Monday, August 17, 2015
Saturday, June 28, 2014
Q2
Well,
the second quarter is just ending. June 30th is Monday and July 4th
weekend is NEXT WEEKEND! 2014 is halfway
over.
There is one more business day of the year to bring your business's Q2 objects down the field. It's just a measuring point, but a very important one. From a CFO's perspective after Monday can be
the ‘lull before the storm’. It is about
to be an extremely busy and important time of year.
We
need to take a deep half-year look - see what we did well, things that we didn’t,
and look forward and tune-up the second half year strategy and business plan.
It
is halftime. In sport, during halftime the coach and the players review the
first half's results, evaluate the competition, and develop a strategy and action plan for the
second half.
That's
exactly what CFO’s and business owners must do right now.
How
did you do during the first half? What were your sales? What was your gross
profit? How do they compare to last year's numbers? Compared to plan? How was your customer
profitability? Expenses? Overall Profitability? DSO? Inventory levels? Cash in
bank?
It
is extremely important to take a critical look your business profit and cash drivers
- where you are today and prepare a second-quarter plan. You need to check the scoreboard and develop what-if’s
for the second half of the year. You need to plan your cash needs for the rest
of the year and identify efficiency improvements. You need to provide your team some
inspiration. What’s their mood? What support do they need?
Check
and, if necessary, reset your mindset!
So,
use this ‘lull before the storm’ to get prepared now. Take a couple hours and put pen to paper; numbers to Excel.
-
Review
your first 2 quarters’ objectives - top 3 overall business goals
-
List
some wins for the year so far
-
Begin
prepping your team for the month end close – many balance sheet reconciliations
and checklist items can get done in advance. Do them next week. Get solid numbers fast.
-
Identify
all your business drivers (growth, profit, cash flow drivers) and have your
historical data formatted. If you haven’t
done so, do.
-
Plan
Cash needs now – update your 13 week cash flow forecast
-
Set-up
the Q2 Team Meeting to review the scoreboard results and the 2nd Half-Year
Business Plan – set the deadline on your calendar now. How about July 18th or the 23rd? Book it - if you're a big company or a one man show, book it on your calendar.
- Also,
get prepared to take some time over the fourth of July weekend for some
R&R. It is summer and life is moving
fast. Get outside and enjoy it!
T
Friday, June 13, 2014
Effective Credit Policy, Process, and Procedures
Every
organization who extends credit needs to have an effective credit policy, process,
and procedure to protect their credit risk and to maximize cash flow.
Profit isn’t usable profit until you collect the
money.
Policy
= rules, process = activities, procedure = specific instructions.
A
better overall process certainly can drive sales and provide better
customer value, but remember - profit isn’t true profit until you collect the cash!
Many
companies I work with have a credit process, but haven't formalized it as a policy, process, and procedure. I strongly suggest all
policies, processes, procedures be documented, reviewed/understood by your
entire team, and used in training. It's a great way to make significant improvements with operations - think efficiency, standardization, and franchise-like.
Outline
your current credit policy, process and procedure; your external credit
policies, your internal credit policies, and the credit granting and collection
process and procedures. See my website
for example. Spend time with your team
and discuss improvements.
·
Credit
Application summary page with credit decision summary
·
Credit
Application
·
Credit
Agency report
·
Credit
Card Authorization
·
Bank
and Trade References
·
Financial statements,
tax returns, copy of driver’s license, etc.
Most
companies I look at can do a much better job improving cash flow by tightening
up their credit policy, process and collection procedures.
Remember
the power of the Days Sales Outstanding ratio (DSO). In an $8mm company, an improvement from 46
days outstanding to 38 days results with approximately $175,000
of improved cash flow! Get to 30 days
and it’s a $350,000 pick-up in cash.
As one of your cash flow drivers, track
your DSO metrics and develop improvement strategies to improve results.
Friday, June 06, 2014
Not My Last Bike Ride
Well,
I just completed another lap around the sun. I celebrated my 54th birthday on
June 4th. I love June 4th. It's a great day. I have always loved the sound of
that date - June 4th. I bet everyone feels the same way about their
birthday date.
Anyway,
I also just love June. The days are the longest, it’s starting to warm up, the
leaves have just popped open, the grass is green - Summer vacations are just
around the corner. We can ride bikes almost
every day outside. June is just a great
month in Upstate NY.
I
find your birthday is a great time to reflect and spend some time thinking. I
do the same thing around January 1st. It's important to celebrate and really think
about the great things we’ve done at this point out lives. We all have great
things to celebrate, but we rarely do.
It's
also great time to look forward and think of the things we want to accomplish and
the dreams still left in us. This can
get stressful to when you think about the knowns and unknowns, but for me it
helps keep me energized.
And
think about where we are right now.
I
spent some time this morning thinking about that and boiled that thinking down
into my morning bike ride the other day.
The past is like my training up into the
point. My body is fairly fit. I eat a strict plant based diet. I workout almost
every day. Things could be better and they could be worse. I am where I am based on what I’ve done up to
that point.
The future is the bike ride itself - the
route and the expectation of completing the ride. The improvement in health, the experience of
the ride, the feeling of success.
The present is like climbing the hill on
Ridge Rd. About 2 miles long and halfway
through the ride. Head down watching my pedals, breathing hard, and dripping sweat. Barely looking 18 inches beyond
my front wheel – seeing the road as it appears in the top part of my view just below my helmet. Trying to have some conversation with Kurt though
mostly in complete oxygen debt. And then
settle in for another 2 mile gentle climb.
I think that’s where I am now in my life….halfway through and working really hard,
enjoying the moment and the day. Hoping
it’s not my last bike ride.
Out
of our group ride last Sunday, one of the guys mentioned that one ride will be
our last bike ride. That concept scares the shit out of me. But he is right. One day will be our last
day. The obituaries are published every day. Think about that. Not one day has
gone by without the obituaries.
I’m
not going to thinking about that - not in June anyway.
Enjoy
the day, and I hope everyone makes the most of their laps around the sun.
Carpe
diem!
Friday, May 23, 2014
The Month-End Reporting Package
I have been using a monthly reporting package since my first company I started when I
was in college. There wasn’t much to
report, but it helped keep us 2 owners focused, on track, and profitable. The month-end summary transitioned over the years from balance sheet and P&L to charts and graphs and mobile dashboards.
Working with companies of all types and sizes in every industry, the value of
the month-end reporting package can be immeasurable.
It
helps keep small business owners focused, accountable, and profitable. In larger companies, it helps keeps teams aligned,
engaged, and driven.
Some
small business owners I work with are secretive with financial information. They don’t want their team to know how well
or poorly they’re doing. I think that's a mistake, but it's their business. To me, open book financial reporting makes
sense. Either way,
the smaller business owner needs to see the information for themselves.
I
also like a daily flash report and weekly dashboard. It’s interesting how dashboards can now easily
integrate into your data – producing great information on a real-time
basis. More about dashboards later.
Everyone’s
month-end package is different. Keep it simple and readable. Too
much detail on the income statement, for example, is not helpful. 80/20 your thinking.
Here’s a quick checklist to help improve yours:
q Cover page
q Strategic one page
summary – vision, strategic sentence, quarterly goals, etc.
q CEO, CFO, Sales reports,
if applicable
q Income statement –
comparing summary P&L month-to-date and year-to-date to the previous
year and to your plan.
q Balance Sheet –
compare to prior year
q Historical graphs (a
picture is a thousand words): segment sales, cost of goods sold, gross profit,
top few expense lines, net income.
q Top 20 customers’
month-to-date and year-to-date Sales, GP$, GP%; Sales Analysis; Geography
q Top Vendors month-to-date
and year-to-date purchases; Top 20 A/P balances
q Top expense line
items with flux comments
q KPI data and graphs
(company specific; sales, gross profit, new customers, lost customers, ASP,
revenue/mile, revenue/visit, etc.)
q Cash flow driver
graphs – A/R days, WIP, Inventory days, A/P days; Financial ratios
q A/R Aging for the
month and historical
q Departmental
summaries, if applicable
q Top 3 priorities from
prior month - status
q Subsequent month top
3 priorities
Use the month-end reporting package as an opportunity to really step up your
financial close process with accurate and timely final numbers.
Again,
the reporting package is always company specific, but is a huge opportunity to
improve communication and get financial accountability and growth; and better
profit and cash flow.
If you need any help developing your monthly financial package, let me know.
In good health and profit,
/jon
Friday, May 16, 2014
Grow or Die
I
was talking with one of my clients earlier this week on growing his $50mm
energy services company. These guys
process about 14,000 invoices per month with an average invoice ticket of
approximately $300.
The
only way to grow any business is to grow the number of customers, increase
the average sales value, and/or increase the frequency of customer
purchase. That’s it.
The
key is to focus on improving each component.
I have used this
simple formula with many types of companies including medical offices, construction companies, HVAC companies, truck
parts distributors, job shop manufacturers, and technology resellers. It's a formula and it works.
Once
you understand the power of this, it will help really grow your business.
I’ve
talked about this before, but consider the following formula.
Revenue
|
Number
of customers
|
x
|
Average
sale price
|
x
|
Frequency
of purchase per year
|
=
|
Revenue
|
I
put together a program for one of my client’s segment and had the following
results. Amazing, small growth
percentage with geometric results.
Number
of customers
|
1,000
|
1,226
|
|
x
Average sale price
|
400
|
456
|
|
x
Frequency of purchase per year
|
7
|
7.5
|
|
Sales
|
2,800,000
|
4,192,920
|
50%
|
Notice
the geometric growth – a 22% increase in number of customers and 14% increase
in average sales with small increase in frequency of purchase gives a 50% increase
in revenue.
For
the energy service company I was speaking to earlier this week, we outlined a
small increase in the number of customers 7% based on current growth trends and
an additional service offering to increase the ASP $100 as follows:
Current Plan Chg
Number
of customers
|
14,000
|
15,000
|
7%
|
x
Average sale price
|
300
|
400
|
33%
|
x
Frequency of purchase per year
|
12
|
12
|
0%
|
Sales
|
50,400,000
|
72,000,000
|
43%
|
I
will keep you posted on the actual results.
I
suggest you look back at the prior 12 months of sales and get your actual
numbers. Don’t make assumptions
here. Most business owners I talk to make
assumptions as to the number of customers they have and ASP, but when we get
the actual numbers, their assumptions invariably are really wrong. Dump your invoice register to excel. De-dup the customers or compare to sales by
customer. I also like to have average invoice
value as that may be an easier way for your sales reps to focus on.
Note
- I love the simple trick in Excel to de-dup a list (data menu, remove
duplicates), then use the sumif formula.
I use this trick all the time.
Once
you have your actual historical data, develop creative strategies / ideas to
increase each and EXECUTE a couple strategies.
Test and measure the results. Optimize,
then repeat.
It’s
the only way to grow your business.
Customers x ASP x purchase frequency = revenue.
Think
growth and think profit,
/jon
Friday, May 02, 2014
Forecasting Predictable Results
Besides forecasting
and improving cash flow as I’ve been discussing in the last few posts, forecasting predictable results is the
other huge problem business owners have.
Forecasting is alone
is difficult, but with predictable results makes the process even harder. But – business with predictable results are
worth much more than a business with a P&L graph that looks like my EKG –
AND you’ll will sleep better; you can plan better; and you can focus on really growing
and developing your business.
To help forecasting
predictable results, follow these steps.
1.
Ensure
month-end closing procedure tight and efficient. The numbers need to be solid and timely. It is essential to have a solid base.
2.
Develop
a consistent monthly reporting package.
Understand the numbers and what they are telling you.
3.
Develop
and use an Operating Plan with forecasted income statement, balance sheet, and
cash flow. Forecast and track overall profitability
and cash flow drivers.
4.
Analyze
customer profitability and profit drivers.
The best way to leverage improvements and maximize profitability is to:
analyze, measure, identify underperforming areas and improve those areas.
5.
Look
at all processes for efficiency and Value Stream Map each process – again, measure
and optimize.
Let’s break each down
a little more.
Step 1 - Ensure your
month-end processes are tight and efficient
·
Accurate
and timely financial information is paramount for your business.
·
Have
a month-end closing book or network folder that is neat and organized.
·
Use
a closing checklist for you, your bookkeeper, or your accounting staff –
whoever is responsible for the financial statements. Checklists are great for all standard
processes. See an example here.
·
Ensure
all accounts are up to date and reconciled.
Many business owners only care about monthly profitability and only look
at the P&L. Ensure the balance sheet
accounts are accurate and reconciled. I’ve
made some really bad decisions based on bad balance sheet numbers.
·
Develop
strategies to close faster. The timing
of issuing your financial statements obviously depends on complexity of your business
– but work to improve the timeliness of producing accurate numbers. I know many companies that close in one
business day (I know others that can take 2 weeks). Work to continually improve.
·
As
a small business owner, sit with your bookkeeper or accounting manager and
review each financial statement account.
This will engage them in the process. If a larger company, sit with your CFO and
leadership team to review the monthly financial statements. This is mitigating control is essential and enhances
overall participation, buy-in and contribution.
I will take each the
other steps planning, policies, and processes for each step in future
posts.
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