1. How much was spent for advertising during
the past year? How much per year for the past 10 years?
1. How much was spent for advertising during
the past year? How much per year for the past 10 years?
These figures should be reduced to percent
of change so that the results over time can be studied.
2. What advertising media were used and
what percent or estimated percent of the total advertising expenditures went to each
medium?
Newspapers?
Trade papers?
Magazines - kinds of magazines?
Broadcast media - radio, television?
Other forms of advertising?
The question is whether the media being used
are a reasonable choice considering the amount that can be spent.
3. What changes have been made in the use
of advertising media? Is the company relying more on one form of advertising than in the
past? If so, why the change?
No one advertising medium is best for all
types of businesses. There is sometimes a tendency, however, to switch media too often,
without giving any medium enough time to show its real value.
4. How does the cycle of advertising vary
in relation to seasonal sales fluctuations? As sales increase, do advertising costs
increase in about the same proportion? What is the pattern?
Dollar advertising expenditures usually
rise as sales volume rises but not as fast percentage-wise. When sales drop, there is a
tendency to spend either too much or too little in relation to normal seasonal changes,
depending on the urgency felt by the advertiser.
5. If advertising allowances are available
from vendors or sources of supply, is the company taking advantage of them? What kinds are
available?
Advertising allowances, if properly used,
make it possible to do more advertising with less money. An alert advertiser will take
advantage of all advertising allowances he feels to be reasonable and useful to his
business.
6. Is the company taking advantage of other
available promotional services such as newspaper mats and so on?
Many suppliers offer advertising services
that help improve the quality of the advertising, reduce the cost, or perhaps both. The
company's use of all advertising and promotional helps should be analyzed.
7. What percent of sales was spent on
advertising last year? For the past 10 years? Is this increasing? Decreasing?
It is important to know not only changes
in the pattern of advertising expenditures, but the relation between these changes and
changes in sales volume.
8. How do the advertising and promotion
costs of this business compare with typical or average figures for this kind of business?
Higher? Lower? A bout the same?
Figures are available from trade sources and
other reporting agencies that will give a standard of comparison.
9. Are other forms of promotion being used
effectively? Window display? Interior layout and display?
For many kinds of businesses, other promotion
methods may be as important as media advertising, or even more so. All possibilities
should be studied as to their importance in the business under consideration.
10. Is the company capitalizing on all
special promotion events suitable to the business?
This point covers a wide range of
activity. Examples might be maximizing sales effort at the seasonal peak or peaks of the
business, using premiums, participating with sources of supply in special promotions, and
so on.
11. What percent of sales has gone into
selling-payroll costs for the past 10 years? What has been the trend? Are selling costs
increasing, decreasing, remaining about the same?
Changes in selling costs should be studied
singly, in comparison to changes in sales volume, and in comparison to standards or
averages for businesses of the same kind.
12. What is the quality of the selling
effort of this company as shown by such factors as training, sales attitude, methods of
compensation, and the like?
Selling-payroll costs as a measure of sales
effort do not reveal the forces at work behind this effort and affecting its quality.
Motivation of sales personnel through training, method and amount of compensation, and
sales management should also be considered.
Past Sales
The history of sales growth within the company
and in relation to similar businesses is considered the principal measure of company
progress. The buyer or seller should note three types of variations that influence sales
and how each may affect the buy-sell transaction.
Seasonal fluctuations. All businesses
are affected to some extent by seasonal variations in the demand for goods or services,
These variations may be the result of numerous factors - buyer motivation, weather,
specific events. Their nature, causes, and extent should be identified as fully as
possible. Some are reasonably predictable; others are not. All businesses
are affected to some extent by seasonal variations in the demand for goods or services,
These variations may be the result of numerous factors - buyer motivation, weather,
specific events. Their nature, causes, and extent should be identified as fully as
possible. Some are reasonably predictable; others are not.
The prospective buyer of a business should
think in terms of completing the purchase just before the maximum seasonal peak of the
company. This will give him the greatest possible short-term gain and return on
investment. Buying a business immediately after the maximum seasonal peak puts an
additional burden on short-term working capital.
The seller is likely to take the opposite
view. He is most likely to want to sell immediately after the seasonal peak of the
company, thus realizing the best possible profit. (It is assumed here that time in
relation to sales peaks and valleys would have no appreciable effect on the market or
replacement value of assets other than merchandise.)
Cyclical fluctuations. Cyclical
fluctuations are changes that occur over a longer period of time but tend to appear
somewhat regularly. Periods of depression and prosperity will obviously affect the future
of a business. The major difficulty is to determine what effect such fluctuations will
have on the businesses being bought or sold. Cyclical
fluctuations are changes that occur over a longer period of time but tend to appear
somewhat regularly. Periods of depression and prosperity will obviously affect the future
of a business. The major difficulty is to determine what effect such fluctuations will
have on the businesses being bought or sold.
Long-range trends. Long-range patterns
of change in an industry or a given business fall within this classification. The
interplay of forces creating such trends is extremely complex, but the buyer in particular
should be alert for changing patterns in his industry or market that are likely to affect
the future of the business. Long-range patterns
of change in an industry or a given business fall within this classification. The
interplay of forces creating such trends is extremely complex, but the buyer in particular
should be alert for changing patterns in his industry or market that are likely to affect
the future of the business.
Questions in the Analysis of Sales
1. What has been the year-to-year change in
dollar sales?
1. What has been the year-to-year change in
dollar sales?
The length of time to use is largely a
matter of judgment. If the figures are later to be used to make projections, a 10-year
period or more is not unreasonable if the company has been in business that long.
Converting the dollar figures to yearly percent of change and plotting them on a graph
makes them easier to interpret.
2. Using a given year in the past as a
base, what has been the cumulative rate of change up to the present?
Again, plotting the figures on a graph
helps to visualize the changes.
3. What has been the percent of change in
sales, year-to-year and cumulative, for this kind of business on a national or other
basis?
The years should be comparable to those
used in questions 1 and 2 so that the pattern of change for the company can be compared
with that for like businesses.
4. How much of the increase or decrease in
sales can be attributed to increasing or decreasing prices and how much to real sales?
The fact that sales have shown an increase
may lead to a false conclusion that the company has shown good growth. In some types of
businesses, merchandise costs have increased rapidly. An average increase of 2 percent per
year in sales over 5 years changes in significance when it is known that prices have
increased 8 percent during the same period. Consumer and wholesale price indexes should be
checked, as well as other factors that may indicate rising prices.
5. Have prices in this company increased
more rapidly, less rapidly, or at about the same rate as those in this kind of business
generally?
It is important to know how the business
compares in this respect with similar firms. If it is out of line, what is the reason?
6. Over a period of years, what has been
the change in the level of sales for this business as compared to all businesses of this
type? Are sales-
Increasing percentage-wise more than
normal?
Increasing at about the same rate?
Increasing less than normal?
Showing no increase at all?
Decreasing less than normal if like businesses
are decreasing?
Decreasing at about the same rate?
Decreasing more than normally?
7. What is causing the increase or decrease
in sales (a) for this company and ( b ) for similar businesses?
This point may prove to be the one that
basically determines the decision to buy or sell the business.
8. Has the rate of change in sales been
increasing?
Are sales increasing more rapidly now
than, say, a year or two ago? Are sales increasing less rapidly now? If sales are
decreasing, has the rate of decrease increased or lessened?
9. At the time of the study, where does the
business stand seasonally?
Is this normally the low point for sales
in this kind of business? Is it the high point? Somewhere in between? Is seasonal
variation so minor as to have little or no significance? Are seasonal variations
predictable? Seasonal variations may have a strong bearing on when the buyer is willing to
purchase, when the seller is willing to sell, and the price.
10. What percentage of the year10. What percentage of the years
business is done each month? What is the monthly average over the past several years?
Monthly sales averages help to determine
immediate working capital requirements and to plan sales for the months ahead. They are
especially important when the sales of a given month as a percent of the year's total do
not vary greatly from year to year. If there has been considerable variation, the reasons
for it should be identified if possible.
11. Do there appear to be any changes in
the seasonal pattern of sales? If so, what appears to be causing these changes?
Changes in consumer buying habits, the
pressure of increased competition, governmental regulations, and the like create changes
over time that may affect the short-term sales cycle of the business.
12. If a change in the seasonal pattern is
occurring, does it tend to increase total sales or merely shift the volume from one month
to another?
A comparison of several years' sales may
show that the overall effect is not a proportionate gain in total business but a
readjustment of sales from month to month throughout the year.
13. If cyclical changes have any effect on
this kind of business, what is the nature of the. fluctuations? How often do they occur?
With what intensity?
14. Have sales of this business in the past
tended to show the effect of these cyclical fluctuations? To what extent? Intensity?
Knowing the effect of cyclical changes on
the business may give some idea of what can be expected from the standpoint of
intermediate-range planning and forecasting.
15. If the business is influenced by
cyclical fluctuations, at what stage is the cycle at the time of the study?
Cyclical fluctuations may be the result of
broad-scale economic circumstances, but the intermediate effect on a given business may
not be in proportion to normal economic indicators.
16. What is the ratio of operating expenses
to sales in the most recent operating statement?
A comparison of these costs with ratios or
averages of similar businesses should give an indication of the operating efficiency.
l7. Which has been the year-to-year and
average ratio of operating expenses to sales for past years?
Have operating expenses tended to
increase, decrease, or remain about the same in relation to sales?
Has the relative change in operating expenses
been about equal to, greater than, or less than the relative change in sales?
On a cumulative basis, what has been the
change in the pattern of operating expenses over the past years?
18. Are selling costs (sales, salaries,
advertising, delivery) increasing, decreasing, or remaining the same in relation to sales?
If selling costs are increasing faster
than sales, each dollar spent on selling effort is bringing in a smaller return. This
information may suggest possible ways of increasing the efficiency of the company's sales
effort,
19. What is the ratio of net sales to gross
sales and what has been the trend of this ratio over the past years?
An increase in the difference between net
and gross sales may indicate weaknesses within the company in policy, sales effectiveness,
merchandising, quality control, or a combination of two or more of these factors.
20. What are the reasons for customer
returns and allowances and what action is being taken to reduce them, if reduction is
possible?
Care should be taken in analyzing the
sales of a company to see that gross sales are not taken as net sales, particularly if
lenient returns and allowances have been a part of the sales program.
21. What has been the pattern in the value
of the average transaction over the past years?
Sales may be stationary, but the number of
transactions may increase or decrease, thus changing the value of the average sale. Or
sales may be changing but disproportionately to transactions. The ideal to be sought is an
increase both in the value of the transactions and in their number.
22. How do transactions in this business
compare in average value and number with those of similar businesses throughout the
industry or market area?
This will give a standard comparison to
show how well the company has been able to realize an average sale in terms of what it
would be normal to expect.
23. What are the current sales per square
foot of floor space for the business? What has been the trend in sales per square foot for
the past several years? How does this compare to known averages or ratios for other
businesses of this type?
The purpose of this analysis is to estimate
how efficiently space is being used for sales purposes. It may be figured on the basis of
total gross footage, including area used for other than selling purposes, or it may be
limited to the space devoted primarily to selling and merchandising.