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Started By
Message
Positioning a business for growth...?
Posted on 12/8/11 at 9:56 am
Posted on 12/8/11 at 9:56 am
I'm hoping some of you pro's can help me out due to my lack of experience...
I've recently been put in charge of the financial side of my current company. The owners are leaving all financial decisions to me. They will come to me when they want to purchase new assets and for big expenses, etc.
I have my own idea of how I should position the company for growth considering the needed increase in OH expenses to purchase new assets to be able to grow, but I lack experience. What are some things I should attempt to accomplish?
Right now, cash flow is not right, but our receivables are almost double our payables. We currently bring in on avg $600 a month in Revenue, BUT, a majority of the time one of our 3 departments is always in the red due to mismanagement of labor or material expenses.
I've changed the bidding process to where I must be provided with price vs. cost for quoted jobs (not T&M (time & material jobs = cost + 15%)), and I have guidelines I will set on the AR side due to prior non management of the receivables.
I've stressed the importance of growing our GP% to cover the increased OH expenses for assets. Should I be keeping asset purchases to some kind of ratio?
I've recently been put in charge of the financial side of my current company. The owners are leaving all financial decisions to me. They will come to me when they want to purchase new assets and for big expenses, etc.
I have my own idea of how I should position the company for growth considering the needed increase in OH expenses to purchase new assets to be able to grow, but I lack experience. What are some things I should attempt to accomplish?
Right now, cash flow is not right, but our receivables are almost double our payables. We currently bring in on avg $600 a month in Revenue, BUT, a majority of the time one of our 3 departments is always in the red due to mismanagement of labor or material expenses.
I've changed the bidding process to where I must be provided with price vs. cost for quoted jobs (not T&M (time & material jobs = cost + 15%)), and I have guidelines I will set on the AR side due to prior non management of the receivables.
I've stressed the importance of growing our GP% to cover the increased OH expenses for assets. Should I be keeping asset purchases to some kind of ratio?
This post was edited on 12/8/11 at 10:00 am
4
Posted on 12/8/11 at 10:19 am to TRUSAINT21
Email me @ Thehiddenflask@gmail.com
I'll get back to you tonight.
I'll get back to you tonight.
Posted on 12/8/11 at 10:27 am to TRUSAINT21
quote:
We currently bring in on avg $600 a month in Revenue, BUT, a majority of the time one of our 3 departments is always in the red due to mismanagement of labor or material expenses.
Do your people work for free?
1 part timer would put your whole business in the red at that revenue rate.
Posted on 12/8/11 at 10:29 am to TRUSAINT21
Ok, to be serious, my best advice would be to hammer your receivables... every day, all day.
Customers trying to not pay their bills is out of control these days. I've never seen anything like it.
Customers trying to not pay their bills is out of control these days. I've never seen anything like it.
Posted on 12/8/11 at 10:49 am to !Tiger
Not $600 a month, i meant $600K...
Posted on 12/8/11 at 11:00 am to TRUSAINT21
What's the average days paid on your receivables? I bill everything out Net 15. Nothing and I mean nothing goes out 30 days or more on me. If they want my service they pay the bills in a timely fashion.
You're doing cost +15% on T&M jobs? That's a losing proposition IMO.
What type of service does the company provide? I'm presuming you have a working workforce as opposed to a thinking workforce. If that is the case there are many factors that can eat into perceived profits.
You're doing cost +15% on T&M jobs? That's a losing proposition IMO.
What type of service does the company provide? I'm presuming you have a working workforce as opposed to a thinking workforce. If that is the case there are many factors that can eat into perceived profits.
Posted on 12/8/11 at 5:09 pm to VABuckeye
Avg days paid on receivables...there is none...this was not being managed. The owners' wives were coming in at their leisure and checked on things every now and then. They ate up their credit line close to 1 mil...
it is oil field services...15% is an industry standard.
Inland Construction, Coatings, Fabrication.
All paint jobs are quote jobs.
Construction and Fab vary.
To me, the 15% is a losing percentage bc OH is close to 30% of Revenue, but any % that can be put towards it helps...IMO
it is oil field services...15% is an industry standard.
Inland Construction, Coatings, Fabrication.
All paint jobs are quote jobs.
Construction and Fab vary.
To me, the 15% is a losing percentage bc OH is close to 30% of Revenue, but any % that can be put towards it helps...IMO
Posted on 12/8/11 at 5:23 pm to TRUSAINT21
quote:
Avg days paid on receivables...there is none...this was not being managed.
Jesus, $600k a month revenue and they treat it like a visit to the country club. Yikes.
Posted on 12/8/11 at 5:40 pm to VABuckeye
quote:
Avg days paid on receivables...there is none...this was not being managed.
You better start with this.
What kind of financial systems do you run? Please tell me it is not all paper and pencil.
It might not be flashy or lead to more revenue in the short run, but you need to be able to track the organizations finances without any problems.
Simply being able to age receivables and determine your uncollectible average and receivables turnover would be huge for you.
Posted on 12/8/11 at 7:13 pm to lynxcat
Yes, it is my plan to start with this.
There wasnt much management of this business bc the owners of this business are the wives of the men that actually run it. The men couldnt be involved for quite some time because of their noncompete agreement from the sales of the other business ventures. These people are not "college smart", they know the right people and they know how to get the work. They did a good enough job to just get by...as far as paying a vendor just enough to be able to still receive orders from them. They've stated to me "this business is a challenge for us, we are already set, we just want to see how big we can get and we want to give you the chance to take us there".
I use Sage Business Works. I have set the company up for proper tracking of expenses and performance guaging. I separated the expenses / revenues / assets by department and run each as their separate entity.
Just looking for some strategic guidelines to follow bc of my lack of experience in this field..I just graduated in May, but I believe I have a good head on my shoulders for this, but I really wanted to consult the professionals on this (money board). I also deal with an outside CPA firm, but I just wanted some different opinions.
There wasnt much management of this business bc the owners of this business are the wives of the men that actually run it. The men couldnt be involved for quite some time because of their noncompete agreement from the sales of the other business ventures. These people are not "college smart", they know the right people and they know how to get the work. They did a good enough job to just get by...as far as paying a vendor just enough to be able to still receive orders from them. They've stated to me "this business is a challenge for us, we are already set, we just want to see how big we can get and we want to give you the chance to take us there".
I use Sage Business Works. I have set the company up for proper tracking of expenses and performance guaging. I separated the expenses / revenues / assets by department and run each as their separate entity.
Just looking for some strategic guidelines to follow bc of my lack of experience in this field..I just graduated in May, but I believe I have a good head on my shoulders for this, but I really wanted to consult the professionals on this (money board). I also deal with an outside CPA firm, but I just wanted some different opinions.
Posted on 12/8/11 at 11:48 pm to TRUSAINT21
Trusaint - you nail this and you are set for life. I figured it was 60k in your first message... 600k is a whale of business to start out with.
As has been mentioned several times, it's all about collecting receivables. Be prepared to shut down customers quickly who give problems when you start to bring the hammer on them.
It'll scare your socks off because you'll be afraid you are going to lose too much business, but slow pay customers are customers that kill your business slowly. You'll survive without the bottom feeders.
Get that line of credit paid down, and fast.
Pay your vendors the minute an invoice hits your door. The benefits that acrue when you pay people immediately will long outweigh any "float" you get by holding cash till the last minute - especially now when there is no interest paid worth diddly poo on cash accounts.
IMO and experience, do those things and you'll be way ahead of the pack.
As has been mentioned several times, it's all about collecting receivables. Be prepared to shut down customers quickly who give problems when you start to bring the hammer on them.
It'll scare your socks off because you'll be afraid you are going to lose too much business, but slow pay customers are customers that kill your business slowly. You'll survive without the bottom feeders.
Get that line of credit paid down, and fast.
Pay your vendors the minute an invoice hits your door. The benefits that acrue when you pay people immediately will long outweigh any "float" you get by holding cash till the last minute - especially now when there is no interest paid worth diddly poo on cash accounts.
IMO and experience, do those things and you'll be way ahead of the pack.
Posted on 12/9/11 at 12:11 am to !Tiger
Here comes yet another "debt is a bad thing" argument. Sigh.
Posted on 12/9/11 at 12:27 am to kfizzle85
Carrying zero debt is rarely a good thing -- it means you are limiting your business and its opportunities.
The only case where no debt might be "ok" is in an extremely mature market where a company has a long (50+ years) track record, is sitting on a boatload of cash to fund CAPEX whenever needed, and believes in an extremely conservative mentality.
^^Only a handful of companies fit this bill.
The only case where no debt might be "ok" is in an extremely mature market where a company has a long (50+ years) track record, is sitting on a boatload of cash to fund CAPEX whenever needed, and believes in an extremely conservative mentality.
^^Only a handful of companies fit this bill.
Posted on 12/9/11 at 1:08 am to !Tiger
quote:
Get that line of credit paid down, and fast.
Why? As long as the return on the borrowed funds exceeds the interest rate, you're making money. It's going to be tough to grow without any debt.
Posted on 12/9/11 at 6:59 am to cahoots
Sounds like you need help determining your firms hurdle rate for Cap Ex. Get a financial modeling firm to help you here.
I disagree on paying payables as soon as you can. Pay them on the last possible discount day. This leaves the most amount of cash in your bank, yet still will provide you the discount.
For me, I'd think I'd develop a financial model for choosing new projects using NPV, or if you are concerning with liquidity, use payback period. Either way, you need to know jobs are going to gain you more money then you spend. Also, maybe change the terms on your receivable to enforce quick payment. You will lose some customers, but the ones that stay will actually pay.
I disagree on paying payables as soon as you can. Pay them on the last possible discount day. This leaves the most amount of cash in your bank, yet still will provide you the discount.
For me, I'd think I'd develop a financial model for choosing new projects using NPV, or if you are concerning with liquidity, use payback period. Either way, you need to know jobs are going to gain you more money then you spend. Also, maybe change the terms on your receivable to enforce quick payment. You will lose some customers, but the ones that stay will actually pay.
Posted on 12/9/11 at 7:21 am to GoHoGsGo06
I definitely agree with all proposed suggestions, and will consider all before implementation. BUT, my immediate actions are clearing the oldest AP and "getting good" with our main suppliers. Our SLOW payment, which is a result from delayed receivables is hurting, so as a #1 priority, I have selected a few main suppliers to get right with, in the meantime I'm sending partial payments and communicating with the other vendors we owe so they know what's going on and that we are just not avoiding paying them...
The problem with not providing service to the customers that are slow paying is that there are a TON of competitors in this industry. We have a major competitor just across the intracoastal waterway from us, and another just a bit further...The majority of our clients are big dog clients and they set their own payment terms in the MSA issued before beginning work. I guess my remedy to this would be if they go past their terms stated in the MSA, "Call them on it"...but in a way it doesn't hurt our "relationship" and affect us getting jobs.
I think my proposed plan for 2012 will be to attempt to make every job a bid job and have the managers keep the cost of each project under a microscope and turn the biggest % they can out of it...we are not getting anywhere with T&M + 15%...?
The problem with not providing service to the customers that are slow paying is that there are a TON of competitors in this industry. We have a major competitor just across the intracoastal waterway from us, and another just a bit further...The majority of our clients are big dog clients and they set their own payment terms in the MSA issued before beginning work. I guess my remedy to this would be if they go past their terms stated in the MSA, "Call them on it"...but in a way it doesn't hurt our "relationship" and affect us getting jobs.
I think my proposed plan for 2012 will be to attempt to make every job a bid job and have the managers keep the cost of each project under a microscope and turn the biggest % they can out of it...we are not getting anywhere with T&M + 15%...?
Posted on 12/9/11 at 8:28 am to TRUSAINT21
quote:
I think my proposed plan for 2012 will be to attempt to make every job a bid job and have the managers keep the cost of each project under a microscope and turn the biggest % they can out of it...we are not getting anywhere with T&M + 15%...?
I think that's a good way to proceed. Nearly everything I do is a proposal with a fixed price and clearly defined terms. I rarely have change orders but when I do they are in writing and the amount of the change order is due immediately. Changes to projects impact deadlines and profitabililty.
I also agree that the first thing to atack is your companies credit record. Right now it isn't good and as you are well aware if you can't get your supplies in a timely fashion you can't complete projects on schedule.
In regards to company debt. My company operates on a debt free basis. It can be done. However, I'm looking to expand in the next year and I will probably have to take on debt to do it. We do over $100k a month in receivables so while I'm not on the scale of your company we do a fair amount of business without carring debt.
Posted on 12/9/11 at 9:47 am to TRUSAINT21
Definitely need to be tracking your DSOs.
Posted on 12/9/11 at 10:57 am to VABuckeye
You can operate any business that's not a bank debt free. You're just not going to maximize its growth. Its a principle of finance. Its just a trade-off, and most small business owners opt for security rather than growth, which of course there is nothing wrong with.
Posted on 12/9/11 at 11:16 am to kfizzle85
I don't think we will ever be out of debt...The owner's are deadset on growing and building value to eventually sell, which means constant purchase of assets, land, building, etc... but I'd like to operate with a "healthy" level of debt.
Thanks for all the suggestions guys!
Thanks for all the suggestions guys!
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