5 Reasons Companies Fail | Avoid Making a Business Mistake

5 Reasons Companies Fail | Avoid Making a Business Mistake

  Companies fail for a lot of reasons, but financial mismanagement is generally at the top of the list.  Here are five reasons why firms bite the dust, and how to avoid making a business mistake: Business Mistake #1 Revenue – or Rather, Quality of Revenue.  Many entrepreneurs – if not most – have a sales background, and they do what they do best – sell!  There are many great sales tracking processes, incentive schemes, CRM systems and rosy projections. Less often seen are client gross profitability models, incentive packages that reward profitability and collectability, and concern about concentration of clients.  When it comes time to value your company – make sure you have revenue quality. Business Mistake #2 Failure to Measure Gross Profit.  Many small companies fail to distinguish between overhead costs and cost of sales.  Cost of sales are costs that are needed to make a sale: cost of product, cost of service delivery, payroll for service fulfillment, etc.  Overhead costs are costs that would be incurred whether you made zero sales or more sales than you know what to do with: rent, administrative costs, and office costs to name a few. Failing to distinguish between the two properly means you have no idea how you are doing relative to peers, and have no way to control overhead or maximize profitability. Business Mistake #3 Lack of Costing Data. Many companies fail to develop metrics that can tell them the cost to deliver a product or service per unit. When you pin down your cost of service delivery, you can start to find ways to reduce or transfer...
How to Succeed in Business – Twelve Points For Your Business Compass

How to Succeed in Business – Twelve Points For Your Business Compass

How to Succeed in Business = A Business Compass Every day, management and employees are faced with difficult challenges. At times confusion, uncertainty and frustration can slow or interrupt the organizations progress toward business success. These twelve common sense ideas can provide the fundamental principles that will help your organization be successful and reach its goals. How to Succeed in Business Point 1 = Keep it Simple The organization has grown so quickly and our business has become so complex that sometimes it is easy to get overwhelmed. When we look at the forest we sometimes forget it is made of individual trees. It is only by getting back to the basic roots of our business that we can understand how our own forest has grown. When we understand the roots, the answers to our problems can become obvious. How to Succeed in Business Point 2 = Unquestionable Ethics In a society that has so many laws and regulations, it is easy to confuse the letter of the law with what is right, fair or just. Our organization (and people) must be known for having the highest standards of integrity and for doing the right thing for ourselves and our customers. If we work as if everything we do will be reported on the evening news and we strive to have ourselves and organization held in the highest regard, we will always do what is right. How to Succeed in Business Point 3 = Aim High Throughout history there is example after example of ordinary people  producing extraordinary results. It is not just luck. This happens because these people...
Bookkeeper vs Controller vs CFO: What Do They Really Do?

Bookkeeper vs Controller vs CFO: What Do They Really Do?

Many business owners often ask what differentiates a Bookkeeper vs Controller vs CFO and why may it make sense to utilize the services of a CFO. Oftentimes, these owners become confused when identifying the role of their top financial person or what qualifications they should be looking for when hiring that person.  Let me begin with the traditional roles of the top financial person in any business.  For simplicity, this article will assume the financial roles are within privately held Companies and not a Public Company which has very specific reporting requirements to the SEC.  There are five basic functions that need to be addressed. 1. The first and most recognized function is the ability to develop accurate, timely and complete set of historical financial data.  This includes (but is not limited to) monthly financial statements (balance sheet and profit and loss statement), tax reporting, flash reports which are typically Key Performance Indicators (or Metrics) established by management, and any other operational reports needed to run the business. 2.Internal Controls are the internal policies and procedures that protect the assets of the Company.  As public Companies have learned, these internal controls have their own compliance requirements and are subject to Sarbanes Oxley definitions.  However, in the smaller privately held company, internal controls define specific roles and individual requirements of each employee with the intent of preventing errors, theft and embezzlement.  It becomes the balance of responsibilities or a segregation of duties so that no one person will control a process and be able (either intentionally or by accident) to falsify financial information. 3. Forecasting….whether to determine future cash requirements...
Does Franchising Work?

Does Franchising Work?

Does Franchising Work? – Preface As a B2B CFO® partner I have worked with a lot of smaller growth companies and it’s always interesting to learn a new business model and see how an entrepreneur makes money. I am frequently asked “What are the most profitable businesses, or what is the best way to grow a business”. As I see the proliferation of frozen yogurt stores in my neighborhood, I thought it would be interesting to take a look at the franchise business model to see how it works. I have enlisted the help of Jim Deitz aka The Franchise Doctor.  Jim has consulted on franchise operations for more than thirty years and is a recognized authority on creating, buying and selling franchises. Franchising is typically the right to sell or distribute goods or services under license, using a common branding and advertising, while the franchisor retains a degree of control over operational procedures. I asked Jim how big the franchising business was. In fact, franchising accounts for 11 million jobs and at $1.3 trillion is just over 5% of national output. There were over 900,000 individual franchised establishments in 2005. Jim said that while Fast Food, Hotels and Automotive sectors are the most well known, there is a diverse range of business models from Janitorial, Hardware, Real Estate, Auto Rental, Learning, Personal Care, Schools, Construction and Maintenance. Does Franchising Work? – Franchisee Investors For many franchisee investors (ZEEs) and potential franchisors (ZORs is franchise-speak for business owners who use franchising to expand their business), the costs and potential profitability are the key issues. Jim says that license fees can vary...
Steven Covey – If Your Company Was A Soccer Team

Steven Covey – If Your Company Was A Soccer Team

Steven Covey – Harris Poll Steven Covey in his book The 8th Habit, which I highly recommend, quoted the results of a Harris Poll of 23,000 U.S. residents employed full time within key industries and in key functional areas as follows: Only 37 percent of those polled, said they have a clear understanding of what their organization is trying to achieve and why. Only 1 in 5 was enthusiastic about their team’s and organization’s goals. Only 1 in 5 workers said they have a clear “line of sight” between their tasks and their team’s and organizational goals. Only half were satisfied with the work they have accomplished at the end of the week. Only 15 percent felt that their organization fully enables them to execute key goals. Only 15 percent felt they worked in a high-trust environment. Only 17 percent felt their organization fosters open communication and better ideas Only 10 percent felt that their organization holds people accountable for results. Only 20 percent fully trusted the organization they work for. Only 13 percent have high-trust, highly cooperative working relationships with other groups or departments. Steven Covey – Soccer Team Analogy Covey goes on to equate these results to a soccer team by describing the team as having only four of the eleven players on the field knowing which goal was theirs. Only two of the eleven would care. Only two of the eleven would know what position they play and know exactly what they are suppose to do. And all but two players would, in some way, be competing against their own team rather than the opponent. The...
The Benefits Of A Debt Free Company

The Benefits Of A Debt Free Company

Benefits Of A Debt Free Company – Foreword How much debt financing is right for a business? In today’s low cost money environment, the ‘easy’ answer might be “as much as you need” because it is inexpensive (depending on a company’s financial situation). However, the credit environment has tightened significantly during the past two years due to the stress that has been placed on the financial markets. Low cost money really isn’t that easy to come by. Possibly the more important question may be, what would it take to run the business without any debt? As the B2B CFO® partner for a number of small and mid-sized businesses, I can attest to the fact that operating a business on the cash flow generated from operations is easier and lower stress than being saddled with a lot of debt. It also increases control over the company. With a good focus on cash flow and a deliberate plan to reduce debt, it is possible to achieve the objective of being debt free. The elements of a robust cash flow plan will likely include a sound understanding of the classic elements of the sources and uses of cash. In simple terms, you want to increase the sources of cash and reduce the uses of cash to the extent possible. Benefits Of A Debt Free Company – Sources of Cash Sources of Cash Improve the efficiency of revenue generating processes Collect customer receivables faster Turn inventory faster and reduce the inventory balance Lengthen supplier payment terms, request early pay discounts, or take full use of existing terms Reduce operating expenses Increase gross margin of...