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February 11th, 2016
Here are three ways businesses can deliver increased value to their customers:
- Charge lower prices
- Help customers reduce their other costs
- Provide more benefits
I think businesses need to focus on finding ways to provide customer value other than just reducing prices. When you provide a benefit bundle to add customer value you are providing a uniqueness setting your business apart and beyond the competition.
Here are some ways to offer more benefits to customers that can take your business to new levels:
- Offer customized products and services
- Offer more customer convenience
- Provide faster service
- Give customers more or better service
- Give customers extra training or coaching
- Provide an extraordinary guarantee that competitors can’t match
- Give useful tools (hardware or software) to customers
- Win, keep, and grow customers by rewarding them (membership programs)
Now you have some ideas on how you can beat the competition besides just lowing price.
Helping customers reduce their other costs is an additional way to increase customer value. Some approaches include arguments that your product is more reliable, lasts longer, or attracts higher prices in the second hand market. Some businesses will provide support to customers in the way of coaching and training on how to reduce costs when using their products.
Other approaches to helping customers reduce their costs might include techniques to improve business processes such as purchasing and ordering costs. In this regard, providing them with unique systems to accomplish these tasks is one approach that can be utilized.
Inventory always represents a challenge for both small and large businesses. Offering customers just-in-time supply capability is one way to deal with this issue. Another approach is utilization of consignment arrangements. Some companies offer outsourced inventory management that help to maintain lower levels of inventory investment.
Some businesses justify higher prices by helping their customers reduce their processing costs. Techniques might include more efficient ways to use their products which lowers processing costs. Application of lean six sigma methodologies can help improve yields, reduce waste, eliminate chances for accidents, and lower labor costs.
February 11th, 2016
Having a strategy is essential to success. It gives you the competitive edge in business, politics, and everyday life. Strategy represents the steps and actions that need to be implemented to fulfill your vision and achieve your mission. Success in strategic planning doesn’t come easily and in many instances fails to contribute to strategic thinking.
How do we develop a strategy that will create a competitive edge? First, utilize an approach called the strategic thinking process outlined in a previous blog post. Thinking strategically and focusing on simple processes to apply concepts like Blue Ocean Strategy will improve you chances for success. Crafting a successful strategy requires an understanding of Blue Ocean Strategy.
Blue Ocean Strategy is focused on providing value propositions to customers in ways that have a positive impact on the company’s cost structure. Finding directions or features your competition hasn’t offered is the key to success. Implementing these new concepts combined with eliminating factors others take for granted is a big piece of the puzzle. This creates cost savings from generating higher sales volume as a result of the superior customer value created from new concepts never before offered.
Blue Ocean Strategy essentially reconstructs market boundaries. This is achieved by going beyond looking at just the numbers and focusing on a bigger picture. Getting past what is being done and developing a new source of customer value is critical to successful strategies. This requires development of the proper sequence or steps to allow a strategy to be successful.
Strategic sequence includes having exceptional customer buy in to the new business idea. Your selling prices need to be easily accessible to the target market of buyers. Once you know what customers want and are willing to pay for, you need to be capable of attaining costs which will allow achievement of targeted profit margins. Finally, you need to be organizationally capable of putting the new strategy in place and making it work. All of these steps may sound simple, but in reality will likely involve considerable effort.
Blue Ocean Strategy success depends on the success of the following three propositions:
- Value for customers.
- Profit from revenues less the cost to produce and deliver value.
- People that are motivated by the incentives created by the strategy and effort needed to support and implement it.
When these three propositions achieve a combination of differentiation and low cost a Blue Ocean scenario is created that builds sustainability and formidable barriers to imitation.
Red Oceans result from failure of the three strategy propositions to create differentiation or low cost. Competing in Red Oceans opens the door for extensive competition and lower profits or losses. Many different factors can allow other companies to imitate your strategy and undermine success. Creating barriers to imitation through proper strategic alignment, effective organizational structure, branding, and effective economic and legal steps is essential to preventing Red Ocean environments.
Blue Ocean Strategies can create a competitive edge, but it takes work. Hopefully, you have a clearer understanding of what is involved in crafting a successful strategy. Thinking strategically to identify and create Blue Oceans is going to take you out of your comfort zone. But isn’t it better to achieve new success in contrast to failure resulting from swimming in Red Oceans?
February 3rd, 2016
Good CFOs are hard to find. Being a CFO is more than presenting some dashboards and talking about a few financial ratios. They need specialized skills and experience to assist business owners in a variety of different ways. I understand these challenges based on over 30 years of experience as a controller and CFO.
Probably the most critical area is guiding development of strategic plans and structuring action plans to support the strategy. Another challenge is managing cash and ensuring that the business is properly financed. This means establishing an effective capital structure together with financing plans that fit objectives and business growth.
Driving business performance and the ability to use the tools required to support growth are also essential. These skills include understanding sales, marketing and the underlying cost structure to support growth. Business analysis, performance measurement and cost accounting are just a few additional skills that are essential.
Prioritizing capital investments and helping guide business owners to make the right decisions on the right projects is another area where CFOs can help business owners. Risk management is a key factor in allocating capital and applying enterprise risk management steps is essential to success.
Other high priority areas include buying and selling companies and succession planning. I can help you in these areas based on my experience with a top consulting firm who specializes in these areas. I can help you gain a competitive advantage in today’s complicated business world.
Good CFOs are hard to find. Most talented CFOs are already employed by larger companies. Small business owners should look for talented advisors capable of using cloud technology and tools allowing easier access to this hard to find skill set. It also reduces the cost of services provided. I am certified in the use of cloud accounting systems and am available to help in these areas and wrote the book on profit focused accounting.
Not all CPAs using cloud accounting and cloud technology have the training and experience to offer CFO support. These CPAs should consider collaborating with an experienced CFO advisor to work with their clients to create win/win situations.
Utilizing a skilled CFO will give businesses a competitive advantage. Business owners can’t know everything and it makes sense to access skilled experience advisors to fill in the gaps. If you are looking for a virtual CPA with extensive CFO experience or need help in this area please contact me.
January 26th, 2016
Cloud accounting is as safe as internet banking which we have been doing for over fifteen years. When utilizing cloud accounting it is important to realize that you have control over who has access to your system and what they are authorized to do. It is essential to know that no one including the support staff of the software company can access your data unless you authorize it.
Standard access to your system is done through a login and a password. Some vendors such as Xero and QuickBooks Online offer the option of a two-step authentication which provides a second level of security. This reduces the risk of your account being accessed if your password is compromised. Small businesses typically don’t do a good job with security so this step helps them do a better job to ensure the security of their system.
All data entered into your cloud accounting system is encrypted using industry-standard TLS (Transport Layer Security). The data is also encrypted when it is stored on the host servers and when it is transferred between data centers.
Online accounting software vendors do an excellent job of protecting their systems and networks. They utilize multiple layers of security to protect your data including firewalls, intrusion protection systems and network segregation. In addition, they utilize industry leading security vendors to help them protect their systems against intrusion from global intelligence threats.
Software vendors are located within enterprise-grading hosting facilities that employ robust physical security controls to prevent physical access to the servers. Controls include 24/7/365 monitoring and surveillance combined with on-site security staff and regularly scheduled ongoing security audits. In addition, multiple geographic and separated data replicas and hosting environments are maintained to minimize the risk of data loss or outages.
Xero, for example, performs real-time data replication between geographically diverse and protected facilities. This is done to ensure that data is available and stored safely. So even if an entire hosting facility failed, they can quickly switch to a backup to keep Xero and your business running.
The true risk with cloud accounting systems is the people using the systems and their failure to utilize proper care when working on the internet. Scammers will try to trick people to obtain user names, passwords, credit card details, and bank account numbers. Some of the tricks that they try to get you to:
- Clicking on a link that might infect your computer with malicious software.
- Following a link to a fake, but convincing website that will steal your login details.
- Opening an attachment that will infect your computer.
The key is to be aware of these traps to steal your sensitive information and be careful not to fall for these gimmicks.
Some things to watch for that will help you avoid problems include watching out for the following indications:
- Incorrect spelling or grammar.
- The actual linked URL is different from what is displayed (hover your mouse over any links in the email to see if there are any differences.
- Emails that call for urgent action.
- Emails indicating that you have a parcel waiting that you didn’t order or promises for rewarding you for helping out.
- Changes to how information is usually presented.
- If you receive a suspicious email do not click on any link or attachment contained in the email.
- Do not reply to any suspicious emails and delete them.
You need to understand that while there are potential hazards out there on the internet, cloud accounting systems are as secure as on line banking. The biggest security risks lie with the carelessness of people using the system.
Cloud based accounting systems offer significant advantages to help you grow your business. They represent accounting systems of the future that you can use today because their unique capability and enhancements such as dashboard and performance measurement tools. They also facilitate utilization of virtual financial experts to assist you in managing your business.
Cloud accounting systems allows businesses to take advantage of cost effective virtual advisors and cloud technology tools to accelerate growth and increase profitability. There’s lot’s to gain from cloud based accounting and with minimal risk.
January 20th, 2016
Before achieving profit improvement, you need to be able to measure it. Here’s how. Profit is the difference between revenue and expenses. Investment represents the assets required to generate profit. Profit improvement should be measured in terms of return on investment plus consideration of financial risk.
Our job as business coaches and advisors is to help businesses increase profitability without exposing them to unacceptable levels of risk. The first step is understanding that there are two elements of profit improvement:
Put these elements to work by making some basic calculations. The first calculation is determining margin which is equal to net profit divided by sales (NP ÷ Sales). Productivity is sales divided by total assets (Sales ÷ Total Assets). Now we have a basis for determining profitability improvement.
Profitability is equal to the net profit ratio (NP ÷ Sales) times the rate of asset turnover (Sales ÷ Total Assets). The objective is helping businesses improve their net profit margin and/or their productivity. Improvement involves making changes in what’s being done. The changes need to impact either margin or productivity, or both.
There are six variables to consider in achieving profitability improvement:
- Selling prices
- Physical volume of sales and the mix of products or services sold
- Variable costs
- Non-variable costs
- Amount of asset base needed to support the business
- Risk and how the asset base should be financed
Businesses can grow themselves into trouble unless careful consideration is given to financial management. This is where skilled CFOs can make a difference.
There are three ways to achieve increased profitability:
- Maximize the sales price charged per dollar cost for products or services provided.
- Minimize the cost incurred per dollar of revenue generated.
- Maximize the volume of products or services sold per dollar of revenue and per dollar of assets employed.
These steps are not easy fixes. Change is tough, especially when struggling with the complexity of financial challenges. A virtual CFO can be the difference between success and failure. They have the skills to guide you safely through the process of change and achieving profit improvement.
January 13th, 2016
The world is changing fast and everyone is struggling to keep up. This is true both for businesses and the CPAs that serve them. Instant information is available to everyone making it easier to look up questions on the internet, do their own accounting, run payroll and prepare tax returns.
Business owners frequently need help but don’t know it. CPAs are still traveling down traditional paths and not always in a position to effectively assist their clients. Business operations and financial management can be complicated. Business owners will frequently self-medicate when they should get help. And in many instances, CPAs aren’t adequately trained or skilled in providing in business advisory and consulting services.
Business advisory services range from specialized CFO and controller support, strategic planning, operations, marketing, information technology, and human resources. Most business owners don’t have skills to cope with all these areas of expertise. In addition, there aren’t too many CPAs that have the training and expertise to provide advice to clients in all these sectors. Therefore, it is critical for CPAs to develop their business advisory and CFO skills to be able to help their clients.
Business owners need trusted advisors that can help them address the unique problems in their business. CPAs need to shift their focus to helping clients identify these special needs. This is the future of the profession. This requires training and the development of new skills. Business owners also need to recognize that they can’t know everything and be willing to seek help when and where it’s needed.
The role of CPAs as business advisors is to enhance the productivity, profitability and wealth of their clients. Creating awareness of client needs is critical. CPAs must be willing to collaborate with expert advisors skilled in providing the necessary services. This creates win/win situations for all parties.
The challenge is that most small and medium size businesses have never experienced the benefit of working with a skilled consultant. Another barrier is that they don’t understand how they can benefit from an advisory relationship with their CPA. The key is understanding that using an expert advisor is an investment and should not be perceived as a cost of doing business.
Businesses need to understand:
- Why they need an advisor/consultant.
- Why the advisor is ideally suited to perform that function.
- What will be the approach of the engagement?
- What is the goal of the engagement and how they get benefit from it?
Consulting engagements are complex and require special expertise. Consultants sell knowledge and expertise, not products. They transact returns from investment, not sales. Their fees represent an investment, and not a cost of doing business. When businesses and CPAs develop a better understanding of advisory engagements, both will benefit from their investment.
December 31st, 2015
What is Blue Ocean Strategy and why should I care about? My simple answer is that it is a strategy consisting of differentiation and lower cost which embraces the entire system of activities within a company to create a unique situation.
Here’s how it works. Value is created in areas where the company’s actions have a favorable impact on its cost structure and from the value propositions offered to customers. Competition is not the center of strategic thinking. This enables cost savings to occur as a result of eliminating and reducing the factors which are normally the focus of competition.
Value is enhanced by raising and creating features and components that are not typically offered within the industry. The structure of an industry can be shaped and is not just taken for granted. Over time costs are reduced as economies of scale kick in due to higher sales volume generated through creation of superior value.
Blue Ocean Strategy involves the following four step action process:
- Eliminating factors that the industry takes for granted.
- Reducing the factors which can be reduced well below standards for the industry.
- Creating factors that were never offered by the industry.
- Finally, raise the factors that can be raised well above the standard for the industry.
Characteristics of a good strategy include the creation of focus combined with differences from the normal strategic process and linking these concepts with a compelling tagline. This means thinking beyond normal boundaries and exploring new possibilities. These actions take you to “blue oceans” where little or no competition exists in contrast to “red oceans” which are infested with intense competition.
The key to Blue Ocean Strategy is extending beyond existing demand. Your thinking should focus on finding non-customers before thinking about customers. Market areas and customers that haven’t been targeted are going to be the essence of finding “Blue Oceans” and successful strategies.
December 31st, 2015
Here is the outline of the Strategic Thinking Process I utilize after conducting an assessment of the business:
- Assess the company’s current situation and operating environment
- SWOT Sessions
- Develop the Company’s Strategic Vision (including Blue Ocean Principles)
- Develop a Marketing/Sales Plan
- Select Key Results Areas and Performance Measures
- Establish Strategic Objectives in terms of KRA’s
- Identify Tactical Initiation
- Prioritize Initiatives
- Develop Tactical Implementation Plans
- Develop Operating and Capital Budgets
- Develop Projections of Future Operating Performance
- Document the Plan
December 31st, 2015
A business assessment starts by asking questions and listening carefully to the answers. Getting business owners and their employees to open up and provide the “unvarnished truth” can be difficult. It is essential to get the truth and the facts. Tell me like it is.
A business assessment involves more than just looking at financial data. I take the time to step back and thoroughly evaluate the business. I want to know what hurts and then locate the source of the pain. The entire state of the business is evaluated from every aspect and all points of view. This gives me an understanding of what is happening in the business and its industry as fast as possible.
The approach I take is to examine the problems and then break them down into their component parts. Conclusions are then developed to fit the problem. This is when symptoms are distinguished from problems. Analysis depends on the specific problems. Here is my three step approach analytical approach:
- Sort out the facts
- Apply analytical techniques, and
- Use judgment to draw conclusions from the analytical process.
Sorting out the facts is a process of categorizing all the information collected and arranging them based on the assessment parameters. There will be a lot of data to match up including information gathered from the interviews. It is essential to take time and avoid jumping to premature conclusions.
The process includes qualitative and quantitative analysis. Qualitative techniques are used to analyze factors that can’t be measured in numerical terms. Examples of qualitative techniques include development of matrices, asking fundamental questions, and searching for patterns. Additional examples include comparison of events for the purpose of identifying both differences and similarities. Qualitative techniques can also include development of flowcharts and fish bone diagrams. Then step back and consider the full range of potential possibilities developed during the analytical process.
Here is my 10 step approach to get businesses back on track to creating profit and building value:
- Identify and locate the pain.
- Establish the parameters on what needs to be done.
- Evaluate the market, products, and services – are they right for the business?
- Right size the business.
- Finance the business.
- Maximize asset utilization and returns.
- Improve employee productivity.
- Conduct product and customer analysis.
- Improve business processes.
- Measure and monitor performance.
These 10 steps represent the essential components of what every business needs to address in order to maximize profitability and increase value. It is a long-term no nonsense approach to value based management that produces results.
I know this system works because I have used it to produce results in numerous situations. When the tools are applied consistently over a period of time, benefits are record growth in sales and profitability. It is not a silver bullet fix. Rather, it represents a common sense application of tried and true methodologies that can make the difference between survival and failure.
December 17th, 2015
It’s the time of year when you reflect about “what has happened” and “what might happen.” That’s what I’m doing today. What might be useful and meaningful? Hopefully, you’ll find my reflections helpful.
I dropped by one of my clients to deliver an invoice. She looked at the invoice and asked, “is that all, I can handle that.” Then we talked about strategies for 2016 and various options. This is the foundation of our relationship. She told me, “It’s great that I can always call you and get your thoughts and advice.” Call it coaching, CFO support, just common sense, or business advice. This is what my clients get. It was a good feeling to know my advice was welcome and appreciated.
Yesterday, my friend Ric Payne from Principa.net and founder of Results Accountants Systems send out an email on a free webinar discussing the 5 Drivers of Business Value. I’ve been to Ric’s boot camp and like how he simplifies things. I want to share 4 of the 5 Drivers of Business Value Ric discusses in his webinar because they are great focus thoughts as we go into a new year.
Here are the 4 Drivers of Business Value:
- Increase Revenue
- Improve Gross Margin
- Improve Operating Efficiency
- Improve the Utilization of Financial Resources
The 5th driver was to improve the P/E multiple (price/earnings) and doesn’t truly relate to privately-held small business since it is a function of achieving progress with steps one through four.
Think about ways you can achieve improvement in these four areas and put plans in place to implement these steps in 2016. If you can successfully implement these plans, you will see a dramatic increase in the value of your business. Let me know if you need some help with these concepts.
I wanted to share these thoughts and reflections as we get ready to start the New Year.
Have a Merry Christmas and a Happy Prosperous New Year.