During the height of the pandemic, the marine industry experienced tremendous growth as people shifted to safe outdoor activities such as fishing and water sports. In such a period of rapid growth, business owners must focus on supply-chain issues, workforce shortages and healthy growth.
Now that the pandemic is slowing, this is a good time for businesses to take a step back and review their operational expenses to increase profits. Working with a third-party provider, companies can negotiate better rates for several expense categories with minimal input from employees.
Marine companies that have either e-commerce or a retail location likely accept credit cards for most of their sales. Often, companies negotiate credit- and debit-card processing while still starting out, and they forget to revisit these costs. For small businesses, credit-card companies can charge up to 5 percent per transaction. By working with a third-party expense-reduction firm, companies can renegotiate these rates and immediately increase their profit margins. This process involves minimal effort by employees or owners, as these third-party firms often just need invoices or access to your online account. The third party will then negotiate on your behalf and share the savings with you.
When retail stores were forced to close in 2020, many quickly shifted to an online marketplace and utilized courier services such as UPS or FedEx to deliver their products. Shipping rates, too, can be renegotiated to improve profit margins. Large accounting and boutique firms that offer such services can lower shipping costs by up to 25 percent, in most cases. For companies that have high shipping costs, this adjustment can be another easy way to manage operational expenses in relation to growth. Most of the time, these savings can be realized without changing vendors, which is important because that minimizes the impact to business operations.
For marine manufacturers, particularly boatbuilders, trash-removal fees are often overlooked as a cost that can balloon with growth. These costs can also be negotiated without the change of vendors, in most cases.
Other common expense categories that might benefit from a third-party review include telecommunications and data costs, electronic logging devices for company vehicles, eSignature for virtual document signing, and utilities.
Another reason companies should focus on expense- reduction services now is the increased market consolidation in the marine industry. As we highlighted in last month’s column, a company’s selling price is mostly determined as a multiple of EBITDA, or earnings before interest, taxes, depreciation and amortization. Any savings generated by expense-reduction services will immediately increase EBITDA, therefore increasing the potential company sale price. Most companies will need a few years of planning to make sure their company is ready for sale, and addressing high operational costs is another way to ensure that a company is well-positioned for a possible sale.
The financial leadership team and owners of most small and medium-size companies do not have the bandwidth to negotiate these costs on their own and should work to find a third-party adviser to assist. When selecting a third-party vendor, it’s important to understand the vendor’s presence in the marketplace. A good vendor will minimize the impact to your accounting and operational teams, instead focusing on gathering all necessary invoices or log-ins and then performing the negotiation on your behalf. Additionally, most firms will have a multiyear arrangement to continue tracking invoices, to make sure the costs don’t creep up after the project is completed.
Finally, most firms do not charge an upfront fee for these services, but rather share in any savings discovered during a set time frame. Since there is no financial risk to evaluate these cost categories, companies should take the time now to address these costs before they get any higher.
Ronald G. Wainwright (email@example.com) is the national leader of Cherry Bekaert’s specialty tax group, credits/accounting methods. Michael C. Laur (firstname.lastname@example.org) is senior manager, credits/accounting methods.
This article was originally published in the August 2021 issue.