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Is your accounting department helping you spot the iceberg?

Sunday, March 18th, 2012

Are you beginning to view your accounting department as a cost center full of overhead expense?

Are you not sure what they do all day but know that they seem very busy and often overwhelmed?

If one critical person in the accounting department left, would business continue on without missing a beat?

If these questions make you uneasy– you aren’t alone.

When we talk to many CEOs we hear the same thing: “When it comes to the financials, we don’t know what we don’t know.” That includes what their accounting department does on a day-to-day basis—and what information they should be getting from them.

For many companies the amount of information that the leadership team gets from their accounting departments is minimal, dated and not easy to understand. Not wanting to know the intricacies of the accounting function, many owners blindly trust their accounting staffs, and figure if the tax accountant isn’t complaining too much at year-end, their accounting department is getting by just fine.

But are they? Could they be delivering more, more efficiently and with greater accuracy?

Here are some signs that your accounting department may need an overhaul:

Timing is everything. What would have happened to the Titanic if they knew about the size of the iceberg before they hit it? If you aren’t getting financials from your accounting department within 10 days after month-end, you are in the same situation. By the time you discover an issue 20, 30 or 60 days after the month ends you may find that a small issue last month has snowballed into a serious problem (“iceberg”) and you didn’t see it until it was too late.

Flat financials. So you are getting information from your accounting department, but can you use it? You should be getting real information from your staff– details such as which customers are driving your profits, what product lines are doing well, what is the productivity of your staff and your assets, as well as projections of where you are headed. If you aren’t, you may not see—or be headed directly for– that “iceberg.”

Business growth outpaced the skill set of the staff. Most companies have them—the bookkeeper or staff accountant who has been with the company from inception—who knows every nut and bolt of the business. But now that person is the “CFO.” Sometimes that person can grow into the role—sometimes not. It might be time to take a hard look at the skill set of your staff and get the right help in place to continue the business’s growth.

Busy-ness doesn’t equal good business. When was the last time your accounting department stopped and asked why they do things the way they do? Often times we find manual entry of accounting transactions when they could be automated, re-entry of the same data in multiple systems, and a LOT of unnecessary paper shuffling.

Old technology. Face it, when it comes to investment in IT, the accounting department gets the short end of the stick. There is nothing sexy about an accounting package (unless you are an accountant!) and it certainly doesn’t hold a candle to the fancy CRM systems that often are upgraded before the accounting systems. However, when used wisely, an investment in accounting system upgrades may just improve the efficiency of the staff, give you better information in less time and cost you less over all.

Your accounting department’s main function, beyond just record-keeping for the IRS is to provide you, the owner, with the best springboard for growth—information.

We often get called in to companies when the owner/CEO isn’t getting the information they need, when they need it and in the format that makes the most sense to them. Either the business has hit an “iceberg” or they are trying to avoid one.

How does your accounting department help you “spot the icebergs” in your business and how do they help you course-correct?

Posted in Accounting/Bookkeeping, Cost Cutting, Financial Policies & Procedures, Forecasting, Labor, layoffs, Planning | No Comments »

Funding for consulting in Jobs Act

Sunday, March 18th, 2012

Did you know? There is still funding for consulting through the Jobs Act of 2010.

If you are a growing business with 7 or more full-time employees, and you find that help from a consultant could get you past a particular hurdle, you may qualify for funding for consulting through the Jobs Act.

Recently, Profit Point was engaged by the Small Business Development Center (SBDC) of Northwest New Jersey to do a strategic financial review for a client, using a grant from the Jobs Act. In this review, we analyzed the financials of the business and gave the client a 10-page report with our findings and recommendations. We met with the client to talk about our findings, and laid out a plan of where they should focus their efforts first. After implementing some of our plan, the client reported that margins were up significantly over last year.

In addition to financial consulting, the SBDCs offer a variety of consulting, classes and strategic counseling for established businesses looking to grow. And, you can’t beat the price—nearly everything is free; classes are a nominal fee.

As for the Jobs Act, what did it do?

Signed in September 2010, the Small Business Jobs Act, is one of the most significant small business legislations in over a decade. The law provided up to $50MM in grants to the Small Business Development centers (SBDCs) for counseling and training. Other critical resources were made available to help small businesses continue to drive economic recovery and create jobs. The new law extends the successful SBA-enhanced loan provisions while offering billions more in lending support, and tax cuts. More information can be found here or contact us for more information.

Posted in Business Model, Cost Cutting, Increase revenue, Uncategorized | No Comments »

The empty spot on your bench

Wednesday, May 25th, 2011

Ask any business owner if they ever have enough money or enough people to get the job done and their answer is probably a guffaw and a resounding “NO!”

When you ask them who they need (in a perfect world) you’ll hear they need sales people, operations people and line workers. Rarely do they say they need a Chief Financial Officer (CFO.)

Ask any business owner that has left their accountants’ office during tax time still puzzled on why they owe so much to Uncle Sam or how they could have made so much on paper but don’t see it in the bank. Many accountants can’t answer these questions. A CFO can.

If you are worried about looking foolish in front of a CFO, or are embarrassed that you don’t have a grasp on your numbers, don’t be. You aren’t alone.

If you have a handle on your financials but still find yourself with questions about product line or customer profitability, whether you should pay back your loan or take the money and use it to grow, or why you never seem to have enough cash, you should consult your CFO.

If you believe your CFO is strictly a glorified bean counter, you have found the wrong person for the job. If you think that a CFO is really short for CF-”no”, that is, someone who will shoot down all your plans or ideas, you’ve found the wrong person.

If you are looking for someone to help you map out your growth, “run the numbers” and provide you options backed by analysis, and you naturally turn to your CFO, you know you have the right member on the team.

But most businesses don’t have that team member in place. There is an empty, yet critical, spot on their bench. It comes down to one change in mindset on the part of the business owner:

Hiring a CFO isn’t an expense, it’s a growth strategy.

A CFO can provide you with the best springboard for growth: information.

Information can be in the form of financial analysis and trends or forward-looking projections. It can be a scenario analysis (“if I do X, then my profit could be Y”) or a post-mortem (“why did this job run over budget?”) A CFO with good business sense can take your operational and financial data to give you a picture of the effectiveness of your daily operations. That’s pretty powerful stuff.

So, you can muddle along and find out what works through gut instincts or trial and error. You can hire another sales person or line worker and you can grow in increments. Or you can fill that empty spot on your bench with a CFO, even on a part-time or consulting basis, and grow exponentially. You just need to change your mindset.

Posted in Accounting/Bookkeeping, Business Model, Cash Flow, Cost Cutting, Financial Policies & Procedures, Forecasting, Increase revenue, Labor, Planning, Pricing, Recession Busters | 1 Comment »

An alternative to “Off with their heads!”

Tuesday, May 17th, 2011

When businesses downsize or look for cost savings the first place they look is their staff. Employees are expensive—you have to pay them a salary, benefits, “house” them for the work day, and give them whatever equipment they need to complete their work. Naturally when it comes to cutting costs, business owners see reducing these “people” costs as a quick way to save money.

Here’s a twist. Before you start thinking about headcount reductions, look to your employees for costs savings by ASKING them for their opinion. I know—it probably isn’t comfortable to admit that you need to save money if the business isn’t doing well. You also have to deal with the mind-racing and jumping to conclusions of inevitable layoffs. There is a lot to manage when you go this route.

As the business owner, you may need to shift from thinking you’re the only one who knows how to run the business, to being open to input from the lowest levels within your organization. When GE went through this process of seeking out cost saving ideas from deep within the organization, a line worker in one of its plants commented that for 25 years GE had his hands, all the while they could have had his brain as well—for nothing. Pretty powerful.

So do yourself (and your company) a favor—ask. Ask your employees how you can save money, how you can improve operations, how to grow the business. Remember those closest to the work know it best. They know a lot more than you give them credit for.

A critical thing with opening yourself up for ideas is also being open to act on them. Here are a couple of ways to encourage ideas:

Share the savings: If employees think that cost savings are going to wind up in your pocket, and yours alone, they’d be less likely to volunteer ideas. Give them a portion of the savings and recognize them in front of your peers or reward the best ideas with dinner for two paid by you.

Have Belly-Flop awards. Every idea you get may not be a good one, so have some fun with it without embarrassing the person who made the suggestion. If you pursue an idea and it doesn’t work out, award it the “Belly-Flop” award and analyze what went wrong, and learn from it. The main point here is you want to reward the risk that person took by suggesting something.

Watch the eye-rolling: You know what I mean, whether literally or figuratively, there is always one or more employees that roll their eyes as you announce your next big initiative or idea. Before you dismiss them as small-minded, take a moment to find out what their qualms are. In their response may be some warning signs of a project about to fail—or cost too much.

So take time in your day, week or month to ask, listen and do. If you show you are open to ideas from the ranks– and take them seriously–more will come, and so will your solution for turning around your business.

Posted in Cost Cutting, Labor, Recession Busters | 1 Comment »

Why Mix Matters

Wednesday, February 9th, 2011

Have you ever wondered why you may be selling more and more but aren’t making any more money? You may have a problem with your mix.

Just as too much of one ingredient can ruin a recipe, mix can make the difference between profitability and losses, a cash crunch and money in your pocket. It requires a bit of number crunching, but it is well worth evaluating your costs to this level of detail.

Mix is a factor of what you sell, who you sell it to and ultimately how you get into your customer’s hands. Finding the right balance can lead to greater profitability.

Here’s a breakdown of the three.

Customer Mix Imagine you are a manufacturer of widgets. You may sell the same widget to many customers. Some customers are high-maintenance and require expedited shipping, others order small quantities sporadically leading to a distribution head-ache. Others have integrated their demand planning with your company so you can manufacture to their demand.

Each of these customers cost-to-serve is different and the pros and cons of all their special circumstances should be weighed with what they contribute to your bottom line.

Product Mix As a widget maker you sell Basic widgets for $1 and Deluxe widgets for $2. Deluxe Widgets cost more to make relative to their selling price, i.e. they have a lower profit margin.

While you may be enticed to try to sell more Deluxe widgets because they can bring in higher sales, look what happens to your bottom line if you sell the same amount in dollars of both types:

Imagine what would happen to your profitability if you decided to sell more Deluxe without understanding this? You’d be scratching your head wondering– “I’m selling more but I why don’t I see it on my bottom line?”

Channel Mix. What you sell is important, but how it gets to the customer can make a difference too. Think of the many ways a widget can be sold. It may be sold directly via an online store, through a distributor, or directly to a retailer. In each scenario, the same exact widget is winding up in the hands of the consumer but how much profit ends up in your pocket may be very different.

What can you do once you understand your mix? You can actually increase your profitability by strategically choosing which channels to sell in, what you sell and whom you sell it to.

You can make better pricing decisions when you come across a high-maintenance customer and you can identify if there are ways to reduce costs of your lower margin products.

You may even find you have to eliminate a product line, fire a customer or stop selling through a channel.

In other words, you may need to adjust the “recipe” of your mix to yield the best returns.

Posted in Business Model, Cost Cutting, Pricing, Recession Busters | No Comments »

Shaking the shoebox

Wednesday, January 26th, 2011

Every so often, I have a flashback to my first job at General Electric. I was a financial analyst in one of the company’s old industrial businesses—a multibillion dollar firm that would have ranked as one of the Fortune 500 if it was a stand-alone company.

Like clockwork in April, we’d hear it-it would start as a distant rattling, but as it approached, you knew what it was… the shaking shoebox. The shaking shoebox meant one thing– fess up all the extra pens, pencils, and highlighters in your desk drawers. They were going back into the supply cabinet.

The shaker of the shoebox was our department Admin. She was like the tax collector of office supplies. If you didn’t fess up enough, she’d eye your drawer to see what you were hiding.

No joke.

She took her job as the supply-cabinet gatekeeper very seriously. You wanted a mechanical pencil instead of good ole’ yellow No.2 ? You have to personally ask her for it and you were only allowed ONE. If you came back in two weeks for a second, you had to account for the demise of the first. (“The CFO took it” always worked for me.)

Did I mention that this was a multi-BILLION dollar business?

Did they really care so much about measly office supplies? Apparently so.

So where is the lesson in all of this?

1—Beware of shoebox-wielding Admins.

2—Take every pencil seriously. Have you ever looked at your office supply expenses? Do you really know where all the money went? When I ask my clients why office supplies have gone up 20 percent over the past year, practically none of them could explain what they spent the incremental money on. Staples® contributes to the big black hole in most business’ P&L– Office Supplies. It sucks a few thousand dollars every year out of a business’ profit. (I am sure they like it that way too!) Even if you saved a few hundred dollars from office supplies and upgraded your software or sunk that into a new marketing piece, wouldn’t you get a better bang for your buck?

So maybe it’s time to do a little experiment of your own. Pull out your shoebox, and make the rounds in your office. If you come up with a full box, it is probably a sign that you might have other “pen- and-pencil” type saving opportunities in the business. Think about what other metaphorical shoeboxes you can shake—who knows, you may come up with serious savings!

Posted in Cost Cutting, Recession Busters | No Comments »

“Keel it up!”

Tuesday, January 18th, 2011

Crew Team

I used to row on the crew team in college. For those of you who know me, at 5’2″ I’m not exactly the typical long and lanky rower-type. Despite my lack of height we did pretty well for a bunch of novices—and even won some regional races.

But that’s beside the point.

The boats we raced had either 4 or 8 people in it and each person had one oar. When we weren’t rowing, the oars were kept flat on the water so the boat wouldn’t tip over.

Sometimes while we were sitting on the water getting instructions from our coach or waiting for our turn to line up in a race, the boat would start tipping, ever so slightly, so that we were all sitting kind of sideways a bit. It wasn’t a precarious tip—think of a slight “lean” to one side. Because our minds were elsewhere, we would unconsciously adjust our weight in our seats to compensate so we wouldn’t fall out.

It wasn’t until the coxswain (the person who steers the boat and gives instructions) would yell, “keel it up!” we’d snap to attention and make ever-so-slight adjustments to our oars so that the boat would sit evenly on the water. After the boat was keeled up we all realized how uncomfortable we were being off-keel.

So what’s this got to do with business?

If you’ve ever had a gut feeling that there was something wrong with your business, but you couldn’t put your finger on it or you that you have a nagging feeling that something is brewing with your market, your business may be off-keel.

It could be that sales are growing but you aren’t seeing that money in your bank account. Or your customers aren’t buying from you after their first purchase. You may be “leaning” in your business and you don’t even realize it.

The critical thing with getting back on keel is to make minor adjustments. If, when the coxswain commanded to “keel it up” one side of rowers slapped their oars in the water, the boat most certainly would have tipped over, tumbling all of us into the river.

In business, sometimes it is minor adjustments that make everything balance out.

Maybe a look at costs over time will help to identify where profit is leaking. Or a quick customer survey may help you tweak your marketing message to fulfill an unmet need. Little adjustments can have a big impact.

So take a look in your business and address what you need to get keeled up. Once you do, you’ll realize how good it is to be back in balance.

Posted in Business Model, Cost Cutting, Increase revenue | No Comments »

Webinar: “Three #s That Drive Your Business”

Tuesday, June 23rd, 2009

If you want to use your numbers to help you manage your business but don’t have the time to pour over pages of reports to figure it which ones to use– this seminar is for you. We’ve come up with three simple numbers that drive every business’ money-making engine. These numbers are easy to find and will help you diagnose nearly all business trouble spots and head off problems before they start. The best part is you don’t have to be an accounting whiz to figure it all out. Click on our flyer for more information, and our money-back guarantee.

“The Three Numbers That Drive Your Business”

Thursday, July 9, 2009

12noon-1:30PM (Eastern)

Cost: $49.00

Location: Webinar

Click here to register

Posted in Business Model, Cash Flow, Cost Cutting, Planning, Pricing, Recession Busters | No Comments »

Want to boost profits? Fire your “best” customers.

Monday, June 1st, 2009

You pick up the phone, it’s “them” again– you know, the customer that calls and complains, who needs everything delivered yesterday and who pays late? You are miserable serving them but, hey, they are one of your best customers—they buy a lot and have done so for years.

News flash: It might be time to give them the ax.

“Are you crazy?” you may be thinking, “In this economy when business is down 50% and I am struggling to keep the few customers I do have? Why let them go?”

Because you just might make more money if you do.

Studies have shown that the 80/20 rule applies to profits as well as sales. That means that a typical company makes no money or loses money on 80% of their customers. Measuring customer profitability is a powerful tool to improve your profits especially in this economy.

Here’s a simple example on how getting rid of a profit-draining customer (Customer P) can boost your bottom line.

Even though sales without Customer P have been nearly halved, profits have increased by 50%, and margins have more than doubled. You won’t get results like that with typical cost-cutting measures.

Here are some steps you can take to handle money-losing customers

Do the math. The first and obvious step is to find out who are your 80%. You’ll need to look beyond just gross margin (the money you have left when you take out the direct material and labor costs of your product or service.) Factor in distribution costs, expediting, post-sale service, “gratis” goods or services, and borrowing costs if they pay you late.
Show them your cards.
Customer profitability is most powerful when it is shared. Super-charge your discussions by showing them where they stand vs. their competitors that are profitable for you. These can be shared without disclosing confidential information by using percentages of sales and masking names.
Love them (back to profitability). You should always try to find a way to turn money-losing customers around. Now that you know in detail the cost to serve them, you have specific areas you can target for reductions. You may find that the discounts you have been giving them have cut into your profits or that you need to raise your prices. It’s also a good time to look internally and see how you might be able to pare back services that are not adding value to them, but that are increasing your cost base.
Leave them. If they aren’t willing to work with you to reduce costs or agree to price increases, it is time to let them go. Maintain goodwill by helping them find another supplier, but be firm that the relationship has to end. It may mean the difference in your survival in the market.

Measuring customer profitability is probably the single most overlooked measurement to boost profits in this economy. It allows you to cut costs with a scalpel rather than an axe, and has greater impact on your bottom line than slash-and-burn tactics will ever have.

Posted in Cost Cutting, Uncategorized | No Comments »

6 Simple Ways to Reduce Healthcare Costs

Thursday, April 30th, 2009

I asked Tina Piccinnini of Coastal Financial Group how employers can reduce their healthcare costs. Her answers are below. If you want more information, please email Tina or call her at (973) 952-0300 x119

What are simple things can employers do to reduce their healthcare costs?

Have 5 different plans for 5 employees: Most employers I speak with are always surprised that you can really tailor the health insurance plans specific to their employees. For example, a group that has 5 employees can have 5 different plans. The HMO plan that works well for one person, may not work for someone else, and that’s ok. You can set up the insurance to really customize the coverage that best fits the needs of each employee. Generally, a younger person would not take a lot of medicine, so give that employee a lesser prescription plan at a cheaper cost and each employee wins.
Define your contribution: Any employer knows that by law, he is required to contribute a percentage of the premium for each employee. What works well for employers is having a defined contribution so he will know exactly what his cost is each month. For example: The employer can say, I am going to contribute $300 a month for the cost of healthcare. So, I will show 3 or 4 different plans, and the employee can choose which plan works well for them. So, if employee A chooses a plan that costs $320 a month, the employee only has to contribute $20 a month. If employee B wants a plan that costs $400 a month, he will pay $100. This works well for the employer because he knows exactly what his cost is each month and can set his budget accordingly. This is especially important right now with a slow economy.
Reconsider prescription coverage: A big portion of the premium is to cover the prescription coverage. Many of the insurance companies have come out with plans with either no prescription coverage or a discounted prescription plan. These types of plans can lower the rates dramatically and should be considered as an option for an employee who is not taking monthly maintenance medications.
Pay for what you use: Many people (myself included!) are used to the days of having health insurance cover everything at 100%. While those plans exist, they are not generally cost effective. We all need to look at options that could possibly include a higher copayment, or a deductible specifically for hospital stays. Studies have shown that on a group with 10 employees, only 1 will use the hospital benefits. So, why pay for something you are not using?
Don’t wait for your anniversary: One of the most important things I can stress right now is this, and not a lot of people know this, if you need to reduce costs now, and you did not make a change to your plan on your anniversary date, the insurers will generally allow an off-cycle benefit change to lower the cost right now. Also, you can change your plan from company to company at any time (you don’t need to wait until your anniversary date). You will not be subject to a pre-existing condition clause and you can potentially save money.
Use a broker (and I not saying this because I am one). Most of my clients are employers with less than 50 employees. I see and hear their struggles daily as they try to make ends meet. A broker generally has access to all of the insurance companies and can look around and find the plans that your doctors and hospitals participate with at a cost that works for you. A broker should always be there to handle any claim, billing or enrollment issues as well so you don’t have to sit on the phone with the insurance company for hours trying to get things done. You are paying a lot of money for your plan, make sure your broker is working for you!