The Risk in the Supply Chain

In the current economy it is important to know the financial condition of your major suppliers. What would happen if a major supplier goes out of business? It is important to have a back up supplier not only to protect against a major supplier going out of business but also if a major supplier decides to change your credit terms unfavorably, or cut you off to protect a larger customer in your market, or discontinues a product line that is important to you. I have seen suppliers do all of these things.

Always be on the lookout for a back up supplier. When you go to trade shows identify possible target suppliers and start to develop relationships with them. In the long run it can really pay off and you will be prepared when the unthinkable happens to one of your key suppliers.

Another good thing is to do a relationship check up with your suppliers. See how content or discontented they are with doing business with you. These checkups can give indications as to what their next move might be. A good CFO Service is to challenge the business owner about the strengths and weaknesses in the supply chain.

Understanding of Law – An Important CFO Service

One things CFOs must be able to do is to read and understand legal documents. This is a very valuable CFO Service to any client. The client does not want to be in a position to have to call his outside attorney to read and interpret documents. The CFO should be able to read documents like:

Leases
Employee Handbooks
Confidentiality Agreements
Employee contracts
Non compete agreements
Promissory notes
Security Agreements
Loan agreements
Personal Guarantees

Being able to read and interpret these and other legal documents will save the client a lot of time and a lot money in legal fees. It is also important for the CFO to understand bankruptcy and how it works, whether your client is contemplating bankruptcy or a supplier of the client is filing bankruptcy.

The Risk in the Sales Line

One thing the CFO needs to assess regarding sales are whether the company is pushing to sell the most profitable products. Metrics can be developed to analyze this area. It is important that salesman know what products benefit the company most.

Another risk area on the sales line that a CFO should look for is whether salesmen can bring their sales with them if they were to leave the company. This in my view is a major risk as salesmen always have to be coddled if they can taker their business elsewhere. Non compete agreements with salesmen can help reduce this risk.

Another CFO Service is to analyze whether selling prices are high enough and to determine if sales rise or fall with reduction of prices. In a bad economy there is always a propensity to reduce prices. Many times I have seen where reducing prices was the wrong thing to do as money is left on the table. Your best customers who usually represent 80% of your sales will usually buy from you even if they can get a better price elsewhere because they trust you and appreciate the value in your products and services.

The CFO should review whether the company has adequate sales representation in all of the companys key market areas. If major market areas are left without proper sales representation this poses a major risk to the company.

The CFO should review if the companys selling prices are meeting gross margin requirements. A low margin could be a function of product mix sold, but it also could be a function of low selling prices.

Finally it is a CFO duty to review how pricing looks as compared with the companys biggest competitors. An analysis can be done in this area to determine how the company compares price wise against its top3 or 4 competitors in the companys highest margin products.