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Cost Reduction

Basic automation – 4 ways to save time and add value today!

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At first glance, automation can sound scary and resource intensive.  When you hear it, do you think of large production lines, with software-driven robots and machinery manufacturing and assembling complex products?

If so, cleanse those scary thoughts with this fact – automation can help even the smallest of operations save time and allow people to focus on things that actually add value.  Below are 4 actionable tips you can use almost immediately.

Vendor payments – stop writing checks and start using ACH!  It’s safer, faster, and provides more reliable cash flow.   You know the exact day when cash will leave your account. Most banks that offer ACH payments also offer a way to automate this through a data upload.  If you use accounting software of any kind to generate checks, you can likely run a report of your payments, export it to CSV (or similar data-only format), and upload it to your bank’s portal.

Nobody really enjoys printing and signing checks, let alone stuffing envelopes.  Get started with ACH (and don’t forget credit card – see our prior article) today!

Your vendors want to know what invoices are paid, and will request remittance detail.  If your accounting software or ERP doesn’t have a feature to automatically do this, don’t forget about this classic tool – mail merge!

Inventory counting – you don’t need to reach the level of sophistication of an Amazon distribution center, with robotic attendants moving pallets and counting products.  A simple barcode scanner can do wonders. Many ERPs have printable barcode labels for use. If needed, buying a label printer and software program quickly recoup their investment for the amount of time and effort save.

Not to mention the other savings – quicker and more accurate cycle count and annual counts, fewer losses, and happier auditors.  Nobody likes to make an auditor sad!

Excel macros – particularly for accounting and finance folks, a lot of time is spent in Excel.  Think of repeated weekly and monthly reports with manual manipulations.  By using the Record Macro function, you can record these repetitive steps to a macro.  At any point in the future, you can simply run the recorded macro to repeat the steps.

Automating manual entry reduces non-value added time and improves quality and consistency.  It also reduces boredom!

Embracing digital files – some people call this “paperless”, but truly, the intent is for quick and easy access to files.  Scanning files for easy access takes some time investment up front, but pays dividends in the long-term.  Better yet, try to skip the scanning phase and obtain/create files digitally to begin with.  Don’t forget data security, since paper is prone to misplacement, environment hazard (fire, flood, etc.), and theft. Between offsite storage and cloud solutions, backing up digital files is efficient and cost-effective.

Unless you love digging in file cabinets, this is an easy one that can be applied to almost any part of a company!

 

There you have it – 4 ideas that businesses of any size can implement today!

Want assistance implementing these or other automation initiatives?  Let me help! I offer free consultations and I’m available even on nights and weekends.  Contact me directly at 262-297-3577.

Cost Reduction

Save money by paying vendors more efficiently

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Unsurprisingly, your vendors want to be paid on-time!  The gap between the day you receive the bill to the day of payment offers low-hanging fruit for improvement. If it seems silly to save money by paying more efficiently, are you maximizing your resources?

Let’s explore some common payment options.  Below are a few metrics with basic measures.  An unweighted and rudimentary point scale (Poor = 0, Good = 1, Great = 2) will help evaluate options in total.

Payment Type Security Cash flow Availability Cost Score
Cash 0 0 0 0 0
Check 0 0 2 0 2
ACH 2 1 1 1 5
Credit card 1 2 1 2 6

How about a deeper dive?

Security – cash transactions offer no protection.  Checks blatantly state your account and routing number and float around in mail parcels.  Credit card security varies from carrier to carrier, but most have fraud protection even in the case of card skimmers or loss of the physical card.  ACH is generally in a walled and encrypted system which can be subject to multi-factor authentication, offering maximum security.

Cash flow – cash transactions are terrible.  You have to get the cash in hand (the point of cash loss) before you even pay the vendor.  Check floats are nice, but depending on mailing times and time the vendor holds the check prior to deposit, it is still tough to manage cash flow.  ACH gives you 100% reliability on cash being released, however, it doesn’t provide a benefit. Credit cards, particularly for invoices with terms (net 10, net 30, etc.), are great because you can add 1-30 extra days by the time you actually pay money for goods/services.

Availability –  cash is rarely accepted unless you’re in-person at a vendor.  ACH is widely accepted, but you may encounter vendors who refuse to give their bank information out for this purpose.  Credit cards are also widely accepted, however, some vendors do not pay for credit card processing, or pass the fees on to you to pay by credit card.  Checks are accepted by all but the smallest vendors, who might deal on a cash-only basis.

Cost – cash requires you to obtain it and deliver it, producing a great deal of overhead cost for a simple transaction.  Checks require check stock, envelopes, stamps, time to write/print/sign, and mail, which adds up to a significant amount of overhead.  ACH still requires time to create batches and obtain approval, but outside of any monthly fees to enable ACH functions, have minimal cost.  Credit cards, similarly, can be digital-only, but better yet are rewards cards that actually return 1-5% of the purchase price. A critical point, however, is to pay your credit cards in full every month and on-time!

My broad recommendation?  Every company is different, but in most cases, I recommend the following.  Pay by credit card first and accumulate those sweet rewards or cash back! For vendors that don’t accept credit cards, require them to give you bank information to pay by ACH.  Avoid cash and use checks as a last resort.

This is not a comprehensive or exhaustive list, but should give you some data to consider!

Want assistance making the right choice for your vendor payment structure?  Let me help! I offer free consultations and I’m available even on nights and weekends.  Contact me today!

Cost Accounting

Sales mix – a way to cultivate healthy business growth

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Growing companies often grapple with capacity issues, as they seek growth in the face of static production or service capabilities.  Think of a plastic part maker who has one press, but continues adding more and more parts for different customer projects that the press needs to produce.  At some point, the one press will be overloaded, right?

From a service perspective, think of a salon owner with 1 stylist.  As customer count increases, one stylist still has a limited number of hours per day to service customers.  Overtime is an option to an extent, but work fatigue, quality issues, and unhappiness can creep in when people are stretched too thin.

What should companies like these do?  Invest in another press, or hire another stylist? Increasing capacity is great, if it is done to sustain healthy growth.  What if, in desperation to grow the business, the company takes on low-margin customers?  Is it worthwhile to continue adding capacity at low margins?  Or would resources be better spent working on improving margins?

Let’s look at the plastics press example.  We’ll assume a press at capacity provides $500k in sales, with $50k in fixed costs, on top of $20k in fixed costs for the facility.  Each press, given the current customer mix, will average 20% gross margin.

Then, let’s look at the two options: add an additional press of similar size & capability, or adjust sales mix to more profitable customers.

(Note: GM% = Gross Margin %; GM$ = Gross Margin $; FC = Fixed Costs; NI = Net Income)

Item Sales GM% GM$ FC NI
Press – current $500k 20% $100k $70k $30k
Press – add press $1000k 20% $200k $120k $80k
Press – improve mix $500k 30% $150k $70k $80k

As you can see, the same net income is achieved through both methods!  By adjusting the sales mix to more profitable customers and work, it’s not necessary in this case to purchase a new press.

Of course, there are a lot of underlying assumptions, and unspoken repercussions of each decision.  Every company’s situation is different.  When at a point of expansion, it’s critical to look at healthy growth versus growth at any cost, and develop a strategy based on data.  Other important data metrics to use for a fixed asset purchase could include return on investment, internal rate of return, net present value of cash flows, and total utilization.

Want help analyzing your sales mix and growth strategy?  By leveraging technology (from a simple phone call to a Skype call or Join.me meeting) we can help you regardless of your location!  We offer free consultations, and we’re available during non-traditional business hours.  Contact us today!

Cost Reduction

Improving overhead costs – saving hundreds per month on bank fees

Money2When you think of your monthly bank & finance fees, do you think of saving hundreds (100s) or thousands (1000s) per year?

Most people, individuals and business owners alike, don’t often think about banking fees. It might take a news story about a bank going viral, or an onerous overdraft fee, to stir someone up to review their situation.

Here’s one of my favorite stories to talk about in this regard.  A client of ours (let’s call them X Corp., or XC) was paying nearly $500/month for their banking fees.  XC had an open line of credit which was setup for automatic sweeps, received monthly analysis statements, and a “premium elite” account setup.

The problems?

  1. The line of credit was not being used at the time, requiring 0 sweeps.
  2. XC kept copies of the account analysis statements, but did not actually use the data.
  3. The features offered at the “premium elite” level were those that XC did not need, such as international/foreign currency transactions, access to a brokerage, and premium 1-800 help desk access.

The solutions?

  1. We eliminated the automatic sweep.  We explained to XC how to manually move money as needed.
  2. We cancelled the account analysis statements. XC would not miss them, and would save time & space by not storing unused documents.
  3. We right-sized the account to a “business checking” account, with far lower monthly fees.

The results?  XC saved about $400/month, or $4,800/year!  We offered other recommendations involving different banks, which were declined due to an existing relationship.  If XC used all of our recommendations, their bank fees and increased interest yields would have jumped to a savings of $500/month, or $6,000 annually!

Make no mistake, some businesses pay their banks fees like this, but actively use the services and receive equivalent value. For larger businesses with high transaction counts, international operations, or a complex hierarchy of offices and access requirements, high fees for services may be money well spent.

Either way, I strongly advocate for business owners and clients alike to periodically evaluate their banking fees and structure.  Particularly, given the ease of access and availability of internet-only banks, you might be surprised how many fantastic options are available to you regardless of geographic location!

 

Want some help with your particular banking scenario?  By leveraging technology (from a simple phone call to a Skype call or Join.me meeting) we can help you regardless of your location!  We offer free consultations up to 60 minutes, and we’re available during non-traditional business hours.  Contact us today!

Cost Accounting

Improve your supply chain and stop leaving hundreds on the table

picture2A business’ supply chain is a core operating piece, but is not always analyzed closely.  Buyers and accountants have competing priorities, and often neither group has time to analyze early payment discounts and payment terms.  Wouldn’t you agree that it’s compelling to save hundreds of dollars by taking advantage of these?

First, what is an early payment discount?  A basic example is a vendor that offers terms of 1% 10, Net 30.  This is to say that you have Net 30 days to pay the invoice in full, but if you pay within 10 days you can take a 1% discount.

The raw dollars can add up quickly.  If you spend $50k at vendors that offer a 1% discount, and you’re not currently taking the discount, you’re losing $500/year!  What other business function can you think of that would willingly leave $500/year on the table?

 

Still not convinced?  When you look at a 1% discount from a finance perspective, the math is illuminating.  Think of borrowing money from a bank.  A bank will generally charge you interest stated as an annual rate, expressed as 360 days.  If you compare Net 10 to Net 30, you’re looking at a difference of 20 days.

By dividing 360 days (1 year) by 20 days (the number of days you’re paying early), you get a multiplier of 18.   For a 1% discount, multiplied by 18, your annual yield is expressed as 18%!

Converting this concept back to raw dollars, that earlier-mentioned $500 on a $50,000 investment (1%), obtained over the course of 20 days, would be expressed as an 18% annual yield.  If a vendor offers even a ½% discount, that still yields 9%!

 

The obvious risk is cash flow.  Do you rely on that extra 20 days to stretch out payments?  Are you already pushing your vendors’ limits by paying them late due to cash flow problems?  If you have to dip into a line of credit, borrow money, or suffer overdraft fees to obtain this discount, the early payment benefits quickly disappear.

That brings us to the second improvement topic – payment terms.  If you’re struggling with cash flow for vendors that typically charge Net 10 to Net 30, why not ask for extended terms?  Even an extra 10 days (Net 10 to 20, etc.) can significantly improve your cash flow.

Have you or your accountant looked at your cash conversion cycle?  This metric uses a mix of sales/collections, inventory movement, and payables, to give you the approximate number of days it takes to convert these inputs into actual cash flow.  One of my favorite resources, Investopedia, has a great article that explains this concept.  It is truly illuminating how a small shift in payment terms can positively impact this metric.

You might ask then, how do you improve these payment terms?

 

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In both of the above cases, you can improve terms by contacting your vendors.  Don’t be shy!  If you have a good relationship with them, you’ll often find they will work with you to either extend payment terms or offer early payment discounts.  Strategically, most companies realize it’s a worthwhile trade-off to retain a good customer account even if they lose a small amount of financial leverage.

However, some vendors simply won’t budge.  It does no harm to quote out your needs to a few other vendors who may offer more flexibility.  They’re hungry to earn new business, and that gives you negotiating power to ask for improved terms from the start.  You may find additional positive aspects of improved services or lower prices.

It’s your cash, and we firmly believe it’s worth the time to communicate with your vendors!

 

Want some help getting these hundreds back in your pocket?  By leveraging technology (from a simple phone call to a Skype call or Join.me meeting) we can help you regardless of your location!  We offer free consultations up to 60 minutes, and we’re available during non-traditional business hours.  Contact us today to schedule your free consultation!