Perhaps lack of growth is not considered failure by some business owners, but Jay Goltz has a different view. Partially based on his own personal business experience, he discusses how working harder and not realizing the benefits of growth can be the downfall of a company, “there is an uncomfortable place between big and very small, where the owner is still doing a lot of the work and still not making much of a living,” states Goltz. Read the full article “10 reason why some businesses can fail by failing to grow.”
What’s the best way to collect money due your business? The answer is surprisingly simple: ask for it.
One caveat, though: sending out yet another past due notice doesn’t count. Collections-by-mail is an exercise in futility. What you need is direct contact. Pick up the phone and call someone. Most customers will talk to you. If the individual refuses kick it upstairs.
When on the phone, there are three things to remember: commitment, commitment, commitment. Whatever it is – an assurance to pay, a promise to investigate, an agreement to seek authorization – be sure to get some type of commitment. Also be sure to set a clear time to call back for follow up.
If you’re overburdened with collections responsibilities, remember the Pareto principle – namely that roughly 80% of the effects come from 20% of the causes. Applied to collections, this means that approximately 20% of your past due accounts are responsible for 80% of your past due money. Sort your past due accounts from highest to lowest in terms of dollar amount and this will become self-evident. Then, start making your calls top-downward. Keep a record of the commitments and times for your follow-up – and do a new 80/20 analysis every week.
It’s a business truism that what gets measured gets done – and this is as true for collections as for any other aspect of your business. To measure your collections performance, start by calculating your accounts receivable days and use this metric as your benchmark. We’ve seen dramatic results – such as receivable days cut in half in just a matter of months.
It’s also important to keep your collector incentivized. Paying a monthly bonus based on each day of reduction works particularly well. If your monthly sales are $500k then each day would be worth roughly $17k. A $50 bonus for each day reduction is a good deal for everyone. When your receivables are under control, adjust the bonus based on a new target so that you can maintain control and still provide the incentive.
Remember, the squeaky wheel gets the oil. Your customers may have limited resources – but they’ll pay you before they pay a silent vendor.
If you need help setting up a collections program let us know. The CFO Connection will be happy to help.
When you work with The CFO Connection, you get a dedicated CFO that acts as an integral member of your executive team – helping you make decisions and drive initiatives that move your company forward. The model is not project-by-project. To the contrary, the relationship is designed for enduring business continuity and value. Your CFO, provided at a reasonable cost, remains connected to your company, building relationships within your organization that pay off in the near and long-term alike.
After twelve years of delivering CFOs according to this model, The CFO Connection knows that it works. On more than one occasion throughout our history we have successfully replaced full time CFOs – delivering more value at less cost to our business partners. We have never been told that we do not give enough support.
The model is based on a combination of on-site and off-site support. This includes visits throughout the month coupled with off-site connections throughout the course of the relationship, either by telephone, email, or remote desktop support. While on-site, we review and set things in motion. While off-site, we monitor and direct. This allows us to have a continuous influence on your organization on a daily basis. It also delivers to you the expertise of a permanent, highly experienced CFO at a fraction of the cost of a full time executive-level position.
Strategic planning is a concept that many businesses embrace only with a sense of wariness. This is because the process is often rooted in “feel good” language and visionary aspirations. The typical CFO prefers a little more meat on the bone.
So how do we put the “plan” back in strategic planning? This is done by focusing on the customer and adding the concept of profitably to the process.
Starting with the customer is important. If you do not define your customer well, then you won’t know what resources to employ, how to go to market, or what business to accept or reject. If you try to be all things to all people, then you make no one happy in the end.
Defining your customers and their needs helps you position your products and services. Keep in mind that what you identify as a customer need may not necessarily align with your customer’s buying criteria. For example, many customers will evaluate you not so much on how you meet their needs, but by how you compare to the competition. If you offer something that is too much better than the next guy, you could price yourself out of the market. The point, of course, isn’t to settle for mediocrity. Rather, when positioning your products and services, simply spend some time thinking about what your customers need and what they think they need.
Once you have your customers down, it’s time to focus on profitable growth. Start with long term objectives – perhaps five years out but maybe shorter. Next, define what you need to do in the short term to realize these objectives. Both long term objectives and short term activities need to be realistic, easy to communicate, and measurable. For example, let’s say your long term objective is to double your sales in five years. This may be ambitious, but it’s doable, clear, and easy to evaluate. Your short term objective in such a scenario might be to expand your sales force by 10% in the first quarter. Equally doable, clear, and easy to evaluate.
Of course, a 10% increase in your sales force over several quarters doesn’t automatically translate into a doubling of sales. And even if it did, you have to consider the impact of the cost of the sales force on profit margin. Which brings us to the importance of reporting.
To realize your goals, you need to put a solid reporting/feedback mechanism in place. By defining your activities well, you can better understand their costs and judge whether or not they’re realistic. If they’re not, then reset your sights. Good reporting highlights both your opportunities and vulnerabilities. It also tells you where to put your resources and when to re-evaluate your strategy.
The purpose to this approach is to put quantifiers and measurements on an otherwise highly visionary and therefore qualitative exercise. If you remain realistic and set at least some of the measurements for your objectives in P&L terms, then you can put yourself on better footing for profitable growth.
What we do know is that it’s lower than it should be. For example, there’s plenty of evidence that it lags quite substantially behind blue collar productivity. Why?
One of the main reasons is that IT investments aimed at increasing productivity have focused predominantly on operational execution – which falls into the domain of blue collar work. White collar work is far more difficult to pin down.
Focused more on strategic concerns, white collar work often involves a lot of meetings, discussions and collaboration with colleagues. While some of this is necessary, much of it acts as a productivity-killer.
A lack of measurements, meanwhile, leaves many white collar workers to prove their value the old fashion way – by working longer hours. But longer hours do not necessarily mean better results.
The CFO Connection offers a solid solution to productivity-killing situations and we are appreciated by our clients.
Our seasoned pros understand the importance of being productive. When we engage a client, we hit the ground running – with no training required. And while we work intimately with management teams to meet corporate objectives, we keep the water cooler at an arm’s length and meetings to an absolute minimum.
Because we work on a part-time basis, we’re also less entangled with organizational politics. At the same time, we’re high powered professionals with long track records of success. This brings instant respect – which allows us to get to work quickly so that we can be productive as soon as possible.
In large companies, CEOs typically have large staffs that they can rely on for advice. For smaller companies, the in-house capability is much less.
For instance, a larger company may have a risk manager while a smaller company would use an insurance agent. Same thing for in-house counsel as opposed to an outside lawyer on retainer. Then, of course, there are bankers, CPAs, and consultants – all playing a greater role for small companies and filling in some of the internal void.
Call this the trusted advisors network. Sometimes they emerge out of other networks – such as a CEO roundtable where business leaders meet their peers to discuss business strategies. Sometime they emerge organically out of existing business relationships. Whatever the case, the network works best when each participant has a stake in the success of the business they serve.
For example, a loan officer at a bank might want to lend a CEO money for a new venture. The bank, however, might have concerns about the company’s financial management. In turn, the loan officer may introduce the CEO to a financial expert who can develop a plan to bring down the company’s debt or otherwise restructure its finances.
Now, let’s say that this financial expert finds that the company could save substantially by outsourcing in any number of areas – such as fleet management, IT support, or HR. Here, the financial expert may recommend service providers with proven track records of driving down costs and delivering quality work.
After making a series of such moves, the company puts itself on more solid financial footing. This, in turn, makes it possible for the loan officer to do business with the CEO – enabling the CEO to secure the financing needed to expand.
The point is that the CEO’s focus is on the customer and whatever it takes to deliver the best products or services.
As an intricate part of the management teams we work with, the part time CFOs from The CFO Connection constantly create and maintain relationships with trusted advisors. When the CEO has a need not filled by the organization, we are ready to make an introduction.
When it comes to corporate roles, those of the CEO and the accountant couldn’t be further apart. The CEO thinks big: grow the business, wow the market, motivate employees to do their best. The accountant thinks small: record transactions, run payroll, close out the books at the end of the period.
Both ways of thinking have their place. Think too small, says the CEO, and we’ll squash innovation and lose market position. Think too big, says the accountant, and we could overreach and pay the consequences on the way down.
Sometimes, these two ways of thinking co-exist in a harmonious way that strikes a balance between business competitiveness and fiscal prudence. Other times – not so much.
Tensions often arise when a company starts to experience significant growth pressure. As a small, tightly knit company unit – before the growth, that is – roles tend to be defined and personalities well established. Operations – and opportunities – exist on a small enough scale that differences between CEO-thinking and accountant-thinking have little if any significant impact.
But when companies start growing, gaps can emerge. How much do we spend on expansion? Do we really need a factory in Cincinnati? You want to spend how much on a new engineer?
Here, it is important to be clear regarding the definitions of corporate roles. What can be said about the CEO holds equally true for VPs, seconds-in-command, and the sales team. In place of the accountant, it is equally valid to talk about the controller, the treasurer, or even bookkeeper. The point is that when growth opportunities present themselves there is often a disconnect between the business types and the financial types.
Enter the CFO. The CFO is as equally concerned with sound financial stewardship as with business viability and competitive advantage. The CFO, in other words, can act as the bridge between the business and financial sides of the company.
The problem is that for many companies on the cusp – those just starting to grow – hiring a CFO with an executive-level salary is beyond their means. This is where the lean CFO – working on a part time basis – adds exceptional value. Working on a part-time basis but over the course of a long term relationship, such a CFO brings years of experience to bear on both the business and financial decisions an organization makes as it seeks to navigate the challenges on the road to growth and success. The result is sound business strategy built on a solid financial foundation.