Owner: Ask Jon Paul URL:http://askjonpaul.com/ Join Date: Tue, 02 Jan 2007 17:54:07 -0600 Rating:0 Site Description: As a business finance expert for 25 years, I have helped many businesses turn the finance area at their firm into a resource for the rest of the company and helped propel their growth with strategic and tactical guidance. My blog will look at various pro Site statistics:Click here
Beliefs and Goals 2007-05-27 07:59:12
In a recent peer group meeting, we had some discussion about sales targets. One person had gone through some upcoming goals for the next month. I asked, "What about sales goals?" He had some annual budgets for his sales targets for new accounts to bring in. That part was very good, better than what most people do. But nothing was translated down to a monthly target.
I suggested that he ought to put down a target for the month of how many accounts he would expect to land. Another member of the group followed up. He mentioned that he has targets and that he believes that he will achieve them.
That led to some discussion. First person asked, "You mean, I’m just supposed to put down this number for my target and expect that it will happen?"
I responded, "That’s right. You expect that it will happen and you draw forces towards you to help make it happen. Your belief gets reflected in how you carry yourself. You’re expecting to reach your sales target, so you’re expecting to reach a Read more:Goals
Your Service Personnel are Inventory Too 2007-05-27 07:58:48 Inventory
can be a common concept in manufacturing environments. Companies in these industries are used to looking at inventory turnover and what kind of returns they’re getting on their inventory investment.
Service
companies can apply some of the same mentality too.
Service personnel are inventory as well. Consider doing some of the same analysis that manufacturing companies would do on their product inventory.
1. Service personnel turnover. By this, we don’t mean turn over of the workforce, i.e.: how many people are you losing in a given year? Instead we’re thinking about how many times you turn over your service personnel on particular assignments with customers.
2. Margins. What kind of margins do you have on your service personnel? Are you achieving high margins on them or is it fairly low margin that you’re justifying for having very high volume in?
3. What’s your dollar investment in the service personnel? How much do you have invested in each particular service pers Read more:Personnel
Are you Comfortable with Your Team? 2007-05-27 08:00:14
You want to have a good team working together. You want to also have outside consultants what fit in well too. You want to be comfortable with them.
However, you might also want to be a little bit uncomfortable in certain situations.
If you’re totally comfortable with what you have, it could be a sign that you have assembled a while group of people much like you. If that’s the case, how are you going to happen to get varying viewpoints?
In certain parts of the company that there’s just going to be certain personality styles. That could be great because they may be just the right personality style to do well at what they do.
This reminds me of a couple stories. One happened recently, personally.
I was looking to change to a different landscaping service and had a referral from a neighbor. This person came very highly recommended. He came to talk to me and he said, "My English isn’t so good." My reply was, "I’m not so concerned about your English. What I want to know about an
Seeing Through a New Lens 2007-05-27 07:59:56
I got my wife a digital SLR camera for Christmas. The pictures it takes and its functionality are incredible. However, we knew for doing sporting events that it just might need a new lens.
Our son Eric had three lacrosse games this past weekend in college. For the first game on Saturday, we used the camera with the lens that it came with. We could see things, but not quite have a close up view. That evening we went up to the Mall of America and got a zoom lens. The next day we had a very different perspective. We could get the close in view. We could zoom in on what we wanted to see with greater clarity.
There’s more to it though. The person at the camera store answered our questions and showed us how we could better use the camera in sporting events. He changed a setting for us and showed us how we could set the camera to be able to take multiple pictures very rapidly. We not only now were able to zoom in and get a close perspective, but we were also able to capture the exact shot Read more:Seeing
Present Value and Future Value 2007-05-27 08:01:21
When looking at the value of a company going several years out, it could help to have two different perspectives.
Present
value and future value.
Some people might relate more to one than to the other. The present value equates it in today’s terms and gives you a sense on what the value of the company would be now based up on the expected future activity. This would be a combination of both the present value of the future cash flows generated by the company, plus the value of the company at the endpoint you are looking at for the valuation, such as say going five years out to 2011. There’s no hard and fast rule to how far to go out, but you should go out far enough to be able to capture some of the essence of the company activity. Some drivers might be how long it takes to develop products and how long of a relationship do you have with particular customers. Another factor could be are there any particular major activities coming up that would not be captured if you used a shorter Read more:Value
, Future
Cash versus Accrual Accounting 2007-05-27 08:00:56
For a company just starting off or one that’s been around for a few years, you have a fundamental question to decide about your accounting practice. Do I use cash accounting or do I use accrual accounting?
There are many factors to consider. All things being equal, I suggest you pick the way that would most actually reflect how your business is really operating. Too often, I’ve seen companies use the cash method of reporting and, perhaps, save themselves money on income taxes, but it comes at a very high price. The price is not understanding how their business is performing. The price is not really knowing what their margins are and are they making money on particular products or services. You might think this is second nature, but, believe me, I’ve seen it many, many times where because a company is reporting on a cash basis, they are no longer matching up revenues and expense. The income statement loses its credibility and meaning.
Certainly, though, tax should be considered. Read more:versus
The Two Most Important Days in Accounting 2007-05-27 08:02:54
There can be two days that can be particularly important in your accounting process. These days could help you determine how quickly and how well you get some of your month end work done.
What are those two days?
1. The last day of the month.
2. The first day of the following month.
It’s important to know what you have going on in accounting during those two particular days. You want to make sure things are moving through as quickly during those timeframes, so you can move along quickly and get your month end flash report developed as well as move towards a fast close on your monthly financial statements.
For example, suppose you were a manufacturing company. Here might be some things to be concerned about with the month end:
1. Finishing manufacturing batches. You want to have a fast close on any manufacturing batches being produced during the end of the month. Ideally, you’d like to have the information in right at the end of your day on that last day of the month or certainly b
Testing the Sales Forecast 2007-05-27 08:02:30
Often times when we look back on past projections, we find that the sales targets were not hit and the revenue fell short. When I talked with the president all seemed fine. A number of accounts were in the pipeline and things were moving along smoothly. It was looking good for sales growth during that particular year. But, when we come back a year later, the optimism did not always translate into top line growth of that magnitude.
So, what went wrong? What can be done to have a better perspective going forward?
A way it can be done is to build up a history. I had another client that would do this. They would build up a history of the sales forecast and track how each sales person did against their particular forecast. They would know who would most likely hit the forecast and who was likely to come up short. If one person would constantly come up at about 75%, then they would know to start discounting their projections and really challenge them to come up with a more realistic number. Read more:Testing
, Sales
, Forecast
The First Rule of Collections 2007-05-27 08:04:03
Here’s what I call the first rule of collections, make contact.
Even better, make contact early enough in the process.
Let your customer know that you’re watching it and that it’s important to you. If you’re not watching it, they can be more likely to take advantage of it. In some cases, if a customer knows that they’re not going to get a phone call until 60 days or a letter requesting payment, they might take that full 60 days to get a payment to you. Meanwhile, the sad thing is that you could have competitors or other suppliers of theirs that are making the phone calls sooner when you’re sitting on it. Guess who’s going to get paid sooner?
So what’s the counter point – you don’t want to upset the customer. A couple things can come into play here. One can be how consistent are you. If you’re consistently making first contact with the customer say at 35 or 40 days, then perhaps a follow-up at 60 days. It’s good to note that it will get their attention. The seco Read more:First
Establishing Virtual Tech Support 2007-05-27 08:03:46
I think an important thing in life can be to make it easy for people to help you. There are people out there who want to help us, but sometimes we can just get in our own way even when we don’t intend it at all.
One area we’re almost all sure to need help in sooner, and later and probably often is with technology on our computer.
However, sometimes that person isn’t right available where you’re at. They’re in one spot and your computer is in another. Yet, you want to get the help right now.
So, what can you do to make it easier for them to help you? Here’s what I’ve found to be helpful as a great resource. Sign up for a service that allows someone remote access to your computer. I used a service called Log Me In, which you can find at www.logmein.com. The service can be relatively inexpensive. It only costs $70 for a full year access. They have a good security system set up that will be particular to each machine. This has been helpful for me to use an outside tech advis Read more:Support
, Tech Support
Make Check Writing an Orderly Process 2007-06-10 20:07:08
Writing checks can be turned into an orderly process. Rather than doing it sporadically when the urge hits, why not make it a weekly process?
One benefit is that it makes it a more orderly process in deciding who will get paid. You’re much less subject to the pressure of who is happening to call on the particular moment. You can take a look at the entire aging, see who is in what position among your suppliers and make more rational decisions.
Another benefit is that it becomes a more efficient process. Rather than picking up and putting it down and picking it up and putting it down the next day and having kind of several interruptions for this during the week, you turn it into one regular weekly process.
Another benefit is that it sets up expectations with your suppliers. They’ll be conditioned to know when your check cutting date is. They’ll know when to expect your checks coming in. This likely conditions them to when they should be making calls to follow-up with you. Hopefull Read more:Check
, Process
Planning the Equity Levels and Returns 2007-06-10 20:06:43
Your company may be likely to need several rounds of capital in equity before it becomes fully self-sufficient or can rely on debt capital to carry the rest of the way. Now’s a good time to think far out in the future and plan ahead for all the additional rounds that you expect. This would also include a stock option that you would anticipate for current employees and future hires as well.
Here are some of the things you want to show in this equity table:
1. You want to start with the earliest investments and work your way on down to the final equity infusions.
2. Going across you want to show the amount invested in the company and then what percentage of the company each would have at that particular point in time.
3. You continue on in similar fashion, but at this point for the next two columns you put in what the final ownership percentage would be. And then in the next column what the valuation would be for those particular shares.
4. Almost done, but there’s another important Read more:Equity
, Returns
Crowd Solving 2007-06-18 06:18:58
There’s a new way that’s come up to help solve perplexing business problems. With the power of the Internet, you can reach out to a great number of people at any particular point in time. Smart companies are now using this to solve complex problems that their internal staff while very bright people are just not able to find the solution for.
This is called crowd solving.
For example, Proctor & Gamble need to improve its margins on toothpaste. They need to find a way to get more toothpaste into the tube. Now, Proctor had plenty of extremely sharp engineers, some of the best minds in the business. They were given the challenge, but could not come up with a particular solution. However, here’s the creative thing that they did.
They put a reward out on the internet to a group. Let’s call it, I’m not sure the exact number, but let’s call it $25,000. They were very specific on the particular problem and the kind of results that had to be achieved. The reward goes to who cou
Marketing and the Cost of Acquisition 2007-06-10 20:08:32
Are your marketing costs in alignment with the cost of acquisition of acquiring your customers? The cost of acquisition tests can be a great reality check on where you’re spending your marketing dollars and how effective is your marketing spending.
Take a look through your customer base and ask yourself the following questions:
1. Where have you acquired your customers?
2. How much does it cost to generate each particular class of customers?
3. Look at your marketing budget. How does that line up with the acquisition costs? What things do you spend money on marketing on that aren’t related to customer acquisition?
4. What part of the marketing budget would be related to servicing customers rather than acquiring customers? For example, you may have part of your marketing budget oriented towards encouraging customers to keep up with their renewals or to be purchasing additional products and services from you.
So, what did you find out? You might see areas of marketing where the doll Read more:Marketing
, Acquisition
The Telling Question in Recruiting 2007-06-18 06:20:08
Recruiting is an interesting dating process on both sides of the fence. As the employer, you could see somebody who looks very interesting, but then you have concerns. You like the person so much, but now you wonder, "Will they really come onboard and join me? How can I scope that out?"
Here’s a question that can be used to flush it out.
How soon after accepting our offer would you be able to start with us?
What’s important to see here is not only the answer to the question, but how long does it take them to answer the question. The most ideal situation is they are able to it right away and you get something a long the lines of two weeks, which shows certainly some concern and decency towards their current employer.
What happens though when they take a little time to answer that question? Then the meter starts running. The longer it takes in time, the less certainty you can have that they would actually come on board and join you. If they’re taking a while to answer this questio Read more:Telling
, Question
When Somebody Leaves - Looking Back 2007-06-29 11:40:53
When somebody’s leaving your company, it can be a good time to look back and see what might have happened. This can be true for the finance staff as well.
I had a client that just got notice at the end of the day on Friday that the cost accountant was leaving. It came as a little bit of a surprise, although there were some signs there beforehand as most often can be the case. Perhaps, you can look at it and see the indications that you can be on the watch for.
Here are some things that come in mind for finance people to consider:
1. What range of responsibilities was the person looking for? For example, in accounting, this could range from doing entry level bookkeeping on certain accounting transactions, to doing account analysis, to doing journal entries, to having total responsibility over certain areas, such as say fixed assets, to producing the entire financial statements. Where did the employee want to be on that spectrum and how does the job fit with that?
2. Superviso Read more:Somebody
, Looking Back
Showing Direct Labor Cost 2007-06-29 11:42:14
Here’s a challenge that could face some manufacturing companies in their financial reporting. The direct labor dollars that are actually spent may not be shown in the financial reporting package. What gets shown might be standard direct labor information or the direct labor cost of sale. But, nowhere in the financial statement does it show what was actually spent during the month in direct labor.
What causes this? Having direct labor setup going right to inventory. Now, this may not sound quite so bad in of itself, but what you’d lose is some tracking in the process.
If possible, you want to be able to show what direct labor dollars were actually spent. Even better is to be able to break this down by key manufacturing departments. See if you can setup the general ledger to have your direct labor go there rather than right into the inventory account. Then have it work like overhead where direct labor is absorbed into the inventory cost.
Ideally, for the reporting and direct Read more:Direct
Pulling In Your Contact Information With eGrabber 2007-06-29 11:44:06
One of the most valuable pieces of intellectual property that you have is your rolodex and your network of contacts. With the changes in information technology, you can be coming across a lot more people than perhaps you were before. Now, suddenly, through websites, emails, social networking groups and other online resources, you may come across a number of people that could be added into your electronic rolodex.
So, what process do you have to get those contacts into your system? Do you have to do manual cut and paste? And where do you put them? Do you have a good methodology for where you store them, such as either in Outlook or a contact management like ACT or some other vehicle?
If you find that it becomes a manual cut and paste type of process, there is a better way. I’m a big fan of a tool called Address Grabber, which is sold by eGrabber. This is a terrific tool. When you get an email, for example, and it has some contact information at the bottom, you can use eGrabber to sen
Make Your Reporting Package Easy to Navigate 2007-06-29 11:43:43
Another test of your reporting package is, how easy is it for the user to navigate through it in soft copy?
Often times, that’s not the case. Too many times I see spreadsheets that are organized more like Egyptian scrolls. You have to scroll way down to the bottom and then you have to scroll way across. That’s a lot of work for the user and makes it harder to find things.
A much better way is to break it down into pieces. I prefer to see the reporting package broken out into individual sheets, such as:
1. Balance sheet.
2. Profit and loss.
3. Cash flow.
4. Supplemental sheets or whatever different groupings you might have. These could include:
1. Product line.
2. Revenues.
3. Divisions.
4. Territory.
5. Departments.
You might also have other sheets up in front, such as a narrative sheet and what I like to see is a good summary sheet that puts all key information right onto one particular page. So in that one page snapshot, somebody can get a pretty complete view at a high l Read more:Reporting
, Navigate
From 55% to 5% 2007-06-29 11:45:55
I had a past client in the telecom industry that called me in to help on their bad debt situation. They thought bad debts were running about 15%. However, after doing some tight analysis, I found the percentage was really 55%. However, the good news. Within one year, we had the number down to under 5% around the industry average, which was acceptable to them because they had an extremely high margin service.
So what were some of the things that helped lead to that huge decrease? What are some lessons that could be learned?
1. Know your bad debt percentage. In this case, the client was equating bad debts that related to prior periods with revenues from the current period. As a result, they were understating their bad debt percentage number. In order to get the right bad debt percentage, you need to trace back the bad debts that happen to the periods where they occurred.
2. Cut off known payers after a certain period. This client who would take a long time before somebody would get cut
What’s on Your Dashboard? 2007-06-29 11:45:30
Hopefully, you bought into the idea of having a one page dashboard to oversee your business. It could be produced monthly, weekly or, perhaps, even daily in some circumstances.
So, what’s on your dashboard? What does that reveal about you?
One of my clients, which use a monthly dashboard that’s a very nice summary of his operations, keeps it to a minimal set of numbers. However, even in that minimal set of numbers, it’s interesting to see what happens to show up, in particular one number. One that is broken out is incentive payments. He’s keeping a close watch in that particular area. Another one I’ll mention is the income tax payment. He has a subchapter S corporation and to his credit he’s concerned about having enough money tucked away ahead of time in order to meet the quarterly tax payment requirements. I wish every company was on the ball in this area as much as he is.
So take a look at your dashboard, maybe step back and look at it from an objective level and ponder Read more:Dashboard
Transform Your Business and Create Higher Value with Midas Managers by Robert Slee 2007-08-15 12:58:17
I came across an excellent book last week in a seminar I was in. The book is by Robert
Slee and it’s called MidasManagers
. It’s a great book about how business owners in the small and mid-cap markets can transform their businesses and create higher value.It’s a lot about working on the business, rather than being caught up in the business day to day. These people take a look at their business and see what is the best use of their company resources. Rather than continuing to do things the same way they’ve always been done in the past, he shows examples of where heads of companies have made some major shifts in direction.One thing that he advocates is where it is that companies can increase their value:1. One dimension is financial by understanding the capital structure and how companies operate. He points out that the larger companies can achieve premiums in valuation over smaller companies. So, it makes sense to try to find ways to gr Read more:Transform
, Business
, Higher
, Value
Offering the Payment Discount 2007-08-15 12:57:57
More important question to consider with your billing is should you offer any payment discounts. For example, should you offer a term like 2% 10, net 30?On the one hand, the view can be that it could be expensive financing. For example, if you’re paying 2% to collect something 20 days sooner, you’re, in essence, technically paying 36% interest on that money. At face value, it might not appear to be such a good deal.However, other factors can come into play. One could be the credit risk. Perhaps, by offering the payment discount, you get your money sooner and therefore you cut your credit risk exposure. Know how much you would have to sell in order to make up for one lost account. That could lead to helping you assess the value gained from a payment discount.It could add to your borrowing capacity effectively or it could save you from more expensive equity capital. Thirty-six percent can seem expensive as an effective rate, however if Read more:Payment
, Discount
Predicting Your Accounts Receivable 2007-08-15 12:57:36
To move at stronger levels of collection efforts on your accounts receivable here’s what you need to do. Predict, don’t just act and track on your accounts receivable.That will give you a great benchmark for managing your progress against the collection. The first level would be just doing this on the overall basis, but you can do much better than that.The second level would be to drill down by each collection. So you predict how much you collect in the current period, how much in 0 to 60, how much in 30 to 60, how much in 60 to 90, how much in 90 to 120 and how much over 120. You use this history as a basis to develop a predictive model. You keep continuing this and probably after about 10 weeks of time, you’ve got a nice model developed that goes across for a long enough period of time.Even better could also be doing predictions by some finer segment in the business, either by product line, service line, geographic territory or other factors that Read more:Accounts
Put Together a Request for a Proposal for Computer and Software Needs 2007-08-15 12:57:02
One of the biggest decisions you can make in the backend of your company is what kind of computer system you’re going to use and not just the hard where, but primarily what software will be used to run the business. This could be a very specialized process to select such a system.
Too often I see companies that go about this like another purchasing decision for the company without giving this decision the special process that it should require.
What am I referring to? That could be kind of going through a list, calling up particular suppliers that could have software/hardware that potentially meet the needs, and calling them in and having them make a proposal. The problem is this is subject to a lot of interpretation in terms of what are the real needs of the company. Another issue with this approach is that it’s a rather inefficient process. It can be inefficient having to rehash a lot of the same stuff between the different suppliers. In addit Read more:Proposal
, Computer
, Software
, Needs
Reconciling Cash Online 2007-08-15 12:56:39
In the old days you used to have to wait for the paper bank statements to come in once a month to be able to reconcile your cash account. A friend of mine once joked that was the favorite day of the month for this accountant. Not so anymore. There’s no need to wait for the paper. You can get the information online. Now, I can tell my friend, “Everyday is a terrific day ‘cause you can be reconciled everyday if you want.”I’m surprised at the number of companies that are still waiting for the paper. And by bank accounts, I’m not just referring to the traditional checking account or investment accounts, but also perhaps even as important as well too can be the credit card accounts. There you can download the transaction and get them posted into your system or perhaps download them into an Excel spreadsheet and then summarize the information and post it once a month.So why bother to keep in touch quite so often:1. Transactions mig
Revenue – The Forgotten Detail 2007-08-15 12:56:15
When you look at the income statement, you could really see there’s two main parts to it. Part one is the revenues. Part two are the expenses. In terms of total dollars, they may be close to each other, although hopefully the revenue number continues to be a little bit greater than the expense number.Here’s the challenge – while the numbers might be relatively close, usually the space provided is very different.Revenue
s might be even just shown as one number on the income statement. Meanwhile, expenses could have 25 or more line items on the income statement.Do you get the picture? Does it look out of proportion to you?I’m not saying that it needs to be in proportion to the dollars. However, revenues are such an important number to companies. Don’t they deserve to have more than only one line in the income statement?Here are some ways that you might split out the revenues:1. Major product line.2. Territory.3. Divisi Read more:Forgotten
, Detail
The 13 Week Rolling Cash Forecast 2007-08-15 12:55:53
A practice not commonly followed by many companies, but done by some very good ones, is having a 13 week rolling cash forecast. The companies that do this get a feel for how their cash flow will roll out during the next quarter.Why don’t more companies do this? Well, it’s the value added part of finance. It’s moving finance from being a thermometer to being a thermostat. It does take time, but there are some great benefits to it:1. You get to uncover potential shortfalls. By seeing this, you can take some action ahead of time. See a cash squeeze coming up six weeks from now, what can you do to accelerate some collection? Or, is there some productions in shipment that can be stepped up?2. It gives you time to fill in the gaps. In particular, one way to fill in the gap could be through having a line of credit. But through the cash forecast you can also make sure that you have a credit still available, that you have Read more:Rolling
, Forecast
Fitting A Computer System to Your Specific Company Needs 2007-08-15 12:55:25
A big decision is selecting a computer system for your company. The company may grow to the point where you can begin to look at something that might be more customized to fit your company and be evolving beyond, perhaps, a certain standard package like QuickBooks.
A common approach is to look at different systems and then determine whether you can fit the particular system. I think that’s backwards. Don’t ask what you can do to fit their system, but ask what their system can do to fit for you in a way kind of reverse of the famous John F. Kennedy quote. In other words, put the burden of proof on them. Make them do the hard work of seeing where there’s a fit and where there isn’t a fit. Have them do the first particular pass at this sort of analysis. You can then come in and take a deeper look and fine tune it. I like this approach better for several reasons:
1. There going to know their system better than you do and they m Read more:Computer
, Needs
, System
, Specific
The Data Room 2007-08-15 12:54:55
Whether you’re out looking to raise capital or thinking about selling your company, a data room can be a big help to your potential buyer or investor. By data room, I’m referring to where you have all the copies of the due diligence materials available for an investor or a buyer to come look at.One decision to be made is where you will keep this particular data. It could be in a room in your office or outside or it could be a virtual data room where this information is stored electronically, perhaps in some folder or site on the internet or through your company’s server.Here are some thoughts to consider as you put together this data room:1. Start assembling the information. By having a data room and getting a jump on assembling the information, you can be far ahead of many other companies.2. Have an advisor to tell you what should be included in the data room. This could be an investment banker, m&a advisor, business broker, financial int
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