Leadership – 5 Keys to Profitability
Tim McLellanPartner, B2BCFO®
October 3, 2012
www.b2bcfo.com
Key Success Factors
• Timely Billing• Cash Discounts• Variable Compensation• Breakeven Analysis• Timely and Accurate Financial Statements
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Timely Billing
• Timely Billing – Owner should be involved in monitoring billing process each month.
• Review report of Unbilled Jobs on 15-20th of each month. Write it on your calendar and do it!
• Run report every other day and review status until GC billing cutoff on 25th of the month.
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Billing / Collection
• Owner should review a copy of the Aging each week.
• Aging should contain notes on expected payment dates and unresolved issues.
• Make sure A/R collection is a high priority done by a competent employee.
4
Cash Discounts
• Most Flooring Dealers make 4 – 7% in a good year. Those making the 7% are taking all cash discounts.
• Cash Discounts are such a good deal, that it makes sense to borrow on your line of credit to take advantage of discounts.
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Discount Math
• Taking a 3% discount each month equates to a 36% annual interest rate.
• Banks LOC rates generally 5-7% per year.• A 36% discount – 7% borrowing cost is a
29% savings.• Taking all discounts will improve your
bottom line by 1 – 2 %
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Variable Compensation
• The more people that are paid based on job performance, the better. They all have skin in the game.
• Even small amounts paid to project managers will improve job performance.
• Everyone needs to know that it’s real money at stake.
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Variable Compensation
• From personal experience – the more compensation $$$ (greater %) at stake, the more chance the job will be closely monitored and change orders will be obtained timely.
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Breakeven Analysis
• Know the monthly Breakeven Sales amount for your business.
• Amount is your Overhead (non Job Cost) expenses divided by your gross margin %
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Breakeven Analysis
• Example – Overhead Expenses are $150,000 a month and gross margin in 20%.
• $150,000/.2 = $750,000 in sales needed to break even each month.
• If the indicated sales level can’t be obtained, overhead expenses must be cut.
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Financial Statements
• Job Review Meetings held with each sales rep twice a month to monitor job performance.
• Work in Process report is adjusted monthly by Controller and reviewed with owner by the 20th of the following month.
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Financial Statements
• Timely and Accurate Financial Statements are prepared by the 20th of each month. Variances from expected performance and investigated each month.
• Would you ride on an airplane that had no gauges in the cockpit?
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Financial Statements
• Dashboards and / or Weekly Facts reports provide enhanced monitoring of items such as:– New Orders– Billings– Cash Receipts– Cash Disbursements– A/R and A/P Balances– Line of Credit Balance
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Next Steps
• The Owner / Manager must set the tone for a timely and accurate accounting process.
• An experienced CFO is needed to help guide the Owner.
• CFO position can be outsourced if in house expertise not there / or salary budget not available.
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