Monday, August 17, 2015

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Saturday, June 28, 2014


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!


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. 

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. 

Forms used, depending on credit limits, generally include: (see my website for some examples)
·        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.

Profit isn’t usable profit until you collect the money. 

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,

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. 


Number of customers
Average sale price
Frequency of purchase per year

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

x Average sale price

x Frequency of purchase per year


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
x Average sale price
x Frequency of purchase per year

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,


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.