Posted on Monday,

How to Keep the End of a Quarter from Feeling Like the End of Your Business

Many business owners think their business is the only business with unpredictable income and cash flow. This makes me grin. Revenue for most businesses is never steady or easy to plan. If you are one of the fortunate ones with predictable revenue, it certainly makes things easier, but you are in the minority.

At the time of this writing, two of my clients had fallen short of quarterly goals. One missed by quite a bit. Their planned net income was now an actual loss. They missed their revenue target by 40%. Expenses were slightly higher due to some one-time expenditures. They had a hoped-for pipeline client deal that didn’t close (and as of this writing, it still hasn’t.) This happens – you think you have a deal nearly done and at the last minute it doesn’t close. Your whole quarter is now toast and you have brackets on your bottom line. They were facing a quarterly result that was much different than they’d hoped for.

Every 12 weeks or so, your business enters a new quarter. We often call them “Q1” “Q2” etc. and there’s a good chance that when you are reading this, you may be getting close to the end of a quarter, or far enough into a new one that you can take some time to reflect on the one before. While I hope your review is more positive than the scenario above, every business should ask themselves these questions every quarter:

How did our business do? Consider more than just the bottom line with this question. How is your culture? Is your staff productive and happy? Is your business still operating according to your core values? These all contribute to the financial results.

Did we hit our target numbers for the quarter? Did we meet or exceed our targets? If so, how are we going to celebrate? What helped our success? If we didn’t meet our targets, why not? What hindered us? What can we do better next quarter? Are our targets realistic?

How healthy is our cash flow plan? If we have disappointing sales or news next quarter, do we have a strong foundation in place to make payroll and other expenses?

Is our pipeline strong? Are we relying too much on one promising client to close or for a big sale to happen? Do we have other streams of income, a wide bandwidth of customers, and efficient processes to help us weather disappointments?

Solid business growth is dependent on a firm foundation that doesn’t completely collapse when a promised sale or promising new client falls through. It depends on daily, weekly, and monthly practices and processes that contribute to informed leadership decisions. An honest quarterly review will help you stay on track and course-correct as needed before an unexpected event upends your business. And it will prepare you to be in an even better position to celebrate should sales and client development be in your favor.

I can help you have an efficient and healthy quarterly review. Contact me for more information!

Posted on Wednesday,

Budget Time: Use the 80/20 Framework to Keep Costs in Line

You’ve probably heard of the 80/20 concept (also known as the Pareto Principle), where 20% of whatever you are considering (i.e. workers, technology, inventory) is responsible for 80% of the results (productivity, sales, and profit.) The fourth quarter of the year is budget season and a great time to take a closer look at your overall cost structure within the 80/20 framework. It’s time to ask yourself what you REALLY need to run and continue to grow your business.

When addressing costs – start with the larger impact and more important things. Dive into the right problems.

Don’t start with something that will have a minimal impact. I like to value stream map key processes with stickies and a whiteboard. Note people and processes around the sales and delivery experience and the customer/vendor touch points like invoicing and getting paid, improving customer delivery, paying vendors, and maximizing cash outlays.

Here are three areas to take a careful look at, with an 80/20 perspective.

PEOPLE

So much of business is based on unknown revenue numbers, and people are your biggest expense. An unfortunate reality is that many times, the people who got you to where you are now are not the same people to get you to where you need to go next. They cannot change and develop as the business does. That’s why budget time is also a good time to review your organization chart. You’ll often see that 80% of your results are coming from 20% of your team. Can you identify the 80% that are less productive and think of ways to scale, or invest in increasing their contribution through training, for example? Are there ways to continue growing your revenue while not growing (and perhaps even reducing) your team as you look into next year?

INFRASTRUCTURE INVESTMENTS

Another cost that can be significant is Infrastructure investments – money you put into the business for tools, applications, equipment, and more. These generally come in what I call stairsteps, not in a linear path. It’s tempting to be attracted, for example, to the bells and whistles of new technology, but it’s quite possible that only 20% of the features would contribute to 80% of your results. Ask yourself if investment into new tech or equipment would overcomplicate the workplace rather than be the solution you need. Will the learning curve create other problems/costs? It’s essential to ensure that these investments will actually elevate productivity and address challenges.

For example, you may decide that a new ERP (Enterprise Resource Planning) system will streamline tasks and management of employees. This can be true! But if the system is overcomplicated, and you have to retain an on-call consultant for a year, is that an effective use of funds in the long run? It could be, but there may also be simpler solutions available using applications you already have. Perhaps some additional training on current applications so users can move from beginner to intermediate or advanced would cost less and work just as well.

Bonus tip: One way to help separate the problem and solution is to identify and address the pain points in one meeting, give time for the assigned team members to research potential solutions, and then have a separate meeting to consider the options they discovered. This allows your team to determine the core problem without having to provide potential fixes right away. A clear understanding of the problem can be extremely helpful in researching solutions.

VENDOR INVOICES / CREDIT CARD CHARGES

Face it – all companies are leaking, some worse than others. Another cost to consider is what your vendors are charging. It’s not unusual for companies to be paying for services and products they aren’t using regularly (or don’t need more of right now.) Again, 20% of the services and products you receive could be covering 80% of your needs.

I recommend that you review each vendor invoice and credit card charge for the next 45 days and determine if each item is necessary. When I’m doing this for a client, I ask the obvious question – “What is this for?” Other questions include, “Are the services billed leading to the expected outcome?” “Are you paying for a subscription for an app you only use twice a year?” “Are automatic deliveries keeping your supplies overstocked?” “Are these conference expenses leading to the collaboration, soft skill enhancement, or team bonding or are you essentially providing your employees a paid-for trip/vacation?” (If that’s something you want to budget for, fine, but be intentional about it.)

If you need a more objective eye, there is a group of consultants like my colleague Steve Thompson at Integrity Cost Consulting. He can analyze your vendor spend to look for historical overpayments. His company earns their fee based on the savings they find. I love that! I like to track savings based on hard savings AND process improvements as a critical success factor.

Cost analysis exercises are generally a helpful practice for most companies, even if they can be somewhat painful. Use this 80/20 framework to budget wisely.

Additional tips:

Ask yourself not only about getting the best price – but getting the best value.
When cuts are necessary, be sure you cut deep enough the first time.
Do cost analysis on a regular basis.

Need some objective input? I can help. Contact me!

Posted on Monday,

Keep the Bathtub Full: Understand Your Numbers

Most business owners went into business to do what they love and do what they are good at – and they hoped to make a living and improve the business’s value while doing it. Most started their careers as employees, so they tend to carry an employee mindset vs. that of an owner, entrepreneur, or CEO. As a result, some business owners have created a high-stress job for themselves, not a business.

Successful business owners create a vision of the business and think like a CEO. Smaller business owners may wear several hats, but in order to become a better CEO, they must strive to delegate responsibility and create sustainable processes to deliver customer value consistently. Employee vs. CEO. There is a big difference. The successful business owner also understands their numbers – the balance sheet, the cash flow drivers, and the income statement as well as their overall performance scorecard.

I’ve had many business owners tell me over the years tell me “I am not an accountant.” True, but you ARE a business owner and you need to understand your numbers! That means learning how to read and understand financial reports such as balance sheets and income statements and understand how they relate. You need to understand your working capital needs and cash flow drivers. Most business owners know how to read a P&L, yet have no idea where their cash is going. They wonder, “How can we be tight on cash when business is booming and sales numbers are growing?”

It is a common perception that reading and understanding financial statements is difficult. Some of the problem is that many of the system-generated reports of many ERP systems are too detailed and difficult to read. But also, business owners haven’t invested the time to learn how to read financial statements and interpret what the numbers mean. I find it generally makes sense to simplify.

It reminds me of the bathtub illustration I learned from a banking CFO back in my KPMG days, used to explain the bank’s cash flow statement. He said, “Cash is like a bathtub of water. Cash comes in through the faucet and goes out through the drain. The trick is to understand the flows in and out and keep the tub full of water.”

One way to gain confidence is to review your financial reports regularly. Develop a weekly scorecard and review your financial statements with your controller or accounting team monthly. Notice trends in key areas like new customers, sales, average transaction value, gross margin, cash flow turnover, and operational efficiencies. What are the financials telling you? Are you increasing your company’s valuation or are you just sustaining a high-stress job?

Spending time on this will help you avoid “reaction” mode (daily firefighting) and allow you to work more in “ready” mode. Ready mode is working on needle-moving activities, the kind that will truly grow your business in all the right ways.

If you spend time with your numbers, you will get better at understanding them. In addition to studying your reports, take a course. Read blog posts like these. Prepare or update your business valuation. Get people on your team that know financial stuff well and can help YOU understand it. Trust me, everything you apply time to, you get better at.

Contact me for additional help!

Posted on Tuesday,

Three Ways to Grow Your Business

When it comes to ways to grow your business, it may not be that you lack time but that you need to do some prioritizing. It’s important to constantly evaluate your growth and progress. With the year already well underway, it’s time to take a closer look at how your business is doing. Is it multiplying? Are revenues increasing? If not, here are three ways to grow your business.

Let’s dive into each of these and see how you can measure and improve your progress, using a fictional example of a mid-size coffee roaster, employing 40 people, and supplying over 50 coffee shops with custom-roasted blends.

Add More Customers

This is the most obvious way to grow your business. The more customers you have, the more potential sales you can make. Look at your metrics for new customer acquisition. How many new customers have you gained since this year began? If you aren’t seeing the numbers you’d like to see, do you need to adjust your marketing strategy or invest in new acquisition channels?

Example: ABCoffee expands their strategic social media campaign to target not just their base city and suburbs, but counties 100-200 miles away. Their sales reps do “coffee shop tours” of shops in this expanded area, sharing photos their marketing specialist then posts to encourage people to visit the shops, and leaving a packet of information and sample roasts to the owners of the shops, so they will consider carrying ABCoffee.

Increase How Much You Sell to Each Customer

Another way to grow your business is to increase the amount that each customer spends with you. Look at your average order size. Has it increased compared to previous years? Consider offering bundle deals, or upsell items during the checkout process. I’m sure you’ve seen stores that have multiple low-price items in the checkout area or have been asked online if you want to add “these regular items” to your cart. Always try to add another line item to an invoice and offer premium/higher-priced products to encourage customers to spend more.

Example: ABCoffee offers specials that allow regular customers to add free bags to orders over a certain size. They occasionally slip in samples of new roast, hoping to whet the customer’s appetite to carry more varieties. They host “cuppings” for coffee shop owners to do tastings of their coffee blends, and offer special pricing for orders placed at these events.

Increase the Number of Times a Customer Buys from You

You can also grow your business by increasing customer loyalty and encouraging repeat purchases. To measure this, look at your purchase frequency metrics. Have customers been buying from you more frequently this year? If not, consider implementing a loyalty program or offering discounts to encourage repeat purchases. Make it a desirable thing to be a regular customer.

Example: ABCoffee implements a wholesale customer subscription program that provides a 10% discount to customers that sign up for their automatic monthly delivery service, thereby increasing the frequency of orders (with the bonus of providing reliable and predictable orders to their fulfillment center, increasing efficiency.

By evaluating your metrics for each of these areas of potential growth, you can identify where your business is thriving and where there’s room for improvement. (There’s always room for improvement.) Maybe you’ve been focusing on customer acquisition when your efforts would be better applied to increasing customer spend or loyalty.

Remember, there’s no one-size-fits-all approach to growing a business. Find out what works for your specific business and customer base. By concentrating on these three key areas and monitoring your metrics, you can make data-driven decisions to drive growth and achieve your business goals.

Posted on Monday,

How to Increase Your Cash Flow

Business owners face many challenges today – cash flow being one of the most challenging. Attracting and retaining top talent, marketing strategy and establishing a strong brand, business growth, time management and delegation, and communication are also on owners’ minds. But from a financial perspective, cash flow is often the biggest problem owners face today. This is a result of the timing of performing services, invoicing the customer, receiving payment from the customer, paying vendors and employees, and managing operating expenses. Most businesses need to be more profitable and need to improve cash flow to do all these things well. That goal gets especially complicated if certain seasons are slower than most – like summer.

Monthly revenue fluctuations can cause havoc in forecasting your results and cash flow. But since a steady cash flow is a vital part of a healthy business, there are steps you can take to increase it no matter what the season.

How to Increase Your Cash Flow

Work your accounts receivable. The squeaky wheel gets the grease. Make some phone calls to speed up collections. Consider reducing credit terms offered. If accounts receivable are a significant portion of your balance sheet, measure and graph days sales outstanding (DSO) monthly. DSO is calculated as follows: accounts receivable ÷ (credit sales ÷ days in the period). I generally like to use 3 months of sales ÷ 90 days to calculate average daily sales divided into accounts receivable.
Reduce your inventory levels. The number of days on hand is the number of days it takes from inventory purchase to sales (i.e. how long product sits in the warehouse.) The lower the days, the more frequent the turnover and better cash flow. Measure monthly and look to reduce the days on hand. Lower inventory balances do increase stockout risk so you do need to be careful reducing inventory too much.
Push accounts payable. Can you negotiate longer terms or quick pay discounts? Remember the value of a quick pay discount is very substantial if you have adequate working capital.
Increase profitability. This isn’t always easy, but look at low-margin products and focus on operational efficiency. Sometimes tasks and projects take your team’s time because you give them time. If I give you 30 days to clean your house, it will take 30 days. If I give you six hours, you’ll be amazed at how much you’ll get done in six hours.
Put a line of credit in place. This helps provide a safety net when needed, especially during slow periods.
Consider creating a cash flow contingency fund. The next time you are in a more profitable season, set aside funds that can help with cash flow in the slower seasons.
Stay on top of records! I create a rolling 13-Week Cash Flow worksheet for all my clients, update it weekly, and develop strategies for asset velocity (accounts receivable, inventory, accounts payable) and profit enhancement.
Practice good budgeting and planning. A realistic budget, and plans that take slower seasons into consideration, is a huge help in leveling out cash flow concerns.

Which of these steps do you need to focus on most? If you don’t have the time to do these things yourself, it may be time for a fractional CFO. Contact me today for a free initial consultation.

Posted on Monday,

Cash Flow: Examine to Advance

I did a cash flow exercise the other day with a new client, and they were blown away by the simplicity of some cash flow enhancement techniques.

The company was a $6,000,000 manufacturer with approximately $600,000 in accounts receivable, $1,000,000 in inventory, and $300,000 in accounts payable. We calculated simple annual cash flow velocity (amount of time to turn a sale into cash and pay the respective vendor).

Right off the bat, we noticed that inventory seemed much too high, accounts receivable collections hadn’t been a priority based on the aging, and vendor terms could possibly be adjusted to improve cash flow.

Inventory

We looked at the inventory valuation and noted excess and slow-moving inventory. When touring the facility, I noticed that raw stock seemed high. Some of the excess inventory was pre-planned due to current supply chain issues. This made sense, but there were some inventory levels that could be reduced immediately. After our evaluation, the leadership made some decisions regarding purchasing reductions and are going to look at selling some of the excess inventory. If they can increase inventory turns and decrease days of on-hand inventory, they are expected to increase cash by $400,000.

Accounts Receivable

The next step we took was to look at their accounts receivable. With a little more attention to collections, they believed they improve the aging and could easily reduce DSO by 5+ days increasing cash by $80,000!

Vendor Terms on Accounts Payable

We looked at their accounts payable and determined we could push two of their main vendors’ payments out without any negative vendor impacts. We also noted a few of their vendors were offering 2% 10, net 30 terms. Our calculations showed that pushing two vendors out would increase cash by approximately $100,000 and by taking advantage of the discount terms offered by other vendors, the company would add approximately $36,000 of purchase discounts to their bottom line. See my previous discussion of purchase discounts here.

They were shocked by the impacts of these simple cash flow techniques, and how small gains can make a huge difference.

Your turn. Here’s how to increase your cash flow:

* Ask your vendors for five more days to pay. See if they offer quick pay discounts.

* Study your inventory levels and determine if it makes sense to reduce them and still be able to meet production and customer needs. Most companies have too much safety stock on hand.

* Review your accounts receivable. Make calls to the slower paying customers not only for collections but to reframe your expectations. If they can’t comply, consider increasing pricing to cover the extra carrying cost or if the case is an ongoing challenge, it might be time to suggest they transition to another supplier.

You’ll be pleasantly surprised how much these few steps can help your bottom line. Contact me for a free chat about your current situation!

Posted on Monday,

How to Add $722,000 to Your Balance Sheet

I work with many bankers and lawyers who call me when they have a customer or client whose company is in trouble or needs help improving their business. The initial assessment takes about a week. We review the companies’ internal controls and backroom systems. Then we look at the historical financial statements, the current forecast, relative cash flow drivers, and their profitability matrix. In the process, we discover the core areas of needed improvement – generally, the situations are related to inaccurate forecasting and inaccurate financial statements. 70% of business owners don’t have an accurate view of their numbers! Sometimes immediate triage is necessary.

Generally:

The company is not consistently profitable.
The books are in bad shape.
The business owner needs to get a better viability on cash flow.
The owner doesnt know what their company is really worth or how to improve valuation.
Leadership is concerned with the company’s financial performance.
Certain financial covenants were tripped.
Internal processes are ineffective and needed improvement.

I remember one company specifically. Sometimes you can tell how a business is managed as soon as you walk in the door. I should have realized right away what I would be facing! The controller worked at a long table. Papers and invoices were in piles all over the table. You could feel (and see) the stress immediately.

During my initial conversation with the controller, it quickly became clear that the financial system (Peachtree at the time) wasn’t accurate. He was way behind getting invoices into the system and accounts reconciled. He was making decisions based on the bank balance vs. the book balance. He was manually tracking outstanding checks (with a stack of un-mailed checks) and was barely making payroll every week. On the day of my visit, he had just received his annual worker’s compensation audit invoice and had not planned at all for that $15,000 expense.

This is the way he ran the business. The odd thing was that he thought things were going okay! The phone was ringing, they were very busy and they were making payroll. But he was stressed out every week to make it. And when new inventory was needed, he had to scrape up enough money to get it – usually robbing Peter to pay Paul – which would catch up with him later. He left old accounts payable open with an “I’ll deal with that later” mentality.

This is not okay. To gauge a business’s performance you need timely and accurate financial information. Also, there’s a huge difference between accrual accounting and running the business on a cash basis. It’s important to understand the difference and know that many times, using cash-based thinking may be necessary – certainly, in dire situations, cash-based thinking is the only way to have a successful turnaround. See my previous discussions on the 13-Week Cash Flow forecast process. Before I go back to the story, let’s look at the business cycle.

The process starts with sales. If we follow the cash, sales turn into accounts receivable. Accounts Receivable turns into cash. Cash is used to purchase inventory, pay employees, pay operating expenses and taxes with the leftover being cash profit. Profit is necessary for viability.

The flow meters and gauges relate to accounts receivable, inventory, and accounts payable. Debt can be used as necessary but comes with a cost. ALL of these things need accurate tracking.

We had to establish some simple systems. Geno Wickman, the creator of the EOS, Entrepreneur Operating System, is an example of how this is done, and some of my clients are successfully using his system. His recommendations include:

Review your financials every month.
Manage a monthly expense budget.
Track the five to 15 most critical numbers for your business every week (e.g. visitors, followers, leads, appointments, proposals, sales, revenue, errors, customer satisfaction, cash balance, accounts payable, accounts receivable.)

I would add to also review your cash flow and sales numbers weekly.

Back to the client’s story. We implemented several basics. First, we got the financial process in shape. It’s arduous at first getting messy books up to date and a solid closing process in place. But like the utility room flooding – you need to turn the hose off before you clean up the water. Once the financial system was up to date and accurate it was easier to run the business with the book cash balance vs. the bank balance.

We developed a 13-Week cash forecast, implementing a weekly update and review process.

We re-evaluated the inventory process, measuring the current state, developing plans to improve, and graphing progress.

We developed strategies to improve cash flow. We looked at customer terms and payment history, we examined and reduced inventory stocking levels, we looked at vendor terms and accounts payable terms. We developed tracking for these drivers and expense reductions.

It’s amazing the effect on cash these cash flow drivers can have. Let’s look at the accounts receivable gauge and the effect of proper strategy. In another client case, I worked with a medium-sized distributor. At the time they were doing $20,000,000 in revenue with $2,500,000 in accounts receivable. The aging was a mix of approximately 100 customers with various balances in the various aging buckets. Based on the math, the day’s sales outstanding (DSO) was 46 days. We worked with the credit manager and the sales team to improve the turnover. We measured and graphed DSO weekly. After two months we were able to reduce DSO to 38 days and in six months we were at 32 days.

Based on these actions, we added $722,000 of cash to the balance sheet – and in this case, reduced interest expense by $45,000.

Back to the original story: we saw a major turnaround in the company with more accurate and timely records helping the owner have a better handle on his cash flow and make better, informed decisions. And, as you can imagine, he experienced far less daily stress.

Does any of this sound familiar? Let me help you and YOUR company. We may not be able to add $722,000 to your balance sheet, but we can reduce your stress, forecast results better, and help you become more consistently profitable. Contact me today.

Posted on Monday,

Fourth and Final – Finish Strong and Be Ready

The fourth quarter has started – the final quarter of the year. In this fourth-and-final quarter, there are four things you should do in your business to stay strong and successful.

Get Your Team Energized to Finish the Year Strong and Be Ready for 2022

With most of my clients, I am focusing on helping them have a solid Q3 close and a strong finish to 2021. In the quarterly review meetings, we are looking at the numbers and ensuring that everyone understands the business’s vision and long-term strategy. I find that, generally, everyone is 70% aligned. We use the opportunity to increase that percentage by having an in-depth discussion of the historical quarter’s results, and then looking at the rest of the year and going into 2022 to align the teams’ vision and long-term strategies. Knowing where you stand can give you motivation and energy for what needs to happen next.

Ensure a Solid Q3 Close

If you’ve established effective processes and routines, your accounting staff should be keeping up with the necessary tasks to ensure you have accurate numbers and information for future decisions. If not, focus on getting these procedures polished (checklists are a great help to this) and getting your staff on board with doing them well EVERY month.

Get Your Short-term Targets in Focus

What are you hoping to see happen in your business during the fourth quarter? Write these goals down, narrowing them to be realistic, measurable, and fitting for your team.

Start the Budget Process

2022 will be here soon so you’ll need to have your budget in place to ensure an effective transition. It may be a simple matter of copying and tweaking this year’s budget. Or, you may have to revamp if, for example, some areas of income didn’t match your expectations. Get input from your staff. Consider cost-cutting measures or redirection of funds to more effective endeavors such as product development or marketing for next year.

Bonus Task

I find it interesting the statistic that 98% of business owners don’t know how much their business is worth. Their business is their most valuable asset, yet most have no idea of its value until they decide it’s time to sell. I know several owners currently looking to transition out and “retire,” but the offers they are receiving are substantially less than they anticipated.

In addition, not knowing the current value of your business makes it harder to intentionally increase it over time with well-informed decisions.

I suggest all business owners do a business valuation every few years. If you haven’t done this, let’s arrange to do one now. Our valuation process is inexpensive and efficient and you’ll be pleasantly surprised at how the information helps you as you head into 2022.

Posted on Monday,

Halftime: Preparing to Finish Well Using a Mid-Year Review

Halftime. I’ve written about this before, but, the year is half over, and it’s a great time to schedule a mid-year review to look at your business’s first-half performance, take what you’ve learned, and re-forecast for a strong second half of your year.

I know a lot of people are going on vacations, but for me, while it’s wise to take a short break, mid-year is a time to contemplate my client’s performances and develop a plan to come out strong for the rest of the year. In fact, for some, an offsite half or full-day session is a perfect means for this exercise.

I have had a couple of full-day, offsite sessions with my clients already this year, and while it’s not absolutely necessary to carve out a full day, whatever time you can set aside is valuable for reviewing information, and re-forecasting the business plan. Plus, it helps you distill Q3 action plans into several big quarterly goals and get the entire team on the same page.

A quick and thorough financial close process is essential in order to have the information you need. We’ve talked a lot about that in the past, but a strong quick close paves the way for better decision-making. It gives you more confidence in the numbers and is more efficient. Regularly gather your performance statistics: sales by segment, gross margin, expense comparisons to budget and to prior years, and any capital /investment needs for the rest of the year.

At your halftime meeting or offsite, evaluate your team and have candid conversations to maximize performance. Look at your sales department’s performance and marketing successes/failures. Take a close look at the current data and strengthen your plan for the rest of the year. Gather the facts, reevaluate your assumptions, and get your team all focused and rowing in the same direction.

Whether you decide to have an offsite, or just take some time in the office, here is a Second Half Checklist to help you prepare for a proper halftime business review:

Gather overall 5 Performance Stats actual versus plan: Sales, Gross margin, Operating expenses, Net income, Asset velocity
Update the Org Chart
Obtain your Income statement by month – 2021
Download your Balance sheet by month – 2021
Print out your 2021 Budget by Month (original)
Collect an invoice register download or sales by segment data
Prepare documents for an Income statement comparisons: month to date versus budget versus last year: quarter to date versus budget versus last year, year to date versus budget versus last year.

Don’t miss the halftime opportunity to take stock, reevaluate, and develop action plans to improve performance, net income and cash flow.

I’d love to see if I can help! Contact me!

Posted on Monday,

Improving Your Backroom

The “Backroom” (your finance and accounting department) has always been a vital piece of a company’s framework. I’ve been pushing backroom efficiency since I was with KPMG 30 years ago.

Back then, most internal control and accounting processes were manual and spreadsheets were just coming on the scene. Manual methods were often inefficient, inaccurate, and boring. The larger the company, the larger the accounting department needed to be. We needed enough people just to bill customers and post cash to accounts receivable. Things have changed significantly now; we have automated solutions where we scale differently and efficiently.

Most businesses consider that their value comes from sales and marketing. They are always thinking about how to create customer value. The finance department exists to support the business’s value creation, and we need to operate it as effectively and efficiently as possible.

In my years of work in the turnaround and profit improvement space, I’ve encountered many bloated finance departments that have grown over the years, some because of company growth, but some because of using outdated and inefficient processes.

Companies should regularly evaluate the needed functions in the company’s admin support and backroom. Take the employee’s names out of it, and create lists of what needs to be done and what positions should be accountable for it. You can talk with the employee(s) who currently own the process … they may have ideas about streamlining or automating processes – or even let you know if they’d rather be doing something else!

Evaluation often leads to change, and some people handle change better than others. I’ve worked with several companies where the employee is unwilling to change – they aren’t interested in learning new ways to do things, like their routine, or lack confidence. If an employee just won’t change or isn’t willing to grow, the best way to improve the process may be to change the person who does it.

I’m currently working with a company to create a start-to-finish process manual from the ground up. We are documenting every process. We just finished tweaking the billing process to improve efficiency. Implementing this improved process led to an immediate improvement in cash flow ($200,000!), a reduction in one full-time equivalent, and a much better forward-facing process for the customer.

Change like this is both rewarding and difficult. It’s not an easy decision to streamline staff, yet a healthy company cannot hang onto employees just for the sake of having people around that they like or that they don’t want to upset. Are there other positions that person is a better fit for? Or have they contributed all they can and are unwilling to grow and change with the company? In the long run, it may be healthier for them, too, to find a better fit.

Evaluating, polishing, and documenting your backroom processes can also do the following:

Improve leadership skills – it makes owners and the leadership team step up and pay attention to what is taking time and money
Mitigate distractions – a step-by-step process helps employees stay focused, and if they happen to get distracted, be more quickly able to pick up where they left off
Provide a planning calendar – accounting processes are often tied to a calendar, so you’ll be building a planning tool that will help you in the future
Create weekly checklists – having these written out will help if the current process owner suddenly isn’t available. It’s a tool for cross-training and prepping new employees to take on this task.
Encourage discipline – repeated routines help create needed “muscle memory” and could free up mental space for employees to problem-solve
Build efficiency – who doesn’t want a more efficient company? Comprehensive and documented processes streamline tasks for everyone involved and helps you avoid individuals adding their own, possibly unneeded, steps. (i.e. do you really need to make photocopies of everything if there is a computerized record – and backup – available?)

Does the idea of streamlining your backroom intrigue you? Let’s chat. My experience can help!