Daily Bank Reconciliations

Over the next Several Weeks we will be posting a new and different one-minute video providing business tips and instructional commentary for small business owners.   These tips will range from key metrics to consider to the importance of Business and Cash Flow Forecasting.

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Deciding on a Business Partner

Over the next Several Weeks we will be posting a new and different one-minute video providing business tips and instructional commentary for small business owners.   These tips will range from key metrics to consider to the importance of Business and Cash Flow Forecasting.

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Know Your Numbers Minute

Over the next Several Weeks we will be posting a new and different one-minute video providing business tips and instructional commentary for small business owners.   These tips will range from key metrics to consider to the importance of Business and Cash Flow Forecasting.

Here is the first one

 

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Add More Value

You can either read this post or watch the video of this post at:

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World Renown Sales Person Zig Ziglar once said. “People love to buy”, but he went on to say that the reason why someone doesn’t buy from you is that you haven’t given enough value for the payment you are taking.

We business owners need to creatively and continuously add more value for our customers. To elevate ourselves above the rest, we need to come up with unique value propositions. In this post it is my objective to give you some examples of added value to help you come up with your own ideas on how you can add value to your products and services for your customers.

Many times, I hear small business owners say “If only I had the advertising money to get the word out about my product or service, after all, some percentage of them will buy and we’ll grow the business, similar conceptually to Geico or Jordan’s Furniture”.

My fellow Business Owners I had an advertising budget in one of my businesses of $500,000 per year and believe me it doesn’t work that way. We need to have a message of value when we advertise and that includes networking. Geico and Jordan’s furniture have unique value propositions like save 15% in 15 minutes on car insurance or “Underpricing”, or interest free financing for 6 months with no interest and no payments. If you don’t offer more value when you advertise, then your customer acquisition cost will exceed the value of a customer and that is a losing metric over time.

Look at it this way, if our number one priority is the customer and it should be, we need to be obsessed, with constantly adding more value to our products and services. And if you do, the word will get out and if you then want to supercharge your growth from there you can then advertise and now you have a powerful message. And believe me if you offer more value than the payment you are taking your customer acquisition cost will be far below the value of a customer and that is an outstanding growth metric!

When I was 9 years old, I had a lawn mowing business and in addition to mowing and raking the lawn. I also weeded and watered the lawn. It was amazing to me when I was weeding and watering is when the most prospects would stop their cars on the side of the road and ask me if I can do their lawn. That is when I first saw the value in adding value.

When I was in the Ski business I did a performance guarantee. Ski the skis 3 times and if you don’t like them for any reason return them for either a 100% refund or get a brand-new pair of skis.  People in the industry thought I was nuts. With this program we had double digit increases every year in ski sales. And an average of 4 pair of skis came back. Where did I gather up the moxie to do this? Because I knew my customer so well. I knew that all my customer wanted was a great ski experience and if they got that they would pay anything and that is still the case today.

Package up products. It was traditional to package up skis but I also used to package a Parka, Sweater Bib and hat. No one was doing that. Packaging products adds value

I have a client in the construction business and a client in the landscaping business that offer 5 year guarantees on their work. These guarantees add value! They transfer the risk from the customer to them. Sounds brutal right? To me it sounds like making money. The key is my clients know how to manage the costs of these warranties and that is why they work.

If you are trying to sell to Millennials, these are people born between 1981 and 1997 they are attracted to a concept called “Cause marketing” where you can add value to them by contributing to a cause from the proceeds of every sale.

Daymond John The People’s Shark on Shark Tank. added value to his business course by adding a copy of Napoleon Hill’s Think and Grow Rich. By the way, anyone can do it, that book is in the public domain.

Information products. You can give them away or sell them to add value. Everyone has an area of expertise that people want to know about. Did you know there is someone out there doing high 6 figures a year selling an information product on how to give your horse ballet lessons?

I could go on and on.

I’ve chosen to right this post in the hope that I added value to my clients, potential clients and referral partners who may be reading this. Because I too must constantly give more value than the payment I am taking and elevate myself above the rest.

And Please if you don’t remember a single word I said today, and you want to add more customers or keep existing customers, I am pleading with you to let the following 3 words burn in your memory. “Add – more – value”!

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Bank Reconciliations-DAILY

The CFO really needs to stress how important daily bank reconciliations are. The bookkeeper might react something like this: “Not that!! No!!! Why???”

The why is that no matter the economic integrity of the times, the business owner needs to be aware of his cash position daily, and in real time. The only way to do that is to do bank reconciliations every day. If cash is tight or you have full blown cash flow problems, you really can’t afford to find out that a customer’s check bounced 3 days after the fact when the bookkeeper gets the returned NSF check back in the mail. In three days time, you’ve probably already sent checks on that money and risk any number of important checks bouncing. What good is it to find out at the end of the month if an EFT out of your account or a debit card transaction hits more than once due to clerical error by a vendor or bank when you do the month end bank reconciliation? For that entire month, you thought you had money that you didn’t, and now the consequences are all on you. The discipline in implementing daily bank reconciliations needs to come from the part time CFO and cannot be allowed to waver.

Daily bank reconciliations should take less than 10 minutes a day with online access to your banking transactions, and those 10 extra minutes will bolster the confidence of the business owner when they’re paying their bills.

If it warms them up any to the idea, let your book keeper know that all these daily bank reconciliations will make the month end reconciliation a snap!

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The Importance of Preparing Business Plans

I believe business plan preparation is one of the most valuable services I offer to my CFO clients.  One of the key attributes of a CFO who is prepared to make business plans is that they have had prior business ownership experience themselves. With prior business ownership experience a CFO will have a better handle on the operational and marketing components of the plan. This experience will give the CFO the ability to ask the right questions to the business owner and staff. The CFO already possesses the skills to prepare the financial portion of the business plan. The main purpose of a business plan is to put a company on (or back on) the right track. Lots of times business owners say they are headed in a certain direction but as a CFO, as soon as you start to peel the layers away you find that the company is going in an entirely different direction, nowhere near what the Business Owner thought. A solid business plan will help put the business owner in the direction they want to go. In addition, business plans are of vital importance when the company is seeking additional financing. Whether that financing is coming form a bank, an angel, or a venture capitalist, a business plan is a must. Since it is imperative that CFOs offer finding financing as a CFO Service, it only follows through that the CFO should be able to prepare the business plan.

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Payback Associated With The Right Operating System

Included in a CFO’s Duties should be the research of and  ability to identify the right operating system for the business owner. I look at operating systems for my CFO clients is by first identifying which modules are to be purchased for necessity and which modules (if purchased) will produce a payback. For most manufacturing and distribution companies internet based systems allowing sales reps to enter orders from any internet connection including their laptops has a significant payback through saving administrative time and using commission only reps to enter the data and do more of the administrative work. Another module with significant payback offered in most operating systems are web based stores. Once again for manufacturing and distribution business owners web based stores can produce a payback through its communication tools. For example, in a web based store all of the manufacturer or distributors customers can purchase products on line. You can offer special pricing to individual customers, but more importantly you can make them aware of special pricing deals, new product introductions and closeouts. You can also put deadlines on when those special pricing deal offers will end and the system does that automatically. This has a tremendous payback as customers can place orders more conveniently and with more information at their finger tips. You can also put deadlines on when those special pricing deal offers will end. The CFO can really help the client business owner with a more profound understanding of the payback associated with operating systems.

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Getting Rid of Stale Inventory

One aspect of their business that the retail, manufacturing, and distribution clients in my CFO practice need to handle better is inventory–particularly they need to understand that it’s important to get rid of stale inventory as soon as possible.

Business owners hate to admit when they make a mistake (i.e. when they buy or produce something that does not sell). We all do it, I used to do it. It is a peril of the game. DO NOT TAKE IT PERSONALLY. Don’t let it delay you from taking the next step, which is what I like to call failing forward fast. That means as soon as you know something will not sell, get rid of it! This will allow you to use the cash from the sale to purchase more productive assets and more productive inventory. You know, the stuff that really sells.

Do not worry about the margin hit!! Take the margin hit, otherwise it is almost a guarantee you will sell it for less somewhere down the line. By selling the slow movers as soon as possible you will get more inventory turns which will result in less inventory and more profit. One of the most valuable CFO Duties is the management of  inventory turns and  impressing upon the business owner the extreme benefits of admitting inventory mistakes as soon as possible, converting them to cash and buying more productive inventory assets.

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Knowing and Understanding the Value of a Business

Consistently keeping track of the business value of your client is a significant CFO Service. Business owners should be kept abreast of the value of their business on a quarterly basis. Business Valuation can be utilized and needed for the following purposes:

  • Obtaining financing
  • Company is being acquired or merged
  • Shareholder buyout or disputes
  • Personal Financial Statements
  • Employee Stock Ownership Plans (ESOP)
  • Litigation or Divorces
  • Conversion of Corporate Status from a C-Corp to an S-Corp
  • For Estate and Gift Tax Purposes
  • For purposes of the business Owners goal setting
  • Shareholder Buy and Sell Agreements

CFOs should calculate two different valuations. One such valuation is what I call the Book Valuation. This valuation uses the traditional metrics like sales, EBIT, cash flow and assets. The second valuation that should be made is what I call the Synergy Valuation. The Synergy Valuation is a valuation that a strategic buyer would pay. A strategic buyer is a buyer who is in the same business and will be able to take advantage of economies of scale and synergies. This buyer will probably pay a higher price than the book valuation.

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On Tracking Patents and Trademarks

A temporary CFO can provide the valuable service of keeping track of the Patents and Trademarks for a company. Patents and Trademarks are easy to lose track of due to how very complicated they can become. The situation only gets worse if there are several of them. Understanding where each Patent and Trademark is in the process will be one less area for a business owner to worry about. Suggesting patents and trademark opportunities is another CFO service. If your company imports be aware that if a product has FDA approval that there can be some discounts on duty and tariffs on those imports. Also be aware that if a company is not registered with the FDA for certain products that shipments can be refused at customs. I learned about this when I was tracking a patent for a client. Another important factor in tracking Trademarks and Patents is understanding the costs. Legal fees can get way out of hand. Most recently I have used www.legalzoom.com and had a lot of success in filing a trademark at a quarter of the cost.

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