What is the Best Pricing Strategy for Your Business?

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Smart business owners are always looking for ways to increase their business profits as they analyze their income statements. One area businesses can focus on to increase profits is in pricing strategy. Pricing is one of four levers that impact the quality of your profits. (The other strategies include direct cost control, indirect overhead cost control and volume).

In a competitive marketplace, businesses should routinely review their pricing strategies to maintain an edge and stay profitable.

“In addition to managing costs, our clients are continuously looking for better and smarter ways to set the optimal price so as to harvest that untapped profit while staying very competitive and maintaining a good position on market share,” says Phil Farris, Pricing Product Line Manager for Servigistics, which offers pricing software applications as part of their Service Lifecycle Management.

Small increases in pricing, even 1%, can also make a difference in the income statement. If you are holding your prices steady over an extended period of time, then you are actually giving a price break, because inflation erodes your purchasing power.  For example, if you sell a widget for $5.00 and it cost $3.00 then you make a profit of $2.00.  However, if inflation is 3% and you don’t change your price for the next three years then your cost is $3.28 and your profit is now only $1.72.

 

High or Low?  Which Way to Go?

A business has to make a fundamental choice: will it price at the higher end or the lower end? Of course, the best of both worlds is higher prices and higher volumes.  Understanding the price sensitivity in your market is important in order to get your product or service into your client’s shopping cart.

“There are generally two kinds of pricing and volume strategies,” explains Trillium’s own CEO, Mike Iverson. “High volume/low price or low volume/high price. Think about a Wal-Mart model versus a Saks Fifth Avenue model. They both might earn the same profit, but they earn it differently.”

“For service parts, high volume fast moving item are usually priced with a different and more competitive pricing strategy than low volume slow moving item,” Farris adds. “You do not want to lose sales volume by setting your price too high for products that are highly competitive.  Understanding sales volume history and seasonality for all your products is critical for setting the optimal prices at the right time.”

 

Value Pricing

Attracting customers and increasing value of a product or service to make the business stand out from the competition should be a priority.

“In the current economy, what I’ve seen in pricing is that many manufactures have held their prices, but added value; for example, buy one, get one free,” says Iverson.

Farris adds, “With new software tools and automation, our clients are finding it beneficial to change prices more frequently to maintain their preferred price positions in the market. We are also seeing an increase in the number of special prices (discounts) being offered to customers and also more demand for promotional pricing.”

 

Pricing Plans Pay Off

Pricing responses to market and income pressures differ from business to business. Yet, conscious business owners should consider the role price is playing in their income statements and develop both short-term and long-term strategies.

“We see clients who are very price margin conscious and some cost increases will immediately trigger a price change to maintain acceptable margins or it will force a renegotiation with a supplier to lower cost,” says Farris.  “On the other hand, for some products a flat cost line will often result in a flat price line over long periods of time.”

Pricing is just one lever that moves your bottom line. Pricing strategies should be flexible enough to respond to real time economic issues. We will discuss in future issues the other levers driving your bottom line: direct cost control, indirect overhead cost control, and volume.  Remember, pricing is the gateway to getting your product or service into your clients’ hands.

Numbers Coach Helps a Content Publisher Stay Financially Focused

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The Company

EB Medicine (“EBM”), founded by Robert Williford, and it is carried on by family members Stephanie Williford and Robin Wilkinson.  EBM provides high quality content for the physicians who want to stay on top of issues in their specialty.  This includes study guides for a physician to keep up their continuing medical education and stay abrest of new methods or technologies.  EBM products are produced by practicing physicians from leading institutions around the world with a broad range of clinical expertise.

 

Situation

In 2016 the EBM team wanted to enhance their financial management and reporting.  They were looking to create a platform to communicate the company’s key performance indicators (“KPI”) that drive its financial results.  In addition, the EBM team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

 

Solution: The Numbers Coach Financial Leadership Services

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing EBM’s performance metrics.  NC developed a financial scorecard focusing financial drivers that give the team visibility into the profits and cash flow critical to sustained profitable growth.  The scorecard offers an “at a glance” view of results.  NC also developed a financial model that provided the road map for the EBM team to see where they were headed with profits and cash flow.  The model provides a rolling forecast during the year so that EBM team could make financial and operational decisions to achieve their goals.

 

 

 

Results

NC pulled together financial and non-financial data to complete a customized scorecard and financial model.  Each month NC meets with the EBM team to methodically review results and provide the input and analysis from the scorecard and financial model.  From the monthly financial mentor meetings, the EBM team can take actions on activities that improve the company’s bottom line results.

For more information on EB Medicine visit www.ebmedicine.net

To learn more about the Numbers Coach financial leadership services, click here

“Mike has been an important part of our team over the past year.  His understanding of financial processes, cash flow, and how to explain our results has provided our team with the right tools to navigate our finances successfully and stay focused on our financial goals.”  

Stephanie Williford, CEO

Numbers Coach Helps Manufacturer Improve Financial Results

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The Company

Direct Refrigeration Sales (“DRS”), founded by Tim Litsch, provides a high quality alternative to OEM replacement parts for the refrigeration industry.   One of their primary parts is a gasket that seals a refrigeration unit when closing the door and ensures the contents remain cold and intact inside the unit.  DRS products are of such quality that even several OEMs in the food service industry source with DRS for their replacement parts.

Situation

In 2016 Tim Litsch wanted to enhance his financial management and reporting.  The DRS team was looking to create a platform to communicate the company’s key performance indicators (“KPI”) that drive its financial results.  In addition, they wanted to see what needed to be done for the company to extract themselves from financing that was non-traditional but necessary to carry the business forward.  The DRS team wanted visibility through a financial model that would tell them what needed to be done to move from non-traditional financing to traditional bank financing at a lower cost.

Solution: The Numbers Coach Financial Leadership Services

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing DRS’s performance metrics.  NC developed a financial dashboard scorecard focusing financial drivers that provide visibility into the profits and cash flow critical to sustained growth of a business.  The scorecard offers an “at a glance” view of results.  NC also developed a financial model that provided a road map for the DRS team to see where they were headed with profits, cash flow, and the pay down of debt.  The model provided a rolling forecast during the year so that Tim and his team could make financial and operation decisions to achieve their goals.

Results

NC effectively pulled together the required financial and non-financial data to complete a dashboard scorecard and financial model.  Each month NC meets with the DRS team to methodically review results and provide the input and analysis from the scorecard and financial model.  From the monthly meetings, the DRS team implemented actions to take on activities that would improve the company’s bottom line results.

For more information on Direct Refrigeration Sales, visit www.directrefrigeration.com

To learn more about the Numbers Coach financial leadership services, click here

“Mike has been an integral part of our team over the past year.  His solid understanding of financial reporting processes and cash flow has provided our company with the right tools to navigate our finances successfully and help us stay focused on our financial goals.”  

Tim Litsch, Founder / CEO

Numbers Navigator Helps Pool Company Float More Cash to the Bottom Line

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About the Company

Bill White built Southern Splash Pools (“SSP”) in 2001 to provide northern Georgia with quality custom and new pool construction, pool repair and maintenance services.  SSP provides a lifetime structural guarantee with all of its installations.

The Situation

Over the years, Bill realized that his profits weren’t where he thought they should be, but couldn’t identify exactly why:  “At the end of the day, our overall sales numbers were good, but the bottom line was not.”

The Solution

Intrigued by information about the Numbers NavigatorR he found in the Numbers Coach (“NC”) monthly newsletter, White decided to “pull the trigger” and contacted NC’s, Mike Iverson, to provide a comprehensive analysis of SSP’s financial operations.  Iverson used the Numbers NavigatorR to determine the key financial drivers in SSP’s business model, then conducted a discovery session with management to gain an understanding of their key business issues.

NC provided SSP with a comprehensive financial report that identified opportunities to drive more cash flow from the business.  Together the Numbers Coach and SSP determined that margins were too thin, and that pricing per project needed to be adjusted to reach the profitability desired by SSP.  To achieve this the Numbers Coach provided:

  •  A 20+ page financial report detailing key drivers in SSP’s business model
  • Cash on hand/revenue targets for each month
  • Models for various pricing strategies and guidance on creating the pricing structure that would provide more profitability
  • Provided a short-term planning tool to ensure resources and cash were allocated appropriately
  • Established a schedule for accountability check-ins to measure progress on financial goals


“I appreciate Mike’s approach, which is educational and ‘real world;’ he boils it down to
what I really need to know to run my business. The best part is that I now understand
what the numbers are telling me and I have someone besides myself to hold me
accountable for reaching my financial goals.”


Bill White, President, Southern Splash Pools

What are the Benefits of a Diversified Revenue Stream?

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by Michael Iverson, Principal of Trillium Financial

When you think about the way America’s small businesses get started, it should come as no surprise that a relative few have revenue streams that could be considered diversified. A great many startups are the result of the entrepreneurial recognition of a market need.  In many instances, the market need is that of a single, sizeable customer.

For instance, I once made the acquaintance of a woman who helped manage the investments of a state pension fund.  One of the challenges of her position was keeping abreast of corporate governance matters for a universe of nearly 2,000 stocks owned by the pension fund.  Her team had a fiduciary duty to vote the shares in the best interests of the pensioners.  Yet, keeping tabs on executive compensation plans, auditor changes and corporate acquisition proposals for 2,000 different stocks was nearly impossible, given the small staff of the pension fund.  Why wasn’t there a service that could provide advisories on the stocks owned by her fund and other pension funds?

To make a long story short, she left the pension fund to become an entrepreneur and start the business that would address the very need she had identified.  She started a fiduciary advisory service to track corporate governance issues of stocks held by pension funds.  Her former employer became her first customer.

Starting Out

In the early years of a startup, it’s not uncommon for a business to be strongly dependent on its first customer. For some startups, it is 100 percent of first-year revenues and more than 50 percent of second-year revenues.

No matter how solid that first customer may be, it is prudent to become less dependent on the customer by diversifying the revenue stream.  Keep the original customer happy by providing outstanding service, but develop new customers as quickly as you can.

Diversification of revenues provides financial stability for your company, reduces business risk and makes your business infinitely more marketable when it comes time to sell.   Diversification can be number of customers, geography of customers, and product offering.  One of the metaphors that I have heard over the years is a three-legged stool offers more stability then a two-legged stool.

Shoot for 15%

As a goal, try to diversify your business to the point that no single customer is responsible for more than 15 percent of revenues.  Until you achieve that goal, the possible loss of your largest customer (due to reasons as varied as a change of ownership or a sudden downturn in the customer’s industry) carries significant financial risk to your business.

I have met any number of business owners who have lost a customer responsible for 30 percent or more of their revenues.  The results can be devastating.  Imagine having taken on debt to expand the business, only to lose a customer of that size.  Some businesses can’t survive that kind of a hit; others survive, but with great difficulty and sacrifice in the way of layoffs and contract renegotiations.

As many of my clients know, it’s not easy to achieve the 15 percent target. It’s not uncommon for talented service providers to be approached by a large customer who wants more of their time, not less. I advise clients to be disciplined and politely dismiss opportunities that would make them more reliant on a large customer.

Even though the initial financial rewards may be tempting, there is an important trade-off in terms of autonomy.  A business owner who hitches his wagon to a single customer often feels more like an employee than a business owner.

Is your business in need of a more diverse base of revenues?  We have ideas about acquiring new revenue streams. Give Trillium a call at (404) 353-2148 or send us an email.

The Numbers Coach Helps Medical Practice Improve Profits

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The Company

Choice Care Occupational Medicine and Orthopaedics (“CCI”), founded by Dr. Ish Khan, provides a 21st Century practice model which blends the two specialties of occupational medicine and orthopaedics. Dr. Khan’s unique program is the only one of its kind in Georgia that has proven enhance the quality of patients’ medical care along with dramatic cost savings for its clients.  (Now part of U.S. Healthworks, CCI has six locations in metro Atlanta.)

Situation

Dr. Khan wanted to enhance his team’s financial management and reporting.  The CCI team was looking to create a platform to communicate the company’s key performance indicators (“KPIs”) that drive its financial results.

Solution: The Numbers Coach Financial Leadership Services

According to Dr. Kahn, the Numbers Coach (“NC”) financial leadership services were an “ideal” fit for developing CCI’s performance metrics.  NC developed a financial dashboard focusing financial drivers that provide visibility into the profits and cash flow critical to sustained growth of a business.  The dashboard offered both graphs and numerical charts to give an “at a glance” view of results.  In addition, TFI reviewed the company’s financial results each month to help the team identify areas of concern or improvement.

Results

NC effectively pulled together the required financial and non-financial data to complete a dashboard.  Each month TFI assisted with the monthly financial results for the dashboard.   More importantly, NC’s methodical approach to measuring and reporting financial results provided the CCI team with timely information to take actions on profitable activities for bottom line results.

“Mike has been an integral part of our team over the years.  His solid understanding of financial reporting processes and systems provided our company with the right tools to navigate our finances successfully.”

Dr. Ish Khan, founder/CEO

What Is the Balanced Scorecard? (And Why Should You Care?)

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By Michael Iverson

If a business advisor told you that more than half of the largest U.S. corporations used a particular management tool, chances are pretty good that you would be interested in using it for your business.   The balanced scorecard is, in fact, widely used by America’s largest companies. Editors of the Harvard Business Review named it one of the most influential business ideas of the past 75 years.

The purpose of the balanced scorecard is alignment of strategy with the daily activities of a business.  It was introduced as a performance measurement framework in the 1990s by two business professors — Drs. Robert Kaplan and David Norton. The idea is to augment traditional financial business metrics with strategic, non-financial performance measurements. In combination, the two very different kinds of measurements provide a more balanced view of a company’s performance, especially its progress toward achieving long-term, strategic objectives.

A Change of Focus

The balanced scorecard attempts to address a long-time shortcoming of U.S. businesses – their focus on attainment of quarterly earnings goals, while paying too little attention to building long-term value. By focusing on near-term earnings, which are easily measurable, American businesses often neglect investment in intangibles, the returns of which are more difficult to measure.

Focusing on past events causes companies to under-invest in important areas like product and process innovation, building and retaining employee skills, and improving customer satisfaction levels.  These intangibles contribute significantly to the long-term value of a business.  Companies create future value by investing in customers, suppliers, employees, processes, technology and innovation – the intangibles that matter today.

Companies can only improve management of their intangible assets if they integrate measurement of those intangibles into their management systems. This notion led to development of a management tool for describing, communicating and implementing strategy – the balanced scorecard.

The scorecard envisions a company’s Vision and Strategy at the center of a continuous feedback loop, surrounded by four perspectives, each with its own business metrics. A company collects and analyzes data relative to each perspective.

The Learning & Growth Perspective

Employee training, individual growth and company-wide improvement are hallmarks of great companies. Employees who embrace technological advances and mentoring become more productive. Their collective knowledge significantly enhances the company’s value.

The Business Process Perspective

Managers need to know how well the business is performing based on its internal processes. Are the internal processes allowing the company to produce quality products and services, while achieving incremental improvement? The metrics for this perspective are unique to each business and should be designed by managers who are intimately aware of both internal processes and customer needs.

The Customer Perspective

Perhaps the most important management concept of recent years is the realization that meeting, if not exceeding, customer expectations is a leading indicator of business success. Customers whose expectations are met or exceeded become extremely loyal, building business value. When expectations are not met, customers begin to look for other suppliers.

The Financial Perspective

Traditional financial analysis does provide useful information. Kaplan and Norton suggest that it is most useful when it encompasses risk assessment and cost-benefit measurements, and when it is balanced by data from the other three perspectives.

If you would like help in creating a balanced scorecard for your business, just give us a call at (404) 353-2148 or send us an email, and we will be happy to help!

What is the One Best Yardstick to Measure your Business Success?

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Mike Iverson’s client had it all figured out. He knew exactly how well his business was doing every month, without researching complicated data or paying an expensive consultant. He just looked at his phone bill. If the number of outbound calls was up, he could bet that his revenues for that month would be up, too.

A reckless, haphazard guess? Just the opposite. Iverson’s client had found a simple metric that he could track every month and immediately gauge the health of his business.

The concept of a simple metric as a forecaster of financial health belongs to Norm Brodsky, a successful serial entrepreneur and writer for Inc. magazine. The idea is for every company to find that one magic metric – the connection between a routine business function and the positive growth of a company.

“I think every business has it,” says Mike Iverson, Numbers Coach. “Every small business can put a finger on a certain key number that can tell you how you will end up that month.”

The trick, of course, is uncovering exactly which numbers have that relationship in your business. For example, if call volume goes up and sales go down, you’ve got the wrong metric. It is important to track as many numbers as possible in the beginning, because it may take two years (or more) to find the leading indicator. Also, recommends Iverson, track the numbers by hand. The process of writing the numbers down with a pencil and paper will help you realize the connections.

Here are seven important metrics for any business. Track them for 3 months and see which one gives the greatest transparency to the rest of your business:

  1. The Trailing 12-Month Sales Average: By monitoring – and graphing – sales from the 12 months prior, you’ll get a visual of the progress of sales, while taking seasonal issues out. If it’s July 2025, look at July 2024 through June 2025. Graph each month’s sales and see where the highs and lows were, and what the average was. If that 12 month average is trending up, it’s good. If the graph line is flat or declining something is causing sales not to perform.“If you look at just sales numbers month to month, you won’t see it,” says Iverson. “This is a visual metric: you want to see that 12-month trailing graph trending up.”
  2. Operating Profit Percentage: This shows the extent to which a company is making a profit on standard operations. When looking for indicating factors, ask, ‘Is this percent holding steady, increasing or decreasing?’  You can also examine this on a trailing 12-month average.
  3. Accounts Receivables Cash Conversion Cycle: If you extend credit to customers, track how long it takes to collect cash from the time the bill is sent. What is your cash conversion cycle (or DSO – Days Sales Outstanding)? Be careful about the terms extended to your customers; you have set them for a specific reason. If customers go beyond those time limits, you’ll feel the pinch.
  4. Days Inventory Outstanding (DIO): In theory, you should keep the least amount of inventory on hand as possible. In a perfect scenario, you would get the order in just in time to have it manufactured and sent out; the longer inventory sits unsold the more of a drain it is on your cash.
  5. Disbursement Cycle: These are the terms you get from your vendors. The longer you can hold on to your money and the faster you get it from your customers, the better.
  6. Working Capital as a Percent of Your Revenue: This is an important financial set of measures to look at because it is often overlooked by business owners, says Iverson. “They know to look at the income statement. But if all that operating profit is getting absorbed into working capital, then there won’t be enough cash flow to grow the business,” he says.Receivables and inventory are investments.  (And in the same way vendors have an investment in you.) You’ll want to invest as little as possible of your revenue in working capital. Turn your receivables to cash, your inventory into billing, and hold on as long as you can to your money. Look at the number of days net working capital is invested every month (or cents on the dollar of what’s invested). If you don’t have enough cash flow to cover what you’ve got invested, you’ve got a problem.
  7. Return on Capital Employed (ROCE ) Percent: According to FinanceScholar.com, ROCE measures the efficiency and profitability of a company’s capital investments. For example, capital assets such as trucks and computers should help make the business more efficient, cut down on costs and realize greater profits.  The ROCE percentage also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. The higher the percentage the better.

Tracking the numbers involved with these seven metrics over a period of time will give you an idea of which is the leading indicator for your business.

“It seems like the concept would be complex, something more to it. But really there’s not. If you break it down and keep it simple, the metric can give a business owner an easier way to digest information and act,” says Iverson.

Start measuring today so you can figure out what actions to take in order to achieve your financial goals.   The Numbers Coach can help; just contact us at (404) 353-2148 or mike@numberscoach.net.

Numbers Coach Crafts Financial Models for Brewing Company

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COMPANY
In 1993, Red Brick Brewing (RBB) started as one of the first craft brewers in Atlanta.  The Red Brick team is dedicated to providing the consumer with world class Southern beers and ales.  The consumer gets a consistently great-tasting beer from unique blends of hops and other ingredients.  The RBB team of dedicated people are passionate about brewing the best-tasting Southern beer.  (Red Brick Brewing rebranded back to their original name of Atlanta Brewing Company in 2018.)

SITUATION
In 2012, the Red Brick team was transitioning its financial management and reporting with the goal of creating a financial model that would communicate the company’s key performance indicators (KPI) and drivers of its financial results to management and investors.  However, the team quickly found that it was challenging to accomplish this goal on their own.

SOLUTION: The Numbers Coach Financial Leadership Services
The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing RBB’s customized financial model and metrics.  NC’s,Mike Iverson, created the model and also reviewed the company’s financial results each month to help the team identify areas of concern or improvement.

RESULTS
NC effectively pulled together the required financial and non-financial data to complete a customized financial model, providing insights for the team to do product and cash flow planning.  The model was developed with “what if” scenario planning capability.   This allows the team to see how changes to key metrics drive the financial results of the business.  The model also has the option to provide a rolling forecast for the team to get visibility on how they might finish the year given actual results to date.

According to RBB investor (and founder of North Highland Global Consulting) Dave Peterson:  “Mike at the Numbers Coach jumped in and set up a customized financial model that matched Red Brick’s business and key metrics.  His solid understanding of financial reporting and analysis provided our company with the right tools for financial planning.  We would highly recommend the Numbers Coach financial leadership services.”

For more information on Red Brick Brewing Company/Atlanta Brewing Company, visit https://atlantabrewing.com.

To learn more about the Numbers Coach financial leadership services, click here.

“Mike jumped in and set up a customized financial model that matched our business and key metrics.  His solid understanding of financial reporting and analysis provided our company with the right tool for financial planning.”  

Dave Peterson, Red Brick investor & founder of North Highland Global Consulting

Cash Flow Management: Now More Important Than Ever

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From “Mom&Pop” companies to major corporations, businesses today are looking at every penny flowing in and out.  No one relishes turning up the heat on clients to pay invoices faster. That’s why you should implement proactive cash flow management practices—before your bills start to pile up and your lines of credit are tapped out.

Conduct a Cash Flow Analysis

Cash flow controls the extent to which a business builds or consumes available cash and credit capacity.  Cash flow analysis is not simply an interesting management tool. It is necessary for the good health and future of every enterprise.

“At the end of the day, well-run businesses will use cash flow analysis as a tool to manage their destiny by preparing for future needs,” says Joe Dresnok, President of Management Horizons in Roswell, GA.  “For those companies that have the wisdom to keep either cash or credit resources available beyond the resources that they currently anticipate, those firms will likely have the ‘staying power’ to withstand the machinations of this turbulent economy.”

Your business software may already have built-in features that allow you to run regular cash flow analyses.  These analyses give a larger and more accurate picture than net profit or bank statements.

Use Cash Flow Forecasting

Run several different cash flows forecasts for your business: a best-case scenario, a worst-case scenario, and a middle case scenario.

“When thinking about cash flow management, a thirteen week rolling forecast is a very useful tool,” says Mike Iverson, CEO of Trillium Financial. “Today is the first week of the 13-week cycle. Use this tool to think about where you will be in three months.”

While economic turbulence does make it more difficult to predict exactly what your business will look like in three months, running these forecasts tells you if you will be able to pay bills, and help you create plans to be proactive in managing your cash flow requirements.

If you feel overwhelmed by a thirteen week period, then Iverson suggests “running a shorter one, for example an eight week cash flow forecast.”

“Cash flow projections is a valuable tool,” explains Dresnok. “It can mean the difference between success and failure – even for a growing business.  In short, cash flow projection can guide the business owner to controlled, profitable growth.”

Extend Credit Carefully and Invoice ASAP

“In light of the recent slow-down in the economy, many companies are experiencing declining revenues, slower collections of outstanding accounts receivable – or even write-offs– and less access to bank financing,” says Kent Bridges, CPA, Managing Partner of Bridges & Dunn-Rankin, LLP, headquarters in Atlanta, GA.  “Accordingly, businesses are having to be more proactive in their billing and collection practices including doing more to determine the credit worthiness of customers before extending them credit.”

Two of the best cash flow management techniques are (1) having policies in place on extending credit to customers and (2) having good billing practices.

Iverson suggests one tool to consider as part of your credit evaluation process is the Z-Score.  It is one of several tools that you can use to assist with the dilemma of who you should or should not extend credit. The Z–Score is a mathematical calculation used to rate companies’ creditworthiness.  You can find additional information about this methodology at the following resources:
•    The Accounts Receivable Network (www.tarn.com)
•    Credit Guru.com (www.creditguru.com)

In a cash-tight economy, fast and accurate invoicing is especially important as a good billing practice. Send your invoices as soon as possible. Don’t wait to send them out at the end of the month.

Make sure all the info on the invoice is accurate so that you don’t need to reissue a bill. One of the biggest issues for small and medium sized businesses for positive cash flow management is closing on the cash conversion cycle.  The conversion is the time between when a service or product is delivered until payment is received.

Cash in Hand

Other cash flow management tools include appropriate use of debt financing and maintaining sufficient cash reserves.

“While it varies according to the business, we generally recommend having cash in operating accounts equal to at least one to two months of operating expenses, having another one to two months of operating expenses covered by accounts receivable or recurring revenue, and another one to two months of operating expenses covered by available lines of credit” suggest Bridges.  “This provides the company with a minimum of three to six months of cash flow cushion in the event of a slow-down in revenue or collections. “

Remember: even fast-growing companies can have cash flow issues as they add new employees and equipment, making cash flow management important for all businesses in both good and tough economic environments.

The Numbers Coach Positions Nutrition Company to Evaluate Prospective Acquisitions

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SITUATION

Acquisition is one of many growth strategies a company may adopt, but it can also be a risky proposition.  BodyBlocks Nutrition Systems, Inc. began looking for companies that they could purchase to accelerate their growth plans.  In order to take advantage of these opportunities BodyBlocks needed to retain an experienced financial professional to evaluate the prospective purchase.

SOLUTION: The Numbers Coach M&A Support Services

BodyBlocks engaged the Numbers Coach (“NC”) to evaluate the financial structure and investment return of acquisition opportunities, including:

  • Developing financial models to understand the potential return on investment and operational characteristics;
  • Creating discounted cash flow models to understand the basic financial value of the prospective acquisition;
  • Financial due diligence support and analysis.

RESULTS

NC provided BodyBlocks with comprehensive financial reports and analysis to assess acquisition targets.  The BodyBlocks’ investor group was able to understand the risks and potential rewards of the acquisition, and the financial drivers of each opportunity.