It is a fact that over the last 2 years we have suffered from two economic variables that have hurt businesses.
1. Inflation: Higher utility bills, higher health insurance costs, higher wages, higher freight costs and higher material costs have impacted many companies in the United States.
2. Interest rates have risen across the board. The days of 3% interest for a loan or line of credit are long gone. Interest rates are 7% and more for various types of debt. These two items alone have caused stress on many companies and margins have deteriorated because it is not always easy to increase the sales price to your customers.
What can you do?
There are several things you as a business owner can do to help your business in this environment. First of all, DO NOT wait until it is too late. No action can mean your margins continue to decline, and cash flow takes a turn and begins to erode. Consider the following immediate actions that can prevent a continued loss of margin or ultimately a loss of your business.
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- Make sure you have very good financial reporting. This means your business maintains its books and records (accounting) according to U.S. GAAP and that you have accounted for all the possible accruals. This means you have a professional accounting department. With good and timely financial reporting you can better manage your business. You can know what product or services are making you money and which ones are not. You can tell which locations or customers make you money and which ones do not. Having solid financial statements will all you to better manage your business.
- Prepare a customer analysis. We have seen many companies that have a long list of customers, but it has been years since they have analyzed their customers. In other words, the company may have customers that are large sales (revenue) but a very high cost to service. Therefore you have customers that are consuming your cash, not generating cash. Having a proper customer analysis will allow you to determine if you need to “fire” any customers.
- Complete a detailed cost analysis. When is the last time your company completed a cost analysis? I am not talking about “marking up” items. I mean a true cost analysis of what it takes to run your business and make the product you make, or provide the services. A cost analysis is way beyond your direct materials and direct labor. I have asked companies what is their cost, and they reply with a direct labor and direct material cost. That is only part of the cost, not all of it. This means that many companies are operating with our knowing their true margins.
- When is the last time you updated your pricing model? Do you have a pricing model? In times of rising costs (inflation) we need to have our pulse on the pricing model and update it frequently.
Heres the catch, you really cannot accomplish any of these items without #1 above. A company that does not have “good” accounting that captures all accruals, sales and expenses will not know it’s true margins. Without that information, you will not be able to complete any of the other items. The same goes for timeliness. Let’s say you DO maintain accurate records and have the correct margins calculated… that means nothing if they are provided 5-6 weeks after the close of the month. They are useless at that point because as time passes, things change in your business. Timely financial statements are just as important as correct ones.
How can we help:
Strategic CFO, LLC brings extensive expertise in helping companies to produce precise financial statements, implement exemplary accounting practices, and deliver timely financial reports to management. Our firm also excels in turning around companies facing challenges or requiring restructuring. By restructuring, we refer to proactive measures taken prior to court-ordered bankruptcy proceedings, although we are equipped to assist with legal restructuring if necessary. In addition, we provide excellent full-time, cost-effective outsourced accounting with our innovative NearSourcing Accounting Solutions.
If you wait, it may be too late. Our experienced team can evaluate your company and help restructure costs and expenses to ensure survival in times of rising costs.
Debt:
If you are burdened by high-interest debt, we can assist with restructuring through our extensive network of lenders. Our goal is to maximize your cash flow, including helping restructure your company’s debt.
At Strategic CFO, LLC, we aim to provide experienced accounting professionals, CFOs, controllers, and staff accountants to guide you through these challenging times of rising costs and increasing debt expenses. We look forward to providing an initial free consultation and assisting you in navigating these difficulties.
