Is your high-cost customer providing high revenue?
The entrepreneurial community tends to speak to investors and stakeholders about the value of their business based on revenue and revenue growth. When an investor begins to ask about gross profit, net profit or EBITDA, often the business owner makes a face similar to when you have caught a teenager in a fib.
Revenue produces cash flow and pays the bills. Revenue is a key goal and business owners should constantly strive to identify and close more customers to drive more sales. Besides these vital aspects of revenue, proper analysis of revenue is equally critical to identify customers, vendors and products you should walk away from.
Walking away from revenue is a bold move; however, at times it is the right move to take your company to the next level. I recently helped a client determine that a relationship with a vendor was unprofitable and to make the difficult decision to cease the relationship, which represented over 50% of the entity’s revenue. Proper cost accounting for products and services can be detailed and time consuming. My experience serving as the Principal of a Private Equity Firm and as a CFO of small and large entities provides a depth of experience and can help with the analysis your business needs to understand revenue and profitability. Please contact Mindy Barker & Associates to discuss your unique situation.
As a cost center owner, have you found yourself being asked to approve expenses, but you have no clue where they came from? You know you have a budget, but do you truly understand how it was developed or how you are supposed to work with it on a daily, monthly, quarterly and annual basis?
In the course of the budgeting process, an isolated group often prepares budgets in a vacuum, failing to include the right people in the process. This leads to confusion and frustration when the budget-to-actual expense is compared each month. I have often experienced meetings where budget-to-actual variances are discussed and the manager approving the actual expense (a) has no idea how the budget was prepared and (b) cannot answer any questions about the budget-to-actual variance for the month. This leads to the Board, President and Senior Leaders reviewing and approving a budget based on inaccurate information. They may have unrealistic expectations when planning for the next year as the expenses budgeted in each cost center is inaccurate. Make sure your budget process is well planned out and includes all the responsible parties.
Please contact me if you would like to have your budget process reviewed to learn how to include all of the right contributors, avoid setting unrealistic expectations and finding surprise variances each month.