This section on Business Processes essentially drills down into the costs of production and cost of generating sales for separate products/services. It follows on from the Selling Proposition and essentially fleshes out products and services added in this section of the BusinessPortal range of websites (i.e. an investigation of the Operations of a business).
Before defining the split in product- and service production costs, the production processes for products need to be defined a little further. the BusinessPortal range of websites give the option to indicate that a product is bought in as a complete product, as part-product which requires assembly or as raw materials which need to be fashioned into the product from “first principles”. Note that the product may be a part product that gets sold on to other companies to be assembled. This depends on what the company being analysed sells on to its clients and should be read in conjunction with Supplier- and Client Types discussed in the second blog post in this series on the extended Business Information on the BusinessPortal range of websites. Payment- and Delivery terms for the parts that go into the products start alluding to the relationship that the company has with its suppliers and the planning that goes into ensuring that the production runs smoothly and does not run into issues of over- and undersupply of parts required for production (and the associated storage- and administrative costs).
The split in product- and service production costs give an indication which fields the costs of production go towards. Since we know the costs of production from the Selling Propositions section the cost per product or service towards each field can be calculated. The total costs in each field can be calculated once the total sales for each product/service are explored, which will happen in the Invoicing section (to be discussed somewhat later in this series of blog posts). For products the BusinessPortal range of websites consider the main fields of Purchasing, Labour, Transport, Services and Storage of Raw Materials and of Final Products. Considered fields for Services are Labour, Licence Fees, Services and Consumables. These sections should adequately describe the focus and efficiency of production of products and services and might indicate where the company is over- or underspending in relation to other companies in similar industries. This might show where a company is efficient in production of products/services (and has something by the way of expertise to offer) or where exploiting efficiencies might yield operational improvements.
There’s a cost for selling products/services. This often comes in the form of commissions paid on sales or salaries towards sales consultants. The salaries have already have been considered in the Human Resource section of the due diligence but Commissions are considered in the Sales section of the Business Processes. This section also shows the payment terms and delivery terms given to customers. If payment terms are extended to customers, an important metric to consider is the Income Recovery Rate, This will be considered in the Financial Information section on the BusinessPortal range of websites (see “Due Diligence” information – What do I need to know: Part 10)