Tag Archives: Trends

How Do You Best Use Cash Flow Statements? Five Points

Situation: A CEO is familiar with and regularly uses income statements and balance sheets in financial discussions and planning. However, cash flow statements present more challenges, particularly when comparing cash flow over time. A second question is whether cash flow statements are more important to C versus S corporations. How do you best use cash flow statements?

Advice from the CEOs:

  • Most companies use the P&L and Balance Sheet to “stay on top” of the business on a short-term basis. However, these statements do not provide detailed insight into where cash is coming from and where it goes.
  • The cash flow statement represents a tracking tool to highlight trends and make projections about important changes in financial flows. All three financial statements are used to plan and monitor performance against the company’s financial targets. However, the cash flow statement is the most meaningful of the three, regardless of business size.
  • If 1/3 of a company’s expenditures is fixed cost how does this impact planning?
    • Carefully watch changes in volume over time and the impact on cash flow before deciding to expand.
    • When deciding whether to commit new resources it may be wiser to allow finances to be stretched for a while or even to turn down some marginal business opportunities before committing to a new layer of expenses.
  • The cash flow statement is not really affected by the corporate structure, since its three areas of focus – operations, investment, and financing – are common to all three.
  • Business is getting more complex. It really pays to understand the key elements that drive the business, and their impact on cash.

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How Do You Make Sales More Predictable? Five Points of Focus

Situation: A CEO is concerned that year to year sales revenue is unpredictable. Sales reps are averaging 25% of quota and commissions per year. While internally generated sales are up 20%, partner sales are down 83% and up sales from existing customers are down 54% from last year. How do you make sales more predictable?

Advice from the CEOs:

  • It is critical to both understand what is happening in the company’s market, and why up sales and partner sales are down so significantly from last year.
    • What is the total available market – not just broad numbers, but information reflecting both the available market and key trends within the industry?
    • What is known of the latest product introductions from key competitors – are these significantly better than their earlier products?
    • Have cases of lost sales been thoroughly analyzed – either lost competitive bids or customers who have left and why? Was this business lost to internal or external competition?
    • Have an independent 3rd party talk to lost customers.
  • Is the company’s product well-defined, and is there a road map for future development? Do the company’s product definition and road map align with market directions and demands?
  • How good is the company’s competitive analysis? Is there a good understanding of how to position the offering within the market? Are salespeople selling to the right people?
    • These require what is outlined above: who is in the market, old and new products, product features and positioning, product and product acceptance trends.
    • If salespeople don’t have the right weapons, they can’t articulate the company’s advantages: a clear ROI benefit, and Cost/Risk Avoidance Analysis. For these analyses, the sales target is the CFO and Risk Management Officer.
  • There may be too many salespeople.
    • How does the company measure sales productivity? Are salespeople accountable for performance or non-performance?
    • What are the consequences – besides lower commissions – when they don’t produce?
    • Given current trends, it is likely that the company will lose some of the current salespeople. Take control of the situation and remove the poorest performers rather than risking losing the better performers.
  • Do you have the right VP of Sales? While he may have been a great sales rep, few sales reps successfully make the transition to management. The skill set required for success is completely different. The company may better-served by letting him do what he is good at – selling or training other sales reps – and hiring an experienced industry veteran to run the sales operation.

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Which Is More Important – Long or Short Term? Five Points

Situation: A CEO is concerned about long term trends versus short term volatility. While the business has done well over time, short term volatility has made it difficult to project both personnel needs and cost. As the company expands geographically these issues are becoming more critical. Which is more important – long or short term?

Advice from the CEOs:

  • Does the company find that capabilities are not fully understood until they get into development? In this case, is the problem with variables of schedule, budget or capability more important?
    • Going forward, evaluate each of these variables to determine which is having the greatest effect, positive and negative, on project performance and profitability.
    • If the problem is time constraints in the project planning phase, assure that sufficient time for project iterations is allowed in both the schedule and budget. It may be that the clients are not sure of what they want until they see a model, and that several iterations are required to assure that clients’ needs are satisfied. Plan and bid for this.
  • If fixed costs impact margins during dips between active projects, assure that enough fixed cost coverage is built into project bids to cover dips.
  • For geographically remote offices is the company’s issue a question of volume or resource cost or is it a pricing issue?
    • If it’s a pricing issue to stay market competitive focus initial activity where this issue is minimized. As market presence expands, add additional capabilities in phases according to the ability to cover costs profitably.
    • If it’s a resource cost issue use the same solution, adding resources according ability to cover costs profitably.
  • Build the company’s sales and marketing structure in phases while expanding into new markets. If sales compensation is base plus commission, vary commissions paid according to resource rates negotiated. This will tie sales incentives to negotiated resource rates and will help to assure that costs are covered.
  • Dealing with short term issues effectively will improve long term planning and profitability.

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Do You Have Control of the Numbers? Four Points

Situation: A company has a good accounting system, but the CEO is concerned that they are not making the best use of metrics to drive the business. He senses a lack of shared understanding of key metrics and goals. He senses the appearance of financial disarray, despite his clear grasp of the business. Do you have control of the numbers?

Advice from the CEOs:

  • A good accounting system may be in place, but if it is not being used to drive the business and monitor the achievement of milestones then the company is not gaining the best advantage from it.
  • If there is a sense of financial disarray, this suggests that the company lacks financial metrics. Employees and managers may be doing their jobs, but without financial metrics it is difficult to tell how well they are doing their jobs.
  • Start with basic metrics:
    • Where are sales coming from?
    • What is the profitability of sales by customer segment and product line?
    • What is the company’s profitability?
    • What are the profitability trends of the company and key segments of the business?
  • Once a company is tracking these metrics, it is easier to focus managers and employees on products, product development, operations, sales and marketing issues that are most essential to the company’s success.
  • The company needs the equivalent of a CFO. This means a financial person, not an accountant. An individual who knows how to look at the numbers. A CFO will help the company to
    • See the strategic trends in the business,
    • Uncover the best opportunities for growth, and
    • Understand the greatest potential threats to growth of the business.

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How Do You Establish Performance Metrics? Three Guidelines

Situation: A CEO wants to establish baseline metrics to evaluate company performance, and guide both planning and operations. Without baseline metrics it is difficult to compare the impact of options that the company faces. What are the most important areas to analyze, and what do other companies measure? How do you establish performance metrics?

Advice from the CEOs:

  • Start with the basic divisions of the business. As an example, take a company which has three arms to its business – products that it represents for other companies, products that it distributes, and custom products that it manufactures to customer specifications.  
    • For each of these lines track gross revenue, profit net of direct costs, FTEs necessary to support the business, number of customers, net profit percent, net profit per employee and net profit per customer.
    • Calculate these metrics on at least a quarterly basis for the past 2-3 years to set a baseline and a chart of historic trends.
  • Once you establish a baseline, chart current performance on at least a quarterly basis and look for trends and patterns.
    • Where is your greatest growth and greatest profitability – not just on a global basis but in terms of profit per customer and profit per employee?
    • If you’ve included your full costs including the costs of the FTEs to support each business, then the analysis should show you where you want to invest and what it will cost you to support additional investment.
    • Do a similar analysis of costs per line to further support investment analysis.
  • This analysis will help to evaluate whether it is better to purchase another rep line, or whether you would be better off investing the same funds to grow custom business.
    • Similarly, it will demonstrate on what kinds of customers and products you want your sales force to focus to grow profitable business and will help you to establish objectives based on anticipated revenue or profit per new customer that sales closes.
    • Finally, it will highlight potential vulnerabilities such as the impact of the loss of a key customer in one portion of the business.

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How Do You Best Leverage Networking? Six Suggestions

Situation: A company is actively marketing to prospective clients and also engages in networking. They want to assure that they are up to speed with current trends in marketing. What are best practices for following up on marketing or networking contacts? How do you best leverage networking?

Advice from the CEOs:

  • Timing is everything. A prospective client may or may not have an immediate need for your product or service, but may develop a need in the future. Assure that you have a program that provides ongoing follow up via:
    • Social Media
    • Phone calls
    • Emails
    • Regular personal follow up
  • Initial follow up should be rapid. Ask for permission to follow-up and set the time frame when you meet a new prospective client. Ask how the prospect prefers for you to stay in touch. Do they prefer newsletters follow-up via social media, or personal follow-up?
  • Draft letter, email and social media communication templates ahead of time so that rapid follow-up is easy.
  • Use an electronic or print newsletter to stay in touch with prospects. Social media have become an increasingly important way to stay in touch with networking contacts.
    • Basic newsletters are usually 2-3 pages, or a one pager with links to see full articles.
  • Look at contact management software: for example Salesforce.com or ACT.
    • Basic sales and marketing subscriptions from Salesforce.com start at $25/user/mo. for up to 5 users, or $65/user/mo. for a complete customer relations management (CRM) system.
  • Quality of collateral is important. It is a face of your company. High quality collateral should have a consistent look and feel, and should remind the prospect why they were interested in you and your company in the first place.

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But We Don’t Produce Anything Measurable! Seven Metrics and Tactics for Service Companies

As a service company we find it challenging to measure project profitability and client satisfaction. What measures and metrics do you find most useful?

Advice from the CEOs:

  • For billable services: utilization percent defined as (hours available for service delivery)÷(billable hours)
    • Include in the denominator both billable hours and customer good-will or preventative maintenance hours. The latter, while not producing current income, are an investment in future income.
    • Set up audits for service needs, especially future needs, when working with customers. This will help you to stay abreast of changes in the service environment and to plan accordingly.
  • For fixed budget projects – measure budgeted vs. actual expenditures by project.
  • For fixed-fee services: a fraction expressed as: (income per customer company) ÷ (cost in hours for that customer)
  • Customer audits and surveys. Options
    • Exit “pizza party” with the client – may produce tainted results. While this builds customer good-will and may provide qualitative feedback, it should be supplemented by more objective measures.
    • Mailed survey – from 3rd party with a prize for responding.
    • Email follow-up from 3rd party that directs you to the 3rd party site to complete the survey.
  • Ambassadorial CEO visits to the top contact person in key accounts
    • Opportunity to learn about the customer’s present and future needs, staffing plans, business and strategic direction. Helps to anticipate changes in the competitive landscape.
    • The more your business relies on recurring revenue, the more important these visits are.

Key Words: Service Metrics, Project Profitability, Resource Utilization, Customer Satisfaction, Business Trends  [like]