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.

Put Your Working Capital to Work in Understanding Your Financial Dashboard

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by Michael Iverson

I often remind clients to pay attention to their working capital levels, particularly in today’s economic environment, when banks have shown a reluctance to lend to small businesses. Business owners need to maintain liquidity, generate positive cash flow and – to the extent possible – prepare to fund growth internally. Working capital is critical to your financial dashboard, a tool we recommend you as a business owner use to monitor your financial health.

Understand Working Capital

Let’s begin by defining working capital. Simply stated, it is the difference between current assets and current liabilities. A common perception is that a profitable business always has adequate working capital; however, that is not necessarily true. Profitable businesses can, and do, experience capital crunches. Often, an effort to expand operations aggressively is the cause of a shortage of working capital.

Working capital is composed of primarily of Accounts Receivable, Inventory, and Accounts Payable. A business owner needs to consider changes to these short-term assets and liabilities in order to ensure the business generates adequate operating cash flow.

For example, an increase in Accounts Receivable might mean a business is falling behind its in collections. Sales offered on credit, a business is effectively making a non-interest bearing short-term loan to its customer. Collecting accounts promptly is important. An aged invoice that goes past its due date can have a negative effect on cash flow. The business used precious resources to bring a product to market and sell it, but until the account is collected those funds are unavailable.

For my clients that extend credit, I recommend a dashboard metric called Days Sales Outstanding (“DSO”). It measures the relationship between Accounts Receivable and Sales. When this metric spikes higher than a specified level, then collections are not keeping pace. A quick glance at the dashboard shows you the trend of the metric. Measuring and understanding the drivers of the metric can help you identify where to make changes.

For businesses with inventory, it’s important to make sure that inventory is not consuming capital unnecessarily. Is inventory getting sold on the schedule? As with aging Accounts Receivable, a buildup of inventory ties up your cash resources when it is not converted to cash on a timely basis. The Inventory Turnover Ratio is a dashboard metric that highlights this trend. When the ratio decreases, it can signal an upcoming cash flow problem.

Another balance sheet account in working capital is Accounts Payable. Accounts Payable is the opposite of Accounts Receivable, where your business has been extended a short-term interest free loan from your vendor. When a business slows down its vendor payments, it is conserving cash. A business will at times use this strategy when it is experiencing slower payments in Accounts Receivable. Days Payable Outstanding (“DPO”) is a metric that measures your payment cycle trend. Consider putting it on your dashboard. Measuring your DPO helps identify when you may be disbursing funds faster or slower than expected.

Working Capital Ratios

To recap, here are the Working Capital ratios that I recommend you measure:

  • Days Sales Outstanding
  • Inventory Turnover Rate
  • Days Payable Outstanding

If you don’t understand the relationship of these metrics on your operating cash flow, your business can quickly become a very profitable operation that is very quickly running out of cash.

Developing a financial dashboard helps you manage review key metrics to gain insights on making decisions for your business. Schedule a free consultation with our Numbers Coach, where we are glad to discuss metrics that make the most sense for your business.