Tag Archives | growth

Product Life Cycle Stages

What is the Product Life Cycle?

A product life cycle includes stages the product experiences throughout its lifetime – from conception of the idea to the decline and abandonment of the product. Some products experience longer life cycles than others; however, all products go through the product life cycle stages.

Product Life Cycle Stages

What are the product life cycle stages? They are introduction, growth, maturity, and decline. Some may add other stages in between the four listed, including research and development, abandonment, and revitalization.

Introduction

The introduction stage is often preceded by a research and development stage. For the purposes of the product life cycle stages, we will start from when the product is first introduced to the marketplace. This stage is by far the most expensive stage in a product’s life cycle. Sales are typically slow, so a company may be bleeding cash until the product hits the next stage.

Pricing and promotion are critical in this stage of a product’s life. If it is not priced profitably or promoted effectively, then the product will arrive at the decline stage much quicker than anticipated.

If you want to see if you have a pricing problem and learn how to fix it, then click here to access our Pricing for Profit Inspection Guide.

Growth

The next stage is the growth stage, where the company ramps up its sales and profits. The company will now be able to take advantage of economies of scale, profit margins, and increased profitability. Companies typically reinvest in this stage to grow the potential.

As the product gains more market share, increases distribution, etc., it will be ever important to scale the manufacturing and distribution effectively. A company needs to have an effective supply chain and logistics process to grow supply to the increasing demand. The worst thing that a company can experience in the growth stage is not being able to keep up with demand. Remember, growth impacts a company’s cash flow.

Maturity

In the maturity stage of the product life cycle, a company will start broadening the product’s audience, use, and availability. It is now able to maintain a consistent market share. A company will also continue to increase its production and logistics as demand continues to grow. The product becomes more popular during this stage. As a result, a company needs to be more careful in what marketing.

For example, when the iPhone was first released, many early-adopters acquired that technology. It took a few more years for it to become one of the most popular smart phone brands. As the product matures and continues to gain popularity, Apple continues to release newer, better, and greater models for a higher price.

Decline

Demand will eventually decline for a variety of reasons. Some of those reasons may include that there is a better product on the market or there is no need for that product anymore. This decline stage ends in total abandonment. A company usually has three options during this decline stage. Those include:

  1. Offer the product at a reduced price
  2. Add new feature or revamp the product
  3. Allow it to continue to decline, resulting in the elimination or abandonment of the product

If the company decides to take option 3, then the entire product line is discontinued. Furthermore, they will liquidate any remaining inventory for that product.

What Stage Your Product Is In

So, what stage is your product in? As a financial leader, it is important to know what stage your product is in because it impacts profitability and the company’s value. If you are in one of the first 3 stages, then it’s time to check your pricing for your products. Are you pricing them to result in profit every single time? If you are not sure, then download the free Pricing for Profit Inspection Guide to learn how to price profitably.

Product Life Cycle Stages

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Product Life Cycle Stages

See also:
Product Life Cycle
Company Life Cycle
Why You Need a New Pricing Strategy
Increasing Pricing on Products

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Problems When Experiencing Business Growth

Problems When Experiencing Business GrowthGrowth is great for companies, right? Not always. There are so many problems when experiencing business growth that can occur if the leadership is not careful. Besides the uncertainty of how long this growth period will last and how big the company will grow, companies loose focus on some basic key factors. This can include not managing working capital, hiring the right employees, not scaling effectively, customer service, and having less efficient operations.

What Happens To Growing Companies

What happens to growing companies? It all revolves around sales. The sales team and CEO are so excited about all the additional new sales and customers. Unfortunately, some of the day-to-day items fall through the cracks. This includes cash management, internal processes, management/leadership, and systems. But growth can be managed if financial leadership is looking far enough ahead and close enough in. Growing companies don’t always land into sticky situations, but there are some issues that need to be addressed.

Problems When Experiencing Business Growth

Cash Poor

Cash is king. Growth usually comes at the price of consuming cash… Buying more inventory to meet the sales, hiring more people and increasing SG&A. I say that in almost every single blog I post because I cannot emphasize it enough. The #1 thing business growth does is make companies cash poor. The management and forecasting of working capital is critical in a high growth situation. Before you know it, vendors are collecting their accounts receivable yet you have not collected your A/RInventory is consuming cash in order to meet sales. It’s a recipe for disaster!

Need help managing your cash? Inside our SCFO Lab contains 13-Week Cash Flow Reports, Dynamic Cash Flow Projections, Cash Flow Tune-Up Tool, Daily Cash Report, and the A/R Optimizer. Click here to learn how you can access all of that and so much more.

Inefficiencies in Operations

Another thing that happens to growing companies is the increase of inefficiencies in operations. The goal is to push out as much product as possible, but oftentimes to do that, corners get cut. Product quality decreases. And customers are not happy. It also may be the inconsistency between products and/or services as there are no standard operating procedures (SOPs) written down.  If you customers get hurt by a decline in quality or service, then you may have some permanent damage. In addition, companies may have an influx of new employees that are not being trained effectively and/or at all.

Management Mistakes

While management mistakes covers a variety of potential issues, let’s look at two. One of the biggest mistakes is not taking care of the employees. Management is scrambling to scale-up to push product out the door and to continue bringing in the sales. But when stress is high and people aren’t being taken care of, you risk increasing employee turnover. This also includes knowing when to bring on new talent. If management is not continually recruiting and looking for new talent to help even the load off of current employees, then you risk further increasing employee turnover. Remember, the cost of employee turnover is on average $65,000 in the U.S.A. according to some studies.

The second biggest mistake is letting inefficiencies run high. At some point, there has to be a stop to letting inefficiencies continue. Financial leadership should be working with other departments to find better solutions that will deliver the same results. Your basic dashboards are very critical in a high growth situation.

If there are no other solutions, then you need to focus on the customers you have now versus continuing to grow.

Not Scaling

Another problem that occurs during a high growth period includes not scaling up. Are you getting the systems you need to run your business effectively? For example, a company is using a customer relationship management (CRM) system like Zoho or Bitrix – designed for small companies. However, this company triples overnight. They have outgrown their current CRM system. Instead of choosing a system that was for where they were at, they should have forecasted where they thought they were going and on-boarded a system that was maybe a little bigger for them to grow into.

Problems When Experiencing Business Growth

Some of the problems when experiencing business growth include the following:

The best way to address problems when experiencing business growth is to first look internally. Access our Internal Analysis whitepaper to analyze your company’s strengths and weaknesses.

Case Study

Let’s look at a case study about a company I worked with recently. They are manufacturer of industrial parts and had experienced growth for $20 million in revenue to nearly $100 mm in revenue in just three years. The company had a basic accounting staff but no financial professional on staff. Why? Because according to the owners, they are too expensive. The company quickly outgrew their accounting system. In addition, they purchased raw materials aggressively. The sales guys were living the dream with non-stop sales orders. They literally could not keep up with all the new sales orders. The manufacturing facility was now on three shifts to cover all orders. The company also did not want to spend the money on a second plant supervisor.

What were the results? It created a high stress environment. Cash became very tight and sales were being generated, but the order to cash cycle increased to almost 100 days. In addition, the quality of the products suffered because there was not proper supervision for the second and third shift. The accounting records were also not correct and reliable. Instead of the records being generated for large accruals and proper costing of products, they were generated by a basic accounting staff who were no equipped. Furthermore, margins were not reliable for management to use. Cash got tight quickly. The line of credit was maximized very quickly. When the lender challenged the compliance certificates and the financial statements, the ownership started to get concerned about the “back office”.

This financial distress and stressed out employees/ownership could have all been avoided with proper planning and forecasting.

Navigating Business Growth

When navigating business growth, it is important to know both your strengths and weaknesses. Ignorance to those two things risk inviting for unoptimized strengths and weaknesses that turn into major threats. Access our free Internal Analysis whitepaper to assist your leadership decisions and create the roadmap for your company’s success.

Problems When Experiencing Business Growth, Navigating Business Growth
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Problems When Experiencing Business Growth, Navigating Business Growth

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How CFOs Can Drive Revenue Growth

How CFOs Can Drive Revenue Growth

The financial type is stereotypically called a “bean counter” because they focus primarily on the costs or overhead. That’s the easy route to take. They can manage the costs without having to walk outside their office or cubical to talk to another person or department. But a financial leader needs to help drive revenue growth in their company to create real success. We’re looking at how CFOs can drive revenue growth in this blog. First, let’s look at why you should not just cut costs, but drive revenue. Remember, it is easy to cut costs, it is really hard to cut the right costs.

Don’t Just Cut Costs… Drive Revenue

The typical CFO is managing cash flow and profitability. But we have talked with so many CFOs and they say, “revenue isn’t my job.”  Well, it should be. If there is no revenue, you do not have a job.

Why Cutting Costs Doesn’t Equal Success

The sales team is responsible for revenue and the CFO is responsible for everything else… Right? That’s the common misconception among the financial leadership. But the financial function needs to be more involved in sales than they are right now. Cutting costs (aka being a bean counter) does not equal success. Focusing on only cutting costs is a very short-term strategy.  If your organization is a going concern you want a long-term strategy which includes cutting the right costs as well as revenue growth, improved margins and ultimately profitability.

For example, there’s an economic downturn. You as the financial leader are cutting fixed costs, evaluating expenses, not giving out bonuses, etc. Cash is tight. And the money isn’t coming in with this downturn. At one point, you are going to be extremely lean in your overhead and you can’t cut anything else. What happens if the downturn continues another 18 months? You’re going to be out of business or in debt.

The CFO cannot just focus on overhead. They need to be looking at more cost-effective vendors, work on improving productivity and efficiency, innovating with the CEO and sales team, focusing on the more profitable customers, and forecasting the sales potential. Basically, the CFO needs to be thinking of ways to bring in more cash while keeping costs down… hence improving profitability.  Many of the most successful CFOs end up as the CEO.  Well guess what, the CEO worries about everything, including sales and profitability.  If you are next in line as the current CFO, are you really prepared to step into that CEO role?  Are you thinking like a CEO?  A good CFO actually thinks like a CEO.

Click here to access our Goldilocks Sales Method and learn how to build your sales pipeline and project accurately.

How CFOs Can Drive Revenue GrowthHow CFOs Can Drive Revenue Growth

When you look at how CFOs can drive revenue growth, you need to look at leadership. Who is the financial leader?  In other words, they may be chief; but are they able to lead a group of people to accomplish a goal. Let’s look at how a CFO can align finance / marketing departments, and not be a CFnO, but have data transparency, and be a successful financial leader.

Align Finance & Marketing Departments

As an example, finance, marketing and sales should be close to one another as one is managing the money and the later wants to spend the money to make more money. These three departments should be on the same page and in sync with one another. Think about when you (the CFO) create a budget. That budget is useless unless your company follows it. You need to manage the marketing department and your sales people need to inform you with their sales projections, what they need to accomplish their goals, etc.  Hopefully this was all captured when you created your annual budget.

For example, I work with my Director of Marketing to make sure we are on the same page as far as marketing goals are concerned, see what she needs to accomplish her job, and to hold her accountable. It could be easy to let her just be a detached marketer, but I would risk spending money that we don’t have, pursuing customers that aren’t profitable, and focusing on the wrong things. We talk about our budget on a weekly basis.

Don’t be a CFnO

We’ve talked about it before on our blog as well as in our coaching workshops. To be a successful financial leader, do not be a CFnO. What is a CFnO? It’s when the CFO only looks at the numbers and rejects every idea that the management team or CEO has or wants to pitch. Imagine you are trying to drive the company forward and invest in areas that you think will be profitable. Then imagine someone looking over your shoulder repeating no, there’s not enough money for that, not until you do X, Y, and Z, etc. You probably wouldn’t like that very much. They don’t either.

Instead, give them the chance to elaborate on their idea. Ask questions like:

  • What would success look like to you?
  • How many sales do you think this would generate monthly/annually?
  • What do you need to make this successful?
  • What are some of the risks or challenges you foresee?
  • Where does this align with the rest of the priorities of the company?

You can also tell them this is what we need to do first before we can venture into this new idea/product/investment/etc.

How CFOs Can Drive Revenue GrowthBe Transparent With Data

Do you ever feel that you’re missing a figurative piece to the puzzle? If so, you’re not alone. Many financial leaders are not able to make the right strategic decision (or any decision at all) because they don’t have all the information and analytics they need to budget, forecast, anticipate disruptions, etc. In “Dun & Bradstreet’s recent 2016 Enterprise Analytics Study, [they reported that] only 38% of companies share analytical insights across departments” (Dun & Bradstreet). That is a big problem. Dun & Bradstreet also argued that “with a cross-functional foundation and analytics toolbox, CFOs can improve their organization’s position in the industry, better manage assets, budget more effectively, and predict potential organizational disruption.”

Forecast your sales accurately with our Goldilocks Sales Method! The days of aiming too high or too low are long gone.

How CFOs can drive revenue growth revolves around the data they have. They should have access to the following:

Transparency of data helps the CFO or financial leader see the entire picture and steer the CEO in the right direction towards revenue growth.

Be a Financial Leader

In conclusion, the CFO needs to be a financial leader. We emphasize leader because it requires you to communicate, have vision, be honest, and make confident decisions. As you learn how to drive revenue as the financial leader, rebuild your sales pipeline and project accurately with our Goldilocks Sales Method whitepaper. This is one tool that will help you project just right – not too high or low.

How CFOs Can Drive Revenue Growth

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Beware of the J Curve

J Curve

An increase in sales sounds great! Right? But have you ever heard about the colloquialism of growing out of business? Growth requires cash flow, but sometimes, quick growth doesn’t allow you to keep up. If a company is run by leaders with sales backgrounds, they will be more focused on the growth than supporting that growth. Sometimes, it’s difficult for a company to sustain growth, especially if they aren’t collecting receivables quickly. This leads to some companies turning away clients. The analysis and forecasting of working capital is crucial in a high growth situation.

What is the J Curve?

A j curve is an initial loss followed by an exponential growth. This curve is used in the medicine, political science, economics, and in business. The quicker you grow, the quicker your burn through cash.

Cash is king, net working capital which is current assets less current liabilities is an indicator of the companies ability to meet short term obligations. In a high growth situation you will burn through net working capital and need to manage it carefully.

Looking to improve cash flow in your business? Click here to download our 25 Ways to Improve Cash Flow and get an invitation to join our SCFO Lab.

J Curve Effect

Initially, there is a decrease in sales, then there is a sudden growth. This growth ties up cash flow. Inventory requires significant cash to supply the demand. But if the company invoices the customer, then there is a risk of not being paid for 15, 30, or 60 days. Even if the company collects the cash up front, it doesn’t always align with when payments are due.

Let’s look at the Cash Conversion Cycle!

Cash Conversion Cycle (CCC) =Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) – Days Payable Outstanding (DPO)

There are three things that impact the cash status for a company: sales, inventory, and payables. In other words, revenue, COGS, and overhead. If one of those are out of balance, then profitability will be impacted. If they are out of balance and net working capital is on a decline, then you are really in trouble. When you experience a j curve effect, you will see all increase in all areas with more emphasis on payables.

When J Curves Are Likely to Happen

There a couple instances where j curves are more likely to happen. Fasting growing firms and startups are two examples where we frequently find j curves in action.

Startups

Startups typically begin out of a need seen in a market. At some point, their product/service clicks with the market and they take off. This is great for the start up! But if the company doesn’t have liquidity or cash, then it will not be able to support the growth. In addition, you risk the quality of your product/service, dealing with legal issues associated with poor quality, and having bad reviews. For example, a startup finally hits the market at the right time with the right product. Sales boom and the entrepreneur is ecstatic! But they have no processes, they are buying materials for the product without thinking strategically, and are only looking at the sales. While sales were booming, they were buying everything on the company’s Amex. At the end of the month, the fees and lack of consideration for the timing of purchase outweighed the increase in sales. They ended up in the red.

Fast Growing Firms

Fast growing firms also see the same issues that startups deal with. In addition, fast growing companies tend to grow overhead quickly or lose sight of how big it is actually getting – larger operations, more employees, bigger reputation, etc. For example, $1 Billion fitness company Beachbody released a new fitness program earlier this month. Unfortunately, they did not forecast the sales accurately and were not prepared for the amount of sales they received. What could be a great opportunity turned into a scramble to deliver on the equipment needed for a new fitness program. As a result, they sent other similar products as a temporary solution. Customers could ask for the product that they ordered and they would be put on a waitlist – essentially asking for 2 products for the price of one.

Manage Your J Curve

J curves need to be managed because they can easily get out of control, leaving a large mess to clean up. Some of the factors you need to look at when managing your j curve include assessing the type of sales you are having and the ideal sales, the timing of when you purchase materials, and managing (retaining) your talent. Remember, the quicker you grow, the faster you run out of fuel.

Types of Sales

There are good sales, and then there are bad sales. We’re talking about the types of products/services you’re selling and who you are selling to. If you accept both good and bad sales, you are not managing your j curve effectively. Maintaining healthy profit margins in a high growth situation is also critical.  Sometimes, it can be more productive and profitable to fire a particular customer than take their money.

Timing of Purchases

Ever had to purchase something without having cash in your pocket? If you’re like most people, then you would defer that payment until you have cash. But companies disregard their habits in their personal lives… Sales means cash, right? Wrong. Work with your vendors to delay payments until you have cash in the bank.

Talent Management

Your talent is one thing you need to look at when managing your j curve. The reason is because with increased growth comes increased stress. If you are not taking care of your employees, then employee productivity and morale is going to decrease and eventually, turnover. We all know that high employee turnover is a cause of bleeding cash in you business. First, there’s decreased productivity that makes product produced or sale made that much more expensive. Then, there’s severance and continuing benefits for a certain amount of time. Finally, there’s the expensive hiring process that potentially includes staffing, recruiting, hiring, training, etc.

Effective Business Planning with a J Curve

Focus on the cash flow and profitability of your company. We show every company that we work with in our consulting practice and coaching workshops how to improve its profits and cash flow. When it comes down to it, that’s all the business is made up of. And every company, regardless of whether you are in a fast growth company or not, needs to effectively plan using cash flow forecasts and reports, flash reports, and flux analysis. If you are seeking more ways to make a big impact in your company, download the free 25 Ways To Improve Cash Flow whitepaper to find other ways to improve your cash flow within 24 hours.

j curve

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j curve

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How Growth Affects Cash Flow

Growth is great! Whether it is expanding into your third country or tapping into a new market, it’s an exhilarating process (especially for the entrepreneur). But it can also result in a crisis… You can’t fulfill orders; processes are being thrown out the door to just get it done; inventory isn’t leaving the warehouse. Growth can result in a disaster. When a company is growing at any speed, there are often growing pains that come with it. Over the past 20+ years, The Strategic CFO has witnessed and been a part of some incredible turnarounds that started from a few simple steps of improvement. The #1 growing pain stems from cash. Or, actually the lack of it.  We often forget how growth affects cash flow, but it has huge repercussions if you are not watching it carefully.

Growth Affects Cash Flow

What Happens When a Company Grows

When a company grows, the first visible thing that happens is cash gets tight. It’s very common for your marketing and sales team to see grow as only a good thing; nothing bad could be caused from growth. But when more sales come in, more employees are needed, more offices are required, more inventory is purchased, money can very quickly fly out the door. We say it frequently because it’s true: cash is king.

As you gear up for growth or are in the early stages of growth, also iron out some of the issues that may grow into problems as the company grows. For obvious reasons, start addressing any issues that impact the cash flow of the company. Then address other issues including management, accounting, product development, and labor.

Another thing that normally happens is that we are so excited about growth, and maybe cash is controlled, but we forget about controls, specifically internal controls.  Money is flowing and product is flying off the shelf, but no one is watching what may be lose ends.  Such as in a manufacturing scenario, material is being ordered as fast as you can get it and raw materials are being converted to finished goods. But maybe waste is also going through the roof because no one is watching that.  Or maybe tools are mysteriously disappearing from the shop, or maybe your margins are actually suffering because your indirect costs have grown more than anticipated.  The lack of having process and controls in place can lead to the mentioned issues, thus also leading to squeezing cash.  Because ultimately, it all results in cash or consumption of cash.

Growth Affects Cash Flow

Growing Too Quickly?

If you are in a company that is growing too quickly, it may be time to get some capital. There are several types of capital that you can acquire to fund your rapid growth. Ultimately, there are three ways to get capital.

  1. Debt
  2. Equity
  3. Or a mixture/combination of debt or equity, or debt that can convert to equity

Giving up equity is the most costly way to raise capital because as your grow you have given up some of the upside. The sources of either debt or equity include and are not limited to the following:

At The Strategic CFO we can help you analyze the different cost of this capital and the most efficient structure for your business.

Start-ups, development of new products, etc. often require a good amount of working capital to support the rapid growth for those products or services to have a steady foothold in the marketplace. Consequently, they require a significant amount of cash and leadership for it to be catapulted into success. If this is you, start the cash flow improvement strategies early. Make it part of your culture and processes. The key is to manage your cash effectively so that each dollar can be stretched to the max. Download our free 25 Ways to Improve Cash Flow guide to start implementing tested and successful cash flow improvement strategies into your company.

Growth Affects Cash Flow by Absorbing Cash

If you haven’t figured out by now, growth has a way of absorbing cash. When a company wants to increase sales, it requires fuel – cash. As the financial leader of your company, shift your focus on improving profitability and providing fuel for your sales team to grow the company. While your CEO needs to grow the company, he or she needs a wingman to lean on. You are that wingman. Instead of acting as a CFnO (say it like CF No), provide a path for your CEO to grow the company. Guide them in your new cash flow improvement strategies.

Don’t know where to start in improving your cash flow? Click here to download our 25 Ways to Improve Cash flow and get an invitation to our SCFO Lab – the premier financial leadership coaching platform.

Growth Affects Cash Flow

Cash Conversion Cycle (CCC)

As you continue to look how growth affects cash flow, start by analyzing your cash conversion cycle. Simply, it is the amount of time that you are able to convert processes, resources, etc. back into cash. There are some simple steps to reduce your Cash Conversion Cycle (CCC) or operating cycle, but let’s see what it is and how you can use that to improve your cash flow.

What is the Cash Conversion Cycle?

The Cash Conversion Cycle (CCC) calculates the amount of time it takes to convert resources into cash flow. To calculate your CCC, use the following equation:

CCC = DIO + DSO – DPO

DIO stands for Days Inventory Outstanding. DSO stands for Days Sales Outstanding. And finally, DPO stands for Days Payable Outstanding. By using the CCC, you will be able to identify areas of improvement.

For example, if you are collecting receivables every 45 days, you may have an opportunity to reduce that to 30 days. By collecting receivables 15 days earlier, you will not be in as large of a cash crunch because that cash is in the bank 30 days after the service is rendered versus 45 days. To calculate DSO, use the following formula:

DSO = 365 * (Average Accounts Receivable / Total Credit Sales

How to Improve Your Cash Flow

There are several ways to improve your cash flow using the Cash Conversion Cycle. Some of these include improving collections (A/R), invoicing quicker, obtaining deposits faster, extending vendors so that you can pay later, and reduce the amount of inventory stored. For example, a few of our clients are in the oil & gas industry. When the oil & gas industry takes a downward turn, we are impacted because they cannot pay us as quickly, but they need us more than ever. One of the tactics we put into practice to improve our cash flow was to invoice within 24 hours. Our clients were being trained to respond to us quicker and pay our invoices. Therefore, we were then able to do more to help them.

There are so many other ways to improve your cash flow, especially in times of growth when cash is tightest. If you are seeking more ways to make a big impact in your company, download the free 25 Ways To Improve Cash Flow whitepaper to find other ways to improve your cash flow within 24 hours.

Growth Affects Cash Flow

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Growth Affects Cash Flow

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Creatives in the Workplace: Are you the Machine or the Inventor?

creatives in the workplaceHere in Texas, graduation is approaching. It makes you wonder… How do those potential candidates stand out in a crowd if thousands of them are competing for the same job position? Believe it or not, you were in that same situation once. If you identify with the older generation, how did you land the job you have now?

Simple Answer: You were most likely one of the creatives in the workplace.

2017’s Most Wanted Creative Skills

One of the major problems with school is that they teach material from five, maybe even ten (sometimes even more) years ago. However, it’s partially not their fault. New skills are being explored, developed, and desired every day. Some textbooks just can’t keep up.

Here are a couple of my personal favorite creative skills that some businesses are looking for:

Design

By “design,” I don’t mean the typical architect who draws with a bow compass and ruler and submits by the end of the week. Adobe Illustrator, Lightroom, and Photoshop are no longer highly paid skills because there are so many businesses who use them, and people who have the skill. Since 2015, development with User Experience/User Interface (UX/UI) has become more precise. Who knows, maybe that will be the next Adobe suite in terms of conventional skills…

Designers are also faster than before. If we compare a web page from ten years ago to the ones we see today, then designing a web page used to take months. Now, it only takes a few hours. This increase in productivity opened the door for other improvements with technology and design, and will continue to do so with more improvements in the industry.

Writing

Demand is increasing for digital marketers, search engine optimization (SEO), and copywriting for company websites – I’m guilty of this myself! Like many skills, writing is considered a constant demand and ever-evolving skill. Employees don’t often have the time or patience to write 1,000+ words a day.

Writing has become so evolved that there is an algorithm, maybe even a customizable process. Writers put thoughts and feelings out there for users and customers, which is something no artificial intelligence will ever be designed to do.

Everyone has their own special skill… how do you know which is the best system for your company? Download our free guide, How to be a Wingman, to be the best wingman to your CEO.

Benefits of Having Creatives in the Workplace

These are all attractive skills to have in 2017, but the demand is high and the skills are constantly creatives in the workplacechanging. Additionally, creativity doesn’t always translate to advanced skills like coding and UX/UI. According to dictionary.com, Creativity is “the ability to transcend traditional ideas, rules, patterns, relationships, or the like, and to create meaningful new ideas.” Creativity can and should be in every team member, and here’s why…

Creativity = Flexibility

It is common to have a standard procedure and policy when implementing new ideas for a company. One of the benefits of having creatives in the workplace is that they figure out new ways to do a project, but still maintain the company policy. Doing the same tasks the same way becomes discouraging and mundane, and having a fresh opinion can keep even routine tasks interesting.

Flexibility = Growth

Having employees to provide a “fresh” opinion not only keeps tasks interesting, but helps the company grow. It is often difficult to see what needs to be improved when you’ve worked somewhere for a long time. Bending the company norms, but just enough to stay within company procedures, effects change within a company. Depending on your company culture, this is great news. However, not every company sees it that way…

Disadvantages of Having Creatives in the Workplace

When you’ve established a company culture for more than 10 years, having a young mind spouting change might rub the “old factory” workers the wrong way. If creatives and millennials are both seeking creative job positions, you’d assume it’s a good thing that millennials are inclining more towards creativity and innovation. In most ways, it is. In others, well… Here are a couple of reasons why having creatives in the workplace might actually slow your progress down:

Creatives don’t always enjoy Repetition

creatives in the workplaceAs a professor in an Entrepreneurship Program, I hear the same thing. “Corporate is bad,” and “I refuse to be a cog in a machine!” are only a couple of phrases I’ve heard. Young creatives are less attracted to a traditional company culture because of the repetitive and mundane tasks that these businesses often have. Toeing the company line seems restrictive for the creative thinker, which is why having creatives in the workplace is becoming rarer, and more creative people tend to quit their jobs within two years. The best cure for this is to allow those creative minds to bend the policy a little, (and maybe show us Baby Boomers and Gen X-ers a thing or two).

Squirrels are More Common

Another disadvantage to having creative people in the workplace is that they are often strongly opinionated and visionary. Consider our recent blog: “That Squirrel will Kill You!”. Having new opinions and visions for a company should always be accepted and heard, no matter how crazy or different they may be. However, creative people have a lot of ideas, and often move on to the next idea too quickly to make them reality. The downside is, some projects need to be completed before your company can afford another one. Constantly creating can be detrimental if no one is actually productive in a project, and everyone always works on something new.

Conclusion

Having creative people in the workplace can be tricky – there is definitely a gray area and many contradictions. In my opinion, having a creative mind definitely separates someone in a crowd of applicants. The difficult part is how to incorporate those creative thinkers in an environment that isn’t very creative. Let’s face it – companies need those creative people just as much, if not more, than they need the status quo. So ask yourself, are you the cog in the machine that conducts the same processes every time, or the inventor? It’s up to you to decide.

Don’t forget… the CFO is the CEO’s wingman, and it’s not a mundane job. Learn how to think like a creative with this free tool!

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Improving Profitability – Fuel for Growth

How do you focus on improving profitability instead of just boosting sales? 2016 wasn’t the best year for some of us, but the new year provides a perfect opportunity to reassess goals. An entrepreneur’s natural tendency is to increase sales in order to balance out last year’s financials. But what many entrepreneurs fail to consider is are those sales actually profitable?

There’s Only So Much Cash

Why is improving profitability instead of simply increasing sales so important? Because, believe it or not, you can actually grow yourself into bankruptcy.

Huh?

Many are quick to say that more sales is the solution – however, there are a lot of factors you have to consider before you start selling everything. One of the most important metrics you must know is your cash conversion cycle. The cash conversion cycle is the length of time it takes a company to convert resource inputs into cash flows.

Cash Conversion Cycle Formula:

Cash Conversion Cycle (CCC) =Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) – Days Payable Outstanding (DPO)

– or –

CCC = DSO + DIO – DPO

improving profitability instead of salesDaily Sales Outstanding (DSO): This metric measures the number of days it takes to convert your receivables into cash. Ideally, the faster you can collect, the faster you can use the cash to fuel growth.

Days Inventory Outstanding (DIO): This is an indicator of how quickly you can turn your inventory into cash. Reducing DIO is good. If all of your cash is tied up in inventory that isn’t moving, then you might have a problem.

Days Payable Outstanding (DPO): This measures how quickly you are paying your vendors. If you are consistently paying your vendors more quickly than you are getting paid by your customers, then you risk running out of cash. If your vendors aren’t giving you a discount for paying early, then why are you paying early? If you have 30 days to pay, then why pay on the second day? Use that cash for the other 28 days you have for other vendors who offer you discounts or to fuel growth.

Managing the cash conversion cycle is a key way you can enable your company to grow.  And we all know how fond entrepreneurs are of growth…

(Click here to learn How to be a Wingman and be the trusted advisor to your team.)

Cash is like Jet Fuel

Often, entrepreneurs (especially those from a sales background) focus on improving sales. What many fail to realize is you can actually sell yourself into bankruptcy.

Let’s compare a business to a jet. If a jet is moving at a constant pace, then the fuel used to power the jet runs out at a constant pace. From a business perspective, if the sales in a company are constant, then the cash and assets required to fuel the company is also constant and predictable.
improving profitability instead of salesHowever, if a company decides to increase sales, then this requires more “fuel” or cash.

But if an entrepreneur decides to increase sales to a greater degree than cash flow, almost vertically, then the business may run out of fuel (cash) and can ultimately crash and burn.
improving profitability instead of sales

The quicker you grow, the quicker you burn cash.

improving profitability instead of sales

Sustainability is Key

The sustainable growth rate of a company is a measure of how much a company can grow based upon its current return on assets. The sustainable growth rate of a company is like the wind turbine of a jet. Naturally, the wind turbine gives the jet a 5-10% incline. But what if you want to grow to 25%? Or 50%?

To grow faster than your return on assets, you’ll need to take on additional debt or seek equity financing. Either you pay for it, or someone else does. To avoid increasing debt or giving up control, it’s important to maximize your current asset velocity (think managing CCC) and make sure your sales are profitable.

(Be more than overhead. Be the wingman to your CEO by increasing cash flow!)

How to Grow Your Business

If you want to grow your business, there are a couple of things you can do:

(1) Increase your profitable sales. This means deciding which projects have the lowest risk, but highest reward for your business. Time is money, so which customers are worth your time? In exploring this, you might have to conduct some market research for your target market.

For example, if you have some customers who are slow to pay, they’re straining your liquidity. Although it may be difficult, you might have to fire some customers and focus your resources on customers that aren’t such a drain.

(2) Increase capital. Capital is the funding you need to grow the business. Capital can be an investment from an outsider, or it can be cash generated internally by increasing cash flows and maximizing profitability.

Internally: A company can increase cash flow by managing the cash conversion cycle. Collect your receivables faster and manage inventory levels and payables. It is a good idea for a company to grow as organically as possible, meaning growing cash internally.

Externally: If you’ve tightened up your CCC as much as possible, it might be necessary to look for outside sources of cash. However, having external sources of cash is a trade-off; you’ll have debt with a bank, and you might have to give up part of your company to investors (depending on the terms).

Conclusion

So when your business owner says, “let’s increase sales!”, remember focus on making profitable sales. Look at improving the Cash Conversion Cycle to make the most of your internal resources.  Consider outside financing when/if your existing return on assets won’t get you where you want to be.

Don’t crash and burn – make sure your company has the fuel it needs. Your business owner is looking to you to help them grow their business. To learn how to do it, access the free How to be a Wingman whitepaper here.

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