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2012 is coming . . . it's budget time! - Sep 13, 2011

Posted by: Dave Davenport in Articles

It may seem that 2011 just began, but in reality we are closer to the end of 2011 than we are the beginning. This means that prudent business people are now thinking and planning for 2012. Prudent business people are not looking past the necessity to finish 2011 on a strong note. They understand that to have a good beginning in 2012, you have to finish strong in 2011. However; before 2011 is finished prudent business people begin planning for 2012, and this means putting together a budget for 2012.

Some importants things to consider when you begin the budget process:

Where do you start? I am a big proponent that you start with desired net income. Steven Covey in his book The Seven Habits of Highly Effective People says that "you begin with the end in mind." For every prudent business person, this means "How much profit" is the company going to make at the end of the budget year. You then begin working your way back up through G&A costs, Sells costs, COGS and to the top line Sales revenues. When you get to the top line sales revenues that are necessary to deliver on the budgeted net income, you must translate the revenues from dollars to units sold.

Why is a budget important? The process of developing the budget is as important as the end product. Many people do not like the budget process because when done correctly it is hard. It requires some real thought. It will many times "encourage vigorous debate" among the management team. It is better to have this "debate" during the budget process while preparing for 2012, than during 2012 when your management team is divided on the proper course of action for the company. A completed budget represents a guideline for meeting the stated common objective of how much net profit is to be earned in 2012.

How do you use a budget during the budget year? Once the new year begins, the approved budget becomes a roadmap that keeps management focused on the common objective and how the objective is achieved. The budget is a vehicle that helps provide funds for projects that advance the overall objectives of the company, but many times are funded only "when we have the available cash". A good budget will "set aside" cash for such worthy projects. The budget is also a vehicle that prevents excess funds being spent on projects are not producing desired results. If funds in a line items are spent before the end of the budget year, management gets an oppportunity to "re-assess" the effectiveness of money spent on the project before approving more money for the line item. In no instance is any budget "carved in stone". Good budgets are flexible; however, flexible in the sense that management gets an opportunity to ask the question, "is the flexibility required due to unforeseen events? Or, did we not adequately prepare for these events in the budget?". In instances of a good budget process the inadequate preparation for events are few and the budget should help provide adequate cash reserves or other "cushions" to help weather the storms brought on by unforeseen events.

At B2B CFO® we help owners/managers maximize profit and cash flow in their businesses. We help the business operate more efficiently. Implementing an effective budget process is a key factor in a business operating more effectively. If you have questions or want more information about how to improve the profit and cash flow in your business, contact Dave Davenport at ddavenport@b2bcfo.com.

It is HOT in Texas! - Jul 31, 2011

Posted by: Dave Davenport in Articles

It is sumer time in Texas and it is HOT!! Depending on who you listen to, this may be one of the hottest summers ever. Not just in Texas, but in many parts of the country.

The house I grew up in as a child had no air conditioning. The Texas summers have always been hot. The debate today not withstanding. I remember that my father first added an evaporative cooler (swamp cooler as we called it) to ease the effects of the summer heat. He quickly replaced that with window units in the living room and one bedroom (the bedroom my brother and I shared was not the one selected to have the second window unit). Evidently my parents spent several years debating the wisdom of the decision, but I remember very well when they decided to add central heat/air conditioning to our house. I did not really care about the heat part of the deal, but I was excited about the air conditioning! I was now old enough to know that the summers in Texas were hot. What I did not appreciate at the time is how my parents financed this substantial improvement. They took out a home improvement loan. If I remember the story from my father accurately, the payment was approximately half of the payment he was making on the house (which means it was approximately $40) and it was paid out over five years (the original mortgage on the house was for 15 years).

I tell this story because it is a great example of a good way to use debt. This story is about personal use of debt, but the principles also apply to business. This home improvement loan has been paid off for many years, but my mother still enjoys the benefits of central heat/air conditioning in that house today. It is a classical example of what all business people should consider when they debate how to use debt. The debt should be used to aquire assets that will have a life beyond the term of the loan and/or expand the sales and profits of the business. This is usually an easy decision to make when the business owner is financing the addition of a building or equipment. The decisions become more challenging when short term loans are used to "even out" the cash flow of the business. These loans are usually collateralized with inventory and accounts receivable. Ideally these line of credit loans are paid down to zero at least once during any fiscal year. When the balances of line of credit type loans remain high and/or the whole value of inventory and accounts receivable are covered by the loan balance, the business is in financial trouble or is close to being in financial trouble.

As a B2B CFO® partner, I have the experience to help guide business owners to avoid such circumstances or to work their way out of such circumstances. Call me at 817.673.8180 or contact me at ddavenport@b2bcfo.com if you want to discuss this or other business issues with me or other B2B CFO® partners.

What's In Your Engine - Jun 18, 2011

Posted by: Dave Davenport in Articles

I remember an advertisement promoting a certain brand of gasoline that asked the question, "What's in your engine?". The message of the ad was that their brand of gasoline was better than the competition. Why? Their brand made the engine run cleaner. When the engine ran cleaner it was more efficient and needed fewer repairs. Thus their brand was the choice of "smart" car owners.

In the business world, businesses are often compared to engines. The fuel (gasoline) that runs the engine of your business is cash. So I ask you the business owner, "What's in your engine?'. Or in a more straight forward question, "What kind of cash is used to run your business?"

Just like there are different brands of gasoline, there are different "brands" of cash. There is borrowed cash (debt), there is investor cash (stock) and there is cash generated from business operations (profit). So the next question is, "What is the best brand of cash to run your business?". Each brand has advantages that are unique. Debt allows the existing owners to maintain their current level of ownership. The price paid for debt is in the form of interest paid for the use of the money and abiding by the loan covenants that may come with the loan. Stock may require the payment of dividends instead of interest. There are no loan convenants that come with cash generated from issuing stock. When stock is issued to raise the cash, the current owners are selling a portion of the business. Many times they will be left with a minority interest in the business. Cash generated from profit requires no interest or dividend payments, there are no loan covenants and the owner gets to maintain ownership of all of the business. In the long term, cash generated from profit is the best "brand" of cash to run your business. It is the brand of choice of smart business owners.

At B2B CFO® we help businesses maximize profit and cash flow in their businesses. We help the business operate more efficiently. Just as cash generated from profit is the "brand" of choice for smart business owners, B2B CFO® if the CFO of choice when your are seeking CFO services on an as needed basis. If you have questions or want more information about how to improve the profit and cash flow in your business, contact Dave Davenport at ddavenport@b2bcfo.com.

What runs your business? Cash generated from Debt or Stock or PROFIT?

Back To Basics - Business Basics - Apr 4, 2011

Posted by: Dave Davenport in Articles

The Green Bay Packers, winners of the last Super Bowl, were able to take home the Lombardi trophy. This trophy was named after the legendary Green Bay Packer coach Vince Lombardi who coached the Packers to wins in the first two Super Bowls (this was in the 60s for those of you too young to remember).  However, when Lombardi took the coaching job at Green Bay, the Packers were a long way from a Super Bowl caliber team.  In fact, the story goes that when Lombardi saw the Packer's first practice he told the team at the end of practice that they were going back to the basics. The next morning at the team meeting, Lombardi held a football above this head and told the team, "Gentlemen, this is a football!".  Now that is basic!

Given the state of the economy the past fews years, many business owners have been forced to remake their business models. These business owners have also had to go back to the basics. Forget about the things you want, determine what you need and get rid of all the rest. It is a matter of survival.   So in business, what is equivalent to Lombardi's statement "Gentlemen, this is a football"? It can be summed up in the phrase "earn a profit". This is true no matter the condition of the economy. If the economy is good or bad, businesses must make a profit. Profit is not a dirty word. I would also submit to you, that a business should not be content with being marginally profitable. The objective is to maximize profit.

So how do you maximize the profit of your business?

Maximize sales of profitable products and/or services - the challenge is to focus the effort of the sales force on the promotion of the most profitable products or services. All sales are not equal. A shift in the sales mix to more profitable products or services can substantially improve your bottom line profit.

Work with customers that allow you to be profitable - just as all sales are not equal, all customers are not equal. Some customers always work on your sales force to reduce the sales price. Other customers may never complain about your sales price, but they are "high maintence". They constantly return products or they call in for service that they always need performed immediately. In either case, customers that whittle away at the sales price or customers that are "high maintenance", your profit is reduced.

Keep your cost model in line with the current business climate - business owners that have been around longer than ten (10) years alread know this one. The challenge is to never forget it.   In spite of what you hear from the media or politicians, business cycles are a natural occurrence in the business world.   Successful business owners adjust their business cost models so they can be profitable in good times or bad times. A bad business climate is never a good excuse to accept long term losses.

Reward your best employees, replace your worst employees - this is hard; no question about it. Many businesses, especially small business, become like families (many small businesses are families). In spite of feeling like a family or working in a family business, it is still a business and it has to make a profit. Businesses that consistently make a profit hire and keep good employees. Consistently work to identify and reward your top performing employees. These are your superstars. Your competition would love to hire them away from you. Those employees that are not top performers should be trained and motivated in order to encourage them to become top performers. Finally, you must deal with the employees that consistently perform below acceptable expectations. If they cannot be re-trained or assigned to another position where they can perf0rm at an acceptable level and are compensated accordingly, then you must help them fnd another job. Work aggressively to help them find another job. They will be happier and you will be more profitable.

Constantly seek to remake your company to stay ahead of your competition - every business has competition. Every business will always have competition. You cannot escape this basic fact.  Competition comes from other businesses that do what you do or competition comes from new technology or changes in consumers' desires or trends. Small business owners must always look at ways to better serve their customers. In any business, the CUSTOMER is KING (or QUEEN!). If customers are asking you for something and you do not provide it, then ....

Testimonial - Bruce Adams - Jun 3, 2010

Posted by: Dave Davenport in Testimonials

Dave Davenport is a trusted friend of the highest order. From a personal perspective of character and integrity I could not recommend anyone more strongly.

Bruce Adams
National Sales Manager
WaveLight Studios
www.wavelightstudios.com

Testimonial - Fashion Glass and Mirror, LLC - Jun 3, 2010

Posted by: Dave Davenport in Testimonials

Dave Davenport is the consummate CFO in that he is very knowledgeable, hardworking and the most trustworth guy you will ever meet. He does not hesitate to take the initiative to get the job done in addition to providing concise and meaningful analysis of the data.

Larry Jaynes, Owner
Fashion Glass and Mirror, LLC
www.fashionglass.com

Testimonial - Sodd Electric - May 17, 2010

Posted by: Dave Davenport in Testimonials

I consider Dave Davenport to be a good friend and a trustworthy person. I could always trust that what he recommended to do would be the best for me. I would highly recommend Dave for any work you would need done.

Gary Sodd, Owner
Sodd Electric
www.soddelectric.com