Posts Tagged ‘money’

A Business Must Pry Loose Consumer Savings

August 4, 2010

by Doug Smith, President, The Woodhaven Group

It has been widely reported that businesses of all sizes have accumulated cash over the last year to reduce debt and have a cash flow cushion going forward.

Someone else is doing the same thing.

The consumer has decided that saving money is a good and needed strategy for themselves and their families.

The US government reported that consumers saved 6.4% of after tax income for the month of July.  This trend in increased savings has been happening now for a few months.  Compare this savings rate to 1%+ prior to the economic chaos that started in 2008.

Why is the consumer deciding to save more at this point in time?  Here are a few reasons as I see them:

  • It is no secret that consumers are trying to reduce any and all debt they have.
  • Uncertainty plays a major role in consumer psychology.  The consumer is telling themselves that caution is the best strategy and that means saving dollars until they can get a better “feel” on the future of the economy.
  • The consumer is becoming wiser.  Part of what got the consumer and the country into economic trouble was spending on unnecessary products and services as well as houses bigger than were needed.  You can add to that a few vacation homes.  Now the consumer is still spending, but it is on more necessities and less on “feel good” items with no lasting value. Some of the remaining dollars is going into savings.

In spite of this new pragmatic approach by the consumer, businesses still have to generate sales.  The consumer has not stopped buying. They are just buying less and being more cautious.  A company needs to capitalize on that mindset.  Here is how to do it:

  1. Know who your target customer is and channel your available marketing dollars at that customer.  As  a business, you do not have the luxury of using a shotgun approach.  That only wastes cash flow.
  2. Know which of your services or products is most desired at this time by your target customer.  Don’t make the mistake of emphasizing secondary products, styles, colors, sizes, or categories in your offering.  Lead with your strength.  Do research to find out what that is if necessary.
  3. The consumer right now appears to only be buying bargains.  So give them a bargain.  Find a way to promote your most wanted items to the target customer at a price point they cannot refuse. Then cross market and up sell to increase the average sale and bump up margin.
  4. Offer the best guarantee or warranty that you possibly can.  The consumer is not very trusting right now.  Let them know that once they finally decide to buy that they can have peace of mind that their purchase will not be a mistake.  Trust and credibility in the seller is currently an important part of the buyers decision-making strategy. 

The consumer has money to spend.  And they will spend it given a good reason to do so.

It is up to the owner or CEO to give the consumer a valid reason to dip into the increase in savings and spend it with your company.

Top 10 Tips To A Better Business Meeting

June 11, 2010

by Doug Smith, President, The Woodhaven Group 

One of the best ways to increase business cash flow is to improve productivity in the day-to-day operations of your company.

Unfortunately, for most businesses one of the least productive events is the meeting.  We all attend meetings.  Some of us have multiple meetings every day.  I believe it is safe to say that most of us would agree that a lot of our meetings are unproductive.  An unproductive disorganized meeting is a waste of time.  And time is money.

Here are 10 ways to improve the meetings in your company:

  1. Hold fewer meetings.  Can a weekly meeting be held every other week instead?  Can 2 meetings be consolidated into one?  If 2 meetings per week could be eliminated that were attended by 5 individuals, that would free up over 500 man hours per year.  Could those hours be put to better use?  Don’t get in the habit of holding a meeting for the sake of holding a meeting.
  2. Distribute an agenda prior to each meeting.  The agenda needs to clearly identify each topic to be discussed.  List the time allocated to the topic and who is responsible for leading the discussion on the topic.  This assigns accountability for a portion of the meeting to different participants.  It also allows others to prepare questions or comments on the topics to be discussed. 
  3. Have a set starting time and a set ending time.  This is mandatory and allows everyone to organize their day around the meeting.  Nothing kills morale quicker than drawn out meetings.  The overriding message that comes out of long meetings is that the company is disorganized.  A characteristic of legendary UCLA basketball coach John Wooden that all his players and coaches appreciated was that practices would start and end on time.  If he could do it so can you.  If you only take away one suggestion on improving your meetings let it be this one.
  4. Identify who needs to be at the meeting and eliminate everyone else.  Do you really need assistants or multiple managers from the same department in attendance?  I have found one positive result of smaller meetings is more active participation by those in attendance.
  5. The chair of the meeting  should spend the last few minutes summarizing the takeaways from the meeting.  This communicates that there really was a purpose to the meeting and allows those in attendance to deliver a consistent message back to those in their departments.  Without an organized summary the chair runs the risk of each participant communicating their own interpretations of what transpired.  To reinforce the importance of the conclusions coming out of the meeting, a follow-up email summarizing the key points should be distributed to all participants within 24 hours of the conclusion of the meeting.
  6. As part of the summary,  assign responsibility for specific actions at the end of the meeting.  This designates accountability to certain individuals and reinforces that the purpose of the meeting is to achieve results.  It also creates an expectation that the person assigned the action is to report their steps taken at the next meeting.  Future meeting agendas are also created by doing this.
  7. Everyone should review notes and summaries from prior meetings and come prepared to contribute.  An effective meeting should be a two-way street.  If a participant is not prepared and silently sits there then why do they need to be at the meeting?
  8. All electronic devices need to be turned off or eliminated.  The priority must be on the agenda and presenter.  There should be no texting to the person across the table editorializing about the comments just made.  The chair of the meeting must enforce what should be a hard and fast rule.
  9. The chair needs to make sure all attendees participate in the meeting.  First of all, everyone’s contribution is needed for the agenda to be successful.  Secondly, if participants know they will be called upon to contribute it will maintain everyone’s focus and assure the energy level is high.
  10. A completely different type of meeting may be held that is different from those discussed above.  If there is a small group that needs to meet daily at the beginning of a shift, consider holding a stand up meeting.  This type is literally held standing up (no chairs allowed).  It is informal but still needs structure.  Generally, a quick snapshot of 3 topics are covered: 1) a quick review of yesterday’s results, 2) any goals set for today, and 3) any pressing issues.  If a major issue comes up then finish addressing it after this meeting is finished.  The length should be 5-10 minutes and always finish on a high energy note.  I used this approach with a small group in a manufacturing plant and it was extremely successful in increasing output.  At once we saw hourly factory workers taking ownership of the results of their shift.   

If you need to increase the business  cash flow of your company start by holding more productive meetings.

The result will be a more energized, focused, and appreciative employee group.

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!

Am I Making Money? What Happened To My Cash?

April 30, 2010

by Doug Smith, President, The Woodhaven Group

Those are the 2 most basic questions every business owner, CEO, or senior manager should be asking.

Things move fast in today’s business world.  The economy, government, competitors and consumer groups are constantly challenging our way of doing business.

We have a plan in place and doing our best to grow our company everyday.  Is it working the way we want?  There are daily KPIs and dashboards in place to help us.  To me there is only one true analytical measurement and that is the monthly financial statement. Yes, I said monthly.  This is a place not to skimp on spending.  Quarterly or year-end reports are way too late.  Also, I suggest using a CPA.  If you cannot afford one full-time then use a reputable one on a part-time basis.

Monthly financial statements should be 2 things:

  • Accurate:  you do not have the management time to go back and correct bad numbers.  Besides, credibility is damaged when outsiders (think lenders) see you revising  results.  It’s a red flag that there may be bigger problems.
  • Timely:  you want to take actions to correct problems.  Getting a late financial statement means you lost another 30 days to improve.  I want to see financials no later than the 10th of the following month.

Still not convinced you need monthly financials?  Here are 11 important reasons you do need them:

  1. Are you getting the results you planned to get?  If so, then good. If not, then you want to know why, where and by how much you are missing your budget.  Was your original budget even accurate?
  2. It helps hold a manager accountable.  The management team deserves to know what areas are performing and not performing. Each of the managers needs to know how they personally are doing.
  3. There is always an area of the company that needs fixed.  This will help to clearly identify what it is and if progress is being made.  If there are multiple problems then the numbers will help you prioritize what to attack.
  4. If you have borrowed money then your lenders will expect financials.  If there are Board of Directors or advisors they will want to see the direction of the company.  Remember, there may be outside audiences wanting to see your financial results.
  5. The obvious will hit you between the eyes—– good or bad.
  6. Is there a 2-3 month trend occurring?  It could be in overall sales, profit or gross margin.  You also may find a clear trend in an important line item that is costing you profit and cash.  An example might be sales dropping while marketing and accounts receivable are increasing. 
  7. Is a branch location or product line not performing?  Without the ability to measure results you may waste valuable cash and management time  trying to grow the wrong part of your business.
  8. If you operate a seasonal business you need to know your off-season financial performance as well as whether the company executed as planned during your best months.  Example:  retail at Christmas, landscaping during the spring/summer.
  9. It can help your tax accountant by showing him/her whether you are making a profit during the year and at year-end.
  10. It helps you manage and plan cash flow needs based upon what is actually happening.  Do your cash flow budgets need to change going forward.
  11. If you are in an industry that blindly shares financial information, it lets you compare how you are doing against the top performers. 

Daily and weekly KPIs are critical to the success of a business but the monthly financial statement is the final scorecard that tells you if the sum of all your actions gave you the results you wanted.  You may discover the KPIs were wrong.

You must know what is happening with your cash and if  the business is profitable.

A timely and accurate financial statement will do that for you.

Look Up! Look Down! An Inventory Secret to Save Cash

April 24, 2010

by Doug Smith, President, The Woodhaven Group

The ability of a company to successfully manage levels of inventory of everything from raw materials to key component parts to everyday supplies can be the difference between a profitable and positive cash flow business versus a cash strapped company on the brink of going under.

There are many inventory management software packages and inventory management models to buy and keep inventories in alignment.

One of the oldest forms of inventory control is the Economic Order Quantity developed in the early 20th century.  Many other successful forms are in use today like ABC analysis and Vendor Managed Inventory.  The latter is often used by big box stores like Wal-Mart.  The automotive companies have been particularly successful over the years with Just In Time inventory management.  In my opinion, effective supply chain management has been one of the most important drivers of productivity and growth in America over the last 20 years.

The smaller business, however, has historically not been as sophisticated in assuring proper inventory levels are maintained regardless of the type of business. 

Most small and medium sized companies either have a home grown system or no system at all.  As a result I have seen a tendency for purchasing agents, buyers, and even owners to purchase a little extra of most inventory items so they are never out.  This mistake costs the business tremendous amounts of cash that should be used instead to drive sales or reduce debt.  On top of that many smaller businesses fail to calculate inventory turnover nor age their inventory.  As a result no action is taken on old obsolete inventory.

Will owners invest in some sort of inventory management software to free up valuable cash?  Often times the answer is no because the owner is satisfied with the “system” currently in use to buy inventory.

This tip is for these companies.

Most smaller companies I visit have stock rooms and inventory shelving filled with inventory ready to be used.  On the surface everything looks great.  However, when you look at top shelves and the lowest shelves and ask questions you will invariably find very old or even dead inventory.  The fast turning inventory is at eye level where it can be easily accessed.  The old and dead inventory is never touched.  In fact, sometimes there will be an inventory tag on this merchandise so if a physical inventory is taken in the future the count is already done!  All I see on these shelves is money not being used. 

Here is the solution for these companies.  Eliminate the top and bottom shelves.  Take them out.  Sounds crazy but it will work because now the purchasing agent will be forced to have a model inventory to fit the reduced space.  The luxury of overstocking is over.  Could the company error by having too little inventory.  I have not seen that occur. 

What does the business do with the old inventory?  Convert it to useable cash by returning it to vendors, having a Saturday garage sale, or selling to other companies.

Is this approach drastic and crazy?  Probably is, but I have seen it free up much needed cash.

Businesses run on cash.  Not on dead inventory.