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This week I helped a new client finalize a loan package of about $2.6 million.  In order to secure the best possible combination of term, rates and service I arranged interviews with several banks ranging from small and midsized community banks to several large international banks.    I was able to help them secure a line of credit and a term note that will end up saving a significant amount of interest and improve cash flow compared to their existing debt structure.

Many of the bankers we interviewed made it clear that if the company did not have a B2B CFO involved on a regular and ongoing basis, they would not be interested.  Not only did my involvement provide credibility about the quality of financial statements, but also added confidence that the company had seasoned financial professional on the management team.

As a B2BCFO, we pride ourselves on helping clients navigate the process of obtaining lines of credit and term loans.  We provide the banks and other lending institutions with confidence and we develop business cases to show how our client's cash flow can support lines of credit and term loans.

 Cash.  We Help You Get It.

“Mike, you know, we were talking about it the other day and we aren’t even the same company we were when we first met you last year.  Dave (operations manager) told me that if we hadn’t made these changes over the past year, we wouldn’t even be able to meet our customer demand today.” 

I have to admit, when I look back on it, the changes over the past year were significant; the company had underperformed for the past three years and 2008 had been particularly poor.  They made significant cuts in expenses and were really focused on finding new, significant customers that allowed the company to enjoy consistent profitability.  In fact, early in the year, the president established a list of customers that the company would like to add.  When one of these new customers began ordering products, the president would put a simple checkmark next to the customer name.   By mid-November, there was a check mark next to each name.   Throughout the year, the company did a great job of staying true to the goals and on working to improve sales and margins.

Also during the year the company purchased new operating software.  This allowed the company to begin understanding margins by part and by customer.   In almost every respect, information became accessible on at least a daily basis and generally hourly and even up to the minute. 

That doesn’t mean that everything went as we had hoped…overall sales were down about 20%, but the drop in sales was primarily for goods with poor margins, so the impact on the bottom line was minimal and the company improved margins significantly with the addition of new customers.  Early in the year we recognized that one division of the company was in for a struggle.  Sales would be down drastically.  However, there were opportunities in the remaining division and we concentrated efforts on finding customers and improving margins…the overall result was a profitable year despite lower sales. 

As the company heads into 2010, sales will continue to be bolstered by three new products, again with sound margins.  The president of the company has done a great job of talking to the key customers and finding out what products they would like to offer.  In turn, the company has responded by developing these products and providing them to customers.  The key here is that not only did the company talk to their customers, but they listened and provided exactly what the customers were seeking. 

In turn, the customers recognized that the company provides outstanding support and that recognition helps create greater teamwork between the company and their customers.  This cooperation provided additional opportunities and improved profitability.  Despite the poor economy, this firm has a reasonable expectation of increasing sales by more than 25% this next year.

At an industry meeting, last week, the president was asked what the company had done to prepare for 2010.  He responded by saying that the company had installed new software.  This software provided visibility that the company had never previously experienced.  As he talked to me about it he said, “You know, without you, we wouldn’t have done that.  It took someone from the outside to see that we needed the software.  It wasn’t easy to say that we needed to spend $100,000 for a system, but in retrospect, it was absolutely the right thing to do.” 

And that is what makes my job fun!

Implementing FishBowl Inventory in a Manufacturing Business

In November 2009 I was hired to select and implement a business application in a Paint Manufacturing business. For the prior 15 years the company had used QuickBooks but had never gotten the training or consulting help to set up their inventory items correctly. They had tracked their COGS via countless spreadsheets and did manual Inventory Adjustments and Journal Entries each month to get to their COGS and Inventory Asset values. As you can imagine the accuracy of their financials was very suspect.

This company had enjoyed $3M to $4M in revenue the past few years with most of the sales coming from craft paints. They have a new product line called RESTORE which is a deck, dock, and concrete resurfacing paint which is fantastic. Two coats of this paint and your back deck or boat dock has lifetime protection from the elements. They expect to do $6M in 2010 on this product alone.

The owner and I shared a mutual friend who is an investment banker. The IB was discussing possible funding for the growth but was concerned about the accuracy of the financials as the company started this important phase. I was called in to determine if they could use the latest version of QB Enterprise to run their manufacturing operations, track inventory, and capture costs accurately through the manufacturing process.

At a high level they mix large batches of intermediate paint, then mix those with colorants and other chemicals in separate batches, and finally package the paint in 2oz, 8oz, 12oz, or gallon size products. The challenge was to get the final COGS of any individual product to include the costs of raw materials, paint, bottles, caps, boxes, shrink wrap, etc. Every cost along the manufacturing process had to be included in the finished good.

It didn’t take long to realize that QB was not going to handle this. So I then began a search process to find an application which would meet the demands of a SMB manufacturing operations. I identified FishBowl Inventory as a likely candidate and executed the evaluation and determined that it would indeed fit our needs.

During the month of December we extracted data from legacy applications to create Import files for:

6,000 Parts (raw materials, packaging, etc.)

1,000 Finished Products

4,000 Bill of Materials (Paint recipes and Finished Goods)

800 Customers

200 Vendors

We spent a month testing, training, and preparing for physical inventory and go-live on January 3, 2010.

We were very successful with this implementation. In the 5 weeks we have been running the business on Fishbowl Inventory we have completed over 500 work orders. There are 3 deliverables which are invaluable to this company:

1. They now know the exact cost of every single bottle/can of paint they package to 5 decimal places.
2. They know exactly which raw materials to purchase and when to purchase.
3. They know exactly which finished products to make and when to make them based on sales data.

Look for the RESTORE product in your area this spring/summer at the nearest Home Depot, Lowe’s, or ACE Hardware stores.

And, if you are looking for a Fishbowl Inventory expert . . . . call Rick Daigle, 404-787-5835, or email to rdaigle@b2bcfo.com.

A manufacturing client of mine faced 2009 with some major challenges.  The company builds sophisticated “metal boxes” such as commercial HVAC and telecoms enclosures.  This involves purchasing large quantities of metal sheets with volatile pricing, cutting and bending them, and then assembling and painting the final products.  It involves managing a wide inventory of miscellaneous hardware items for further assembly. 

Recessionary pressures were affecting sales as large customers put purchases on hold, or reduced demand temporarily – forcing the client to maintain sufficient inventory to meet upsurges.

Inventory consumes a lot of the resources of any company. Of course, most companies need a certain level of inventory in order to meet the demands of customers. In most cases, inventory is purchased and paid for long before it is sold to a customer.

• For some period of time it sits in a warehouse, and the cost of carrying that inventory (i.e., interest expense) reduces the company's profits.
• Moving the inventory always raises the possibility of damage, but some inventory will diminish in value just sitting there.  The more inventory you have, the more will "disappear." That costs the company more money.
• Maintaining large levels of inventory requires people to manage it, adding wages, benefits and other costs.

So a company must manage inventory very carefully. To do so, the company needs to understand what they have, and why they have it. The company must be sure it has the right information:

• Routinely prepare and review detailed reports about the inventory. What kind of inventory is it (finished goods, raw materials, work-in-process, or other categories)? How much of each type?
• How often does the inventory turnover? What are sales of the finished goods, and what level of sales are expected in the near future? Based on that forecast, is there too much inventory on hand?
• Manage slow-moving or obsolete inventory and plan to minimize scrap or sell.

A key measure on inventory management is days turnover.  This is an overall measure of the length of time it takes for incoming raw materials to be turned into finished goods and sold to customers.  Along with measures of receivables and payables performance, the inventory turnover is a key factor in the cash cycle of a company.  Starting 2009 with an inventory turnover of 68 days, we realized that lower sales would significantly impact cash flow, and that improved inventory management was a major source of cash.  Our plan for better inventory management included improved reporting using a database to key in on slow moving, expensive and unusual items, with management dashboards to maintain focus.  Better factory organization, frequent item counts, and better procedures for receiving inventory and allocation to jobs all helped.  During the year we were able to reduce inventory by nearly 30%, and to reduce inventory days turnover to less than 40 days.  This is a major success for the company, positioning for a profitable 2010 and saving significant cash that would have been used to purchase unneeded inventory.

Based on an article from B2B CFO Partner - Paul Shackford

As insurance complexity rises while reimbursements fall, many family practice physicians are looking for alternatives to working eve more hours.  The "Concierge" model of healthcare practice is an evolving model, that allows a physician to focus on a core group of 600 to 800 patients - instead of the 2,000+ that a small practice requires under an insurance reimbursement model.

My assignment was to develop a business plan to explore the potential for conversion of an existing practice into a membership or concierge model.  There are a number of franchise companies that sell a pre-configured business model, but I found the fees to be quite steep  i.e. almost a third of revenue.

I did a great deal of desk research to understand what works, and how the business model should be structured.  This included asking questions on the mechanics of a practice, developing a simple input driven business model to explore scenarios.  Once we had developed a working model, I orchestrated the development of a complete business plan package for funding.  This included sections on sales, marketing and demographics as well as competitive factors, legal and regulatory implications, and, of course, a complete set of financial projections with a complex underlying model that enabled us to rapidly investigate alternative scenarios for growth.

David Kirkup - B2b CFO Partner - 404 348 0326 - dkirkup@b2bcfo.com

You may be familiar with DashBoards and KPIs or Key Performance Indicators - a term beloved of big consultants.  You may even have seen those expensive software packages that purport to gather key criteria and display them as pretty speedo dials and traffic signals.   A speedometer dial works fine in your car - it tells you how fast you are going. It can't, however, tell you how fast you have been, or will be going, or your relative speed to other competing cars.  It can't relate your speed to other aspects of your car's perfomance.  When you translate it to a business report, it's just a fancy way of showing ONE data point of information.  ONE data point.

I believe dashboards are a superb tool for smaller companies to monitor the workings of the business.  But I like to use small graphs that can depict a rolling 13 months history against a target.  Using this technique I can pack as many as 20 graphs on a page depicting over 500 data points in an easy to use format.

Some of the many benefits of my Dashboards are:

• They can quickly highlight underling trends and connections between data that you might not find with hours of studying traditional reports.

• They reduce the piles of paper reports that take time to produce and rarely get read by the people who need the information.

• They quickly communicate activity across the organization and can be used to monitor cash, financials, sales, purchases or non financial metrics such as environmental variables or customer service measures.

Let's take a look at some examples.  The first one is a weekly Cash Dashboard.  I use this chart to display 14 different KPIs including Sales Trends, AR and AP management, Incoming and Outgoing cash, Line of Credit availability and much more.  In total it shows about 400 data points on one page.  I can use it for projections as well to quickly see what my client's cash needs will look like in a month or two.

Another example is a Sales Dashboard.  This graphically provides information on a company's top customers, showing monthly and YTD figures, as well as growth.  It also shows the sales trends over 13 months against a budget or the prior year for all customers.   I customize this directly to my clients' needs, and it can be supplemented by other sales target information to support the sales management activity.

A final example shows a company's Financials Dashboard.  In this chart I have extracted key figures from a manufacturers income statement, balance sheet and cash flow and show the information in table and graphical form.  A perfect way to quickly summarize recent trends, make connections between key figures and provide early warning signs of declining performance. 

In three pieces of paper I have presented about 1,400 data points, with a very easy way for a business owner to stay on top of key indicators of progress.  I use this same technique to monitor purchases, loan covenants, production factors, employee utilizations in professional firms and many other situations. 

So there are the facts - almost 1,400 of them.  The next time your company needs usable intelligence fast call for the expert on Dashboarding.  David Kirkup, Partner with B2B CFO , will quickly get you up to date.  Call him on 404 348 0326 or dkirkup@b2bcfo.com.

Using TimeSlips to Create DashBoards for Professionals

As I continue to work with a law firm client we are developing better reports & dashboard for tracking the performance of the entire staff. We are now at the point where we want to implement a bonus plan which will drive the behaviors we want to increase revenue and profit. In order to implement that we must have the tracking mechanism in place.

Using the standard reports delivered in TimeSlips and changing a few filters to get the applicable data I am now able to produce a report like this for each staff member:

The data is extracted in the following manner:

This represents the Total Hours recorded in TimeSlips  this data is from the “Productivity by Period” report. Open this report, add a filter for the Slip Transaction Date, and a Sort by Professional. This will produce the month by month numbers for this line. You have to add Billable and Unbillable hours to get this line.

This represents the Hours recorded working on Client Files – this data is from the same report with another filter added to eliminate time not spent on client files. In our case we have non-client activities like marketing and vacation recorded to a “Non-Billable” client. For this line I filter “Non Billable” client activity out.

This represents the Billable Hours recorded  - this data comes from the report you just ran. For this line select only the Billable hours.

This represents the Fees Billed – this data comes from the Profitability by Period report. Like the previous reports you add a filter for the Slip Transaction Date, and a Sort by Professional. In the Report Options you want to check “Include Totals” and “Billed values reduced by credits”. The data for this line is labeled “Billed Total”.

The Effective Hourly Rate for Billable Activity -  this is calculated as Fees Billed / Billable Hours recorded.

The Effective Hourly Rate for All Client related Activity – this is calculated as Fees Billed / Hours working on Client Files.

The Effective Hourly Rate for All Activity – this is calculated as Fees Billed / Total Hours.

The Effective Hourly Payroll rate – this is calculated by taking the Gross Payroll expense for this professional / Totals Hours.

Hourly Contribution to Revenue – this is calculated as Effective Hourly Rate for All Activity minus Effective Hourly Payroll rate.

Contribution To Revenue – this is calculated by multiplying the Hourly Contribution to Revenue by Total Hours.

The metric you want to see trend up over time is Billable Hours recorded. If this goes up then all the other metrics will trend up. To influence this metric you must put all the workplace tools and processes in place to enable the revenue generating staff to spend as much time as possible on billable activity. Revenue generators should not spend time on administrative tasks. All staff should have a workplace and tools which allow them to be as efficient as possible.

If you enable professional staff to be efficient, to improve their workplace performance, and provide incentives to improve you will drive the behavior you want and end up with more cash!

During a discussion with the CEO of a client, he asked if I’d review the Company’s utility expense for possible savings. Unknown to me, he contracted with a utility broker and executed a five year agreement. As part one of my due diligence, I contacted the broker to discuss the agreement. My thought was that the per kWh rate appeared above the current market rate. The broker turned out to be one of those exasperating individuals who never directly answer’s a question.

As part two of my due diligence, I researched suppliers in the eastern part of the United States and found a number of suppliers who were willing to provide a response to my Request for Proposal (“RFP”). It turns out that the market was somewhat cheaper than my client’s contracted price. In fact, it was approximately 2.4 to 3.0 cents per kWh less expensive. At 3 million kWh’s per annum, my client would save approximately $310,000 for a three year period.

I negotiated with two large suppliers and ultimately chose one, Constellation Energy. While my client may have to pay a penalty to the supplier he contracted with, his company will save over $300,000 during a three year agreement and more importantly, reduce the years under contract from five years to three.

I January I started work with the owner of a specialty law practice. The owner wanted help in 2 broad areas. First, he wanted help, or really someone to take over the financial operations of the practice so he could focus on the business, clients, and staff. Second, he wanted to grow the business by adding lawyers and paralegals.

The first two months were spent implementing QuickBooks as the accounting solution, and integrating systems and processes to get data from Amicus Attorney and TimeSlips into QB. This was followed by two months working off old WIP from the past 3 years, invoicing and collecting for work done in the past 3 years, and general clean up of the timekeeping and activity tracking system. The next two months were used to put more formality, documentation, and discipline into the accounting and recordkeeping systems.

During this period I also tried to find a local expert resource in TimeSlips. I was not able to find an acceptable resource so I rolled up my sleeves and learned how to use the TimeSlips reporting capabilities to extract statistics which we could use to implement a formal measurement system.

In many law firms the key revenue driver is billable hours. So, once the historical basis is set regarding the billable hour % for each timekeeper you can set a goal for increasing the billable %. This should also be accompanied by a reward system designed to drive the desired behavior and outcome.

Through the analysis of TimeSlips data I was able to extract this billable performance for the firm:

So, an increase in billable activity of only 5% would have covered all payroll and benefit related cost for a payday. A 10% increase would have covered payroll and benefit related costs for a month. And this is from a team of two lawyers and one paralegal. We have recently added another paralegal to staff, and will add another lawyer next month.

Next I had to analyze the slip details for the non-billable activities to determine what the revenue generating staff doing which might be eliminated or reassigned. I used this data to prepare for a meeting with the owner to present a plan which included changes in staff job responsibilities, a P&L projection, and Cash Flow projection. The projections showed us ending the year with $465,000 cash in the bank. We started the year with $20,000.

The owner looked at me and asked if I was serious! When I replied that I was most certainly serious he asked me to prepare for a presentation at the next staff meeting a few days later. That occurred today and the presentation was met with much enthusiasm.

In conclusion, the detailed data contained in the TimeSlips database holds some valuable information. You can use this data to develop a systematic approach to increasing revenue and implementing a great measurement system.

Last week, I received a call from Don*, one of my clients.  Don was animated!  "Mike, I'm sitting here at my desk, looking at my numbers...this is unbelievable!  So far this month my sales are $196,237.26 and cost for those sales are $142,654.80.  This is SO Cool!  I can tell you how many units we made last hour even.  This is SO COOL!!"

Don had good reason to be excited.  In 60 days his company had built all the data necessary to run completely new operating software at his manufacturing company.  They had to load all parts, vendor data, vendor pricing, customers, customer pricing, bill of materials (BOM), purchase orders, customer orders...everything, including his general  ledger AND completing a physical inventory.  Pretty amazing!

I remember being shocked the first time I sat down at one of his terminals and realized I was staring at a blue DOS -like screen, reminiscent of the 1980's.  There was no BOM, on hand quantities in an inventory module, no open purchase orders.  The company calculated cost of goods by calculating beginning inventory plus purchases minus ending inventory.  There was no way to determine which sales accounts were profitable and which were draining the resources of the company.  Developing cost information for existing products was difficult at best.  All BOM information resided on a massive Lotus worksheet.  There was no way to automatically update costs to roll up accurate costing data.  Everything was laborious.   Even Accounts Payable and Accounts Receivable were difficult to maintain.

Now, however the story is different.  Later in the week, Don presented me with a current report of sales for July by customer along with the calculated gross margin for each account.  Now this was information!  We also were able to dissect the various components of the business so that we were comfortable that we understood how the company was responding to the new information.  Don was particularly relaxed.  Despite the tough economy, his company is on the upswing.  In fact, he shared a little secret with me..."Mike, I slept all night last night.  That's my first full night of sleep since last September.  Now, I can know exactly what is going on in my company with this system.  The fear of the unknown was keeping me up at night."

 By the way, Don slept through the night again the next day.  Don is confident that he has the systems necessary to provide him with the information his people will need to be successful and they are up to the task of meeting those challenges.  That's knowledge that can really help any owner relax.

*Names and dollar amounts have been changed.