Archive for May, 2010

Save Time And Cash With A Few Good Performance Measurements

May 27, 2010

by Doug Smith, President, The Woodhaven Group

Next to more sales and more cash most owners and managers would list a desire for more time in their day.

How does an owner keep track of what is happening in the company when he or she is consumed with meetings, addressing emergencies and fulfilling commitments outside the office?

It is a challenge to say the least!

I have found there are a few measures of performance I can access daily and weekly that quickly tells me if things are going as planned.  These measures almost act as early warning signals that a small problem may be about to become an all encompassing issue the whole management team will have to address.  I refer to them as “How are we doing” metrics.

Every manager and every company is different.  I encourage you to identify a few key metrics that will work for you and your business.  My suggestion, however, is to not overdue the number of measurements you are tracking.  If you are having to dedicate staff to just preparing a few indicators for your review then you are probably looking at too many.

The measurements should be easily accessible and help you improve the company.  If they cannot aid in increasing sales or cash flow then maybe you can review that data later.

Over the last 20 years there has been a mini industry created in performance measurements.  Many PhDs and consultants have made a career in marketing  “Balanced Scorecards”, “Strategy Maps” and other indicators of productivity.  I find most of them interesting but often too costly to prepare and sometimes ignored by management teams.  If you use these and they work for your company then by all means you should continue.

The measurements I use appear to be obvious ones but that is OK.  They have worked for me.  Maybe they might work for you:

Cash Report:  This is a daily report that  shows the bank balance, deposits made, payments transmitted and ending balance or float.  I never want to be surprised on cash, whether it’s coming or going.

Daily Sales:  I know my sales plan and this tells me if we are tracking to hit it.  If it is a company that issues leads daily I will want to know conversion rate.  If there are multiple locations, product lines, or divisions I will want to know if all of them are tracking to hit their monthly sales goals.

Accounts Receivable Aging:  I want to see this weekly and determine who owes us money and if the  amount is increasing.  In my opinion, we deserve to be paid for the quality work we did and I am very aggressive in wanting to be paid on time.  I will also do a mental calculation of days of sales outstanding.

Accounts Payable Report:  I want to see this weekly and compare the balance owed against cash on hand, jobs moving through the system and new sales being generated.  In the event I get a call from the CEO of my top supplier, I always want to know what we owe and if we are current.

Marketing Percent to Net Sales:  This is normally a monthly report that tells me if we are overspending to create sales.  Many companies have gone out of business from spending too much in this area.  If sales are trailing the plan dramatically during the month I may cut back some area of marketing before the month is over.

These are the key performance measurements I stay on top of.  There are many other reports that I will review from time to time such as Revenue per Employee, Revenue per Visitor on a website and, of course, monthly financials.  But these 5 performance measures are important to me.  You may have different ones that work for your business.

Regardless what metric you use there are 3 important elements to keep in mind with each report:

  1. Establish a beginning baseline from which to measure results.  All measurements need a starting point.
  2. Always look at  trend over time of any performance measurement.  Are the current results just a blip or is there a pattern occurring?  Some management teams like to illustrate trends with a graph for impact.
  3. Take action.  Unless the results were a blip then, at a minimum, you need to ask more questions or look at additional data.  Is there a problem with pricing, a promotion, or a key account?  Are there quality issues preventing collection of money due?  Information is only good if you do something with it.

A few good performance measurements can save time, increase your personal productivity and improve cash flow and profit.

Make sure they exist in your company and are used.

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Increase Sales And Cash Flow With Crossmarketing Alliances

May 26, 2010

by Doug Smith, President, The Woodhaven Group

As a business you must increase sales while not overspending on marketing.  If this is done well, your company will realize more profit and an improved net worth.  The increase in cash flow will allow you to do such things as pay down debt, expand into other markets and contribute back to the community.

The challenge lies in the ability to effectively market your product or service by spending your available dollars wisely.  The marketing options are many.  Depending upon the target customer you may invest in TV, radio, newspaper, special events, trade shows, sponsorships, direct mail, or the many forms of internet marketing.  There are some companies that still telemarket, use billboards or even canvas door to door.  The form of marketing that worked last year may not work this year.  As a CEO  I knew the head of marketing had one of the toughest jobs in the company.

In spite of all the marketing channels available to a company I always thought there was one method that was extremely effective and underutilized.  Executed correctly the marketing cost could be extremely low.  I am talking about using crossmarketing alliances.  What is that?  It is where separate companies with different products market to the same customer together.  In the eyes of the customer there is synergy in the offering coming from the combined approach of the companies.  The customer perceives this combination as added value.

Confused?  Here is a simple example to illustrate a cross marketing alliance that works well.  Think of the bride and groom.  Now think of all the things that have to be coordinated for the wedding.  Imagine if the couple can receive a suggestion from the florist they like to use a specific bakery for the cake and then both companies suggest a reputable photographer.  This can continue with the tux or wedding dress store, limo service and even the location for the reception.  There might be discounts used for the referrals.  This approach works for both the business and the customer. The customer gets what they want and the money the business saves on marketing can increase cash flow and add to profit.  More sales, more cash, and more profit is always a good payoff for a winning marketing strategy.

How can separate companies market themselves to the same customer.  Here are a few ways:

  • Share the cost of direct mail or brochures where each business’s product or service is featured.
  • Hold events or shows together and invite the same targeted customer.  An example is a Bridal Fair.
  • Pass out coupon books with each company featured.
  • Display an ad , sign or presentation in each others business location.
  • Offer a bundled package of services or products for one price.
  • Write testimonials for each other.
  • Mention the other company on Twitter, Facebook, or in a blog post.

Those are just a few ideas.  The key is to think outside the box.  Not sure this approach is right for you?  Here are some other examples of companies that could benefit from crossmarketing services:

  1. Web designer, SEO agency, email service, copywriter, video production company.
  2. Painter, plumber, electrician, handyman, home cleaning service.
  3. Attorney, CPA, insurance agent.
  4. Veterinary, kennel, pet grooming, pet store
  5. Landscaper, lawncare company, deck company, tree service, fence company
  6. Auto repair, wrecker service, car rental, car wash.
  7. Dry cleaner, seamstress, shoe repair, fire & water restoration.   

I suggest you have your mangers brainstorm this topic at the end of your next management meeting. You may be surprised at some of the workable combinations they will discover.

Remember, the next time you want to save some marketing dollars and increase cash flow try using a crossmarketing alliance.

Reduce Surprises With A Rolling 3 Month Cash Flow Projection

May 25, 2010

By Doug Smith, President, The Woodhaven Group

“Cash is more important than your mother.”  A west coast business professor once said that and as a former CEO I agree.  Just for the record my mother would agree with me.

With all the volatility occurring in the economy it is very difficult for any business to plan ahead.  We see turmoil in Europe that may reduce exports, a consumer only beginning to spend again, and private and public debt at uncomfortable levels to say the least.

What is an owner, CEO or senior manager to do in an environment like this?

First, I would remind you that your company runs on cash.  If you run out of cash you either have to replace it or go out of business.  Therefore, it is best to anticipate any peaks or short falls in your near term cash position so you do not find yourself making crisis management decisions when, for instance, it is time to make payroll.

The best tool to use is a rolling 3 month cash flow projection that lists your anticipated inflows and outflows of cash.  In otherwards, where is your cash coming from, where is it going and how much do you have left over?

In my opinion, this should be a monthly cash flow projection that is updated weekly.  If cash is extremely tight and unpredictable then a rolling weekly cash flow forecast is even better.

Meet weekly to update the projections with key management team members.  A side benefit will be a clearer understanding by everyone where the most productive use of cash is occurring.  I found this to be a positive energizing exercise for my management teams.

What to do if you see a shortfall in cash coming?  Here are a few options:

  1. Have a line of credit in place with your bank and use it as needed.  That is what it is there for.  Your banker should receive updates of your cash flow so he can anticipate the request and payback.  He will be impressed how you are managing your cash situation.  He will probably wish his other clients were doing similar calculations.
  2. Speed up payment of accounts receivable.  There always seems to be late payers and being aggressive in collecting may be all the added cash you need.
  3. Get extended terms from your key suppliers.  Rather than just delay paying, I have found it best to ask them for a temporary extension on terms.  If you have been a good customer and paid as agreed this should not be a problem.
  4. If you are a manufacturer one solution may be simply to return old inventory to your supplier and get a credit.  Apply the credit and it may actually offset a portion of the next invoice due.
  5. Cut expenses.  No doubt in the weekly management meetings,  areas will be identified where expenses can be reduced without hurting revenue. As CEO or owner you may have to make the final decision when and where to cut in order to get the action that needs to be taken.   

A rolling cash flow projection is one of the best management tools there is.

Be proactive.  Anticipate your short-term needs and you should not have any cash flow surprises.

Use The Lifetime Value Of A Customer To Increase Cash Flow And Profit

May 19, 2010

by Doug Smith, President, The Woodhaven Group  

To grow your business you need to retain your most profitable customers.  By keeping a customer who is profitable for the company it adds stability to the organization while increasing all important cash flow.

Lose customers and your business will find itself spending expensive upfront marketing dollars always acquiring new customers to replace ones that went to the competition.  Marketshare does not increase, profit becomes stagnant at best and cash flow suffers.  Consider it lost opportunity.

Some owners and CEOs say that they are satisfied to always be prospecting for the next new customer.  Losing customers, in their opinion, is just a cost of doing business.

These owners would not think this way if they took the time to calculate the lifetime value of a customer.  What is a customer worth?  Knowing this number gives the owner information that helps in developing and executing sales, marketing and operational strategies.  This knowledge becomes a competitive weapon allowing your company to utilize unique promotions or incentives since it becomes easier to identify your true return on investment per customer.

The lifetime value of a customer is really the profit generated from the sales of a customer over the liftime of buying from your company.  It is best to calculate using  group averages broken down by product category.  This allows you to then decide where to spend the most dollars to retain a specific group of existing customers.  Also, based upon the lifetime value of certain groups it shows marketing and sales where to invest the most dollars to acquire new customers.

The best example of explaining  the lifetime value of a customer calculation was in a Harvard study years ago. Read the Harvard customer study here.

As a CEO of a department store I not only knew the lifetime value of the lady shopping but also the lifetime value of her husband and 3 children as a family group.  I knew that if I satisfied the 3 children growing up shopping in the store I would have their 3 families as lifetime customers when each of them got married and had kids.  You can imagine how I calculated the lifetime value of a multigenerational family.  In some cases I had 3 generations of the same family as loyal customers.  It made an easy decision to happily accept that returned gift after Christmas.

The takeaway:  Know the lifetime value of your customer and never take that customer for granted. Now when you lose an upset customer because of poor customer service you know exactly how many dollars just walked out the door.

Use A Baseline Measurement To Track Change In Performance

May 14, 2010

by Doug Smith, President, The Woodhaven Group

Here is a simple tip from the field of medicine that will increase your productivity, cash flow and overall profit performance.

I  cannot believe how often management in any type of business I see fails to do this.

And that is to start with a baseline measurement when making a change.

The best at using baseline measurements is the medical community.  The Doctor, nurse, or hospital always starts by getting your beginning weight, cholesterol reading, red blood cell count, blood pressure, temperature or some other measurement to help them track the rate of progress, or lack thereof.

As management, we need to do the same in order to assure ourselves that cash invested is getting the results we want.  If you are going to invest additional dollars in some new program or project you want to know that you will get an expected payback within an acceptable period of time.

You can have all the metrics, measurements, and progress points you want but it is imperative that you start with an accurate beginning baseline measurement from which you can track the expected improvement.

Think about that the next time you initiate a new energy savings program, search engine optimization strategy, increase in media spend, bonus program or any of the many tweaks and adjustments you make every month in your business.

Did you have a starting point to measure against?

If it works for your blood pressure it may also be a remedy for your business.

Increase Sales And Cash Flow By Marketing To The Echo Boomer Generation

May 13, 2010

by Doug Smith, President, The Woodhaven Group

The echo boomers are coming!  Some say they are already here.

For the last 40 years the baby boomer generation has driven marketing decisions in America.  Those businesses that were able to tap into the boomer’s wants and needs have been successful.

Now those boomers have kids and the total size of that market called echo boomers rivals the size of the baby boomer generation.

Ignore them at your own peril!

Every business should be asking two questions:

  • How will the echo boomer decide what they want to buy?
  • How can our company persuade them to buy our product or service? 

Here are a few observations and conclusions I have about this generation and how to market to them:

  1. They obviously are comfortable with technology and anything digital. We see it with their use of social media, text messaging, PDAs, and past times like online games. We need to keep this in mind when deciding how and where to spend our marketing budget. 
  2. They really do not want to be fooled or misled.  The negative reaction to a bad experience will be immediate in forums and social media sites.  The echo boomer has moved on from “the letter to the editor.”
  3. The echo boomer tends to be well-educated and, I believe, will want to continue to learn throughout their lifetime. Utilizing an education based marketing strategy as it relates to your product or service  will gain your company credibility and earn you the right to ask for the sale at a future time.  A call to action by itself will not be enough.
  4. Later marriages among this group means more independent shopping by both the male and female.  For instance, will there be more single female homeowners?  Absolutely!  And this female will not be going to Dad or a boyfriend for a final decision.  She will have the money and the authority to decide on her own.
  5. Traditional or “old media” such as newspapers, direct mail and TV is giving way to making buying decisions through the Internet.  A smart marketer will find a method to “get in the way” of an echo boomer searching online.  How?  By using relevant timely  information that can be accessed when the echo boomer chooses to access it.  In the years ahead, I believe, some evolving form of social media combined with mobile technology will be the method of choice when this group decides to buy.
  6. Echo boomers like to help other people.  We see it with their participation in organizations like TeachForAmerica, microlending, and various social entrepreneurship groups.  As businesses we need to find a way to tap into these opportunities alongside the echo boomer.  Its good for business and good for society.
  7. Traditional brands are not as important to this group.  The echo boomer wants to know what the brand has done for them recently.  Is it evolving to fit their wants and needs?   Does it have momentum?  Do not bore them with your brand.  Think of Apple as an example.  How does your business compare?
  8. You need echo boomers on your sales and marketing teams.  They understand this demographic better than anyone and how it is changing.  Just reading studies or listening to a seminar speaker is not enough.  You should even consider engaging an ad agency owned and dominated by echo boomers.  

More than ever the consumer is in charge.

The next wave of decision makers will be the echo boomers.  It is critical that your company learns their behavioral characteristics and how they differ from today’s customer.

Is your marketing strategy ready for them?

Your marketshare, profit, and cash flow will be dependent upon it.

Use A Collection Attorney For Delinquent Accounts Receivable

May 11, 2010

by Doug Smith, President, The Woodhaven Group

You performed the service for your new customer as spelled out in your contract.  Your management team even did a few things at no charge to make sure this client was happy.

Now it is time for this customer to fulfill their obligation and pay the invoice in full.  Instead, no payment as agreed.  Promises to pay are not kept.  There appears to be no attempt on your customer’s part to work out a reasonable solution.

It is now 60 days beyond the final due date.  Your company deserves the cash from this customer.  You have made sure to pay all the bills in full allocated to this project.

The new question now becomes, do you send this account to a collection agency or to a collection attorney?  There is no hard and fast rule but I know which I prefer.  I will take a good collection attorney every time.

First, I assume the collection is not small which qualifies for small claims court.  Once I have determined that then here are the thoughts that guide me to using a collection attorney:

  1. Without question a letter from an attorney’s letterhead carries  more weight and stands out from the run of the mill collection agency form letters the deadbeat client is probably already receiving.  My attorney’s letter will move to the top of the heap.
  2. If the situation eventually does go to trial then I have had the same person on the account from the start.  There is no hand off from a collection agency.
  3. In my opinion, a good seasoned collection attorney should have more experience and insight into the process of collecting from an account than a  just hired account manager at a collection agency.  My experience has shown that good collection attorneys come across as professional and better able to structure a solution that works for everyone.  However, a good attorney can also go win in court if it becomes necessary.
  4. I have always felt comfortable knowing that with a collection attorney I have someone who knows the law and would not do anything to jeopardize his standing in the local legal community.  In otherwards, there are no legal or ethical shortcuts I need to worry about.
  5. By giving the attorney all of my delinquent accounts he will be committed to seeing every delinquent account through to resolution.

I have heard the one downside to using a collection attorney is that it costs more than using a collection agency.

I personally have not found that to be the case.  Instead, I believe the attorney collects more money more efficiently.  Some attorneys charge by the hour and some by the hour plus a percentage of dollars collected.  I have negotiated a straight percentage (30%) and due to the steady volume given the attorney it has worked well for both sides.  Sometimes one letter collects the full amount and other times he has to go to court. 

Some businesses prefer using a collection agency.  That is ok.

But for me a good collection attorney was like a valuable member of my management team.  Why?

Because he delivered the cash!

Is Your Core Product Still Generating Profit and Cash Flow?

May 10, 2010

by Doug Smith, President, The Woodhaven Group

Is your core product still a priority in your company?

Do your employees know what your core product is?

Is your core product profitable and creating cash to drive your business forward?

A core product of a specific business historically has solved a problem or fulfilled a unique need better than the competition.  Often it represents a product or service that is first to the market and is hard to displace.

As sales of a core product grows for a company a major benefit is a strong loyal customer base.  Examples of companies and their core products:

  • Starbucks:  a good cup of coffee
  • Google:  search and advertising
  • KFC:  chicken
  • Goodyear:  tires 

A few thoughts on core products:

  1. The core product of your business should be your company’s most profitable product line.  Calculate the direct profit of all of your products by taking the selling price less direct costs such as labor and materials.  You must know how profitable each product line is.  Based on profit, is your core product still #1.  If not, why not?
  2. Has your company become bored with your core product and branched into other product lines that are not as profitable but are using up cash and management time and talent?
  3. Does your customer know that you have been known for your core product and why?
  4. Have you evolved your core product to stay abreast of your customer’s needs or have you allowed competition to steal sales with a newer better version?

As a company grows sometimes it loses focus and direction.  Make sure your core product is the most profitable part of your business.

Never let a competitor take your core product and the loyal customers that go with it.

Consider Early Pay Discount To Increase Cash Flow

May 9, 2010

by Doug Smith, President, The Woodhaven Group

Many industries have a traditional preset discount off the invoice for paying early.  As the customer I used to take advantage of an 8% discount if I paid my supplier by the 10th of the following month.  The invoice was due, otherwise, at the end of 30 days.

As a provider of a product or service your business may want to consider implementing an early pay discount. The discount may only be 1-2% but will be enough to entice some customers to pay early.

The key decision for your company is balancing the bottom line profit impact against the potential for increased cash flow from your customers.

Here are some thoughts to guide you in your decision making:

  1. Does your industry currently offer a discount for early pay?  If not, then this could be a way for your company to differentiate itself from the competition.  The result could be added sales as the early pay discount is perceived as added value by your company and you can steal marketshare. The fact that the customers you acquire would have strong cash flow (evidenced by the ability to take the discount) would be a plus. 
  2. An ongoing argument against early discounts is its potential negative impact on profits.  Can the discount be passed on as a price increase?  Your customer may not balk at a 1-2% increase in prices if it has been some time since the last increase and you provide a high quality dependable product.  If you are concerned about implementing a price increase at this time  then wait and piggyback the increase on top of an increase in price in the future.
  3. What is the interest cost to your company to currently fund  accounts receivable?  This should be factored into the profit computation.
  4. Also, determine if there is operational savings realized by having less accounts receivable to collect due to accelerated payments.
  5. Not everyone will take advantage of the early payment discount.  For those who do not, if a price increase is in place to support the discount, then your company just realized more gross margin dollars and percent.
  6. You cannot let a customer pay late and take advantage of the early pay discount.  An aggressive accounts payable manager will attempt this if you do not catch it and cut it off.  Assume this will happen.  
  7. Invoices need to be received at the same time the product is delivered so that your customer has time to process the early pay discount. You do not want to give your customer an excuse for taking the discount late.  
  8. Your best creditworthy customers will take advantage of the discount.  Prior to your company offering a discount your customer was most likely aggressive in delaying payment as long as possible to preserve their own cash.  The trade-off, as discussed earlier, is faster availability of cash for your company back against the discount cost. 

Which is the best way?

In my opinion, I want to find a way to make an early pay discount program work with a minimal cost to my profit.  I believe the quicker I can get use of cash the faster I can put it to work and  the greater potential there is to increase my overall return on investment.

I would be interested to know what your experience has been.

The Best Employee Reward?

May 8, 2010

by Doug Smith, President, The Woodhaven Group

Have you noticed how often the same individuals get all of the awards, bonuses and free trips in a company for a job well done.  I certainly do not fault them their recognition and rewards.  As a CEO I structured many of those incentives in order to get results I wanted to see.  It usually worked.  We got more profit, marketshare, and cash flow.  It was nice.

But over the years I also noticed and appreciated the efforts and indirect results that others in the company working behind the scenes accomplished.  It was hard to directly measure their individual contribution but I knew they were critical to our success.

We would recognize these individuals at some year-end dinner or event but it never seemed to be enough.

So I started doing this.

From time to time and totally unannounced I would bring a behind the scenes contributor into my office and say something like this, “I just wanted to personally thank you and tell you how much I appreciate what you do everyday.”  I would give an example of something they recently did and why it was important to the success of the company.  Then I would tell them as an added thank you the company would like them to take a day off with pay.  Sometimes I made it 2 days off with pay.  Often the day off (their choice) was taken on a Friday or Monday so the employee got a long weekend.

I found this accomplished a few important goals.  First, it recognized a key loyal employee and showed them they were appreciated.  Second, it showed that as a business we recognized there is a life outside of work.  Finally, I found that this key contributor came back even more energized and committed than before.

Does this contribute to increasing cash flow?  You bet it does!

Will you find this spelled out in some MBA course on employee development?  Probably not.

Oh, and one other thing.  I gave the employee a $100 to spend anyway they wanted on that day off.