W401 – Tactics to Improve Your Bottom Line · 2007-02-02 · Summit 2007: Get Connected W401 – Tactics to Improve Your Bottom Line Frank Heenan and Sandy Sadley Product Management

Summit 2007: Get Connected

W401 – Tactics to Improve Your Bottom Line

Frank Heenan and Sandy SadleyProduct Management

Distributors in today’s market still struggle to cut costs and increase profit margins. Have you created a culture where everyone watches the bottom line? Do you know what your cost drivers are? You know the rule – the money you don’t spend today is available tomorrow to invest in your business. This class covers new tricks and reviews old ones that improve employee productivity, drive down operational costs, and improve your organization's profit margins.

Pre-requisites: None

Wednesday, 1:15 pm

© 2007 Activant Solutions Inc. All Rights Reserved

2

Objectives

Define areas where the bottom line can be increasedMeasure the profitability of those areasIncrease the bottom line performance with a plan for those areas



3How do You Know Your Business is Successful?

How do you measure business success?How do you know your business is doing well?What tools do you use to measure and compare success from year to year?


4

Define Profitability

Profit is the result of subtracting the cost of producing or securing goods and services from revenueUnprofitable is simply defined as expenses exceeding revenueHow do you define your commitment to profit?



5

Traditional Means of Measuring Profit

Profit & Loss statementCash Flow statementDo you have enough cash in the bank to pay your bills on time?What other tools do you use to get a more granular look at the components of profitability?


6

But How Do You Increase Profitability?

Where in your business do the profits “walk out the door?”How do you identify the leaks?How do you measure this and how do you stop it?



7

What Dictates Your Pricing?

How do you know your pricing is competitive?How do you know that you are charging enough to make the right amount of profit?When would you price at a loss?When is it better to sell at a loss than to carry inventory?What pricing strategies have you implemented with your company?What type of customer/product segmentation do you do today with your pricing?


8

Sales

How do you design a commission schedule that ensures profit and promotes sales?Do you have sales incentive plans?How do you determine if selling to your high-volume customers is profitable?How do you identify ALL of the costs of selling to a customer?Are your CSRs cutting prices when they shouldn’t?How do you measure efficiency in the sales department?



9

Sales

Do you accept credit cards and do you know the costs of accepting a credit card and how it affects the profitability of the order? How do you maintain and measure quality customer relations?How do you keep tabs on competitors' prices?How often do you change pricing and what prompts the change?How do you work with the manufacturer to promote selling events?


10

Accounting

What types of Flash reports do you use and to whom to do you send them?What kind of budgets do you use and how do you hold people in your organization accountable?Do you have a travel and entertainment policy? How do you enforce the policy?



11

Accounting

How often do you negotiate bank service fees with your banks?Are your accounting processes documented? How do you hold people accountable?Do you outsource payroll, unemployment, and other HR functions?What is your process to initiate a timely closing and timely financial statements?


12

Accounting

Do you use financial ratios?Which financial ratios do you use and do you hold people accountable?



13

Accounting

Financial Ratios Current ratio

Current assets / current liabilities = Current ratio

DSO: Days Sales OutstandingAR at the end of the period / AVG daily credit salesCompare to your average terms

Inventory TurnsCOGS / AVG INV


14

More Financial Ratios

Acid Test/Quick RatioCash+AR / Total Current LiabilitiesDetermines how quickly cash can be generated to pay down debtShould be 1 to 1 or higher

Debt to EquityIndicator of whether the company is using debt to its advantageTotal Liabilities / total stockholder’s equityStay below a 1 to 1 ratio



15

Quickly Recover Accounts Receivable

What you can expect to recover:97 cents on every dollar 30 days past due90 cents on every dollar 90 days past due80 cents on every dollar 120 days past due73 cents on every dollar 4 months past due67 cents on every dollar 6 months past due45 cents on every dollar 1 year past due23 cents on every dollar 2 years past due


16

Bad Debt vs. Sales Growth

Reducing bad debt by 1% is the same as increasing sales by 20%!Reducing bad debt directly affects your bottom lineHow do you control bad debt?What is an acceptable level of bad debt?



17

Accounting

What cash management tools do you use to increase cash flow?Do you use sweep accounts and overnight low risk investments?Do you have a formal investment policy that holds people accountable?


18

Inventory and Purchasing

What are the elements of a properly managed warehouse?How do you monitor the efficiency of the warehouse?How do you monitor picking errors or blunders? Do you have a formal safety policy in the warehouse?How do you communicate, enforce, and monitor that safety policy?



19

Inventory and Purchasing

Do you have buyers assigned to specific product lines or vendors?How do you monitor the effectiveness of those buyers?Do you use corporate credit cards to track buyers’ spending?How often do you conduct cycle counts?Do you run incentive programs for buyers?


20

Operations

How do you reward employees for bright ideas?How do you monitor and reduce utility costs?How do you monitor insurance and maintenance contracts on vehicles, equipment, and fixed assets?



21

Operations

How do you determine if a meeting was productive and how do you reduce unproductive meetings?How do you evaluate employee skills and place them in the most productive positions for their skill sets?What is your cross-training plan for employees to compensate for unexpected absences?


22

Return on Investment Opportunity

Proactive awareness of profitability means:Increased profit marginsBigger bonusesHappier employeesImproved efficiencyHappier customersSuccessful businessHigher quality service



23

Suggested Action Plan

Identify a person to be responsible to increase profitability in each key area: Sales, Accounting, Inventory/Purchasing, and OperationsIdentify goals and a means to measure progress towards that goalHold quarterly reviews – measure your success to plan


24

Additional Resources

E-mail [email protected]@activant.com

Association for Financial Professionals(Formerly the Treasury Mgt Association)

7315 Wisconsin Ave, Suite 600 WestBethesda, MD 20814

www.afponline.orgSmall Business Administration



25

Summary

One word – profitFour areas of your business on which to concentrateThere isn’t one magic bullet, only small successes There are many areas that can be reviewed and modifiedOur recommendation is to go back and review where the money goes


26

Thank You For Attending

W401 – Tactics to Improve Your Bottom LineFrank Heenan and Sandy SadleyPlease submit the Session Feedback Form

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Documents

W401 – Tactics to Improve Your Bottom Line · 2007-02-02 · Summit 2007: Get Connected W401 – Tactics to Improve Your Bottom Line Frank Heenan and Sandy Sadley Product Management