Friday, April 30, 2010
Exuberance
One of my clients is having a real good year. I know that is unusual for the current economic environment but this particular client makes very unique and effective sales presentations which has lead to his success.
My client recently (within the last two weeks) added some new employees in order to keep up with the demand and he asked me if he should buy a new truck. He said he thought it would make one of his new crews more productive.
I said “hold it” as I immediately went back to my business experience and how when I had a peak in demand and was doing really well how I went overboard with capital expenditures, how I added locations and how I added product lines as I thought the great demand was never going to end. This was a big mistake. I said to my client “Exuberance” as I thought of my own exuberance. I went on to tell my client that we have not even tested our new employees to see if they are going to make the cut as permanent employees and we are thinking about buying trucks to make them more efficient. My client went on to say that he could take one of the new guys and let him go solo on the truck to do some lower end jobs. I told my client that we should do nothing and review this in another two months. In two months we will see if we still have the same sales backlog, we will see if the new employees are working out, we will also have a better idea how as a business we handled this excessive amount of sales activity from a quality standpoint and we will know if it is profitable to do these smaller jobs. We will also have a better idea to see if there is time to market the smaller jobs for the truck strategy my client talked about. I told my client that business owners (me included) have a tendency to really over spend when times are good. They almost do it because they have the cash available to do it and things are going so well so they think they need to capitalize on this success without thinking that these great times are not going to last forever and the overspending still has to be paid for. As I told my client this he began to understand and he thanked me for putting the breaks on the idea. I told him you must be equally as disciplined in managing upturns as in managing downturns and you must never think you can afford something just because the cash is currently available. You must constantly look to conserve cash unless a real return on the investment can be forecasted with accuracy and all of the other areas of the business are stable and tested as cash is the lifeblood of your business.
This exchange between my client and I is just one more example of how it is a great advantage for a business owner to have an entrepreneurial chief financial officer. The entrepreneurial CFO can reflect back on the many real life business experiences and apply those experiences for the benefit of their clients.
My client recently (within the last two weeks) added some new employees in order to keep up with the demand and he asked me if he should buy a new truck. He said he thought it would make one of his new crews more productive.
I said “hold it” as I immediately went back to my business experience and how when I had a peak in demand and was doing really well how I went overboard with capital expenditures, how I added locations and how I added product lines as I thought the great demand was never going to end. This was a big mistake. I said to my client “Exuberance” as I thought of my own exuberance. I went on to tell my client that we have not even tested our new employees to see if they are going to make the cut as permanent employees and we are thinking about buying trucks to make them more efficient. My client went on to say that he could take one of the new guys and let him go solo on the truck to do some lower end jobs. I told my client that we should do nothing and review this in another two months. In two months we will see if we still have the same sales backlog, we will see if the new employees are working out, we will also have a better idea how as a business we handled this excessive amount of sales activity from a quality standpoint and we will know if it is profitable to do these smaller jobs. We will also have a better idea to see if there is time to market the smaller jobs for the truck strategy my client talked about. I told my client that business owners (me included) have a tendency to really over spend when times are good. They almost do it because they have the cash available to do it and things are going so well so they think they need to capitalize on this success without thinking that these great times are not going to last forever and the overspending still has to be paid for. As I told my client this he began to understand and he thanked me for putting the breaks on the idea. I told him you must be equally as disciplined in managing upturns as in managing downturns and you must never think you can afford something just because the cash is currently available. You must constantly look to conserve cash unless a real return on the investment can be forecasted with accuracy and all of the other areas of the business are stable and tested as cash is the lifeblood of your business.
This exchange between my client and I is just one more example of how it is a great advantage for a business owner to have an entrepreneurial chief financial officer. The entrepreneurial CFO can reflect back on the many real life business experiences and apply those experiences for the benefit of their clients.
Tuesday, April 27, 2010
Successful Real Estate Business is REAL! - Author: HAMZA1234 Posted: Mon Apr ... http://ow.ly/17ceFE
Monday, April 26, 2010
3 Secrets to Overcoming Your Fear of Self-Promotion - Author: admin Posted: M... http://ow.ly/17bu7q
Wednesday, April 21, 2010
Michael Barbarita Interview on WBNW 1120 AM on CFO Services - Author: admin P... http://ow.ly/178qNS
Friday, April 9, 2010
Family Business Ownership Succession - Author: admin Posted: Thu Apr 08, 2010... http://ow.ly/171RY4
Thursday, April 8, 2010
CFO Core Concerns Conference
This is a special post to let CFO's know about an upcoming conference.
If you need answers to any of the following questions, you can’t afford to miss the CFO Core Concerns Conference:
· How do I identify the most threatening risks to my organization?
· What cost cutting and working capital techniques really work?
· What are the latest best practices in pricing strategies?
· As the credit crunch continues, what alternative financing sources should I explore?
· What are the keys to maintaining worker morale in the wake of downsizing?
· How should I prepare for future financial regulation?
CFO Core Concerns Conference
If you need answers to any of the following questions, you can’t afford to miss the CFO Core Concerns Conference:
· How do I identify the most threatening risks to my organization?
· What cost cutting and working capital techniques really work?
· What are the latest best practices in pricing strategies?
· As the credit crunch continues, what alternative financing sources should I explore?
· What are the keys to maintaining worker morale in the wake of downsizing?
· How should I prepare for future financial regulation?
CFO Core Concerns Conference
You are Invited Into My Internet Conference Room - Author: admin Posted: Thu ... http://ow.ly/171fgB
Monday, April 5, 2010
Thursday, April 1, 2010
Managing Cash
As an entrepreneurial CFO I am able to share real life experiences on managing cash flow.
In the late 1980’s I owned a chain of retail ski stores in the Greater Boston area. You might think that due to the seasonality of that type of business that the cash flow would be terrible in the summer time, but I never needed to use my line of credit.
Other than tight expense control and cash conservation strategies throughout the year there were two main reasons why we never needed to use our line of credit:
• First, we closed the stores in the off season. Our specialty was ski equipment, ski clothing and ski accessories. Those were the areas we were experts in. Those were the areas the consumer knew we were experts in. If we were to sell summer goods like all of our competitors did, we not only would have slow inventory turns, but we would also have carryover of these unproductive non-ski inventories preventing us from investing in what we did best and preventing us from investing in what the consumer was conditioned to know we did best. The sale of ski equipment, ski clothing and ski accessories. Tying cash up in unproductive inventory creates cash flow problems, unplanned markdowns and lost profits. Investing only in inventory that is productive with high inventory turns and lower unplanned markdowns creates cash flow and profits.
• Second, I ran my inventory down so that I had very little merchandise on December 31. I worked with suppliers so that I could purchase close out merchandise in January, February and March and pay for it in October. As a result I was able to take my sales from January, February and March which are still strong periods in the ski business (especially if there is local snow) finance the summer. In August and September which is the real start to the winter buying season I would have a grand opening (because my stores were closed in the summer I could have a grand opening every year) as well as a major tent sale. These sales would easily cover the October close out bills.
Understand that when you own a seasonal business or if your business simply has periods of low sales activity that you need to identify your business cycle. I am defining the business cycle as the time you receive the inventory or raw material until you get paid for the final product. The objective is to receive payment for the final product before paying for the inventory and/or expenses of production and/or the expenses of selling the inventory. If you understand the business cycle you can create strategies and work with suppliers to most productively meet your needs.
The CFO can help you identify the business cycle, put together operating strategies and work with suppliers to manage cash during slow periods.
In the late 1980’s I owned a chain of retail ski stores in the Greater Boston area. You might think that due to the seasonality of that type of business that the cash flow would be terrible in the summer time, but I never needed to use my line of credit.
Other than tight expense control and cash conservation strategies throughout the year there were two main reasons why we never needed to use our line of credit:
• First, we closed the stores in the off season. Our specialty was ski equipment, ski clothing and ski accessories. Those were the areas we were experts in. Those were the areas the consumer knew we were experts in. If we were to sell summer goods like all of our competitors did, we not only would have slow inventory turns, but we would also have carryover of these unproductive non-ski inventories preventing us from investing in what we did best and preventing us from investing in what the consumer was conditioned to know we did best. The sale of ski equipment, ski clothing and ski accessories. Tying cash up in unproductive inventory creates cash flow problems, unplanned markdowns and lost profits. Investing only in inventory that is productive with high inventory turns and lower unplanned markdowns creates cash flow and profits.
• Second, I ran my inventory down so that I had very little merchandise on December 31. I worked with suppliers so that I could purchase close out merchandise in January, February and March and pay for it in October. As a result I was able to take my sales from January, February and March which are still strong periods in the ski business (especially if there is local snow) finance the summer. In August and September which is the real start to the winter buying season I would have a grand opening (because my stores were closed in the summer I could have a grand opening every year) as well as a major tent sale. These sales would easily cover the October close out bills.
Understand that when you own a seasonal business or if your business simply has periods of low sales activity that you need to identify your business cycle. I am defining the business cycle as the time you receive the inventory or raw material until you get paid for the final product. The objective is to receive payment for the final product before paying for the inventory and/or expenses of production and/or the expenses of selling the inventory. If you understand the business cycle you can create strategies and work with suppliers to most productively meet your needs.
The CFO can help you identify the business cycle, put together operating strategies and work with suppliers to manage cash during slow periods.
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