Well, how has the 2nd half started for you and your business?
Hopefully, you had a good summer and took some time for ‘half-time’. Half-time is now over, and the second half is already moving fast. I hope you took some advice from the previous posts and you have solid data and a revised second half-year business plan in hand. If you don’t – spend this next week getting these elements wrapped up. Did you have your Q2 Team Meeting as discussed previously? If not, get it on the calendar!
I’ve been spending time with my clients doing much of the same – wrapping up the quarter and half year results, getting July financials wrapped, getting cash flow and business drivers actual results, updating my client’s 13-week cash flow forecasts, and talking with their lenders and shareholders about the results and targets.
We always need to be looking at the instrument panel and make adjustments as we go.
For one of my newer clients for example, we measured accounts receivable and inventory days and graphed the last 18 months. We notices some turnover creep and developed strategies and goals to improve turnover.
For these two measures, I first see which data points I’ll use: Monthly data or a 3 month rolling average. Choose one and stick with it.
Here’s a simple worksheet to calculate your turnover days.
The interesting thing is the power of reducing the days. For example in fictitious land, say your company does $5,000,000 in annual revenue and has steady sales of $400,000 per month with 32% gross margins. Your accounts receivable has averaged 42 days and inventory has averaged 52 days for the last year. If you develop strategies and measures to bring down the turnover days by 4 days, you will put $90,000 of cash on your balance sheet. If you’re a $10mm business with the same improvement, that’s $180,000!
Generally, I use the 3 month average for my calculations. The calculations show how many days, based on history, does it take for accounts receivable or inventory to turnover. Graph the last 18 months to get your base line. I do this monthly – measure actual to plan.
Now that we only have 4 months of the year left, it’s time to refocus on the year’s intentional goals and continue pushing and developing tactics to hit those targets.
Ensure you have good data and all projects are focused and moving forward – if they’re behind schedule, get them back on track.
I’ve got to get going now and get some of mine back on track.