A major capital investment may seem like a no-brainer, but it will change your organization in ways you need to consider before signing the purchase order.
Put yourself in that entrepreneur’s shoes. Consider that a manual shop will typically produce about 60 (multicolor) shirts an hour. There are times production may fly up to 300 an hour – say, when an order just involves a neck label or single-color left chest – but that’s the exception, and it’s not sustainable. With an automatic press, the hourly production appears almost unlimited. Even the most basic ones can easily deliver 600 pieces an hour.
It’s at this point that optimism begins to cloud the vision. You have a backlog of orders; you know how much you sold them for. (Hopefully, you also know your costs.) Think of all the extra income! What could go wrong if you can print so many more garments per hour?
Well, you need to step back and look at the big picture. Everything about a business is what I call “related rates.” Think of it as a series of balances. In many cases, when something goes up in a business, another part will go down, and the downward pressure decreases profits.
There are three key parts to a business:
2. Sales and Marketing
3. Finance/Admin/HR (FinMin)
To grow profitably, all three parts must be in balance and working together. You can grow, with marginal profit, if one or more parts are slightly out of balance. This frequently happens with small companies as they move toward annual revenue of about $30,000 per month ($360,000 annually). This is the point where automation becomes increasingly necessary, and the decision is being driven by an imbalance in sales and marketing. You are selling more than you can produce, so you need to increase production.
What may seem like an obvious decision really isn’t. As soon as you increase production, you now have to consider the impact on both sales and marketing and FinMin.
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