Leadership – 5 Keys to Profitability

Tim McLellanPartner, B2BCFO®

October 3, 2012

www.b2bcfo.com

Key Success Factors

• Timely Billing• Cash Discounts• Variable Compensation• Breakeven Analysis• Timely and Accurate Financial Statements

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Timely Billing

• Timely Billing – Owner should be involved in monitoring billing process each month.

• Review report of Unbilled Jobs on 15-20th of each month. Write it on your calendar and do it!

• Run report every other day and review status until GC billing cutoff on 25th of the month.

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Billing / Collection

• Owner should review a copy of the Aging each week.

• Aging should contain notes on expected payment dates and unresolved issues.

• Make sure A/R collection is a high priority done by a competent employee.

4

Cash Discounts

• Most Flooring Dealers make 4 – 7% in a good year. Those making the 7% are taking all cash discounts.

• Cash Discounts are such a good deal, that it makes sense to borrow on your line of credit to take advantage of discounts.

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Discount Math

• Taking a 3% discount each month equates to a 36% annual interest rate.

• Banks LOC rates generally 5-7% per year.• A 36% discount – 7% borrowing cost is a

29% savings.• Taking all discounts will improve your

bottom line by 1 – 2 %

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Variable Compensation

• The more people that are paid based on job performance, the better. They all have skin in the game.

• Even small amounts paid to project managers will improve job performance.

• Everyone needs to know that it’s real money at stake.

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Variable Compensation

• From personal experience – the more compensation $$$ (greater %) at stake, the more chance the job will be closely monitored and change orders will be obtained timely.

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Breakeven Analysis

• Know the monthly Breakeven Sales amount for your business.

• Amount is your Overhead (non Job Cost) expenses divided by your gross margin %

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Breakeven Analysis

• Example – Overhead Expenses are $150,000 a month and gross margin in 20%.

• $150,000/.2 = $750,000 in sales needed to break even each month.

• If the indicated sales level can’t be obtained, overhead expenses must be cut.

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Financial Statements

• Job Review Meetings held with each sales rep twice a month to monitor job performance.

• Work in Process report is adjusted monthly by Controller and reviewed with owner by the 20th of the following month.

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Financial Statements

• Timely and Accurate Financial Statements are prepared by the 20th of each month. Variances from expected performance and investigated each month.

• Would you ride on an airplane that had no gauges in the cockpit?

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Financial Statements

• Dashboards and / or Weekly Facts reports provide enhanced monitoring of items such as:– New Orders– Billings– Cash Receipts– Cash Disbursements– A/R and A/P Balances– Line of Credit Balance

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Next Steps

• The Owner / Manager must set the tone for a timely and accurate accounting process.

• An experienced CFO is needed to help guide the Owner.

• CFO position can be outsourced if in house expertise not there / or salary budget not available.

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Questions?

Tim McLellan

tmclellan@b2bcfo.com

404-915-5539

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