Pricing Your Product

Creativity in pricing has never been needed more than during these challenging economic times. The Part Time CFO has to help the small business owner strategize their pricing program. I am a major advocate for small business and small business owners. The small business owner really needs to be creative as they are constantly going up against the big guy who is heavily discounting in order to obtain market share. In the meantime, the small business owner cannot compete because if they do they will be selling their product for near or below cost and that will bring them down. If you are a retailer you can at least put pressure on suppliers to speak with these bigger companies who are discounting and you can use special make ups and good close outs to compete. I know it is not easy, but be happy you are not a service operation where the only way you can compete is better service. My only advice to the service organization is to develop strategic partnerships. (see my post on Strategic Partnerships) The right strategic partnerships will help you to keep pace with these big guys who are ruining the market and give you the best chance to compete.

There is a tendency for small business to expand their product lines in other areas during these difficult economic times. I think that is a mistake because you lose your focus on what you do best and there is always more of an investment in a new product or service than anticipated preventing the business owner from investing in what they do best. New product lines also dilute your advertising dollars.

The pricing strategy during these challenging economic times is one of the many valuable CFO Services.

Product Cost

Helping a client understand what their product or service costs, is high on the list of valuable CFO Services.

Understanding product cost which includes the components of cost is very important to a business owner in order to price their product properly. I have had several clients who did not understand the cost of their product or service and actually sold their product or service for less than its true cost. Once the actual cost of the product was understood profits were being made. Another reason why it is important to understand product cost is controlling that cost. The only way you can control or reduce a cost is if you understand that it exists. If you do not know if a cost exists or what the cost is there certainly isn't any way you can work to reduce it or control it.

Understanding what a product or service costs is the first step in understanding how to price your product and have the proper knowledge of how competitively priced you can be. It also helps to reduce the risk of business ownership.

Exit Strategy – It is inevitable

Do you have an Exit Strategy? No matter how long you think you are going to be with your business there is going to be a day that you will no longer be with your business. Either you live longer and survive your company or your company lives longer and survives you. Your separation from your business could take any one of the following forms:

You sell the business to an interested third party

You sell the business to an interested family member

You sell the business to employees

You plan for an untimely death by funding a life insurance policy.

You cease the business operation and convert all assets to cash.

You file Bankruptcy

Through the use of strategic buyers and buyers who are looking for vertical integration opportunities a business owner can maximize value on the sale of their business. Even unhealthy businesses that are looking for a quick exit due to a distressed economy in their industry can maximize value in the same manner.

Any way you slice it, a business owner is much better off developing a strategic exit plan versus a seat of the pants exit plan which almost never maximizes value. It is a valuable CFO Service to help the business owner put together the well thought out exit strategy.

CFO and Public Speaking Skills

In a previous post on my CFO-Chief Financial Officer Blog on Blogger.com I stressed the importance of the CFO to have good communication skills. One of the critical components of communications skills is Public Speaking. It is an important CFO Service to have good public speaking skills. The CFO must give presentations to banks, to clients, to venture capital groups and to boards of directors just to name a few. Good public speaking skills allows the CFO to not only better communicate ideas, strategies and concepts but also helps to sell those ideas, strategies and concepts.

There is no better teacher of Public Speaking Skills than Jacki Rose of Boston MA. Her website is http://www.jackirose.com. She does both group and private coaching and she will turn your presentations into compelling commentary that will get results. Give her a call. You will be glad you did!

Hey Retailers, DO NOT GET STUCK WITH INVENTORY

It is a valuable CFO Service to solve inventory problems.

If you are a retail business there is only one thing that will bring you down real fast and that is too much inventory. In this current economic environment the cost of carrying inventory is even greater because with many banks not lending, capital is hard to get. If you overbought inventory identify the inventory that is slowest moving and reposition it on the sales floor and price it to move. You may also want to take a look at the signage in the store to make sure you are communicating clearly with your customers as to what deals you have. You may want to package items together as customers always like package deals. Yes, your profit margins are going to suffer, but with the cash you get from the sale of the slow moving goods you can use that cash to buy inventory that sells and therefore your inventory will turn quicker getting you into a profit position quicker.

During this process you may have to work with your inventory suppliers. Once again identify the slower moving merchandise and go to those suppliers to ask for extended dating. Sometimes certain styles and types of inventory that you bought may not be selling in your market, but may be selling in other markets. If that is the case it is possible that the supplier will buy back the inventory or replace it with faster moving goods and the supplier can sell your slow moving inventory in the other market where it is selling. The key to these supplier strategies is keeping the lines of communication open with your suppliers and the supplier’s sales rep.

By the way I did not forget that suppliers get angry when you discount their product. This is where constant communication with your suppliers and their sales reps really helps. If you are identifying slow moving merchandise quickly enough then it is important to communicate with the supplier what your intentions are to alleviate the slow moving problem as soon as possible giving the supplier time to react and time to work with you to resolve the problem. The CFO who has experience in business ownership is going to be able to understand the business ramifications as well as the financial ramifications.

I know, it is not easy, but the critical component of the entire process is identifying slow moving goods as soon as possible, communicate with your supplier and cut your losses!

The Chief Financial Officer and Strategic Partnerships

During these challenging economic times, now more than ever businesses should be looking to develop strategic partnerships. Before I give you an example let me define what I mean by strategic partnerships. Strategic partnerships are developing relationships with the objective of pooling resources with the purpose of both partners obtaining more business or both partners cutting costs.

By way of example, let me use the food industry. There are all different types of food vendors but let me use a distributor of frozen cookie dough and a distributor of frozen appetizers. These are clearly non competitive entities. Both of these companies need frozen storage, both of these companies need more business. Why can’t these two companies form a strategic partnership and share offsite storage costs or one company sublet frozen storage to the other if one of the companies already has onsite frozen storage. Both of these companies see accounts that can use both products so why can’t they share leads and a finder’s fee would go to the referring company. Both companies use office supplies so once again to obtain bigger discounts both companies could pool their resources. Does one company have the financial resources to buy equipment that both companies can use? The bottom line is the possibilities are endless.

The CFO should assist the business owner in creating ideas for finding and negotiating strategic partnerships.

Daily Bank Reconciliations

What??? No not that!!! Why??? So says the bookkeeper. The CFO must stress the importance of daily bank reconciliations..

In these tough economic times and even when economic times are not so tough the business owner needs to know his cash position on a daily basis in real time. The only way to be certain of your cash position on a daily basis is to do daily bank reconciliations. If you have cash flow problems or cash is simply tight, the business owner cannot afford to find out that a customer’s check bounced 3 days after the fact when the bookkeeper gets the returned NSF check back in the mail. Meanwhile the business owner sent checks on that money already and risks bouncing an important check. If an EFT out of your account or a debit card transaction hits more than once due to clerical error by a vendor or bank what good is it to find out about it when you do the month end bank reconciliation. The important check you sent on money you thought you had just bounced. There are many other situations when you need to know changes to your bank balance in real time! The part time CFO needs to establish a policy of daily bank reconciliations and instill the discipline to make sure it gets done.

By having access to your banking transactions online, daily bank reconciliations should take less than 10 minutes per day. By doing this the business owner will know exactly how much money they have and can make decisions on what bills to pay with more confidence.

By the way you bookkeepers out there, when you do daily bank reconciliations the month end reconciliation is a snap!