  Still others say the end of QE2 will go unnoticed.  Make sure your business is prepared in any case.  They say, “Whatever doesn’t kill you; makes you stronger,” and I believe the businesses that survive these times will endure for decades.