Collecting Accounts Receivable

Establishing a system of collecting accounts receivable so that your receivable strategy is consistent and timely is critical to successful collections. It is incumbent upon the CFO to provide the direction to implement the Accounts Receivable Collection strategy. Here is an example of a strategy that if applied consistently and timely will lead to successful Accounts Receivable Collections:

Assume an invoice with terms of net 30 days

Between the 35th and 40th day contact the customer. If the customer is a customer you know pays within 30 to 40 days based on a history that you have with that customer then do not contact until the 40th to 50th day.

If customer does not return your call or you were not satisfied with the customer’s answer then send a 10 day Demand Letter, requiring payment within 10 days or account will be put in collection.

If not paid by the 11th to 15th day then put the account in collection.

I always use a collection agency that has a legal staff so that if the account is not collected using traditional collection methods legal action can be taken right away. Once again the key to the process is consistency and timeliness.

Accounts Receivable collection strategy is one of many important CFO Services.

Break Even Point

I don’t hear much about Break Even Points. Does anyone use them anymore? I know business owners want to hear about them and since I am a CFO For Hire and work for multiple business owners it is important that I listen to the business owner. During challenging economic times business owners want to know where their New break even point is. What I mean by New break even point is now that they have downsized and adjusted their expenses for this new economy it is time for us CFOs to recalculate the break even points and communicate them to the business owner. After this calculation the business owner will then know what monthly or weekly sales levels will need to be attained. It is also a good idea to provide “what if” break even point scenarios especially for different owner salaries and other moving target expenses. By the way, for the small business owner I usually calculate break even point from a cash flow standpoint versus a pure income statement standpoint.

It is an important CFO Service to provide break even analysis. Many times the CFO forgets about calculating break even points because they get tied down with other aspects of forecasting.

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!