2013년 11월 26일 화요일

About 'finance a small business'|What Small Businesses Need From A Finance Director







About 'finance a small business'|What Small Businesses Need From A Finance Director








I               had               the               privilege               of               working               with               a               rural               electrical               contractor               to               help               him               fine               tune               his               small               business.

He               was               an               exceptionally               competent               contractor               and               a               sharp               businessman               besides.

In               fact,               he               was               an               example               of               someone               smart               enough               to               appreciate               the               value               of               an               outside               set               of               eyes,               someone               with               new               insights               to               make               recommendations.

This               article               is               about               how               I               plugged               inventory               leaks               in               one               small               business'               profits.

In               actuality               there               were               several               little               ways               that               caused               profits               to               dribble               away.
               Failing               to               Invoice               for               All               Parts               Used               
               Their               journeymen               failed               to               invoice               all               the               parts               they               used               on               their               jobs.

Because               most               of               his               jobs               were               contract               based               on               a               bid,               my               client               didn't               think               about               the               importance               of               this.

However,               it               affected               them               in               several               ways:
               -               Failing               to               take               all               of               the               parts               out               of               inventory               and               applying               them               to               the               job               made               job               costing               virtually               impossible,               which               means               he               never               got               accurate               figures               on               how               much               he               made               or               lost               on               a               given               job.

This               information               would               enable               him               to               adjust               his               bids.
               -               The               other               cause               of               profits               dripping               away               was               that               the               electricians               got               sloppy               on               the               contract               jobs               so               they               were               careless               on               time               and               material               (T&M)               jobs,               which               were               billable               for               parts               and               labor.
               It's               amazing               how               dribs               and               drabs               add               up               over               a               year's               period               of               time.

Look               at               this               conservative               calculation:
               -               $2               cost               for               parts               missed               x               4               jobs/day               x               5               jobs               per               week               x               50               =               $2,000               per               year.


               -               Look               at               its               real               impact.

I               have               found               most               small               businesses               I               worked               with               had               low               profit               margins,               maybe               even               negative.

Say               this               is               your               business.

Your               net               profit               is               5%.

Here               are               the               Sales               you               need               to               make               up               for               this               loss.
               Sales               x               net               profit               margin               =               profit               
               Profit               /               net               profit               margin               =               sales               
               $2,000               /               5%               =               $40,000               in               sales               to               recover               that               inventory               shrink
               Failing               to               invoice               for               parts               used               on               the               job               means               you               also               lose               out               on               the               profit               you               should               have               made.

If               you               plan               on               a               parts               profit               margin               of               20%,               here's               how               much               profit               you               failed               to               make:
               Cost               /               (1               -               %               profit               margin)               =               Selling               Price               
               $2,000               /               (1               -               .25)               =               $2,000               /               .75               =               $2,667               in               lost               revenue               
               $2,667               -               $2,000               =               additional               $667               lost               profit
               These               are               conservative               calculations               for               a               really               small               business.

If               you               have               crews               doing               40               jobs               per               day,               the               same               numbers               mean               $20,000               per               year               in               costs               not               recovered               and               $5,000               in               profit               missed.
               Being               a               Parts               House               for               Some               Employees'               Independent               Jobs               
               When               we               looked               at               is               inventory               control,               it               was               an               honor               system.

If               you               needed               certain               parts               for               the               job               that               day,               you               pulled               them               yourself.

While               many               people               thrive               on               being               trusted,               there               is               always               someone               who               views               your               company               as               their               own               parts               house               for               jobs               they               do               on               the               side.

Obviously,               this               is               a               much               more               serious               leak               in               the               dike.
               The               solution               to               this               is               to               limit               access               to               your               parts               and               have               someone               trustworthy               sign               parts               out               and               back               in.
               Miscellaneous               Areas               of               Inventory               Shrink               
               Using               this               kind               of               inventory               control               should               eliminate               the               problem               of               people               putting               the               wrong               parts               back               in               a               box.

Some               employees               also               didn't               care               where               they               put               the               parts               so               no               one               could               find               them               despite               their               being               returned.

The               bigger               problem               occurs               when               you               are               counting               on               that               part,               you               find               you               don't               have               it.

This               delays               a               job,               irritates               a               customer,               and               chews               up               labor               hours               and               gas               to               go               get               it.
               Altogether,               I               recommended               changes               to               save               $56,000               lost               by               inventory               shrink.

This               client               sold               less               than               $3,000,000               a               year.

They               maintained               an               inventory               valued               at               10%               of               sales.
               These               three               simple               examples               show               how               I               plugged               inventory               leaks               in               one               small               business'               profits.

Had               his               business               relied               more               on               T&M,               failing               to               invoice               for               all               parts               used               could               have               been               a               much               more               steady               drip               rather               than               the               dribble               it               was.

Being               a               parts               house               for               some               employees'               independent               jobs               was               a               much               bigger               impact               though               I               don't               recall               how               much               of               the               total               shrink               it               accounted               for.

Nevertheless,               I               found               it               extremely               satisfying               to               help               a               solidly               run               small               business               find               ways               to               plug               leaks               in               their               profits.
               
               More               from               this               contributor:               
               What               is               the               Effect               of               Simple               Interest               Versus               Compound               Interest?


               First               Person:               The               Value               of               Customer               Satisfaction               Interviews               
               First               Person:               The               Value               of               'No               Charge'               Invoices






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