B2B CFO^®    (877) 4-B2B CFO

 

Do you know what your margins are?  If you search long enough, you will find several different definitions for "margin" - but they should all have roughly the same meaning.  Margin is the ratio of gross profit to gross revenue for the products and services you sell.  Said another way: gross profit is the amount of money you have left after production to cover operating expenses and net profit.   Thus, gross profit is a measure of a company's efficiency in turning raw materials into income.  Those raw materials may be people and/or physical materials.  For retailers, gross profit measures their markup over wholesale.      

Gross Revenue - Direct Costs = Gross Profit

Margin = Gross Profit/Gross Revenue

All companies need to be concerned with their margins.  It may sound simple, yet many companies do not know how to calculate margin and don't track it on a regular basis.  Why is it important?  If your margins aren't high enough to cover operating expenses, you are losing money and you will need to raise your selling prices or cut your direct costs to increase your margins sufficiently to achieve a net profit.

You may say that raising your prices is not possible because you are in a competitive situation.  Are you sure?  You need to review your pricing strategy often and determine if you want to be the low-cost provider, the most-expensive provider or somewhere in the middle of the pack.  You need to try to predict your customers' behavior with each scenario.  Will your existing customers switch providers if you raise your prices or is it too much trouble for them to do so?  What new customers might you attract if your raise your prices?  Are they better and more valuable customers?  Will they spend more with you?

All companies should strive to cut their direct costs and improve their margins on a continuous basis.  Here are just a few ideas:

• Negotiate better contracts with your suppliers...all of them!
• Cut your shipping costs...these are often huge expenses
• Substitute parts that cost less as long as you can maintain quality
• Determine if it is cheaper for you to outsource some or all of your production...should you use subcontractors?
• Are there ways to reduce the amount of scrap or supplies used during the manufacturing process?

And don't forget to:

• Carefully build incentive compensation into everyone's pay...you will pay more for high performance/production, but you will make higher margins if you do this well
• Pay your sales commissions based on margins, NOT gross revenue. Give the salespeople incentive to sell at full price and avoid discounting!
• Ask your employees for ideas...they are closest to the process

If you don't know what your margins should be, do a little research on your industry, see what your competitors are reporting and set a goal that beats the competition!  It will make a big difference to your bottom line!

 

Â

"Jane was initially requested to help Photovac resolve several problems with our inventory and Cost of Goods Sold. She quickly mastered our MRP system and has been able to efficiently determine the causes for most of our problems and recommend solutions both for the short term and long term as well. Jane has been an excellent resource and, once our problems are resolved, we plan to engage her on a 2-day per month basis to periodically review our financial and materials operations."

Â

Thomas A. Smith, CEO

Photovac, Inc.

I'm curious.  When do you receive your financials?  Weeks after the new month? Longer?  What if I said one day?  That may be impossible in your situation, but I do have some quick suggetions for getting your numbers quicker each month.

I took on my first CFO client in 2001.  In that situation, we closed the financials the last day of the month--yes, I was a bit fanatical about a quick close.  My secret?  I created a simple checklist in a spreadsheet.  All responsible parties followed the checklist items allowing for that quick close.

I know it sounds simple, but it works.  Not only are month-end closings quick, but they are consistent from month to month because the process stays the same.

There's one other process that makes month-end closings go faster.  Have your staff reconcile cash every single morning in the accounting system (more on this best practice in a future blog entry).  In cases where hundreds of line items hit the bank account daily, this procedure eliminates chasing down errors which may take hours when reconciling a full month of transactions under the typical approach.

There are many other ways to generate those financials earlier in the month, but these two are the perfect starting point.   

Chip has been vital to my pending business purchase. His ethics and background have made me feel comfortable to work with him in any situation that I will come across in my future.

Richard Ellis, Jr.
Broker
The Advantage Realty Group, Inc.

Being able to switch gears from one client to another, appears to be the strength of the B2B group. That takes highly skilled partners, who fully understand each client business, and who quickly identity where their assets can be applied.

Our business has moved forward with the help of Chip Shields. He was instrumental in moving us to a quick closing on a new acquisition, and has helped position us on our next acquisition.

E. Wilson Koeppel
CEO/President
Main Street Newspapers, Inc.

Chip has been exceptional in helping me organize my companies financial structure. His wisdom, guidance and insight have been a tremendous help and I would recommend his services to anyone who needs could use his expertise.

Jim Davis
Owner and President
eVision Marketing Group, LLC

"Working with Al Bacon, Jr. and B2B has been a great experience.  He has made a number of excellent suggestions for us to improve the quality of our accounting system, while at the same time, reducing our bookkeeping workload.  Al has never missed a day or stood us up for a meeting... something I can't say for any other professional we've worked with.

As a small business owner, I've worked with a number of professionals who promised me a lot and delivered little, so I really appreciate the opportunity to work with Al, who delivers as promised -- both in a thorough job, and in on-time project completion.  I am very happy with Al's integrity, expertise, and work ethic. From day one of our handshake contract, he has been an incredible asset to my company.

I'd recommend Al and B2B to any small- or medium-sized business as a professional who truly delivers what he promises, and at a reasonable rate."

Jason Channell, President, Associated Electroplaters, Inc.
www.assocelect.com

 

"Al Bacon has made an extremely valuable contribution to the organization of our financial reporting systems. This in turn has been very helpful in fundraising and management. His advice is consistently well thought through and reliable."

Randal Charlton, Executive Director, TechTown
www.techtownwsu.org

 

"Having a part-time CFO makes real sense for our growing company.  We are able to work on key financial projects with confidence."

John Swiatek, President, Coliant Corporation
www.powerlet.net

 

"Al has been an important part of the success of my company to date.  He has been instrumental in introducing me to investors and helping me present my plan and prepare my financials to potential investors.  Further, because I am a start up, I don't have the need or the money for a full time CFO.  Having the ability to "share" Al with other companies in similar positions has been a huge benefit for me in that I can have him on my team but not have to run myself out of cash to do so."

Merrill Guerra, CEO & Founder, RealKidz, Inc.
www.realkidzclothing.com