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Using Classes in QuickBooks - Feb 28, 2012

Posted by: Frank J. Gnisci in Articles

QuickBooks provides a feature called Classes that permits you to group items and transactions in a way that matches the kind of reporting you want to perform. Think of this feature as a way to "classify" business activities. To use classes, you must enable the feature, which is listed in the Accounting section of the Preferences window.

Some of the reasons to configure classes include:

  • Reporting by location if you have more than one office.
  • Reporting by division or department.
  • Reporting by business type (perhaps you have both retail and wholesale businesses under your company umbrella).

You should use classes for a single purpose; otherwise, the feature won't work properly. For example, you can use classes to separate your business into locations or departments, but don't try to do both.


When you enable classes, QuickBooks adds a Class field to your transaction windows. After you create your classes, you can assign one of them to that field.


Adding a Class

To create a class, choose Lists | Class List from the QuickBooks menu bar to display the Class List window. (Remember that you must enable Classes in Preferences to have access to the Class Lists menu item.) Press Ctrl-N to add a new class. Fill in the name of the class in the New Class window. Click Next to add another class, or click OK if you are finished.
 

TIP: It's a good idea to create a class called Overhead. This gives you a way to sort transactions in a logical fashion when there's no link to one of your real classes.


Using a Class in a Transaction

When you're entering transactions, each transaction window provides a field for entering the class. The invoice form adds a Class field at the top (next to the Customer:Job field) so you can assign the invoice to a class. However, it’s more useful to link a class to each line item of the invoice. To accomplish this, you must customize your invoice forms to add classes as a column.
 

TIP: When you add the Class column, add it to the screen form, but not the printed form. The customers don't care (and it’s none of their business anyway).


Reporting by Class

Many good firms are still struggling with the economy and are waiting things out. They have cut back costs as far as possible but are at a loss on how to increase sales and profits.  Here are seven steps you should be taking now to increase your sales and  profits in the new economy:

 

1.     Understand your real profitability drivers.  Do you really understand why you made (or lost) money last month?  Don’t automatically assume that it is all because of volume. It is may be a combination of things such as revenue levels, high fixed costs, unrecovered variable expenses, and some low and high margin customers and jobs.  If all you have to explain your profitability is a long listing of revenue and expense items, you don't really understand your profitability and can't take the necessary actions to drive improvement.  You must know your margins by individual product or service lines and customer, and understand the dynamics of your profit drivers.

 

2.     Re-calculate all of your overhead rates. Verify your hourly cost rates for production or service, direct, administrative, and overhead costs. In the past year, you have undoubtedly trimmed many costs and your other input costs have changed.  Lower costs mean lower overhead rates.  Lower base hours mean higher overhead rates.  If you haven't developed overhead rates to really understand the true cost of individual products or services, now is the time.  You might be surprised that you can actually sell at lower prices now and pick up sales volume that you are missing out on today.  Or, you could find that you are losing money with each sale because your costs have not come down in proportion to your production or service hours. If your vendor won't play ball, others certainly may.
 

3.     Analyze your sales quoting model.  Does it include your new, lower overhead rates and purchase costs?  Does it show you your true cost of delivering your product or service?  Does it show you the true effect on your company of winning the business?  Your sales quoting model should break out the incremental costs and show you the cash affect and overhead coverage and profit impact of producing or servicing the quoted business.

Today something like 80% of small companies use some form of QuickBooks to keep their company accounts - despite the valiant efforts of Microsoft to make inroads.  This is both a blessing and a curse for consulting Chief Financial Officers.  It is a blessing because the accumulated knowledge of working with QuickBooks allows me to quickly tune systems and extract meaningful information.  It is a curse because the proud old profession of "professional book-keeper" has been largely replaced by legions of amateur Quick Book "experts".  I herewith offer some collected wisdom on how to make the most of your QuickBooks installation:

  1. Right Sizing: QB comes in many flavors and you should make sure you have the right product for your business.  I have seen one man companies using the $4,000 Enterprise edition and $20 million firms using QB Online.  QB PRO works for most companies up to about $1 million.  After that you can specialize with an industry version of QB Premier.  If you have lots of locations, companies and users it may be time to consider QB Enterprise.
  2. QB Online:  Intuit recommends this for start up businesses.  I recommend you switch after one week.  The software works well for out of the office, on the road professionals, but it is awkward to use.
  3. Chart of Accounts: A dead giveaway that you don't pay too much attention to your financial statements is one of those P&Ls with all the expenses in alphabetical order.  You really need to build a Chart of Accounts with meaningful Sections and sub sections. Such as Payroll:  By Dept, Payroll Taxes, Commissions; Facilities: Rents, Maintenance, Property Taxes; Financial: Insurances, Income Taxes and Interest Expense.
  4. Class: This is a powerful tool that is widely misused and misunderstood by many new users. Class is the QB way of segmenting information, so you can report on departments, geography or products.  Unfortunately, you can only report on one breakdown, and combining departments and geography in your Class list is a recipe for confusion.
  5. Items List:  Also frequently misused.  Items are used to break down Sales and Cost of Goods by product groupings.  Item Lists are used to manage inventory and can be used with price lists.  The Item List generally gets built on a random, haphazard basis so that items are duplicated.  Again, taking the time to produce a meaningful list with a structured numbering code will pay dividends in extracting useful information.
  6. Bills: This feature is often abused by small business, usually by omission.  Entering bills gives you control over cash flow.  If you just enter checks as you write them you have no ability to project and manage your payments. 
  7. Expense versus Item on Enter a Bill: This is another area that many new users find confusing. If you have an effective Item List, then every bill for Cost of Goods Sold i.e. parts, contractors, freight etc will be coded using the Item tab.  Most Overhead Expenses: utilities, rent, supplies will be coded using the expense tab.
  8. Balance Sheets: I often have to blow the dust off of the Balance Sheet when I first print them out because many business owners don't look at them.   Old paid off balances, and negative assets or liabilities are rampant.  Remember, your banker will form an instant impression of your business from this, and you must have a credible Balance Sheet if you are serious about growing your business. Print one out today and circle every suspect amount. Ask your accountant/ bookkeeper/ Controller to explain it to you.
  9. Reports: QB has an extensive reporting capability, but most companies begin and end with a single period P&L.  Explore the use of filters and the ability to customize columns and rows.  It's surprising what you can produce - especially if you’re Chart of Accounts, Item and Class Lists have been set up correctly and firing on all cylinders.
  10. Credit Card Management: I have seen double counting of charges, when individual items are downloaded and then a bill is created categorizing the credit card payment. This is too big of a t....

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    Does Your Business Need A CFO - Apr 20, 2011

    Posted by: Frank J. Gnisci in Articles

    Has your business struggled in recent years? Has it outgrown your bookkeeper or controller? Have your revenues dropped rapidly in recent months? Are the contracts and negotiations that are a part of your business becoming more complex? Are you uncertain about how to execute your growth strategy? If you answer yes to any of these questions you might need an experienced Chief Financial Officer (CFO). Here are a few things to consider:

    1.  All companies should review their financial performance on a regular basis. As with many businesses, owners are typically too involved with the day-to-day operations that they neglect reviewing their financials. All too frequently they do not discover financial problems until after they occur. Having a CFO who can compile and analyze the numbers and tell you what they mean is a critical element of your success. Today Chief Financial Officers (CFOs) do more than simply crunch numbers and churn out accurate financial statements. They are often tasked with the responsibility of driving dynamic strategy development, orchestrating risk-based assessments of opportunities and identifying ways to boost performance.
    2. A good CFO will ask questions about your business and provide you with a sounding board of help. Based upon their experience, a CFO will have insight into determining which questions to ask and to even figure out how they should be answered. CFOs are often challenged to assess the cross departmental efforts of operations, sales, marketing, engineering, and information technology to ensure that capital and operating expenses are yielding the intended results. Financial executives do more than just master the technology and the processes that are traditionally included under the finance function. They are often given the responsibility of delivering high-impact business results, as illustrated by the popularity of incentive-based compensation, balanced scorecards and shareholder value-added types of metrics, on pricing, customer selection and sourcing.
    3. Many business owners have difficulty comparing their business performance against their competitors. This is something that an experienced B2B CFO can do for you so that you have the competitive intelligence and business facts that you need to profitability grow your business. Information is power and today’s CFO has the responsibility and the mandate to rapidly generate and analyze financial information to help the business be more competitive.

    All companies, big or small, face many of the same challenges and strategic issues. Consequently, all companies have many of the same needs, including the type of real world economic value that an experienced CFO can provide to your organization.


    Running For The Exits - Mar 31, 2011

    Posted by: Frank J. Gnisci in Articles

    The following article was written by Ronald Barker from the Wall Street Journal.   He addresses the numerous challenges that many aging small business owners will face when exiting from their business and entering their retirement years. I hope that it provides you will some useful ideas to plan for your business exit and retirement.

    For the last several years, sales and purchases of businesses have been in sharp decline. The “Great Recession” has made many people hypersensitive to economic risk. The stock market decline and volatility has eroded wealth and confidence. Many aging baby-boomers who dreamed of getting out by now haven’t been able to exit their businesses. According to some market watchers, this may change sooner than many think.

    Private equity firms are sitting on an estimated one trillion of cash. In the last year, less than $50 billion of that has been spent. Investors who provide money to private equity funds do not expect their cash to remain idle over the longer term. Private equity firms know they must put the money to work if they want to continue in the business.

    Recently, more and more downsized corporate executives and others have begun looking to start or buy a business. Many of these potential buyers are passionate about taking charge of their own lives and are actively searching for targets.

    As the economy and debt markets slowly begin to improve, more and more private equity firms, companies, and individuals will be aggressively seeking good acquisition candidates. Unfortunately for all involved, good acquisition candidates are currently scarce.

    If and when you want to sell your business, will you be considered a good acquisition candidate?

    Good acquisition candidates generally have strong, sustainable business models that include steadily rising sales and income or at least the potential to rise.

    Most potential buyers will concentrate heavily on your financial statements, at least to start their due diligence. Are you comfortable your financial statements and key management reports are accurate and reflective of the substance of the business? If not, you need to act now to clean them up. When buyers come calling it’s too late. Nothing will cause a potential buyer to dig deeper in due diligence than if he/she finds problems in your financial statements or key management reports. If you do not have quantifiable, verifiable, and relevant data, you will not maximize your selling price and you may not even be able to sell your business.

    Can your organization sustain an intense due diligence exercise? Are you sure you don’t have gaps in your internal controls, records, financial statements, and processes? Once due diligence starts, if the potential buyer catches wind of sloppy controls, statements, processes, and/or legal/organizational documentation, at a minimum they will use that to try to drive your price down - if not, kill the deal.

    If your business is well documented and legitimately shows good financial performance, can that performance be replicated? If your company is a “one man band” and you want to retire when you sell, you must have a team that can carry on without you. Are you actively training and developing your staff today, for tomorrow?

    For those of you who have no intention of selling, is it still wise to make sure you have a “clean” organization to help you make better decisions? 

    Oh, and by the way, you can’t take your business with you! The natural order of things mandates we all exit someday. You can plan for it now or force your family, friends, or partners to make huge decisions under fire, at a bad time, and without adequate planning.

    Do everyone a favor and take some time to get your organization in shape and consider how you’ll exit, not whether. You need to start now and have two to three years of a strong track record. You’ve worked hard in your business and you deserve to maximize your exit.


    Exiting From Your Company - Feb 8, 2011

    Posted by: Frank J. Gnisci in Articles

    You have worked for years and made incredible sacrifices building your company.  It is most likely your largest financial asset.  However, in the next one to three years you may want to sell or transition out of your company, maximize the value you receive from it and ensure its future success so you can enjoy your retirement and other endeavors.  Planning is the key to a successful exit.

    B2B CFO's® have extensive experience helping owners increase the value of their companies and plan for successful exits. For the past ten years I owned and operated a company in Ft. Lauderdale. The business was a start-up and it was successful. It was so successful that we sold it to Fortune 100 Company.

    While you may have a controller or a CFO, most likely they do not have the experience of a B2B CFO®. Our skills in business improvement and exit planning make us uniquely qualified to help you reach your goals. This is how we can help you achieve your retirement / exit goals.

    I. Improve Profitability and Cash Flow

    Most companies are valued on a multiple of EBITDA (Earnings before interest, taxes, depreciation and amortization).  Increasing earnings drives EBITDA.  A company with an historical track record of increasing profits and cash flow with margins above its industry averages will sell at a higher price. Tools used to increase profitability and cash flow include the following:

    • Accurate, timely, well-structured and meaningful financial statements and reports
    • Benchmarking tools for tracking and improving operations and financial performance
    • Gross profit optimization - margin analysis and improvement
    • In-depth labor analysis and reporting to improve labor efficiencies and reduce overhead
    • Working capital improvement strategies to reduce A/R and inventory and increase cash
    • Purchasing and negotiation strategies to lower purchase costs
    • Job and cost accounting systems for understanding and improving margins
    • Line of business, product line and customer profitability analyses and improvement
    • Formalized cost and overhead reduction programs
    • Tax minimization strategies for increasing cash flow

    II. Increase Sales

    Increasing sales, if done properly, is often the quickest way of increasing company value.  When above the breakeven point, gross margin on additional sales can dramatically increase profits.  In addition, companies with higher revenues normally attract higher EBITDA multiples. Financial tools can be very powerful for creating strategies to increase sales.  Some of these tools include:

    • Proven B2B CFO® process "Finding the Exit"® to help the CEO/Owner sell more
    • Strategic and Financial Planning, incorporating sales and marketing strategies
    • Quoting and pricing tools and strategies to understand costs and improve proposals
    • Financial modeling & ROI analyses for new products, investments, and facilities
    • Sales analysis tools - insight from understanding trends by customer and product line

    III. Strengthen the Infrastructure

    Acquiring companies want to buy well run companies with solid infrastructures.  Strong management teams are a critical component.  Robust and well documented systems, procedures and processes are also essential. Strong infrastructures also make good use of technology and have strong internal controls. Well documented intellectual property and customer and vendor contracts are also critical.

    Companies with strong infrastructures command a higher price.  Most acquirers will analyze the infrastructure when performing due diligence.  You do not want them deducting significant amounts from the sales price, or worse, walking away altogether because you do not have your infrastructure in order.  At B2B CFO® we understand how to help you improve your infrastructure to maximize company value.

    IV. Strategic and Financial Plans

    The most successful companies have a strong strategic planning process which helps them create the vision and strategies to drive high long-term growth and profitability.  They prepare financial models to analyze their strategic initiatives and projected financial statements to understand what future profitability and financing needs may be.  They also have a strong operational planning process to develop goals, action plans, timelines and accountabilities to reach their current year goals, which are integrated with the strategic plan. The operational plan includes a well thought out budget.  Finally, they have a results management program to ensure they continually execute their plans and keep on track to reach their goals.

    Companies t....

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    Financial Strategies For The New Year - Jan 18, 2011

    Posted by: Frank J. Gnisci in Articles

    Many good firms are still struggling with the economy and are waiting things out. They have cut back costs as far as possible but are at a loss on how to increase sales and profits.  Here are seven steps you should be taking now to increase your sales and  profits in the new economy:

    (1) Understand your real profitability drivers.
    Do you really understand why you made (or lost) money last month?  Don’t automatically assume that it is all because of volume. It is may be a combination of things such as revenue levels, high fixed costs, unrecovered variable expenses, and some low and high margin customers and jobs.  If all you have to explain your profitability is a long listing of revenue and expense items, you don't really understand your profitability and can't take the necessary actions to drive improvement.  You must know your margins by individual product or service lines and customer, and understand the dynamics of your profit drivers.

    (2) Re-calculate all of your overhead rates
    Verify your hourly cost rates for production or service, direct, administrative, and overhead costs. In the past year, you have undoubtedly trimmed many costs and your other input costs have changed.  Lower costs mean lower overhead rates.  Lower base hours mean higher overhead rates.  If you haven't developed overhead rates to really understand the true cost of individual products or services, now is the time.  You might be surprised that you can actually sell at lower prices now and pick up sales volume that you are missing out on today.  Or, you could find that you are losing money with each sale because your costs have not come down in proportion to your production or service hours. If your vendor won't play ball, others certainly may. 

    (3) Analyze your sales quoting model.
    Does it include your new, lower overhead rates and purchase costs?  Does it show you your true cost of delivering your product or service?  Does it show you the true effect on your company of winning the business?  Your sales quoting model should break out the incremental costs and show you the cash affect and overhead coverage and profit impact of producing or servicing the quoted business.

    (4) Lower Cost Structure.
    Use your new lower cost structure and quoting model to develop pricing strategies to drive new sales, and to evaluate your current business. 

    (5) Customers
    Analyze your customers using the above tools and an 80/20 analysis.  You may find you can reduce more costs by ridding customers that use many resources but don't contribute much margin. 

    (6) Action Plan
    Develop detailed action plans to improve each of your main profitability drivers.  Assign an action oriented leader to head a team to analyze and improve each profitability driver and write down the specific goals, tasks, due dates and follow-up dates required to ensure each profitability driver is improved.  

    (7) Key Performance Indicators
    Set up a KPI (Key Performance Indicator) for each of your profitability drivers and chart its historical values versus its new target values. 

    Remember that the coming new post recession economy will not be the same as the old pre recession economy. It is never the same. Just look at past recessions and recoveries if you are not convinced.  The time for waiting is over. You need to get going now.  If you don't have these tools in place, you may be at a competitive disadvantage and left behind when the new economy emerges. Don’t get left waiting at the alter.


    Strategies To Improve Cash Collections In December - Dec 6, 2010

    Posted by: Frank J. Gnisci in Articles

    December is typically the month in which cash collections from receivables are the lowest. This puts added stress on business owners as they try to meet the cash needs of their company, survive the holidays and try to collect bills without being branded with as a "Scrooge". The most common reasons that cause a decrease in December cash collections are:

    1. Accrual-based companies like to show more cash on their balance sheet on December 31st and are often reluctant to pay their bills in December
    2. The person who prepares the checks takes holiday vacations and is not available to cut checks
    3. Illnesses, such as the common cold, cause payables people to be out on sick-leave
    4. Your company's staff may be more interested in the holidays and vacations than in collecting cash from your customers
    5. Your customers may have their own cash collection problems that they pass on to your company
    6. The check signer may be on holiday vacation

    Business owners can still take measures to improve their cash flow outlook in December. As a business owner, you can still sit down with the staff and create plans for cash collections. The staff may need to be reminded that they need to focus on the company's needs and be proactive in cash collections...Some suggested strategies to collect cash might include:

    1. Collection Goal - Tell your staff the cash collections goal that you expect to achieve for December. Be positive, but firm about the collection goal.
    2. Specific Identification - Have your staff give you a detailed report of the cash they expect to collect from specific customers by December 31st.  Communicate your concerns to the staff about customers. Help them understand the importance of collecting the cash without hurting the relationship with the customers.
    3. Daily Reporting - Ask the staff to report to you (or a key employee) the results of the collections each day of the month in December. Any concerns about the collection goal should be communicated daily.
    4. Internal Scheduling - Request your staff to give you a calendar of when they will be gone from the company during the month of December. Make sure someone is available to collect cash each day the company is open during the month. Make sure the receptionist knows who is available to take calls from customers who have questions or concerns about their invoice.
    5. Additionally, have the staff call the customers to find out if there are any scheduling problems with your customer’s during December. There is no sense in calling to collect money if your customer's staff is on a scheduled vacation. Know your customers vacation schedules and plan for collections accordingly.
    6. Performance Bonus - Give some consideration to giving a bonus to your staff if they meet or exceed the cash collection goal. This is a win-win situation for both your company and the staff as your employees earn some extra Christmas money while your company has sufficient cash in the bank to operate.

    December can be a challenging month for business owners and lack of cash flow only contributes to a bad situation. Cash collections are an integral part the business cycle and strategic planning can help to keep businesses stay on track even during the holidays.


    Set Goals For Success - Nov 2, 2010

    Posted by: Frank J. Gnisci in Articles

    A small business owner that I met recently continually struggles to put out fires. Although he has an Assistant Manager, Controller, IT Director, etc., he does not create a positive work environment. Day after day problems arise that threaten the viability of his company and his career.

    During a recent business trip to Chicago, he runs into an old friend. Both are waiting for flights and have a few minutes to chat. The owner asks his friend about his life and the owner describes the problems he’s encountering at his job. The friend listens to the owner’s story, asks some general questions, and finally asks him an important question: “What is the goal of your manufacturing organization?”

    The owner responds, “To produce products as efficiently as we can.” The friend informs the owner that he is mistaken and asks him the same question again.

    The owner responds “power,” then responds “market share.” The friend then leaves for his flight without providing an answer.

    At work the next day, the owner asks his Controller to join him for dinner. The two executives approach the goal question with many ideas but no conclusion until they see the proverbial light and they conclude that the goal of any organization is to make money!

    Goal setting is a very important tool for business owners. A recent article suggested that individuals who set clear and concise written goals will earn ten times more than those who don’t utilize goals in their professional careers. Consider the choices you’ve made in your past. For those of us who did not set goals, would our paths have been different?

    We use written goals in our personal life daily. Consider going to the supermarket. We create a list of groceries to purchase. The goal is to fill the shopping cart with all items on the list. When we fail to purchase an item, or if an item is unavailable, we feel unfulfilled. Conversely, if the list is satisfied, we feel elated.

    Business goals are no different. Ron Willingham in his book “Integrity Selling for the 21st Century” discusses how “strong goal clarity” is a trait that high achievers possess. He defines goal clarity as “having clear, specific written goals of what you want to have happen in your future. They must be goals that you deeply desire, and most important, goals you firmly believe are possible for you to achieve, and that you feel you deserve to achieve.” Let’s analyze some of these terms.

    • Clear, specific written goals - Writing them down seems easy; however where does one start? At a recent meeting, one of my partners made a presentation on goal setting. He shared his goals for 2011. All goals seemed clear, concise and in writing. I asked him to describe the logic or barometer that was used to create the goals. He stated that all goals were derived from annual revenue. 
    • Goals that you deeply desire – consider the emotional impact of desire. The business owner in this story almost ruined his marriage in attempting to succeed in turning around his business. Fortunately, he succeeded and resurrected his marriage. 
    • Goals that you firmly believe are possible and deserve to achieve – During my career as a business owner, I always felt that higher compensation was possible and that I deserved to achieve higher earnings because of my contribution to the organization.

    How do business owners use this very important tool? They probably don’t realize that they use some form of goal setting periodically—an annual budget, a sales projection, or reducing operating expenses. My experience is that they misuse their entrepreneurial talents, which include goal setting. They call meetings of senior executives without clear written meeting goals, even if they have an agenda. This leads to lengthy meetings that do not create value for the individuals or the organization. Perhaps the following suggestions are appropriate:

    • Utilize your time to set clear, concise written goals for the benefit of the organization.
    • Have senior management do the same.
    • Set goal guidelines.
    • Reinforce management’s needs to have goal setting meetings, to share ideas that eventually become goals.
    • Reward employees for their contribution to the organization’s goals.
    • Periodically review goals and modify them as necessary. 

     As a partner in B2B CFO® I set goals weekly, monthly, quarterly and ....

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    Banking And Lending Relationships 1297 - Oct 2, 2010

    Posted by: Frank J. Gnisci in Articles

    Strong banking and lending relationships are key to a well-financed business. Well financed businesses can operate much more efficiently than cash strapped firms and can take better advantage of market opportunities when they arise. Owners of businesses that are well financed are able to sleep much better at night than those who struggle with cash. Since banks are the single largest source of financing (cash) for business, having strong banking relationships is paramount to having a well- financed business.

    Some companies, especially startups and those with little equity may have difficulty borrowing from banks. There are times when other non-bank lenders can provide better financing options than banks. Therefore, having strong relationships with other lenders such as asset based lenders, lessors, private investors and investment bankers can be very important to business success.

    Good banking and lending relationships are based on trust and good communications between the banker (lender) and the borrower. Providing lenders with accurate and timely financial statements, good cash flow and income projections, and keeping them informed about major business decisions and activities will go a long way in developing trust and cementing a strong relationship. Bankers/lenders will provide better financing for relationship-based borrowers who keep them well informed about good as well as bad news in the business. Businesses that have strong financial management and institute good financial procedures and controls will also be looked on favorably by bankers and other lenders.

    B2B CFO® advisors, on average, have worked and negotiated with lenders for over 25 years and have strong relationships with many banks and alternative financing sources. They understand which banks and other lenders will serve your company the best, based on your industry and company profile.

    A B2B CFO® advisor can help you make better business decisions by helping you analyze your business from a financial standpoint and by implementing a management reporting system that gives you the information you need to make better decisions. This will help you increase profitability and drive your firm's growth, strengthening your company and its banking and lending relationships.

     Working with banks and lenders can take substantial time and effort. Your B2B CFO® advisor can take care of much of the work for you, allowing you to spend your time leading and improving the business and increasing sales. Your banker/lender will also feel a sense of security knowing that you have a top financial professional helping you with your financial management and will reward your company with a stronger and more attractive financing arrangement.

    Congress has recently passed banking legislation that is favorable to small and mid-sized business. Don't let this rare election year opportunity pass you by.


    Are You Really Focused On Profits - Sep 1, 2010

    Posted by: Frank J. Gnisci in Articles

    Business owners run their business to make money, right? Then why do so many owners make unprofitable decisions?

    There was a great article in the Wall Street Journal titled "Major Airlines Fuel a Recovery by Grounding Unprofitable Flights." The article talked about the progress that U.S. airlines are making to become profitable and provides several valuable points for business owners.

    In one part of the piece, writers Evan Perez and Melanie Trottman noted:

    "The big carriers, which for decades have doggedly pursued market share at any cost, now are focusing just as aggressively on the profitability of each route and flight. The so-called legacy carriers... have abandoned many of the tactics that have contributed to their cyclical weakness. They are increasingly unwilling to fly half-empty aircraft to stay competitive on a given route just for the sake of feeding their nationwide networks.

    Though their recovery is still in its early stages... the airlines' new emphasis on profitability appears to be paying off."

    Imagine that!

    Running the business in order to make money appears to be paying off. A brilliant strategy, indeed.

    There are several fascinating points here that I would like you to carefully consider.

    Be a Lover of Reality

    If you ask a business owner whether he runs his company to make money, the answer will always be "Yes." The reality is that he doesn't. At the risk of sounding a bit blunt, you don't either. This is an important reality to recognize and accept.

    Try this little test for the next 30 days. Listen for anyone in your company (including yourself) using words like "brand," "market share," or "shelf space." When you hear those words, you can be sure that you've just found an opportunity to make some money.

    Why? Because those words always are used to justify unprofitable decisions. They are big red flags that you are not making decisions based on a common-sense approach to profitability. When you hear those words, ask yourself this simple question, "Are we making this decision based on profitability or for some other (possibly hidden) reason?"You have to clear away the smokescreen in order to put your focus on profitability and common-sense decision making.

    Is Market Share Your Mantra?

    For example, when you hear an executive justifying a decision based on its supposed impact on market share, he's really saying, "I want to look good versus the competition, but it's a lot easier to give our products away than have to sell them at a profitable price."Here's what happens when market share becomes your mantra. The sales force gets the okay to start selling on price. Your salespeople cut prices in order to generate volume. The volume comes and the company ramps up quickly to meet the new demand. That ramp up always drives costs up. In a manufacturing company, for example, the increased production creates capacity issues, and it begins to see requests for capital expenditures to solve the problem. Meanwhile, the competition has lowered its prices to try to get some of the business back. The sales force has gotten used to selling on price, so it comes back to you with a plan to foil the competition by lowering the price--again. Profitability continues to be driven lower and lower while the need f....

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    What Keeps You Awake At Night - Aug 9, 2010

    Posted by: Frank J. Gnisci in Articles

    Starting out, the new business was stressful, but fun. There was not enough money or time, but things seemed to get done. Most of the time was spent taking care of the customers. There was a lot of satisfaction knowing that we could not only find customers but we could also do a better job than our competition. Looking back, words such as “excitement,” “fun,” and “surpassing the competitors,” were words that we used to use with the few employees we had.

    Our company grew
    Sales increased more than we ever imagined. Our sales tripled, then doubled, and then doubled again. We actually had cash in the bank! Our customers were pleased with us. We would stay at the office late at night and dream of how we would continue to beat the competition. The ideas were creative and exciting. We saw a clear vision of the future and felt that we had unlimited energy to continue to grow the company. As the owner, I dreamed about finally buying that car that I had wanted for such a long time. That long vacation with the family seemed within reach.

    Our company grew some more, and things got worse
    Sales grew even more, but things seemed to change. I did not understand how we could have so little cash when our sales were almost ten times higher than the second year after we started our business. My instincts were to continue doing the things that got me to where I was at this level of sales. I found it harder, however, to interview all the new prospective employees, to manage cash, to sign all the checks, and to fire unproductive people.

    I dreaded the endless meetings with lenders, accountants, attorneys, pension administrators, insurance agents, vendors, complaining employees, complaining customers, government auditors, etc. I used to spend most of my time creating ideas and spending time with my key customers. Somehow, these endless meetings drained my energy to remain creative. I feared meeting with customers because our quality somehow was not the same as when our sales were smaller.

    We had no idea
    We had no idea how difficult it was to deal with the Family Medical Leave Act, OSHA, workers compensation audits, sales tax audits, IRS audits, bank examiner audits, etc. The endless questions, the time, and the money we had to spend were frustrating beyond my ability to describe.

    The employees who were so willing and eager to work long hours for a reasonable salary began to get a little greedy. They assumed our company was floating in cash because of the high sales volume. They always wanted more. More wages. More vacations. More profit-sharing money. More paid holidays. More health care. More dental benefits. More, more, more!

    Even more frustrating, some of my people began to leave to work for the competition. One "loyal" employee left my company because he could get paid $500.00 a year more from someone else! I thought we should have a little more loyalty from some of the employees who left. We then not only had to replace these people but had to spend time trying to train them, all of which took more time and money than we ever expected.

    Besides, where did all the cash go? I'm not getting paid that much more than I was a few years ago. In fact, I recently had to put money into the company to meet a payroll. My bookkeeper and other employees have never given me an adequate explanation where all the cash has gone. Is it possible that someone is stealing from the company? What do I have to do to help the bank understand that they should lend me more money?

    Who is spending time with our cus....

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    Every Company Needs A CFO 1183 - Jul 15, 2010

    Posted by: Frank J. Gnisci in Articles

    Companies without a Chief Financial Officer are at a competitive disadvantage.  It's not unusual for small to mid-sized firms to have sophisticated operations and complex cost and financial challenges like large companies.  This often means that the CEO or the owner of the business needs the expertise of a senior financial executive.

    As an owner or CEO of a company, have you ever wondered how to solve the problems you're facing?  Have you ever spoken with another owner and come to the conclusion that what you really need is the advice of a CFO . . . but knew that you either didn't need a CFO on a full-time basis or couldn't afford the cost of a full-time CFO?  Did you then decide to give up on finding the advice that you need?

    You are not alone.  And, you are perhaps doing what many owners do - You try to figure it out yourself.  Let's be honest. Are you really the right person to do that?  Do you have the background or expertise to prepare accurate and useful financial statements, or even truly understand them?  And is your digging into these areas even a good use of your time?  As the owner, you need to be the visionary, focusing on the future-and you are the one who should be spending more time with your customers. 

    Using your time to develop financial information or analyzing your cash balance and future needs is something that someone else should be doing.  What you need is the assistance of a high level financial professional.  Outsourcing this function is a cost effective alternative to hiring another employee because it avoids the cost of a full-time salary, payroll taxes, and fringe benefits. A contract CFO is a very affordable means to obtain that higher level of expertise and add significant value to your business.   

    ADVANTAGES OF OUTSOURCING CFO’s

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    The Best Way To Grow Your Business - Jun 15, 2010

    Posted by: Frank J. Gnisci in Articles

    Although every business wants to grow, some types of growth are certainly better than others. Consider the following 2 options:

     

    1: Grow Sales by 20%, and net income increases 50%.        OR

     

     2: Grow Sales by 50% (a lot more work and risk than Option 1), and net income only increases 20%.

     

    The best way to grow is when net income growth out-paces sales revenue growth. For every additional unit of sales, we want to generate more profit, not less. How can we accomplish this?

     

    Jim Collins, the author of Good to Great, found that the more an organization sticks to its core competency, the more opportunities the company had for the good kind of growth – the growth where net income increases faster than sales!

     

    What is your core competency? It’s what you do well and, when you do it, you’ve proven that it can make money. If you are a trade contractor, then it is your trade. If you are an attorney, then it is the law. If you are a widget manufacturer, then – I think you get the point.

     

    I have experienced many occasions when, in its desire to grow, a company strays from its core competency and involves itself in a business and industry it doesn’t know very well. Sadly, these new ventures begin to drain time and resources (and most importantly, CASH!) from the main business. In essence, the core competency of the firm subsidizes a less successful venture.

     

    Sticking to your competency requires a great deal of discipline, but it is the best way to grow your company. By sticking to your core, you will find the most profitability and enduring growth opportunities!


    How To Evaluate Your Banks Strength - May 15, 2010

    Posted by: Frank J. Gnisci in Articles

    The security and relative strength of your bank can have a significant impact on the growth and continuity of your business.  Some questions that you may have are: Is it better to be associated with a national bank rather than a local community bank? Is the strength of the institution related to the size? How can a bank’s relative strength be evaluated and how do I compare my bank to the rest of the banks out there?

     

    When these questions were posed to two different banks locally, the answer was the same from both. We need to dig into the quarterly and/or annual reports and look at some key indicators used in the banking industry. Here are the four key areas that an owner should consider when choosing a bank for your business.

     

    Profitability

    A bank may have lost money last year, but taken adequate reserves to cover non-performing loans. If this is the case, we would come to the conclusion the bank has made the difficult decision to cover its bad assets and taken the “one-time” adjustment. More and more we will find this to be the case as banks “clean up” their portfolios. This alone should not be considered as a sign of financial weakness.

     

    Net Interest Margin

    We all know that banks make their money on interest from loans while they pay out interest to depositors and other funding sources. The difference between what they earn on loans and what they pay out to depositors is known as the “Net Interest Margin.” According to the discussions with local bankers, a bank can not survive on a Margin of less than 3.5%. The two banks reviewed were at 3.68% and 5.23%. We should always remember this is a function of all sources of funding, not just that from individual depositors.

     

    Capital Ratio

    This is an indication of the bank’s capital percent of the total balance sheet. By today’s standards a bank is adequately capitalized at 12%, but the industry has started wanting to see a capital base more along 14% or higher. As a note, a local bank that was seized by the Feds a few months back had a capital base of 8%. The two banks reviewed were at 12.8% and 12.5%. Both banks are considered adequately capitalized.

     

    Non-Accrual Assets 

    Non-accrual assets are just as you would expect. These are the loans or other facilities that are delinquent and have been deemed as unlikely to collect and the bank has stopped accruing interest on the loan.

     

    Give me a call and we can give your bank a good once over. You will be glad for the peace of mind in knowing that your bank is healthy.Read more...


    Gross Profit Optimization 1041 - Apr 5, 2010

    Posted by: Frank J. Gnisci in Articles

    One vital aspect that companies often overlook in starting or managing a business is that of optimizing gross profit. Gross profit (total sales revenue minus direct costs) is what is left over after costs associated directly with the sale of a product or service, such as materials and direct labor, are paid for. This is an extremely important number for every business to manage, as it impacts both the likelihood of reaching breakeven and the amount of profit that is earned beyond breakeven. In other words, it directly impacts risk and return.

     

    To optimize gross profit, it is necessary to calculate and understand the gross profit percentage, commonly referred to as gross profit margin. Gross profit margin is a company’s total sales revenue minus its direct costs, divided by the total sales revenue, expressed as a percentage. Gross profit margin represents the percent of total sales revenue that the company retains after incurring direct costs. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.

     

                                                                Total Sales Revenue – Direct Costs

                Gross Profit Margin (%) =                  Total Sales Revenue

     

    The gross profit margin represents the proportion of each dollar of revenue that the company retains as gross profit. For example, if a company’s gross profit margin is 50%, it would retain $0.50 from each dollar of revenue generated, to pay for selling, general and administrative expenses, interest expenses and distributions to owners. The levels of gross profit margin can vary widely from one industry to another depending on the business. For example, software companies will generally have a much higher gross profit margin than manufacturing companies.

     

    To illustrate how gross profit margin affects breakeven and profit, consider a company with $300,000 in fixed overhead expenses. If the firm’s gross profit margin is 50%, it would need to generate sales of $600,000 to cover its overhead. If that same company were able to achieve a gross profit margin of 52% instead, breakeven would decrease by $23,000 or approximately 4%. The company would then begin earning a profit of $0.52 on each dollar in sales after revenues reach $577,000, rather than $0.50 on the dollar after $600,000.

     

    Optimizing a company’s gross profit helps a company avoid problems with prices that are too low and direct costs that are too high, and therefore problems with breakeven and profit. When a company is generating adequate sales but gross profit margins are low, ....

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    How To Get Cash Without Going To The Bank - Mar 15, 2010

    Posted by: Frank J. Gnisci in Articles

    Every business needs cash in order to be successful. When times are good, cash (along with many other important metrics) can be forgotten and overlooked. When times are bad, the individual entrepreneur, small business as well as Fortune 100 Companies are in critical need of it. The first thought of small and emerging businesses is to rush to their bank and utilize existing lines of credit.  Those days are over.

    Many business owners overlook a valuable asset that can generate some very positive cash flow when managed properly. That asset is their accounts receivable. The management of Accounts Receivable is often neglected until the business is in desperate times.

    A good accounts receivable program must be instituted when the business first begins to generate sales.  The components that need to be developed and maintained are as follows:

    Credit and Collection
    Establish written credit policies and procedures that not only establish your expected days for collection, but detail what actions need to be taken when a customer falls outside these parameters (i.e. Customer goes over credit limit, Customer exceeds payment terms, Customer bounces a check, significant change in Customer’s credit report, etc.)

    Responsibility and Accountability
    Identify someone in the organization (i.e. Credit Manager) who will be responsible and have accountability for making credit and collection decisions and take subsequent actions for proper and timely notifications to delinquent customers. This person should not be someone in the company who also has sales responsibilities. This would be a conflict of interest.

     Management Oversight
    Be sure there is adequate computer software to accurately track the receivables and print meaningful aging reports. These reports must be run regularly (typically monthly or even weekly depending on the business cycle). The Credit Manager should note, on the reports, all actions taken for past due accounts. It is also advisable for the Owner or applicable Executive to have regular meetings with the Credit Manager and review the status of open accounts.

    Documentation
    Have all customers, prior to being sold /serviced, complete a Credit Application that will be reviewed and approved by the person who has accountability for receivables. This document could become invaluable if legal proceedings need to be taken and provides accuracy in initially establishing the customer’s name, address, etc. This form should be reviewed by an attorney prior to putting it in use.

    Resources
    If you're a typical small business owner, you spend more of your time working on today's issues than tomorrow’s potential. That may keep the doors open for now, but what about when you're ready to retire, or no longer have the will or energy to run your business?

    As mid to large businesses grow, owners typically realize they'll need to find a way out, but most small business owners do not have an exit strategy. Rather than simply selling inventory and closing the doors, the suggestion is that small business owners can increase their wealth by capitalizing on the goodwill or customer base they've built up. Here are some key businesses practices that many entrepreneurs overlook, but can help keep the company buffed up and ready for the marketplace.

    Document the Business Process

    You can't sell a business that is in your head. So, you need to write it down. Entrepreneurs don't typically like dealing with details and the fine points, but you must document how everything works in your organization. For example, spell out the roles of management and employees, not titles, but their actual responsibilities. Or describe a typical customer visit. Franchise companies list these types of details; a small business owner can use the same tactics to show the value of their company to a potential buyer.

    Set Financial Goals

    You cannot sell a business that is not making money. And, how do you know if you're growing if you don't know where you started and where you're going? Once you've set some target goals, measure them on a regular basis. Look at the internal processes of your business and make sure they are still working for your customers and your company alike. You may be pleasing customers, but are you making money? Know what your return on investment is, so you can explain it to those interested in buying your company.

    Have a Marketing Budget and Business Plan

    Many small business owners don't allocate money for marketing. A marketing plan, with a corresponding budget, is a critical component for attracting and keeping customers. One rule of thumb is to spend the equivalent of one staff salary on your marketing and advertising. Think of it as your "silent" employee working 24/7. Market awareness of your brand and demonstrated customer loyalty can dramatically increase the value to potential purchasers. Marketing is the last thing you cut even if times are bad

    Keep track of customer information

    Often, the most valuable aspect of a business to a potential buyer is your customer list, especially if your potential buyer is a competitor. Keeping track of customer contact information including name, address, phone number and email (along with permission to contact them electronically) is a must. Being able to deliver customer profiles and buying habits to a new owner demonstrates how well your business is run and makes your customer list invaluable. If business owners don't have customer data, they'll be in trouble.

    Read more...


    Back To Basics 978 - Jan 4, 2010

    Posted by: Frank J. Gnisci in Articles

    We are all feeling the pressure of a long and harsh recession. We see it in the news every day; we see long-established companies go out of business as we feel the effect of the equity markets and our shrinking investment portfolios. Many companies are in survival mode. So, what can business professionals do? I believe it is time to get back to basics. This is the time for companies to look inside and ensure that the fundamentals of running their business are strong. At a minimum, management should look at the following four areas.
     
    Internal Control Procedures
    This is the time that companies should revisit the quality of their internal control procedures and ensure that they are appropriate for the current working environment. Strong controls ensure that company assets are protected from theft and fraud (a significant risk in today's economy!), and contribute to timely, accurate financial reporting. As companies downsize to reduce their costs, there is increasing risk to organizations as a result of poorly designed controls and non-compliance with existing control procedures. It is important that management address areas where such control procedures should be modified. For example, there are certain operating activities that should not normally be performed by the same individual in order to avoid conflicts of interest (one example would be where the same person writes checks, signs checks, and reconciles bank accounts). In small and mid-size companies, downsizing has caused incompatible functions to be performed by the same individual or department.


    In addition, management should review the control environment to ensure that not only are controls in place, but that the controls would be effective even if they were performed as designed. An example of a control that should be performed is that a supervisor initials an invoice before it goes out to the customer. An ineffective application of that same control is that the invoice bears the initials of the reviewer, but is mathematically incorrect. The control would only be considered effective if the initials were on the invoice and the invoice was correctly prepared and recorded in the books and records.
     
    Management should perform a critical self review of its control procedures and make appropriate changes to ensure that the company is not susceptible to fraud or theft. Management should consider bringing in outside professionals to perform audit procedures on the internal control system to identify critical weaknesses and recommend improvements.
     
    Cash Management
    Management should ensure that daily cash balances are reported. The balances reported should be the cash held by the bank as well as the cash balance reported in the company's general ledger. Many entrepreneurs focus on the bank balances and ignore the book balances. They need to understand that the bank balance is where the company is at that point in time, however, the general ledger balance is where the bank balance is headed, once all the outstanding checks and deposits clear. The book balance is the key number.
     
    Forecasting
    Management must ensure that it has cash flow forecasts for at least the next quarter, but ideally on a rolling 12-month basis. Many universities teach the three fundamental principles of Finance - they are, 1) Get the Cash, 2) Get the Cash, and 3) Get the Cash. How do we do this? By ensuring that controls are strong and management is anticipating all future cash receipts and disbursements, based on reasonable assumptions for the business, and making the timely and appropriate adjustments to business practices to ensure that cash balances are adequate to meet the company's current and anticipated cash needs.  
    It is also important to perform rolling 12-month earnings forecasts. Such projections will enable management to plan and manage through the normal ups and downs of monthly activity, plan for those months where additional sales efforts are needed, anticipate hiring needs or contractions to meet business demands, control costs, and facilitate tax planning.  
    Management should review these forecasts monthly and take the appropriate actions to ensure that the business is functioning according t....

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    Making A Commitment For 2010 - Dec 16, 2009

    Posted by: Frank J. Gnisci in Articles

    Happy New Year to all my readers! I hope your holidays were wonderful, and that Santa brought lots of goodies. Each year when the calendar turns over it is a great time to recommit to goals. There are many things that you can do to help your business prosper and flourish in 2010.

     

    The trick is to make a commitment to move forward. You have to “do what it takes,” bite the bullet, put in the time, and do the hard work. And hard work it is. Ask anyone who has a successful business, and they will tell you about the sleepless nights, anxious moments, hard decisions, and sacrifices they made.

     

    If you are confused and don’t know where to start planning, the following suggestions will start you moving forward and achieving your goals in 2010.Set personal goals. What do you want out of your business, now and in the future?

    1. Establish a long-range vision for the business, consistent with your personal goals.
    2. Establish a 3-year business vision, along with specific 3-year goals, consistent with the long-range vision.
    3. Develop a brief (1-2 pages max) 1-year business plan, consistent with your 3-year vision and goals.

    After you take this “long term” look, back it down to the next twelve months. Then take a look at the next six months, and finally look at the first quarter. What can you do in the next 4 weeks to move toward achieving your goals? Write it down, set time lines and due dates, and get moving! One hint…..make your goals reasonable, achievable, but able to stretch you and make you work for it.

     

    B2B CFO specializes in helping small businesses achieve their goals. A part time Chief Financial Officer can help you establish your business direction, analyze your financials so you set reasonable and achievable goals, and help you measure your progress. If you feel “stuck in the mud,” look for a professional partner with whom you can work, with whom you feel comfortable, and who is affordable and has the background to work with your business.

     

    Start soon and 2010 will be a banner year for your business and yourself.


    Exiting My Business Why Should I Plan - Nov 2, 2009

    Posted by: Frank J. Gnisci in Articles

    I talk to many business owners and I always ask the question, “How and when do you plan to exit this business?” It never ceases to amaze me how many people tell me, “I am never going to leave my business; this is my life.” Let me put that myth to rest immediately. Every business owner will leave their business. They may leave it vertically or they may leave it horizontally, but they will leave it.

     

    That being said, it is obvious that exit planning is very critical to business owners, but especially small business owners. Why? Let’s look at some statistics from the Small Business Administration.

     

    ·        There are approximately 23 million businesses in the US. Of these businesses, 99.7% have fewer than 500 employees. In other words, small business!

     

    ·         Over 65% of these businesses are family owned or closely held businesses.

     

    ·        Over 50% of small businesses are owned by individuals over 50 years of age.

     

     What does this say? There will be more businesses hitting the market for sale in the next 10 to 15 years than ever before in history. As the baby boomer generation moves closer and closer to retirement, they will be looking to exit their businesses.

     

    The first, and often, preferred method of exiting a business is by passing it along to the next generation. This method is fraught with challenges, the least of which is the ability of the next generation to manage the business and keep it profitable. Statistics show that 70% of businesses passed on to the next generation fail within the first three years.

     

    Another method of exiting a business is putting it up for sale. If you remember from the paragraph above, there will be lots of businesses for sale in the coming years. What happens to any commodity on the market when there is excess supply and not enough demand? The price will go down. Only the businesses that are the best prepared for transition will realize top market prices. It will be a very competitive market and unprepared businesses (and their owners) will not realize their potential value.

     

    Preparing to exit your business, regardless of the me....

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    Business Valuation An Art Or A Science - Oct 14, 2009

    Posted by: Frank J. Gnisci in Articles

    If a business owner has an exit plan - which every business owner should have –  the primary question on his/her mind is “how much is it worth?”  Unless the entrepreneur wants to leave the business to the children or other family member, the goal should be to sell it and make a profit. Business owners should start thinking about this the day they start the business. But how do business valuations work? Who does them? And what do you need to do ahead of the valuation date to assure your business will sell for top dollar?

     

    Business valuation is an industry within business services. There are firms that specialize in business valuation. They will either represent the owner trying to sell or, sometimes, the buyer who wants to make sure they are paying a fair price. Business valuation is an expertise that takes years to develop. Many of these experts come from the accounting or finance side of business services. So how do they do it?

     

    Business valuation is both an art and a science.  There are many factors that go into developing the value of a business. They fall into two main groups, tangible factors and intangible factors. Each value is weighed based on how it affects the business performance, and what can be expected of the subject business going forward. Remember, a buyer is buying the ability to make money from the existing business.

     

    Tangible factors are easier to value. This is where the science of the valuation takes place.  Tangible factors can be looked up or calculated. They include cash in the bank (if that is part of the deal), accounts receivable (assuming they are collectable) and inventory (assuming it is saleable). Other tangible factors include revenue produced over time, buildings owned by the business that are included in the sale, cash flow, obligations to employees (such as retirement plans, etc). Also included in this value are items that would decrease value such as losses, poor margins, or debt that will be assumed in the transaction.

     

    The discussion of intangible factors is where the art of business valuation becomes part of the equation. These factors include efficiency of the operations systems. Will the buyer have to come in and make an investment in the company to get it running more efficiently? Competition and product will also play a part in the value. If the product or service a company sells is changing due to technology, or is something that is no longer popular to own, the projected sales may be assumed to be decreasing, which would affect the value. Remember the pet rock? The experience of the management team will also affect the value. After the owners of the company depart, does the existing management know how to take the company forward? And, there are factors such as customer base and satisfaction, competition, market share, industry position, vendor relations and location.

     

    So, what’s a business owner to do? If the goal is to sell the business (verses leave it to children or family members) you want the value to be as high as possible. Start looking at the business as a buyer would. Assume the buyer wants to buy a business that is running very well and has room to grow. Consult an expert who can guide you regarding the factors you need to be considering.

     

    It is never too early to start to plan for the business valuation. Position your busi....

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    It's Called Cash For a Reason - Sep 15, 2009

    Posted by: Frank J. Gnisci in Articles

    Business owners need to think about cash flow in terms of water. We can’t survive without water, but too much or too little can have devastating consequences.

     

    A heavy rainstorm starts with dark clouds, followed by a light shower, strong winds, and then sheets of rain that fill the streets and overwhelm the storm drains. Creeks and rivers overflow their banks, damaging property and limiting movement, bringing the risk of death unless emergency crews fill enough sandbags to keep the ever-rising water away from homes and businesses.

     

    The effects of drought take longer to become visible, but they’re just as deadly as flood damage. First the fields and forests are merely thirsty; then leaves and plants begin to wither. Below the surface, roots die off and the water table recedes. Unless alternative sources of water are found, the land dies, and so do the animals and people who depend on it.

     

    Managing your cash flow is like managing water resources because too great of a demand on cash flow—or too little—at the wrong time, can kill your company.

     

    I know a company that has an outstanding receivable of $1.5M. The company’s cash was tied up in direct and indirect labor and materials to produce products and provide services to one of the company’s main clients. The situation worsened by changes to work orders that resulted in greater cash consumption. The terms of the agreement were for payment at the completion of the work, but both parties had overlooked the impact of this arrangement on cash flow. The company experienced a prolonged lack of the life-giving element (cash). Meanwhile, the company’s client was unprepared for the storm. When the invoice arrived, the client felt swamped by the deluge. “We don’t have that kind of cash, and our LOC is limited,” the client protested. “The payment terms are clear,” the company replied, facing the pain and effects of drought.

     

    The whole awkward situation could have been avoided if both parties had taken their cash flow needs into account when they were negotiating the contract. The storm of the century could have been just another summer shower if they had built periodic payments into the contract.

     

    Cash management properly using a cash flow report is like a weather forecast. It focuses on regular inflows and outflows of cash. Businesses use these forecasts to their best advantage by making regular bi-weekly payments and issuing invoices on a regular bi-weekly or weekly cycle. Holding payables back too long is similar to building a dam; the accumulating pressure finds any structural weakness and a hairline crack turns into a disaster. At the provider end, neglecting to invoice in a consistent manner means the well can run dry.

     

    Busi....

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    Smart Steps For Your Success 759 - Aug 15, 2009

    Posted by: Frank J. Gnisci in Articles

    How successful were you in 2008? Did you achieve your personal and business goals? If you are like the majority of busy people, you didn’t write your goals down. There are many reasons not to write our goals but unfortunately most of them are negative. Does this sound familiar?

    • · If I write down my goals and don’t achieve them, I have a constant reminder of failing. 
       
    • · I like to be flexible, writing goals down puts limits on me.
       
    • I don’t have time; I’m busy trying to get things done.
      There have been studies done over the years that confirm writing your goals and looking at them regularly greatly increases your success in achieving them. What is interesting is that goal setting works both personally and in business environments. Many years ago I learned about goal setting and have used it religiously to help me move forward both personally and professionally.

     Goal Setting

     

    So what is goal setting? Goal setting is a process that helps you get clear on what you want, make an action plan to help you get there, launch into action, and persist until you reach your destination or find a better one.

     

    Texas oil billionaire H.L. Hunt once said that there are only two ingredients necessary for success. The first is that you have to decide exactly what it is that you want. This is where he believed many stumble. They never decide what it is that they really want. They may think they want something from time to time, usually something generic and vague like "being rich" or "a better job," but it's just a fleeting thought; they never truly get clear on what these things really mean.

     

    Hunt said that once you've decided what it is that you want, the second ingredient is to determine the price you have to pay to get what you want, and then resolve to pay that price by establishing your priorities and getting to work.

     

    Many who get past the first ingredient never apply the second one. They don't understand that you have to pay the price in full before you can claim your prize.

     

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    Five Common Small Business Challenges - Jul 15, 2009

    Posted by: Frank J. Gnisci in Articles

    In working with small growing entrepreneurial businesses, I have discovered several common financial related issues with which they struggle. When I first start working with these businesses, most if not all of these issues exist. All of them are critical to their success in managing and growing their businesses. The good news is that with time and focus they can be rectified. In no particular order, here are five that I see most:

    Lack of Timely and Accurate Financial Statements

     In today's business environment, decisions are made at a fast pace. Information is readily available via the Internet, yet internal financial information to improve the decision-making process is sadly deficient. Most business decisions have financial implications, and without this basic financial information, it may be a shot in the dark. Many times the financial statements are put in a drawer and never reviewed because the information is too old (not timely), the business owner doesn't believe the information is correct (not accurate) or the financial statements support the preparation of the income tax return, not running the business (not operational). They usually only become important when the business owner needs to meet with the bank.

    No Cash Management

    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's "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. Many times I will ask "what do you expect your cash balance to be in 6 months?" Most of the time they are fighting cash flow problems today and can't think about the future past this week. Managing cash flow will provide a real sense of control over the business.

    Poor Pricing Management

    Setting the price of our products or services will drive revenues and just as importantly the "gross margin" for the business. Unfortunately, not enough time and attention is provided to this aspect of business. In working with small business owners, I find many have not revised their "pricing formulas" for some time, while others don't really know their underlying costs to derive a sales price that provides profit. Many products are market driven because of competition, so it is imperative to know not only the direct costs but all costs necessary to produce a profit. Gross margin analysis by product line, products or customer is critical for small businesses.

    Lack of Systems & Processes

    Processes, whether documented or not, exist in all businesses. It is the way we perform the work necessary to produce our products or services. In most small businesses, the underlying processes to accomplish the work are rarely documented or reviewed as a whole (i.e. system). Developing efficient and effective systems and processes generally reduce costs and/or improve productivity. In businesses where there is a high turnover of people, documented processes are critical for training to ensure employees achieve higher productivity quicker.

    Minding and Grinding Not Finding

    Jerry Mills, founder and CEO of B2B CFO®, developed a simplistic organizational model for small businesses. He identified the 3 roles in small business as Finders, Minders and Grinders. Grinders represent the employees whose focus is about today. They generally work in the production side of the business. Most Finders start as Grinders. The Minders live in the past; their work is in the administrative, accounting, customer service or warranty departments. Minders are just as critical as Grinders to the success of the company and must be led. All Finders live in the future. They are the visionaries, innovators, and relationship builders. They are the passion and the drive for the business to grow and succeed.

    The entrepreneur is the Finder and must stay in the Finding role. Unfortunately, as businesses grow the Finder gets pulled into the company and works in Minding and Grinding activities. Without a change back to the Finding role, the entrepreneur/small business owner severely limits the business's ability to grow. In working with small business clients, they almost always identify with this organizational model.

    As I mentioned at the beginning of this piece, these challenges for the small business owner can be corrected. Most of them are fundamental changes. As with ....

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    Preventing Small Business Fraud - Jun 15, 2009

    Posted by: Frank J. Gnisci in Articles

     

    Small businesses are more likely to become the victims of fraud than larger businesses. Here's how you can prevent fraudulent activity in your workplace.

    Small businesses are the most vulnerable to occupational fraud and abuse, according to the Association for Certified Fraud Examiners (ACFE). In its 2006 Report to the Nation on Occupational Fraud and Abuse, ACFE cites that the smallest organizations, 100 employees or fewer, suffered higher median losses than did the largest organizations (10,000 employees or more). While the largest companies suffered losses of $97,000 on average, small businesses' losses averaged $127,500 based on its survey, which was conducted between April 2005 and February 2006.

    Considering the potential losses, it is in the interest of the small-business owner to make the prevention of fraud a priority in their businesses. Though no business owner wants to feel it employs unscrupulous people, sometimes temptation or personal financial pressures can push even the hardest working, most trusted employee into perpetrating fraud. The economic times that we are currently experiencing makes this all the more relevant today.

    The first step in preventing employee fraud is letting employees know you're watching for it. "Perception of detection is a very powerful deterrent," says John Gill, a certified fraud examiner and general council and director of self-study publications for the ACFE. Through its report findings and the experiences of its members, the ACFE has honed in on effective methods for deterring occupational fraud and abuse. Here, Gill shares some of the most useful approaches, which are also detailed in its book "How to Prevent Small Business Fraud." Some methods seem commonsense, but when taken into consideration with other preventive measures, they help fortify a business against fraudulent activity.

    First and foremost, hire the right employees. Conduct background checks for people handling inventory and money. Check past employment, criminal convictions, references, and education and certifications. Also, conduct drug screening since often, according to Gill, employees will steal from a business to support an addiction. Remember, however, to always get the written consent of candidates before doing research since many federal and state laws govern the gathering of such information.

    Maintain strong internal controls. Have checks and balances in place, suggests Gill. "For example, you don't want a signatory on the bank account balancing the check book," he says. "If I can write checks on the account and I reconcile the bank book, I'm free to manipulate the check register."

    Make sure expenditures are approved. For every expense, have a manager and someone in accounting approve it. The supervisor will ensure that the expenses are valid, while accounting will run the math.

    Monitor cash situations. In a retail situation, Gill suggests having security cameras monitor activity at registers and storage areas where inventory is kept. "People are less likely to do it if someone is watching them," he says.

    Require auditors to conduct surprise audits. Catching an employee off guard could be your best bet in discovering fraud. "The key is that an employee generally doesn't know what's coming and won't have the time to change the records to hide the fraud," says Gill. Additionally, auditors have sampling and computer data analysis techniques that help uncover fraud. Using these techniques, auditors can quickly examine, say, the payment of 1,000 invoices in detail, including invoice numbers, to whom payments were made, and when payments were made, and quickly determine those that are suspicious. "We've seen cases where somebody creates a phony company, submits invoices to accounting and accounting sends payment to a P.O. Box," says Gill. In one case, Gill recalls, an employee who set up a fraudulent business through which he submitted preprinted, consecutive numbered invoices to his employer every few months. When the auditors examined the invoices, particularly the invoice numbers, it seemed funny to them that the business submitting the invoices didn't have other clients or was having an extremely slow year since each consecutive invoice was sent to the company. A surprise audit also can uncover duplicate invoice amounts and duplicate invoice numbers, both of which can be red flags for possible wrongdoing.

    Establish a third-party hotline service. According to Gill, the number one method for catching occupational fraud is getting tips from employees. Because most employees are reluctant to report suspicious activity, using a third-party hotline offers a level of anonymity that an in-house hotline might not provide, making employees more likely to blow the whistle on fraudulent ....

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    The Top 5 Cash Flow Rules - May 20, 2009

    Posted by: Frank J. Gnisci in Articles

      (* When you are in an economic nose dive like this, there is no time for a Top 10 list)

    Why do you need to concentrate on Cash Flow? Simply put, cash flow is the life blood of your business.  

    You need to free yourself to focus your unique talents and abilities on growing your business rather than fighting the constant cash flow fires. Remember that you are the only one who really cares about the ongoing viability of your company. It's your future that you are most concerned about because, if your company is not successful, none of your employees will have a job and you may find yourself speaking with a bankruptcy lawyer.

    I believe that bankruptcy is a very bad alternative. The legal cost is very high and the stain of a business failure will stay with you for many years of your life. Bankruptcy is a lose / lose outcome for everyone except the bankruptcy lawyer.

    Here are the Top 5 Cash Flow Rules you can implement immediately that will transform the way you manage your business from this point forward. But first, remember the two cardinal rules of managing a business:

    • Never run out of cash. Make the commitment to do what it takes so that it does not happen to you.
    • Cash Is King. This is what keeps your business alive. Manage it with the attention that it deserves. Without cash, you do not have a real business.

    Now, the Top 5 Rules

    • Know the actual cash balance amount right now. Even the most intelligent and experienced person will fail if they are making business decisions using inaccurate or incomplete cash balances.
    • Do today's work today. The key to keeping an accurate cash balance in your accounting system is to do today's work today. When you do this, you will have the numbers you need-when you need them.
    • Either you do the work or have someone else do it. Those are the only two choices that you have. The work must be done. So, either you do it or have someone else do it. If you are doing the work of determining the cash balance, you may not have the right people working for you. Unless you are a start-up business without any accounting staff, you must be sure that the financial people know that you need and demand that they focus their efforts on monitoring the cash balance, and keep you aware of what's happening with your cash.
    • You absolutely, positively must have cash flow projections. Cash flow projections are the key to making wise and profitable business decisions. It's impossible to run your business properly without a good projection.
    • Eliminate your cash flow worries so you are free to do what you do best-Take care of customers and continue to bring in business This is the real key to your success in business. The reason you have to make sure you have the cash flow of your business under control is so you are free to focus all your time and talents where you can make the most difference in your business.

    Please feel free to give me a call with any comments, questions or suggestions that you may have. My office number is 813-994-0416 and my cell phone number is 786-281-4527.

     


    Every Company Needs A CFO - Apr 16, 2009

    Posted by: Frank J. Gnisci in Articles

     Companies without a Chief Financial Officer are at a competitive disadvantage.  It's not unusual for small to mid-sized firms to have sophisticated operations and complex cost and financial challenges like large companies.  This often means that the CEO or the owner of the business needs the expertise of a senior financial executive.

    As an owner or CEO of a company, have you ever wondered how to solve the problems you're facing?  Have you ever spoken with another owner and come to the conclusion that what you really need is the advice of a CFO . . . but knew that you either didn't need a CFO on a full-time basis or couldn't afford the cost of a full-time CFO?  Did you then decide to give up on finding the advice that you need?

    You are not alone.  And, you are perhaps doing what many owners do - You try to figure it out yourself.  Let's be honest. Are you really the right person to do that?  Do you have the background or expertise to prepare accurate and useful financial statements, or even truly understand them?  And is your digging into these areas even a good use of your time?  As the owner, you need to be the visionary, focusing on the future-and you are the one who should be spending more time with your customers. 

    Using your time to develop financial information or analyzing your cash balance and future needs is something that someone else should be doing.  What you need is the assistance of a high level financial professional.  Outsourcing this function is a cost effective alternative to hiring another employee because it avoids the cost of a full-time salary, payroll taxes, and fringe benefits. A contract CFO is a very affordable means to obtain that higher level of expertise and add significant value to your business.         

    ADVANTAGES OF OUTSOURCING CFO's

    Better financial information for key decision-making.  It's a fact:  most small to mid-sized businesses either don't prepare financial statements, or they are not reliable.  Another fact:  you simply cannot make important business decisions while relying on bad, inaccurate, or incomplete information.  If you have found yourself frustrated with the lack of information from your bookkeeper or controller, chances are the information they are giving you is of questionable value.  You cannot effectively run a business in that situation.

    More time to spend with customers.  To be competitive, you need to spend most of your time with current and prospective customers.  Particularly today, you need to be with your customers as much as possible.  Just as you are trying to get new customers, your competitors are trying to meet with your customers.  You simply need to be spending the majority of your time with them.

    More money from the bank and from vendors.  Bankers and vendors are more sophisticated and less forgiving than ever.  With the current financial situation affecting all businesses, creditors will refuse to lend money to anyone other than the safest and most reliable companies.  And they will require regular and reliable financial statements. The financial statements must look professional, follow accepted accounting principles, and highlight the company's key ratios. A CFO working with you on a part-time basis can improve your company's external "image" and assist you with opening doors to banks and obtaining better vendor terms.

    Other advantages to having an outsourced CFO include:

    • A sounding board for the owner in making key decisions
    • Fewer cash flow surprises
    • Better trained accounting staff
    • A theft deterrent
    • Better documentation and controls
    • Fewer surprises relating to tax payments
    • Solutions to company problems

    SOME THINGS TO CONSIDER 

    A CFO is a proactive professional that has a pervasive knowledge of information important for the owner to properly run the company.  This includes handling not only financial matters but also addressing HR, operations, sales and marketing, IT, and other issues needed to help the company succeed.

    A common misconception is that a CPA can take the place of a CFO.  The simple reality is that a CPA cannot do the work a CFO does because each has a different set of skills.  As noted above, a CFO has a broad range of experience in financial and non-financial areas.  The CPA and the CFO should w....

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    Business Navigation A Setting A Course For Your Business - Mar 16, 2009

    Posted by: Frank J. Gnisci in Articles

    The most fundamental rule of navigation is - "You must first know where you are before you can know which way to go.

    Sometimes it may seem obvious which way to go but without knowing your real position how do you know if you are heading in the right direction? Picture yourself sailing along in the Pacific Ocean on your way to Hawaii. If you thought that you were just east of the islands it would make sense to sail west to get there. But if you had unknowingly sailed past the islands in the night, while sailing west you would have thousands of miles of open ocean before you hit land. You would be wasting a lot of time and risking your life because you simply did not really know where you were before continuing on your course.  

    The same holds true for business. Heading off before you know your real financial position can waste a lot of resources and put your business at risk. Like knowing your latitude and longitude, knowing your financial position is a critical step to setting your course to increase the value of your company.

    You may think that your financial situation is obvious. - check the back account for the cash balance, the net equity and a few ratios and we are good to go, right? Hold on captain. Let's look a little closer and ask some questions about some of the key numbers. Here are a few examples.

    How good are your receivables? Not just the adequacy of the bad debt reserve but what about the quality of the collateral? Don't forget about the aging and cross aging covenants on your credit line. Your 80% eligible collateral may end up being 70% or less if your aging is not in good shape. That will result in less available credit.

    A similar analysis is necessary on your inventory. How much of your inventory is ineligible for borrowing collateral.

    Look at your fixed assets. Are they all still useful and productive assets or are you looking at costly replacements in the near future. We tend to think of and treat depreciation as simply a tax concept, but assets really do depreciate - i.e. they wear out. On the other hand, because of the way that conventional accounting treats historical cost, you may have assets with underlying current values that make your balance sheet much stronger than it appears. Knowing where you stand with future capital expenditures can have a significant impact on where and how far you go with your next business initiative.

    Regarding any other assets on your balance sheet, you need to know that they are really assets. Another definition of an asset is an unexpired cost. Make sure that you are not stacking up expired costs on your balance sheet that really belong as expenses on the income statement. Better to find out now rather than waiting until your auditors, bankers or shareholders ask you about them at year-end.

    With liabilities, the common problem is not what you see; it is what you don't see. Understating or completely missing significant liabilities not only misstates your current position, it can also distort your performance reporting as well. Do you have higher than usual gross margins on some products or services that you can't explain? The problem may be that you have not recorded all the liabilities and related expenses. Knowing that all of your liabilities are properly recorded can give you much greater confidence that the margins on your product and service lines are correct.

    Another name for a balance sheet is "the statement of financial position". Just like in sailing, once you know your position, the decision on which direction to go can be made with confidence. To put it another way - First Direction and then Velocity.

    Please feel free to call me with any comments, questions or suggestions that you may have. My office number is 813-994-0416 and my cell phone number is 786-281-4527.


    Is Your Check Engine Light On 556 - Feb 14, 2009

    Posted by: Frank J. Gnisci in Articles

     When we drive a car we take it for granted that our dashboard is set up to tell us most of the important things we need to know to have a safe trip and arrive at our planned destination. When you look down at your car's dashboard, you can quickly determine how the vehicle is functioning and receive alerts when something is not working properly. You would still most likely be able to get to work or to the mall if your dashboard was not working, but imagine how much more difficult and uncomfortable it would be. When I was in college I had a truck with a broken speedometer. Since I didn't know exactly know how fast I was really going, I managed to rack up a couple of speeding tickets and I also got honked a couple of times for going too slowly.  

    I think we all can agree that driving with a useful dashboard just makes sense. If it makes so much sense to drive a car with a dashboard, then wouldn't it also make sense to help drive your business with a "financial dashboard" that gives you concise and timely information about your business? Don't get me wrong, a financial dashboard does not replace a good set of financial statements and other detailed reports. However, a properly designed financial dashboard will summarize this data into Key Performance Indicators (KPI's). Dashboards are essentially snapshots comprised of charts and tables of your company's KPI's such as sales reports (daily, monthly, year to date), cash on hand, operating cash flow, profitability, profit margin, back orders, inventory levels, days sales outstanding, etc.

    Often times when I look at a company's financial reports, what I find is that income statements run on for two or three pages listing nearly every account in the general ledger. Balance sheets and cash flow statements are also generally not well designed. As a result, business owners are frustrated that sometimes they get too much information and at other times too little information. Think about the KPI's that are vital for your business. Next, have your staff develop a financial dashboard that includes all of these KPI's so that you can quickly see how your business is performing and where you need to focus your attention to help grow your company and improve cash flow and profitability.

    If you think that your company would benefit from a financial dashboard, please give me a call.  The initial diagnostic review is free. There is no cost or obligation to you.

    Please feel free to call me with any comments, questions or suggestions that you may have. My office number is 813-994-0416 and my cell phone number is 786-281-4527.

     


    Strategies For Riding Out Tough Economic Times - Jan 17, 2009

    Posted by: Frank J. Gnisci in Articles

    Operating a business is both a challenge and a struggle. This is particularly true if you are the Owner, President or CEO of a business during a significant economic downturn. Two weeks ago the Tampa Bay Business Journal polled a number of small and mid-sized business owners in our area. One in four or 25% of the people responding to the survey do not believe that they will survive this recession. Barons and Business Week estimates the national failure rate at approximately 33%.  

    The media enjoys publishing bad news because it sells more newspapers. The network pundits are all predicting that the end is near. They are hoping that you will turn on your television set to their channel tonight and listen to more of their doom and gloom. The truth of the matter is that this recession is similar to the economic downturns that we faced in 1974 - 1976 and 1981-1983. Yes - there was a credit crunch back then. Yes - the recovery was painful. Yes - a lot of small companies did not survive. Yes - I lived through those terrible days plus a lot worse than that. And you can be sure of one thing - One Day it will be Over. The trick is to avoid becoming another bankruptcy statistic by exercising prudent business judgment and taking advantage of high level management skills now.

    Survival in a recession requires comprehensive business planning, close operational and financial control of the company and reliable and consistent management execution. In simple terms, this means good blocking and tackling by the employees, the management and the owners. During a crisis, there cannot be any room for disorganization, confusion, or miscommunication. To do otherwise spells doom for your business. If you are unsure of how much money you made or lost last month, if your bank is becoming impatient with you, or if your cash flow is giving you a regular weekly surprise, you need to make a change quickly, before your business is permenantly damaged.

    There are always winners and losers in every economic cycle. The losers will be those people who will continue to do the same thing that they did before and hope for a different outcome. The winners will be those companies that exit the recession in a stronger position than their competitors. These are the people who know how to manage sales, operations, cash and working capital.  They are placing themselves in a unique position to grow their business at the expense of their competitors.  Their strategy is to acquire market share from their weakened or former competitors at a minimal cost after the recession is over. This is often how wealth and profitable exit strategies are created.

    Survival strategies can take many forms. However, for any company to survive, the entrepreneurs must focus on their most important resource - "The Customers"

    Here is a short list of customer strategies that will help you ride out the difficult times.

    (1)   Your Customers Shape Your Business

    The rationale for every business is to attract customers for its products and services. Without customers, there is simply no reason for a business to continue operating. To attract more customers, your mission should be to go beyond merely satisfying your customer - but delighting them - with your products or services. When you're selling, your focus should be on your customer and your customer's needs. Think of the selling process in terms of helping customers find solutions that will help them achieve their objectives. But first, you need to find out what the customer wants, what the customer cares about, and what objectives the customer is trying to achieve. A happy customer assures a steady stream of revenues for you, plus that powerful marketing strategy- positive word-of-mouth.

    (2)   Take Advantage of Tough Times

    Tough times are good times to get noticed. At the first hint of a bad economy, many small businesses panic and run for cover. They slash their advertising and sales budgets and try to sit out the downturn. At times like these, you can practically have the field to yourself as your competitors make themselves invisible. Grab the chance to stand out and be noticed. Businesses that advertise during tough times usually take market share away from businesses that don't. Tough times may be the best time to launch an advertising blitz to gain market share. Advertising agencies are eager to get whatever business they can, so you may be able to negotiate better rates and terms. At the same time, explore less expensive and perhaps more cost-effective advertising alternatives.

    (3)   Introduce New OfferingsRead more...


    Testimonial - Hygeia Corporation - Dec 15, 2008

    Posted by: Frank J. Gnisci in Testimonials

    For the past nine years Frank Gnisci was the Chief  Financial and Administrative officer of Hygeia Corporation. During his tenure, Hygeia grew from a small startup company into a midsized participant in the international healthcare market place.

    It is in my sincere opinion, the significant growth and financial success of the company would not have occurred without the strong leadership and management skills that Frank contributed. He had a comprehensive understanding of day-to-day operations and a strong strategic understanding of the business. These are the critical skills that were needed to transform the company from a start up into a midsized business.

    Hygeia was a highly profitable and growing company. In December 2007 the owners decided to sell the business to United Healthcare. Frank was the one that made this happen.

    As the founder and managing director of South One Capital, my exit strategy also constitutes selling the company to a third party and I would not execute such a plan without Frank's participation and professional guidance.

    Should you have any questions or would like to further discuss any details please do not hesitate to reach me directly at (800) 315-7630, Ext. 417

    Irving Diaz - Founder and ManagingDirector - South One Capital


    Working Capital - Dec 6, 2008

    Posted by: Frank J. Gnisci in Articles

    Does your business have working capital problems? Let's take a look at what working capital involves. Basically working capital falls into four main areas. These are:

    1. Cash
    2. Accounts Receivable
    3. Inventories
    4. Accounts Payable

    Most companies would say "yes, they have a problem in one of these areas." Why? Because these factors most affect how a company can operate. Face it, if you don't have cash in the bank, accounts receivables from sales, inventory to sell, and payables from the purchase of inventories, you are basically out of business. Therefore, these factors should be monitored very closely and on a regular basis.

    There are many reasons why a business will have working capital problems. As a business owner, it is critical for you to determine why the situation exists, and correct the problem immediately. So how do you determine why you would have working capital problems? Here is a short list of some of the usual causes of this issue.

    1. Not enough sales, therefore not enough cash
    2. Past due receivables are increasing
    3. Customers are paying short, due to quality issues
    4. Staff has been added to process orders and/or invoices
    5. Detailed information on inventory not available
    6. Inventory turnover problems
    7. Interest incurred or late payment penalties from vendors
    8. Overpurchasing

    To avoid problems in working capital, the business owner should spend time carefully looking at what is going on in the business at this level. At the end of every month, a "financial dashboard" should be prepared for the business owner that gives him/her the vital statistics in the areas needed to monitor working capital. For instance, each month a report should be produced showing information such as aged receivables, receivable days, inventory levels by category, inventory turnover, and days in payables. These statistics should be looked at and compared month by month to determine if the problem is getting better or worse. Action should be taken immediately when the numbers show a trend that will be bad for the company.

    Monitoring working capital is not a difficult thing to do. A simple report put together every month will focus management in the right areas, and help to move the business into better times. B2BCFO can help business owners monitor their working capital by putting together simple, easy to understand reports that get to the heart of the matter. Tackle this problem early, and working capital will not be a problem.


    Testimonial - Hygeia Corporation 369 - Nov 30, 2008

    Posted by: Frank J. Gnisci in Testimonials

    During my tenure as Director of Arbitration Services with Hygeia Corporation, Frank Gnisci was Chief Financial Officer. He was an extremely effective executive and a key driver of growth for Hygeia. During our time together Hygeia grew from a small startup to a midsized firm. Hygeia eventually attracted the attention of United Healthcare, a leader in the health services arena, and was purchased.

    I firmly believe that the sale to United Healthcare would not have occurred without the strong organizational and financial skills that Frank brought to the table. What sets Frank apart from most financial executives is his ability to understand the business, as well as the balance statement. In many cases, Frank brought ideas from a business perspective, which certainly helped the bottom line, but showed that he understood what was going on day-to-day. This level of teamwork really helped operations people like myself both better understand the financial and operating constraints that the business had to contend with.

    Personally, Frank was also a mentor to me during my earlier years in management and business. He respected and encouraged the skills that I had to offer and was able to help me grow as a leader and a business person. While junior in experience, he always treated me as a peer with respect and encouragement. I know I would not be where I am today, (growing another startup), if it was not for my time at Hygeia and specifically with Frank.

    If there is anything else you would like to know about Frank certainly do not hesitate to contact me at 866-756-8666.

    Lloyd Starratt President - Advantria, LLC.


    Testimonial - Breed Technologies - Nov 15, 2008

    Posted by: Frank J. Gnisci in Testimonials

    I have known Frank Gnisci for over ten years. Frank was my boss at an Class A automative manufacturing company in Lakeland, Florida during a major restructuring of the company and after an acquisition that doubled the size of the business.

    During my time working for Frank, he showed great leadership skills in directing the consolidation of thirty production facilities and securing $700 million of both debt and equity financing. The transaction was particularly complex because it included a substantial financial penalty for missing the agreed to closing date.

    Frank's management skills were tested under some very stressful conditions, which required supervision of multiple internal and external priorities. These activities included numerous road shows, Board of Director presentations, employee staff meetings, working with the banks, investors and the major rating agencies, consolidationg production facilities and standardizing financial reporting systems.

    Frank has a brilliant financial mind and he is a savvy and ethical business person. Please feel free to give me a call at 757-490-1111, if you would like additional information.

    Fred W. Kirshbaum - Chief Financial Officer  - Checketred Flag


    Need More Cash - Nov 15, 2008

    Posted by: Frank J. Gnisci in Articles

     

    A business owner, or someone who works with a business owners' cash, has a constant and unrelenting problem. Do you sometimes wonder where your cash went? There are several "tricks of the trade" that well managed companies utilize to maximize their cash flow. These cash policies can be used by any business, large or small. Here are a few of them that will help you keep cash in your checking account.

    It all starts with something called the cash conversion cycle.  This simply means the amount of time it takes a business to convert a sale to cash. The shorter your cash conversion time, the better managed your cash flow will be. The cash conversion cycle is expressed in days. Some people believe that they are doing a good job when their cash conversion cycle is running +60 to +70 days.

    Dell Computer has a different way of looking at this issue. Their cash conversion cycle is -15 days. Yes, that is MINUS 15 days. How do they do it? First, they get you to pay for your computer up front so they have your cash. Your cash is in their bank account, but they haven't delivered anything yet. Second, they don't order the parts to build your computer until the order is placed and paid for. Therefore, they don't carry excessive inventory. Have you ever noticed that you pay extra for the immediate service? They are essentially getting you to pay for their inventory carrying cost. Lastly, they don't pay their vendors until the bill is due, or even a little later.

    I am not suggesting that you model your business after Dell, however here are a few things you can do to help improve your cash conversion cycle.

    Get Faster Collections:

    1. Bill via email so your customers get their invoices more quickly.This starts the clock ticking sooner on the payment due date.

    2. Use state of the art cash management tools such as remote deposit technology.

    3. Contact the customers before the invoice is due! Make sure the customer is satisfied with your product or service and that the invoice is set up for payment.

    4. Start a collection procedure as soon as invoices become overdue.   

    Reduce Inventory:

    1. Don't order inventory until you absolutely need it. Establish re-order points and minimum order quantities.

    2. Limit access to inventory to prevent theft.

    3. Get rid of any obsolete inventory, immediately.

    4. Consider using contract manufacturers. Let them use their cash to hold the inventory.

    Stretch Payments:

    1. Don't pay vendor bills until they are due. If it says due on receipt, take at least 15 or up to 30 days.

    2. Take all payment discounts.

    3. Negotiate longer terms with your vendors. Don't be afraid to ask for 60 days to pay.

    There are many other actions that will help you convert that sale into cash, faster. Think carefully about how your cash travels through the business. Your checkbook, the banker and your employees will think the better of you for it.
     


    Testimonial - Terex Corporation - Nov 1, 2008

    Posted by: Frank J. Gnisci in Testimonials

    As Controller, I reported to Frank in his role as Vice President of Finance at Terex Corporation.  Frank's strength is that he understands the operational aspects of the business as well as the financial. He had a key role supporting the CEO in overseeing the company's diverse businesses, and he worked closely with business managers to make critical operating decisions as well as overseeing the financial aspects.

    He has a great ability to get quickly up to speed in a new situation - making substantive contributions almost as soon as he arrives. I also worked with Frank in the initial stages of integrating the $400 million crane acquisition, where these strengths enabled him to quickly gain an understanding of the operations spanning facilities in several countries and begin making the critical decisions to enable successful integration.

    Frank is also a person of the highest integrity, and was a key influencer in my own career development.

    Richard Evans - Director - Delloitte and Touche LLP 

     

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