Sunday, June 29, 2008

Getting Rid of Stale Inventory

One area that my retail, manufacturing and distribution clients in my CFO practice need to do better and to understand better is getting rid of stale inventory as soon as possible. Business owners hate to admit when they make a mistake (i.e. when they buy or produce something that does not sell commonly known as a dog). We all do it, I used to do it. It is a peril of the game. DO NOT TAKE IT PERSONALLY. However, fail forward fast. Which means once you know it will not sell get rid of it, allow yourself to use the cash from the sale to purchase more productive assets and more productive inventory. You know; the stuff that really sells. Do not worry about the margin hit!! Take the margin hit, otherwise it is almost a guarantee you will sell it for less somewhere down the line. By selling the slow movers as soon as possible you will get more inventory turns which will result in less inventory and more profit. It should be one of the CFO Duties to manage inventory turns and to impress upon the business owner the extreme benefits of admitting inventory mistakes as soon as possible, converting them to cash and buying more productive inventory assets.

Friday, June 27, 2008

Should CFOs get involved with Search Engine Optimization (SEO)?

Does this sound a little out there? One of the CFO Services that I think adds real value to the business owner is a CFO who understands Search Engine Optimization (SEO). Who said that CFOs are all about the numbers? In todays business world the CFO has to provide services for their client that go beyond the numbers that really assess risk and find opportunity. In today’s High Tech world giving the business owner guidance on SEO can really provide another opportunity for the business that did not previously exist. The thing that makes SEO suited for the CFO as part of a CFOs Duties is the detail orientation of a successful SEO plan. By understanding the components of a successful SEO plan and by properly delegating the plan to the right people the CFO can help the business owner generate more business and have added value as a CFO.

Thursday, June 26, 2008

The CFO and Business Forecasting

As I see it Business Forecasting is finding the right number of what if scenarios in order to identify enough possibilities of what is going to happen. A lot of business owners think that forecasting is like being a soothsayer in that business forecasting identifies exactly what is going to happen. No one can predict the future and there are too many different things that could happen to a business that will throw off the most sophisticated of forecasts. As I see it the role of the Chief Financial Officer in forecasting is to identify the top 7 or so likely scenarios and do a what if analysis on those 7 scenarios. One of the 7 scenarios should be a best case and a worse case. The proper forecasting tool to use is one that has a Profit and Loss, a balance sheet, cash flow, inventory plan and sales forecast all in one. These schedules can be broken down by quarter, month or even by week. Of course it needs to be adaptable to retail, manufacturing, distribution or service depending on the type of business the CFO is forecasting. The model also needs to identify where the risks and opportunities are and incorporate the key metrics. The great thing about this model is that as one number changes anywhere in the model all the numbers adjust. Next Step CFO uses this tool in business forecasting as a part of its CFO Services. It shows the business owner all of the risks and opportunities associated with any scenario and it allows for more thorough decision making and a reduction of risk for the business owner.

Wednesday, June 25, 2008

CFOs who understand the risks of business ownership

Give me a CFO who has owned a business before over anyone with a lot of practical experience and a lot of diplomas. The reason is the Chief Financial Officer who has owned businesses understands the business owners risk because they too have been there. Not only do they understand the risks and feel the risks, they can identify the risks more easily and quickly because they have an owners perspective.

Until you felt what it is like to have an unsuccessful sale in retail or to not be able to fill manufacturing orders because you did not have the right inventory or not having enough cash flow to make payroll, or the pressure of employees underperforming you do not really understand. These are just a few of the issues that only business owners worry about and stay up nights thinking about.

Employees and vendors do not worry about these issues nor do they have the owners perspective of these issues. A CFO who owned a business before not only has the financial and business acumen to be productive, but also has a mind set that only a business owner has and can perform like a business partner without owning stock. In short, it gives the business owner another set of business owner eyes and that is invaluable.

Why CFOs who work part time are valuable

The most cost effective and productive way to use a CFO is on a part time basis. In other words a CFO Consultant. Back in the day, Chief Financial Officers were more commonly called controllers and controllers would pay a lot of attention to monthly closings, financial statement preparation and profit planning. With todays operating systems and more sophisticated accounting modules, CFOs can turn more of their attention to areas that are more productive to the business owner. For example CFOs can turn their attention to business forecasting, inventory planning and reduction of risk. These aforementioned productive CFO duties and CFO services do not take full time manpower. You can even add a number of other CFO services and it still will not require a full time CFO. When you hire CFOs on a part time basis they will not require benefits as most are of independent contractor status. These CFOs are also your CFO as long as you want to keep them. The Business Owner will not get a two week notice because they found another job. In closing CFOs who work on a part time basis are more valuable because they will tackle the most important issues in your business and they are extremely cost effective.

CFOs : Why Companies Need Them

One thing business owners hate is surprises. Unless of course the surprise is a pleasant surprise and then all is well. However, if the surprise is an unpleasant surprise it is enough to give a business owner gray hair at a very early age. Chief Financial Officers or CFOs need to tell the business owner when it is cloudy not when it is raining. This is a key role of the CFO. Reducing the element of unpleasant surprises is one of the main roles of a CFO. Identifying cash flow problems before they occur, identifying inventory overstocks or shortages before they occur are just a few trouble spots that can be identified.

Another reason why companies need CFOs is for identifying and assessing risk. Todays business owner wears so many hats and needs to make decisions quickly. Business owners need a Chief Financial Officer to help them identify and assess the risk associated with those quick decisions. Todays CFO can also do many things to help reduce the business owners risk. One example of this is looking into the Corporate American Express Card. Qualifying for certain classifications of corporate American Express Cards will just have corporate liability and no personal liability.