Inventory Purchases

When their client is making a decision about which supplier or vendor to purchase their inventory from, the part time CFO needs to make sure their client is considering all factors. Sometimes this particular CFO service is forgotten, but it’s a service that can save the client many dollars all facts considered.

 

Consider the following when choosing what supplier to purchase inventory from:

 

  1. Terms
  2. Price
  3. Price breaks
  4. Freight costs
  5. Turnaround time
  6. Restocking charges
  7. Minimum quantities
  8. Does the vendor confidently stand by their product?
  9. How efficiently is the product handled?
  10. Is the product packaged efficiently?
  11. How efficiently can the product be used?
  12. Are you getting sufficient support from the vendor to help sell their product?
  13. Is the Vendors’ credit department flexible?
  14. What products do your competitors sell?
  15. Can orders be cancelled without penalty?

 

The obvious part is looking for the best price, but remember it’s also important to know where the quantity discounts or price breaks are in comparison to other suppliers. If you hit a brick wall in your attempts to negotiate with your vendor, ask for free freight. It’s an offer many suppliers will give you.

 

You need to understand what the turn around time is and how quickly your customers will receive a product after it’s been ordered. If you have a cash flow problem, it is especially important for you to know turn around times because you need to time your inventory receipts very precisely. It helps to know minimum order quantities if you have a cash flow problem, sometimes all you need is a small quantity.

 

Vendors need to take full responsibility for their product. That means if something goes wrong with the product, be it an issue of quality or technicality, the vendor needs to issue proper credit upon the product’s return, and the client needs to feel absolutely confident in the fact that their vendor will do that. Vendors should wave restocking charges unless the client is in an industry where there are a lot of special orders, so make sure and check what their restocking fees are for a product that has been incorrectly ordered.

 

The receiving department depends on the efficient handling of products. You need to consider all possible methods and avenues at once to save costs through out the entire process. This means you need to consider everything from logistics to manufacturing to merchandising/packaging to how efficient the product is to use at once, and figure out where you need to sacrifice and where you shouldn’t to end up with the most cost efficient solution. For example, one of my clients in the insulation business uses the pink panther insulation because although it is more expensive, it is so much easier to install that it makes up for any extra cost it incurs.

 

Support from your vendor to help you sell the product is a very big help and a sign of good faith. Anything from free displays and marketing materials to coop advertising programs tells you that the vendor is dedicated to working with you and is happy to be. It’s always good to know when you’re in a cash crunch that your vendor is willing to work with you, and hopefully also that their credit policies are flexible enough to with stand economic shifts and industry downturns.

 

If you know what your competitors sell, you can use that information to find a vendor who is not with competitors in your market. You will probably be able to get a good deal out of such a vendor because they do not yet have much market share in the market you serve, and chances are they’d love to work with you to get in there.

 

One of the most common things businesses (especially retail businesses) get in trouble for is over buying inventory. You will want the flexibility from your vendor to cancel your orders with out being penalized. This option will cut down on your risk of overbuying by giving you the option to reassess what you really need and change your mind, and also protecting you from having impulsive purchase decisions become permanent.

 

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The Chief Financial Officer And Communication

In order to be successful, a CFO must have solid communication skills. These skills are even more important for CFO consultants because with multiple clients, the challenge to communicate with them all becomes even more difficult.

 

The number one rule for being the kind of good communicator a CFO or CFO consultant needs to be is that you are responsible for both sending and receiving communication. You aren’t a good enough communicator if you only take responsibility for what you send out. You need to understand what the other person is saying and make sure they know they’ve been understood. Identifying the needs and wants of their clientele is at the core of what being a CFO is all about, and at the core of finding out what these needs and wants are is good communication with your clients.

 

It only takes one person in the loop to break down communication. If one person does not like someone else in that loop, communication starts to break down. Agreement and understanding are hindered if a person or people in the communication loop let their biases affect them. If people like each other perfectly fine but cannot agree in the loop and refuse to bend or compromise, or simply let their frustrations rule their behavior, communication starts to break down.

 

The only way to obtain good communication with in the group where you need it the most is to having a liking for and respect for the people in your “loop”. You need to be in agreement and understand each other, and be a true united front.

CFO’s and CFO consultants need good communication skills and also need to be able to impart those skills to their clients.

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Do You Have a Business Plan?

 

Do you have a Business Plan?

 

Whether you are a start up or have been in business for 25 years, every business should have a business plan.

 

One great thing about business planning is it really gets you thinking about the direction you want to take your business. As a business owner as well as a Part Time CFO, I can tell you that business owners need to spend more time really thinking about the direction they want their business to go. Preparing a business plan provides the impetus to get you thinking about that direction.

 

Changes to the plan are encouraged as a business plan is not one of those things you write up once and stick in a drawer never to be seen again. A business plan is a working document that is subject to perpetual changes. It is the working document aspect of a business plan that makes the business plan effective.

 

Business plan preparation should be a part of every CFO’s arsenal of CFO Services.

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Collecting Accounts Receivable

Establishing a system of collecting accounts receivable so that your receivable strategy is consistent and timely is critical to successful collections. It is incumbent upon the CFO to provide the direction to implement the Accounts Receivable Collection strategy. Here is an example of a strategy that if applied consistently and timely will lead to successful Accounts Receivable Collections:

Assume an invoice with terms of net 30 days

Between the 35th and 40th day contact the customer. If the customer is a customer you know pays within 30 to 40 days based on a history that you have with that customer then do not contact until the 40th to 50th day.

If customer does not return your call or you were not satisfied with the customer’s answer then send a 10 day Demand Letter, requiring payment within 10 days or account will be put in collection.

If not paid by the 11th to 15th day then put the account in collection.

I always use a collection agency that has a legal staff so that if the account is not collected using traditional collection methods legal action can be taken right away. Once again the key to the process is consistency and timeliness.

Accounts Receivable collection strategy is one of many important CFO Services.

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Selling Prices Too Low?

Are you maximizing the selling price of your product or service? One way to tell if your pricing is too low is by the number of customer complaints you get about prices. If the complaints about prices are diminishing or non existent your prices are probably too low.

 

I had a client who was getting absolutely no complaints about their prices. As a matter of fact they were getting a lot of compliments. Come to find out they were selling there product below cost!

 

The business owner usually has a good handle on what competitors are charging for their product or services. As a matter of fact most business owners price their products against competitors. However comments from the customer combines what the price of the product or service is with the value being delivered and therefore is the best barometer.

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Will You Know WhenYou Need Cash?

How Much Money does it take to run a Business?

 

Many business owners—whether they’re a start up entrepreneur or they’ve been in business for thirty years—ask themselves this very question when trying to figure out how much money they need to put into their business. The business owner needs to be able to determine if hey need to put their money into their business, get money from other sources, or if hey don’t need money at all whether their time horizon is in a month, a year, or five years. Knowing in advance how much cash they need or how much cash is available on different levels of sales volumes and expenses would give business owners much more precious time to react. I want to be told when it’s cloudy, not when it’s raining, and I say that as a business owner myself. Cash Tell is Next Step CFO’s sophisticated forecasting modeling tool. It tells business owners what their cash position will be at any point in the future, giving a great advantage to the business owner in preparing for whatever comes. Next Step CFO developed CashTell, and it is a tool exclusively available to clients of Next Step CFO.

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Identifying Metrics

Identifying key metrics to measure business performance for the business owner is an important CFO Service. I think there is a need for the Part Time CFO to identify metrics that are easy for the business owner to understand and to identify what is critical to the business in the following areas:

 

Sales

 

Gross Profit Margins

 

Employee productivity

 

Advertising effectiveness/Lead generation

 

Overhead

 

Fixed Asset Productivity

 

Interest Coverage

 

 

Every business/industry needs to take a unique look at the type of metrics that best evaluate performance. What may be an important metric for one business may be totally unimportant for another. Working together with the business owner to identify the critical metrics is the best way to go.

 

I also believe that you do not want to have too many metrics. With too many metrics things start to get complicated for the business owner to utilize and understand. Getting the business owner focused on the key metrics to measure his business performance will prove most productive in the long run. As the CFO sees the business owner utilize and understand the metrics presented, the CFO can introduce more metrics.

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Manage your Entire Business on One Sheet of Paper

Did you know business owners have the capability to manage literally their entire business from a single sheet of paper? A CFO can use metrics or key performance indicators to help the business owner put together a sort of Financial Dashboard. This Financial Dashboard is something many CFO’s share with their clients to help them identify key performance indicators in which to manage their business. What I’d like to ensure, however, is that the CFO shows the business owner how to use this tool more effectively to manage their business. Explaining to the business owner how to really use the financial dashboard may take a little more time and a lot more patience, but instilling that in them will go a long way in improving business productivity in general, and the productivity of the business owner individually. Using the financial dashboard to manage your business provides simplicity in the face of complex business problems, and also helps anticipate problems to circumvent future troubles.

 

I recently exhibited for one of my clients how in a simple metric called overhead per labor hour, a trend can show how well the business owner is doing managing their over head costs (which commensurate with managing their payroll costs). If you are not maximizing your overhead and payroll expense controls, giving a look at the way a metric trends can give you a quick indication. Probably the most productive way to visualize these trends is through the use of a graph.

 

Using the method of “finding benchmarks” is an okay strategy, but it will only take you so far. To “find benchmarks” means to find service or statistical bureaus that compile metrics from other companies in the same industry as your own so you can draw comparisons between yourself and your competitors more easily. Certainly, it’s useful and interesting information, but I personally believe no two companies are fully alike even if they are in the same industry. I suggest that all “benchmarking” be done internally, with the CFO, business owner, and advisory board all present to determine the most productive key performance indicators to track the target goals for each key performance indicator, and the way the business owner and CFO will use them to manage the business. Benchmarks are good to acknowledge, but I wouldn’t base my entire business strategy on them.

 

Of all the services provided by a CFO for hire, getting a business owner on board with the idea of using metrics to manage their business and teaching them to understand their uses is one of the most effective.

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Identifying Metrics

Identifying key metrics to measure business performance for the business owner is an important CFO Service. I think there is a need for the Part Time CFO to identify metrics that are easy for the business owner to understand and to identify what is critical to the business in the following areas:

 

Sales

 

Gross Profit Margins

 

Employee productivity

 

Advertising effectiveness/Lead generation

 

Overhead

 

Fixed Asset Productivity

 

Interest Coverage

 

 

Every business/industry needs to take a unique look at the type of metrics that best evaluate performance. What may be an important metric for one business may be totally unimportant for another. Working together with the business owner to identify the critical metrics is the best way to go.

 

I also believe that you do not want to have too many metrics. With too many metrics things start to get complicated for the business owner to utilize and understand. Getting the business owner focused on the key metrics to measure his business performance will prove most productive in the long run. As the CFO sees the business owner utilize and understand the metrics presented, the CFO can introduce more metrics.

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Your Competition can Teach You

I’m going to assume that if you’re reading this, you have competition out there in the business world. Having rivals out there makes us better business people. But to utilize the competition like any other business tool, your first step is knowing who they are. Too many people go into business with out understanding who their competitors in that business will be or how those competitors do business.   Such a blind leap into the business world is tantamount to an NFL team preparing for the super bowl not only without doing any research on their opponents, but without even knowing who their opponents will be. Studying your competition does not equal obsessing over them. If anything, being aware of your competition will allow you to learn from their mistakes with out having to make them yourself, and develop more productive strategies against them, therefore decreasing the time you spend worrying about them at all.

 

Trade shows are an easy place to hunt down your competitors. You can get information from their booths, look at their advertisements, and observe the different ways they market and communicate in the workplace, even speak to their representatives. You can possibly figure out if they use contract manufacturers or how their logistics work. If you can work out what their distribution strategy is, you can market regionally and develop relationships with businesses that do what you do who are not in your market. There is no overemphasizing how much information you will get out of those relationships.

 

Plan for your own business by using what your competitors taught you. Consider what things you want to do the same as they have and what things you want to do differently. The differences will be what separate your business from the competition, and you’ll want your business to stand out.

Influencing business owners to learn more about what their competition is doing and then helping them strategize against those competitors are valuable CFO services.

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