The Numbers Coach Helps Secure Interim Financing for Practice Expansion

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SITUATION

In 2004, Pain Consultants of Atlanta, LLC (“PCA”), a leading pain management medical services firm, was in the process of negotiating a buy-out from their parent company. PCA saw an opportunity to grow by opening a new clinic in Atlanta, Georgia, but was unsure about expanding prior to the completion of their buy-out.  The management team determined that they needed to secure interim financing in order to move forward with the expansion.

SOLUTION: The Numbers Coach Leadership Services

PCA engaged the Numbers Coach (“NC”) to assist them in securing interim financing that would allow the company to continue on their growth path without requiring a large capital infusion.  They also needed to structure the financing in a manner that conserved cash flow during a crucial buy-out transition period.

RESULTS

NC helped PCA to obtain approximately $300,000 of short-term lease/purchase financing from several different financial partners.  This enabled PCA to continue its expansion during the interim period before the actual buy-out occurred.

Numbers Coach Advises & Establishes Financial Infrastructure for Pain Management Company Spun-Off from Parent Company

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SITUATION

Pain Consultants of Atlanta, LLC (“PCA”) is one of the leading pain management medical services firms in Georgia. In 2004 a decision was made by the owners to spin off PCA from its parent company.  PCA’s management team recognized the need for financial leadership during this time to help them navigate through the spin off and become a successful stand-alone company.

SOLUTION: Numbers Coach Financial Leadership Services

PCA engaged the Numbers Coach (“NC”) to provide recurring financial leadership services that would assist in the transition to an independent company.  NC developed a detailed plan with specific deliverables to meet the transition deadlines.

RESULTS

PCA has successfully established several key self-sustaining business components:

  • Established a billing department and acquired financing for the billing system and computer hardware necessary for successful in-house financial operations.  An internal billing and collections department allows for greater control and is designed for increased reimbursements.
  • Outsourced accounting functions to a bookkeeping firm, allowing the company to remain focused on their core business, instead of adding fixed operational overhead.  Outsourcing also provided a scalable accounting system that PCA can use during its growth phases.
  • Created and implemented a detailed transition plan to migrate PCA’s employee benefit plans from the parent company in a manner that protected the employee’s current level of benefits.

Could Cash Flow Be the Problem?

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by Collette Parker

Did you know that almost half of businesses have their best-ever year right before they file for bankruptcy? They grow right out of business, and usually it’s not because of lack of sales – it’s poor management of cash.

“They may have had their best year on paper, but when you look at cash flow and working capital’ it’s going south real fast,” says Mike Iverson, CPA, and CEO of Trillium Financial.

The old adage is true: you can’t manage what you don’t measure. And even if sales are good, if you have vendors and employees asking for money, and customers who don’t have to pay for another 45 days – it’s a perfect storm for a cash crisis.

“Take the time to do a financial business plan every year,” Iverson says. Not 30 pages, but a simple two-pager with a financial forecast and a budget for 12 months. “That will give small businesses a leg up from those businesses who don’t write this out.”

Visuals help. It’s not enough to just go through a plan in your head. The process of examining your business closely enough to work out a model and a 12 month plan helps you to understand the flow of your business, including issues of seasonality. If you plan cash flow properly you can figure out how much money you can have in hand when you go into manufacturing season, and how much you’ll make in the selling season. “You can’t just set a $12 million goal, and divide the revenue figures by 12 for the year,” says Iverson.

One financial management tool that is useful in managing cash is a 12-month trailing budget. Once January closes, look at the last 12 months (including January) and chart the revenue. Then look at December and the 12 months prior. Are the numbers higher or lower? Look at the graph. Is it flattening out? Going down? “Graphing a trailing 12 month budget is a simple visual tool,” says Iverson, “and can be used for both sales and expenses.”

“If your management team sees a graph instead of a bunch of numbers, they can understand the concept. Hopefully you’re spotting a positive trend. Either way, you can understand what your cash trends are, and then have a budget that is detailed enough to effectively plan for the year.”

When planning the budget for healthy cash flow, be mindful of how much is invested in your working capital, and keep track of three key areas:

1. Accounts Receivables – Unless you are a cash business, chances are you extend credit to your customers. If your terms are 30 days, your customers should pay you within 30 days, not longer. If you begin to see a trend where customers are waiting 45–60 days to pay, you will probably begin to see cash flow problems. Don’t be a free bank for your customers.

Look at ways to reduce the time it takes customers to pay you: ask for advances from customers, or a down payment, installment, or some level of prepaid portion of the sale. If you’re in the situation where you really need the cash now, you can work with a factoring firm for receivables, or the bank for a loan.

2. Accounts Payable – Have favorable credit terms and solid partnerships with your vendors. In this area, you want to hold on to your money as long as you can. But, if vendors offer early payment discounts and you can afford to take it, go ahead. Sometimes, even if you have to borrow the money to pay early, it might make sense to do so. If you can borrow money at eight percent and take a two percent discount for 10 days early (2% 10 net 30) you are effectively earning 36 percent over a year. (If you do that, make sure the borrowing doesn’t put you at risk for running out of cash and not being able to pay your other bills.)

3. Inventory – Manage your inventory so that it doesn’t sit in a warehouse for too long. Once you’ve paid for the inventory, it should be sold and generate profit for you. Adjust your inventory for the seasonality of your industry so you’re never caught with too much.

An example of good management of these three factors would be to extend 30 day terms to customers, purchase inventory and turn it around in 15 days; and pay vendors in 30 days.

Financial planning doesn’t have to be complicated to be effective. Measuring the past 12 months of working capital performance, income statement performance, sales growth and profit, will give you a really good picture of your business and let you prepare for future sustainable growth.

Knowing and Focusing on Your Market

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by Anne Moore Odell

In economic boom times, companies often put their marketing efforts on autopilot. In the current recession, business owners can’t afford to spend money on ad space reflexively. For savvy companies, the downturn is an opportunity to re-examine their marketing strategies, think through what works and why, and make more meaningful connections with new and loyal customers while supporting sales efforts.

“Focus on customers and markets that absolutely need your product and service to survive and your marketing message should be in that context, “says Chris Lambrecht, Lead Consultant, Intelligent Marketing Solutions, based in Atlanta. “One should be focused on building long-term relationships and the objective should not necessarily be to sell.”

Retaining your current clients is important—they may be buying less or even taking a break from buying, but that doesn’t mean they are no longer loyal. Keep them in the loop so that when the economy turns up again, you are still the first business they call. Statistics show that it still costs five to ten times less to retain a customer than to acquire a new one.

“Just like in many markets, it’s easier and less expensive to gain market share today that it will be after the economy turns,” concludes Lambrecht.

“Look at different ways to expand the relationship with your existing customers,” says Mike Iverson, CEO of Trillium Financial. “That’s true in all economies. Today I hear people saying their customers are looking at ways to cut their cuts, but they can’t really cut costs. What extra value can they add such as bundling products or offerring two for one?”

You also need to study what is happening across markets so you can keep your existing clients and acquire new ones.

Bernadette Peters, CEO, Natural Marketing Services in Atlanta, GA says “Re-evaluate your target market. Many Nordstrom customers are shopping at Target. Target shoppers are going to Wal-Mart. Wal-Mart’s customers may be buying less. This downgrading makes all businesses have a new target market with different demographics, buying behaviors and characteristics.”

Marketing needs to reflect that the economy and spending habits have changed. Peters says that many successful marketing strategies tap into the “return to core values” that a recessions tend to cause. These include family, peace of mind, more leisure time, connecting with friends, philanthropy, and life’s little pleasures and rewards.

Your marketing message should reflect this change, telling clients about their short-term or long-term cost savings.

Another strategic plan that Peters suggests is to provide a taste or smaller portion of your products or services in order to build trust on a low-risk level with new customers.

“Don’t throw the baby out with the bathwater, but hold your marketing staff accountable to do their due diligence on their new target market, and leverage existing relationships first,” says Peters.

In this economic environment, Iverson recommends making sure “that you include everyone in the thought process regarding what can help improve the bottom line of a business.”

Suggestion boxes, monthly contests, and rewards can get everyone in the business involved with finding for the best marketing or cost saving ideas, and at the same time, help build company morale. Ideas flow up from the bottom as well down from the top.

“Make sure that everyone in the organization has a clear understanding of what your business does and then they can each be a walking billboard among their circle of influence,” suggests Iverson.

Peters adds, “Don’t hold back on investing in marketing and advertising just to save money. Media costs are lower than ever. There are fewer competitors out there marketing for the same reason. Again, hold your team accountable to evaluate the marketing channel, include the right messaging for this new economy, and test on a small scale to reduce risk and track results.”

Business Planning: Having a Business Plan Helps Ensure Sweet Success

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by Tim Fulton

Quick. Name a product or service that you or your business will gain more satisfaction from while it’s being developed or produced than when it’s finished.

Your answer?

“My tax return?” (Wrong answer)

“Chocolate chip cookies?”  (You’re getting much closer)

‘OK, I give up.”

Your strategic business plan!  (“I never would have said that.”)

Well, don’t feel embarrassed. Most business owners and managers do not consider developing a Strategic Business Plan for their organization. In fact, less than 20% of all small businesses have any type of plan in place including operating plans, marketing plans, succession plans, etc.

They deny themselves such pleasure for a number of reasons:

  • “It’s far too difficult to do.”
  • It’s far too costly to do.”
  • “I don’t have the time.”

Imagine that you have hired a builder to construct your dream home. You have this rather vague picture of this house in your mind and you communicate this image to the builder.

Now imagine that your builder plunges into the construction of your home without any architectural plans. No drawings.

In a panic, you stop construction and ask the builder why he isn’t using any plans or drawings?

He responds, “It’s far too difficult to do.” Or “It’s far too costly to have done”.  Or “I don’t have the time.”

It would be crazy to build a home without plans. How long would that “dream house” of yours last if it was not built to any type of specifications? How long do you think your business will last without any direction or strategy?

Now back to my original question.

What is fascinating about developing a business plan is that the greatest satisfaction is derived from the development of the plan itself. Just like baking chocolate chip cookies. I get more enjoyment from eating the delicious cookie dough while I’m baking than I do from the baked goods upon completion. Sometimes I get halfway done baking and stop completely. On rare occasion, the dough never makes it to the oven.

The business plan development process includes the following three steps:

  • Analyze the business as it exists at this moment in time
  • Determine your 3-5 year vision for the business
  • Decide what you need to do to move towards that vision

As you go through this process you will be forced to examine your business, as you have probably never done before. You will uncover your strengths and weaknesses. You will identify market opportunities and threats. You will set goals and objectives and then establish an action plan geared to achieving them.

You will take that image of your “dream house” out of your head and onto paper where it belongs.

When you finish, you will feel exhilarated and motivated like never before. You will find new confidence in your business. If this is not the case, it’s time to bail out. Sell the farm.

Once your business plan is completed, it than becomes your road map for leading your business. You will use it to make sure that the “construction” of your business is just as you have planned for. You may even want to share it with others such as your employees, your banker, or even your family.

Just like chocolate chip cookies.

Health Check: Is Your Overhead Growing Faster than Your Revenue?

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As a Numbers Coach, we consult with many growing companies.  One unhealthy trend we often encounter is a company whose revenue growth is not keeping pace with the growth of its fixed overhead. This situation is manageable in the short term, but problematic in the long run.

In today’s economic climate, many businesses find it difficult to increase prices or find new sources of revenue. For those businesses, revenues are stagnant or perhaps even declining. At the same time, employee salaries and benefits, rent and utilities are all trending higher. So, what do do if you find your business facing this predicament?

Let’s take a look at two possible solutions for this challenge.

Possible solution #1: Lowering prices

Given stagnant or declining revenues, lowering prices to grab market share is one possible strategy. To increase revenues under this strategy, you need to increase the volume of products/services sold. This may be feasible, especially in mature industries where a fairly uniform set of product/service features makes differentiation difficult to achieve. In these circumstances, price can be an important differentiator.

  • Possible pitfalls:The tricky part is assuring that a price decrease results in more volume and, therefore, increased revenues. By offering lower prices, you bet that a reduced profit margin per sale will be more than offset by a volume increase. If you can’t accomplish that with certainty, you may cause a potential disaster – by lowering your gross profit to the point where it still doesn’t cover your overhead!

  • Our advice: Carefully analyze the financial ramifications of a proposed price change before implementing it.

Possible solution #2: Lowering Salaries and Benefits as a Fixed Expense

For many businesses, particularly those in service-oriented industries, employee-related expenses are the biggest part of overhead.   There are instances where cuts to employee expenses make a great deal of sense.

For example, consider a local plumbing contractor who has significantly less work than he had three years ago. Prospects for next year aren’t good, because construction starts here in the Atlanta area are still suffering. The contractor has to consider how to reduce his overhead, since revenue growth will be marginal at best.

  • Possible pitfalls: In theory, employee-related expenses are a logical place to look when overhead needs to be reduced. However, most business owners are very reluctant to make cutbacks in this area – with good reason. Cutting salaries produces immediate financial benefits, but those benefits may be offset by a loss of employee trust and loyalty. By following the advice below, it is possible to reduce overhead while retaining loyal employees.

  • Our advice: When there isn’t enough work to keep existing staff busy on a full-time basis, an employer has several options. First, he may choose to cut back the hours of all employees. Our plumbing contractor put his non-administrative staff on 30-hour work weeks. All the employees share the pain equally, but they still have jobs and they seem grateful for that. Another option is to identify employees who are under-performing and make necessary cuts. Every business has high achievers that need to be retained and rewarded. That is difficult to do in a poor economic environment, especially when other employees aren’t achieving nearly as much. For our contractor, eliminating a single position meant keeping five high achievers happy and motivated. From a long-term perspective, it was the right business move.

So when your fixed overhead expense growth outpaces your revenue growth, look to alternative pricing strategies or reducing selected overhead expenses to set you back on track. But remember: rational analysis trumps emotion when it comes to financial decision-making.

If you need an objective opinion about your options, just give us a call at (404) 370-6147 or send us an email, and we are happy to advise.

Metrics: It’s Time to Keep Score in Your Business

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by Tim Fulton

I enjoy playing golf but it can be a very frustrating game.

For that reason, I typically do not keep score when I play golf. I find that it makes the game more enjoyable when I leave the scorecard and the half-pencil in the clubhouse. I have also found that over the past three decades that I have played golf, my game has not improved at all. If anything, it has deteriorated over time. But then it is hard to tell because…I don’t keep score.

When friends ask what I normally shoot when I play golf, I usually respond with: “mid-90’s.” That sounds pretty good and seems about right. The funny thing is that when I do actually keep score, I usually shoot in the high 90’s to low 100’s. In other words, I don’t score as well as I presume I do.

Many small business owners manage their business just like I play golf. They don’t keep score. Their reasoning is very similar to mine as well. They say it just makes running their small enterprise that much more frustrating if they must look at monthly financial statements or weekly sales reports. In addition, since they work in the business every day they “know” how the business is doing. When I ask a business owner questions about profit margins, sales figures, specific ratios; I will either get a blank stare (bad sign) or a rough estimate. Upon examining their financial statements, I usually find that their “rough estimates” are overstated (sometimes dramatically).

I tell small business owners that the question is not whether or not they should be keeping score in their business. What they are operating is not a leisurely walk in the park slapping a silly white ball from tee to green. This is their livelihood. This is their dream. This is their business. . . Instead, I inform them that the key question is what to keep score of? What should they be measuring and monitoring on a regular basis? How can they check the pulse of their business on a day-to-day basis?

My dad was an entrepreneur. He was not the owner of the business but he had to think like an owner. He was in charge of operating a large warehouse distribution center. I can remember being in his office and always seeing a small piece of notepaper (this was before “Post-Its”) in the upper front corner of his desk. On that piece of paper there were three numbers scribbled down. On one occasion I asked my dad what those numbers were. Little did I know at that time that I was about to receive one of the best business management lessons I ever received (in or out of business school).

My dad responded that his bookkeeper brought him this sheet of paper every day with three (3) numbers written on it. The numbers included the past day’s total sales, this day’s bank deposit, and the amount of accounts receivable outstanding that particular day. He explained to me that those three numbers gave him the “pulse” of the business each and every day. This is how he kept score of his business. Through his experience in managing this business, he knew what to look for in these numbers. He knew what was “below-par,” “par,” and “above-par.” He knew when his business “game” was on and when it was off. No guesswork here.

No one day’s number would cause a panic. He was more concerned with patterns. Were sales increasing? Were receivables under control? He had a mental chart of each of these figures and would take action when action was necessary.

In addition to these daily reports, he would also receive weekly sales and inventory reports. He paid close attention to the monthly financial statements when they arrived. However, it was those daily reports that he relied upon most and allowed him to best keep score of his business. They were timely. They were accurate. They were critical to his ability to successfully manage this multi-million dollar operation.

What numbers should you receive every day? You decide. Possibilities include sales figures, bank deposits, inventory levels, employee timesheets, production reports, accounts receivable, accounts payable, and profit margins. Every industry has different areas of performance that need to be looked at regularly.

I think three is the magic number. Pick any three of these numbers and watch them every single working day. That is your mini-report card for the day. That is your scorecard. Set reasonable standards for each figure and be prepared to take action when necessary.

Keep score for your business and watch it improve and grow.

One Crazy Idea Can Revolutionize Your Business

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by David Shavzin

“We are too busy mopping the floor to turn off the faucet.”
Anonymous

Trying new things is always a good idea. We get stuck in ruts as individuals and as companies. “We have always done it this way, so why change?”   It can be hard to get out from under the day-to-day fires and step back to THINK.

Even in the best of times, we need to keep reinventing how we do things. But certainly during these challenging times! Even if the years since 2009 have been an economic anomaly, they have clearly changed the business environment, including every industry and every aspect of the economy.

You’ve likely heard the definition of insanity (attributed to various people, including Albert Einstein): “Insanity is doing the same thing over and over, expecting different results.” If you have not been hitting the sales targets you had set, are you going to keep doing what you have been doing? What are you going to do to ensure a successful year? What are your customers doing differently? How can that impact you? How can you adjust to take their new habits into account?

You cannot – and do not want to – change everything. But, how about one thing? Just one “crazy” idea.

Here is an example: Sales at The Home Depot were down due to housing market problems and lower consumer spending. Sound familiar? So, they decided to sell off parcels of their parking lots. They are taking pieces of those giant parking lots and selling them to retail outlets such as fast-food, pet stores and auto parts. Imagine being in the boardroom when that idea was suggested!!

Here is my advice: Get together with your partners, your management team, your employees or a couple of friends or colleagues. Brainstorm and come up with your “parking lot” idea.

Get in a room with a white board, a flipchart or paper and pen. Ask everyone to help you brainstorm new ideas…laughing is allowed, criticizing is not, everything gets Written Down, as reasonable or wacky as they sound. If you can, have someone facilitate to keep you on track – they should not participate but keep you focused. Alignment and agreement among the owners or the management team is critical.

The ideas may be slight twists on something you are doing today, or they may be the most ridiculous-sounding ideas you have ever heard – at first! They may have something to do with operations, finance, human resources, production, marketing, sales, customer service or any other part of your business. New markets, new products, new staff member, an improvement to your production or sales process.

How can you make at least one of these ideas fit your business this year? It may or may not work. If not, go back to that list and try something else!

David Shavzin is President of Shavzin & Associates, Inc., a Certified Management Consultant, and a master of crazy ideas. He can be reached at (678) 795-1750 or dshavzin@shavzinassociates.com 

Does Your Business Have a Succession Plan in Place?

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by Michael Iverson

Have you met a business owner who is close to retirement age and wants to sell the business? His or her life’s work is tied up in it, and the owner is unsure whether a buyer can be found. Unfortunately, he or she never developed a plan to transfer ownership of the business.

According to a recent survey conducted by PNC Bank, only about one-third of small businesses in the U.S. have a succession plan in place. Without one, a business owner probably won’t attract what he or she considers to be a fair selling price. In all likelihood, the owner will sell the business at terms stacked in favor of the buyer. Should the business owner die without a succession plan in place, it might have disastrous consequences for his or her family, such as a forced sale of the business to pay estate taxes.

The business case for a succession plan is to make sure the owner can gradually withdraw from the business on his or her terms – at a fair price and on a preferred timetable. In this article we are going to focus on three key areas that need to be considered in your succession planning process: 

  1. Identifying a suitable buyer for the business.
  2. Allowing a long enough training period that assures a smooth transfer of ownership to the new owner.
  3. Preparing a financial plan for “cashing out” the owner without draining all of the business’s operating capital.

How to Identify the New Owner

Finding the right person to purchase your business need not be difficult, but it does require time and forethought. Trying to identify a buyer under time constraints is difficult, especially during an economic downturn. As part of your planning, write down periodically a list of possible buyers – even if you are not considering a sale just yet. The exercise is a good way to understand your options.

People familiar with your business are often the most likely buyers. Many business owners ultimately transfer ownership to existing business partners, a family member or a long-time employee. In any of these circumstances, there are benefits to the seller and the buyer(s), including:

  • The seller is likely to achieve a better price by selling to a party that knows the business.
  • The buyer(s) can negotiate a timetable that assures the seller will pass along valuable knowledge about running the business.
  • The resulting continuity of business will benefit employees and customers.

Do you know potential buyers of your business?  Go ahead and start making a list.

How to Plan a Smooth Transition

No matter who the prospective buyer may be, there are significant benefits to allowing a period of several years for a successful transfer of ownership, including:

  • The current owner can provide training to the prospective buyer.
  • The owner can also assess the strengths and weaknesses of the buyer, and spend the time necessary to address areas of weakness.
  • The prospective buyer can be introduced to customers and interact with them for an extended period – to minimize the risk of customer attrition.
  • A long transition period usually improves the financial stability of the business. And, the business’s tax accountants have a chance to plan for future tax liabilities.

A long time frame might not be warranted if the business is being sold to another company. In that case, a shorter period would be better to integrate. However, planning for the transition is still very important because the real work begins after the close of the sale.

How to Cash Out

As an owner transfers ownership of the business, he or she needs a plan for both a) funding retirement and b) leaving the business with the cash resources necessary to continue operations. In other words, writing him or herself a large check from the business’s bank account is not a solution.

Many partnerships put buy-sell agreements in place, which provide for the orderly exit of one partner. Deferred compensation plans can be established, which allow the owner to begin the transition to retirement while still collecting a salary. And, life insurance policies can be used to provide liquidity in case an owner dies before a transition is completed.

These are just a few of the considerations for any succession plan. The important thing to understand is this: not having a succession plan is a huge risk – not only to the business owner, but to his family and to the employees.

If your business doesn’t have a succession plan in place, get started today.  Let us know if we can help you by calling (404) 370-6147 or sending us an email.

Next time we will talk about what can create Transferrable Value. Without it, you don’t have a business to sell.

Are You Insuring Your Life and the Life of Your Business?

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by Duffy G. Elliott, CPA, CFP

As a business owner, you may not consider life insurance an integral part of your financial planning. However, life insurance is critical to an owner’s family, as well as the business, in the event of an unexpected death. In order to make sure both your family and your business are adequately protected, it’s important to purchase the
proper amount of life insurance coverage.

The amount of life insurance you need depends on your current net worth, the lifestyle you want to provide for your family, and ultimately, your personal desires. (see more detailed guidelines below).

For business owners, life insurance for the business is often referred to as “key man” or “key person” insurance. In this case the beneficiary of the policy is the business and not the owner’s family. The insurance is used to provide funds to help the business navigate through the change as a result of the loss of the owner. The funds may be used to buy out the owner’s family interest, find a replacement to lead the business, provide working capital to cushion any financial impact from the loss, or a combination of these options.

Key man life insurance is an important part of a business’ planning. Without it, all of the hard work by the owner and the sacrifices of the owner’s family could vanish.

A common rule of thumb is that you should purchase 5-7 times your annual income. Unfortunately, like most rules of thumb, this does not take into account individual circumstances and may leave you with an inadequate amount of insurance.

  1. First, you should consider how much your family will need every year, being sure to take into account the effects of inflation.
  2. Next, total your assets and other sources of family income. Be sure to include any benefits your family may be entitled to under any pension plans. If your spouse doesn’t work now, you need to consider if he/she would work if you died and how much he/she could earn. Don’t overlook social security survivors’ benefits available to your children under age 18 and to your spouse if he/she does not earn significant wages.
  3. Finally, determine how much life insurance you require. This will depend on how long your family will need this income, what rate of return can be earned on the insurance proceeds, and other factors.

Unfortunately, this is not a calculation that can be made only once. Since your needs will change over time, you should assess your insurance coverage periodically, especially if a major life event occurs.

To learn more about how life insurance plays an integral part of your business and personal financial planning, contact Duffy G. Elliott at Elliott & Associates Wealth Advisors at (770) 451-2446 or visit http://www.elliottandassoc.net/.

Is a Clash Brewing in your Workplace? The Impact of Mixing Generation X and the Millennial Generation in the Workplace

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by Cynthia Miller of cindy.miller.atl.communications

As you watch the impact of the much-discussed generational mix on your company, pay particular attention to this: The most unsupervised generation in American history is starting to become the bosses of the most supervised generation in American history.

Generation X, the oldest of which were born in the late 1960s, is the next generation of corporate leadership. Independent from the time they were “latch-key children,” this demographic is moving into leadership vacancies created by the retirement of the Baby Boomers, now turning 60 at a rate of about 10,000 a day. Often described as a “cynical generation,” Generation X’s formative years were shaped by soaring divorce rates and two-income families, limiting the time they were physically in the presence of adults. They learned to do things themselves, at a young age, with little supervision.

Compare that upbringing to that of the Millennial generation, the oldest of which are now in their mid-20s. This generation saw a return to parenting, and has routinely sought out their parents for advice, encouragement and the creation of structure. Their time has been managed since they were toddlers, and praise was given out daily.

It’s the “Figure it out” generation up against the “How do I do it?” generation, and that’s bound to cause some friction in your company.

So what’s a CEO to do? Here are some ideas to help keep everyone focused on the business at hand:

  • Promote flexible work arrangements. One thing both Gen X and Millennial can agree on is a desire for flexibility. Mandatory face-time is out; results-based management is in. But flexibility doesn’t mean you’ve lost control of employees and the work required. Train your managers in the skills of goal-setting and performance evaluation. You’ll find productivity increases (along with the bottom line) when your staff feels ownership for meeting company goals.
  • Hone your employee communication strategy. Communication is critical to help the different generations understand the intricacies of a successful business. The standard employee newsletter may not be sufficient to a staff with expectations of immediate access to information. Personal communication skills, too, will play a vital role in keeping everyone focused on current business strategies and priorities.
  • Train the next generation of leaders. Gen X and Millennials are poised to sit in the driver’s seat of your business. Is your next generation of leadership up to the task? You’ll skip many frustrations — both for yourself and your managers — if you invest in leadership development to give your management team the tools they need to lead.

Harnessing the power of the generations will move your company to the next level of success.

Cynthia Miller is the principal of cindy.miller.atl communications, a company that specializes in communication strategy including crisis communication and media relations. Learn more at http://cindymilleratl.com/

Use Your Dashboard to Monitor Profitability

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by Michael Iverson

Believe it or not, it is possible to manage the financial side of your business in only a few minutes each week. With a good dashboard, you can quickly review the key drivers of the business to know how well you are doing.

Here are some metrics you might want on your dashboard. Let’s consider your Income Statement (aka, Statement of Profit & Loss, or P&L) and four profitability metrics that derive from the Income Statement:

  1. Price
  2. Gross Profit Margin
  3. EBITDA
  4. Net Profit

1.  Is the Price. . . Right?

As consumers, we know that Price represents the specific dollar amount a vendor charges for a given product or service. Business owners tend to think about Price differently. In the context of the Income Statement, Price represents the average dollar amount a business charges customers for a product or service sold during a reporting period (month, quarter, year, etc.). Because it is an average of all products and services sold, it might seem like a statistic that’s not particularly noteworthy. However, the statistic can be used for benchmarking – comparing the average price for the current reporting period against the average price for a prior period, for example.

Price is a variable component of Sales for the period, meaning it’s possible to increase or decrease the price and see the flow-through impact on bottom-line profits. In some instances, a price increase substantially improves the Net Profit of the business. In a price-sensitive environment, a price increase is rejected by some customers and sales volume may actually decline. When Price is a component of your dashboard, a quick glance provides some indication of customers’ price sensitivity for your products and services – which certainly is important for an owner to know because it has important implications for business profitability.

2.  Managing Gross Profit Margin

Gross Profit Margin is one of the most basic measurements of profitability. Sales less Cost of Goods Sold yields Gross Profit. Cost of Goods Sold includes direct costs of production, such as materials and production labor. The Gross Profit Margin is simply Gross Profit (GP) expressed as a percentage of sales. A business with sales of $50 million for the reporting period and a $25 million Cost of Goods Sold (CGS) has a 50 percent Gross Profit Margin (calculated as CGS/GP).

Gross Profit Margin is an important gauge of profitability. If a company does not generate adequate gross profit to cover its other operating costs, then it cannot become profitable. In addition, much like Price, it provides a good benchmark. It is especially useful when compared to other companies in the same industry. If a company’s Gross Profit Margin is significantly lower than those of competitors, the costs of its primary inputs (generally, material and production labor costs) may be too high and the company will have a tough time competing.

3.  EBITDA

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is a measure of profitability that goes a step beyond Gross Profit. EBITDA includes another layer of costs, which are typically classified as selling and administrative expenses (sometimes referred to as overhead costs). It excludes interest, taxes, depreciation and amortization, which are considered to be non-operating costs. EBITDA is a measure of profitability from operations and plays a role in the valuation of a company. Like most profitability measures, an upward trend over time is desirable.

4.  Net Profit – The Bottom Line

Net Profit is the final line of the Income Statement, hence the alias “The Bottom Line.”  In terms of accounting, regulatory compliance and most debt covenants, Net Profit (or Net Income) is the most complete measure of a company’s financial performance. It includes all the costs subtracted from sales. A growing Net Profit figure over a sustained period of time suggests that a business is managed effectively.

 

A dashboard with these income statement metrics can help you more efficiently manage and make decisions for your business. There can be other factors and income statement metrics that drive your business and we would be glad to discuss which ones make the most sense for you.  Contact us for a no-obligation assessment of your dashboard metrics.