Middle Market Waste, Inefficiency & Excess Cost - Apr 15, 2012
Posted by: Brian E. Christian in Articles
In today’s economy, reducing administrative overhead costs to their bare minimum can literally mean the difference between success and failure for middle market companies. In an environment when top line revenue is, at best unpredictable, it makes perfect sense to lower the break-even revenue point of the company as much as possible.
One of the easiest ways to accomplish this is to outsource payroll AND eliminate any redundant input of job cost information. It is one of my standard recommendations and I constantly hear variations on the following themes as objections to this recommendation:
- Payroll is just the by-product of job costing.
- Outsourcing my payroll wouldn’t significantly reduce my administrative burden- it doesn’t take a significant amount of time, once the job costing is done.
- Job costing and tying each employee’s time on various jobs out to their time card for the period takes the most time and raises the most questions.
- I can’t outsource the job costing.
My response to these objections usually follows alone the following lines:
- Internal payroll processing is mundane, routine and does NOT add value to an organization- why would you expend valuable administrative resources on something that does NOT add value.
- Payroll companies do nothing but payroll and as a result they do it FASTER and more EFFICIENTLY and for LESS cost than anyone can do it in-house.
- With a minimal one-time investment in an appropriate time and attendance module (including mobile smart phone applications), the need for clerical reconciliation of job costing to employee time cards becomes a distant memory.
Depending on the manual nature of the legacy job costing/payroll process, championing process improvement like this can allow a middle market firm to reduce its administrative staffing by an entire full-time equivalent employee.
If your company struggles with profitability or is challenged with cash flow, continuing to carry excess costs and overhead burden can mean the difference between solvency and insolvency.
Observations From A Concierge CFO - Mar 28, 2011
Posted by: Brian E. Christian in Articles
What would INCREASED PROFITS and larger CASH balances mean to your business or that of someone you know? I can help you achieve these for you or someone you know!
As a Partner with B2B CFO®, the USA’s largest CFO services firm focusing on entrepreneurial, growth oriented and middle market companies, I support every facet of each of my clients’ operations, including sales management, production operations, human resources, finance and accounting.
In working with my clients, I have solved several common issues with which they previously struggled. All of them are critically vital to profitable growth and sustainability. The good news is that with focus and accurate analysis they can be rectified. In no particular order, here are five that I see most often:
- Lack of Timely, Accurate and Meaningful Financial Statements.
All business decisions have financial implications. Without basic financial information, it may be a shot in the dark. Many times the financial statements are too old (not timely), the business owner doesn’t believe they contain correct information (not accurate) or the financial statements support the preparation of the company’s income tax return, and not necessarily the successful running of the business (not operationally meaningful). They usually only become important when the business owner needs to meet with the bank.
- Lack of Cash Management tools and expertise.
As we all know from operating a business, cash is king! It is the common denominator for all businesses, NO CASH = NO BUSINESS. Other than the current cash balance (most of the time determined by looking at the bank’s balance) most small businesses don’t manage their cash. Cash management includes understanding your business’ “operating cycle” (i.e. cash to cash cycle). To improve your “operating cycle” it is imperative you understand what it means, how to calculate it, and what influences it before you can improve it.
- Recently I was visiting with a very good commercial lending officer. We were discussing the current economic climate and the trends we both have witnessed lately with respect to commercial and Industrial (C&I) lending.
He made an off-hand comment that I probably did not adequately appreciate at the time, but upon reflection it hit me like a brick!
He said: “I wish potential clients would perform a little due diligence, or at least a half hearted attempt to find out if we are a good fit for their company.” He went on: “The deepest questions I get are:
“How much will you lend me?’ and,
"What will it cost me?”Upon further thought, I had the following considerations:
A typical bookkeeper, office manager, accountant or controller will usually cost a company between $25,000 and $90,000 annually (plus taxes and benefits).
When hiring for these positions, business owners/CEOs and their managers will typically go through many, if not all, of the following steps in search of the “best fit” for their company:
1. Create a detailed job description.
2. Write and place a classified advertisement in a newspaper or post the position on an internet job board.
3. Spend hours sifting through resumes or job applications
4. Spend hours interviewing qualified candidates in multiple rounds of interviews.
5. Spend hours negotiating with multiple candidates.
The above are pretty routine, common place and acceptable steps that businesses take to ensure they hire the most qualified person and maintain their desired culture.
To some the topic of this article is referred to as a "turnaround". I have been fortunate to have been involved in several of these situations both with clients as a Partner with B2B CFO® and at other points in my career.
I prefer "corporate renewal" because it embodies much more than merely getting the financial results of the company to trend in the opposite direction. True corporate renewal requires deep, fundamental, re-evaluation of organizational concepts that many times are overlooked or ignored. Without painting with too broad of a brush, effective corporate renewal begins with a wholly new direction imparted by redeveloping the mission and vision and strategy of the organization.
Once these are determined, the organization and its leaders can set about acquiring the core competencies required to carry out the mission, vision and strategy of the newly oriented company. Core competencies are best summarized with two (2) words: people and processes.
A company in the process of renewal has to take a hard view of the current staff and processes in place at all levels of the organization with the objective of determining an affirmative answer to the following questions:
People: Do we have the right people in the right positions to live out the mission, embody the vision and carry out the strategy of the organization?
Processes: Do we have the most efficient day to day processes, communication mediums, information flow, and accurate management reporting at the lowest competitive cost structure to live out the mission, embody the vision and carry out the strategy of the organization?
In the practice of corporate renewal, the ideas behind these questions are not new, uncharted territory; however, the alternatives available to an "outside the box" thinker are more diverse and robust than at any time in history. At the risk of sounding self serving, take for example the utilization of an outsourced financial professional to re-tool your company from a fundamental foundation to operational effectiveness. For example, by engaging a B2B CFO® partner on a part-time, as needed basis to evaluate, hire, train and implement your people and processes, you would avail yourself and your organization of the collective wisdom and experience of 175 partners possessing over 5,000 years of the best financial and business acumen ever assembled in one firm in the history of mankind (this sounds like hyperbole, but is indeed fact)!
If the answers to the above questions about people and processes are not affirmative, then the company leadership not only has the right, but also the obligations to make the necessary changes until both answers are resoundingly "YES". B2B CFO® can help make this a reality for your company!
A Rewarding Engagement - Oct 16, 2010
Posted by: Brian E. Christian in Success Stories
I was engaged by the business owners in June/2010. In the 18 months prior to my engagement, their experience was marked by the following:
1. The company ran net operating losses in 15 of the preceeding 18 months.
2. Most of these months, the company suffered negative cash flow.
3. The owners personally injected over $500,000 into it to keep operating.
4. The accumulated net operating losses left the company with negative shareholders' equity.
After reviewing their cost structure, quoting process, labor management processes and working capital quality, we embarked on the following initiatives:
1. To better manage the labor distribution and cut direct labor costs
2. To develop better, more timely management information.
3. To effectively collect outstanding receivables.
4. To increase the quality of communication throughout the organization.
5. To push accountability & responsibility down to the lowest levels possible in the organization.
The results of this process are that the company has returned to profitability in each of the last two (2) months. Continuation of the current trend will result the company posting a net operating profit for the fiscal year. The owners are now re-invigorated and enthused about the prospects for the future of the company.
Testimonial - Of Brian E Christian CPA MBA - Jul 9, 2010
Posted by: Brian E. Christian in Testimonials
June 30, 2010
Dear Future Clients of B2B CFO,
Brian Christian was extremely professional and helpful to us in gaining an understanding of the profitability drivers in our business:
· He re-structured our income statement in order to highlight the variable and fixed nature of our costs and how they impact our profitability.
· He forecasted our income statement and balance sheet for all of 2010 (our first ever), which we were able to present to our bank in order to pro-actively secure much needed working capital financing in advance of the highest revenue month in the history of our company.
· Doing this and more in a caring fashion he is truly dedicated to the success of your company.
I would not hesitate to recommend Brian to another business owner.
Sincerely,
Dan Cartledge
Wisconsin Expo, Inc.
Thoughts on the Economy, Debt Financing and Banking Relationships - Jun 4, 2010
Posted by: Brian E. Christian in Articles
Thoughts on the Economy, Debt Financing and Banking Relationships
No one would argue that we are living in challenging economic times for emerging and middle market businesses:
· Unemployment rates are historically high and holding steady.
· Economic growth has been stunted without foreseeable increases.
· Businesses not seeing revenue growth on the horizon have no need to add employees or borrow money to facilitate the forecasted growth.
· Businesses “needing” to borrow money are usually financially stressed and are experiencing cash flow challenges.
· With little demand for loans from growth oriented borrowers, banks are focused on conducting the arduous task of cleaning up their loan portfolios and managing their bad debt reserves.
So where does all this leave the emerging or middle market company and business owner that has struggled to generate revenue and cash flow while becoming increasingly dependent on its line of credit over the last two and a half years?
Part of the answer lies in “relationships”. Another part of the answer lies in “business fundamentals”. The last part of the answer is a combination of both of the above.
Having been a banker and now a part time CFO for several closely held businesses, I have a somewhat unique perspective on today’s economic challenges faced by emerging and middle market businesses and how these challenges can be overcome with a strong vibrant relationship between a business owner/borrower and their banker.
I don’t remember who I heard this from first, but nevertheless, it i....
Lemonade Anyone - Apr 18, 2010
Posted by: Brian E. Christian in Articles
My thoughts on credit markets, sage philosophy and serendipitous financial solutions- not necessarily in this order
Recently, during a visit with a prospective client, we were in the middle of a very productive conversation regarding the state of his business and I asked him what I thought was a very good question: “What about your business keeps you up at night?”
Now… usual answers to this question vary from person to person, but usually center around the following topics:
1. Cash flow
2. Employee fraud or theft
3. Profitability
4. Sourcing increased revenue
His answer was pretty blunt: “My customers are killing me!” More on this shortly, but it brings me to the sage philosophy part of this blog…
Quickly following the “golden rule” of &ldqu....
Are You Happy With Your Company's Financial Performance - Feb 6, 2010
Posted by: Brian E. Christian in Articles
It’s a leading question, I know. You may be, and you probably have good reason to feel that way. After all, at this time of year:
· You have reviewed your previous year end internal financial statements and compared them to the industry averages available from your trade association and you look “ok”. Maybe not stellar, but not bad in comparison to your peers either. In this economy, these achievements are not to be taken lightly.
· Your accountant or CPA has your results, has looked at them for reasonableness based on the prior year, asked you a few questions about them, and has proposed or already made the proper book-to-tax basis adjustments to get them (and you) into the best tax position possible.
· Your bank has been apprised of the results and they pass muster with them, they probably are comfortable because:
o Your “free cash flow” (net income with depreciation, amortization and other non-cash expenses added back), as stated has sufficiently “covered” your debt service obligations.
o Your net income for the year, less distributions for income taxes positions the company with a net worth that complies with your loan covenants.
Now for the $64,000 question:
What about the assets on your balance sheet? Financial performance is not only about the income statement. You haven’t considered them? You are NOT alone! Everybody falls in love with the number at the bottom of the income statement…the one with the double line underneath it. It is, after all, probably the most intuitively understood number for any CEO, owner or manager. However, it is only one indicator of financial performance and can be misleading if your balance sheet does not accurately portray the financial position of your company.
I know what you are thinking: Why would my Whenever I have had the pleasure of speaking to successful people, no matter how you define success, I almost invariably come away with the following realization:
Success is a daily journey with two vital core tenets:
- Goal Clarity, and
- Persistence
Two perfect examples immediately come to mind. One from several years ago and one from just last week:
Several years ago, I had the pleasure of serving with, and learning from, one of the most talented managers I have ever met. Prior to my working with him, He enjoyed a long and successful career managing distribution and warehouse operations for one of America’s best known retailers.
This manager was “Mr. Fix It” when it came to transforming his company’s worst performing distribution centers. He had a well earned reputation of turning around centers in some of this country’s worst urban environments. In multiple cases he was brought into situations where the culture among the employees within the distribution center was rife with turn-over, absenteeism and harassment (both mental and physical) resulting from racial conflict and gang activity.
When I asked him how he was able to be successful given the volatile and stressful nature of these kinds of environments, he simply said “patience and persistence…that, and strong belief that the changes I was making were the right things to do”. He then said something I have never, ever forgotten. “Brian” he said “You know…Rome wasn’t built in a day”. I replied, “yes…I’ve heard that before”. He paused, then said “But, it was built daily!!!
Exactly a week ago, our Founder and CEO, Jerry L. Mills said something to me that I will also remember for ever: “My kids acknowledge that I am successful. They are young and have even wondered and asked me if they will be as successful as I have been. Here is what I have said to them…Successful careers are made up of successful years. S....
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