The Communications Company Audit pot

The Communications Company AuditCraig Alexander Orr MBA, MSc, HND Copyright 2011 Craig Orr Smashwords Edition Discover other titles by Craig Orr at Smashwords.com: Finding Cash in Your B

The Communications Company Audit

Craig Alexander Orr MBA, MSc, HND Copyright 2011 Craig Orr Smashwords Edition

Discover other titles by Craig Orr at Smashwords.com:

Finding Cash in Your Business - http://www.smashwords.com/books/view/62199

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medical or other professional advice, and is meant to inform and entertain the reader So have fun finding the Cash in Your Business

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Table of contents

Chapter 1 - Introduction

Chapter 2 - The Cash Flow Formula

Chapter 3 - Creating Cash Awareness

Chapter 4 - Focus on Cash Customers

Chapter 5 - Strategic Solutions Plan

Chapter 6 - Conclusion

Chapter 1

Introduction

Cutting costs and improving Cash Flow are where most communications companies need to be right

now The big question is where do you start? This guide provides the steps to help you to rapidly find the Cash buried in your business Cost cutting can be a bit like liposuction, providing an unsustainable quick fix, unless you make the required life style changes the problem will quickly comes back This guide helps you work through a process of Cash Flow triage and create a strategic solution plan The plan will ensures that the life style changes required to sustain cost management and improve long-term business performance become embedded into the company’s culture

The Cash Flow Formula shown below was developed after extensive research into

understanding and improving the way communications companies handle Cash The circular wheel shown below is the ‘aide memoire’ to drive a systematic approach to analysing the cash flows within your business Each of the segments in the circle are broken down in detail in the various resources available at http://www.craigscopy.com and in the Finding Cash in Your Business ebook- http://www.smashwords.com/books/view/62199

Cash in Strategy

With most of the world’s economies at their worst condition since World War 2, as never before a clear

“Cash in” strategy plays an important role in a company’s success In today’s turbulent competitive

environment, communications companies more than ever needs a “Cash in” strategy that specifies the kind of competitive advantage that it is seeking in the marketplace and articulates how the advantage is to be achieved

As the Global recession bites it is important to review your current business product or service and

customers mix as a priority It may be that your order book is still full making you feel insulated from the recession When in fact what you are actually experiencing is the effect of customers who are progressing orders that were approved years in advance, and the current market condition may not take effect for months or years The key question here is can your customers still afford to pay?

AIR

In preparing for the future your company needs to:

Adapt to the market conditions; create an action plan based on what products and or services

are most likely to continue to be sold in a recessionary environment

Initiate collaborative discussion with existing customers who are struggling

Review existing and target customers and set new credit limits and create risk bandings based

on which companies are most likely to survive

Remember you cannot live without AIR

Adapt to the market, Initiate Dialogue and Review Customers.

Chapter 2

The Cash Flow Formula

The Cash Flow Formula was created to help you develop a systematic approach to understand and improve the cash flows within communication companies The Formula knits together a number of accepted management techniques such as ratio analysis and Pareto to arrive at the Cash Flow Formula

The Formula can be started at any of the seven segments, especially if you already have identified areas of concern, or a segment dose not apply to your company, however, generally the Cash Flow Formula should be tackled sequentially

Here are the 7 segments:

Competitors Identify the common financial yardsticks used to compare the competitors in the

communications sector Focus the business on improving the key financial yardsticks

Communicating the improvements will crystallise future investments

Cash Flow by Company Focus the group on it’s rising star ie the company or area that is expected to demonstrate the highest returns in the medium term Where there is high growth potential the greatest opportunity for poor financial controls exists

Business Model Develops an understanding of each operational Company’s business model and analyses the business’s performance Challenge the business to investigate if the business model is still current and the strategy derived from that is still correct

Internal Accounts Take a close look at the Internal Accounts Graph them over a 4-month period and compared them to the previous years results over the same period This trend analysis is used to highlight areas where cash flow improvements are required

Product contribution Determining which products have the greatest contribution to the company’s profits can be used to focus future product developments and withdrawals The highest contributing products will have the greatest impact on the management of Cash flows

Cash Flow by Product/Service Detailed deconstruction and mapping of the WCC for each of the products is used to determine which products or services provide the best use of cash within the business, it also ensures that suppliers credit terms are controlled and managed effectively

Credit control

Analyse when customers pay their bills so that irregularities can be identified before large debts are amassed Understanding the key dates in the WCC for a product or service allows better use of the credit given by vendors and the debt owed by customers

Chapter 3

Creating Cash Awareness

If after reading through the 7 segments you are still wondering where you can jump-start Cash awareness within your business why not try the sales prevention department Every company has a one just ask your sales people and they will be only too happy to point you in the right direction, beware they may even give names

I was once asked to resolve a Cash Flow problem with order intake The company in question had the patent on the bulletproof business case acceptance criteria, where only 5 out of every 100 sales leads were turned into customers, and due to the shear volume of potential customers there was a 4-week backlog on business cased feasibilities studies Once operations had completed an exhaustive feasibility study they could detail how the service would be delivered and predict the costs with an amazing level of accuracy

The finance department would then compare the predicted Sales revenue against the costs and decide whether the lead would make a good customer Operations and Finance loved it, strangely the sales people and the potential customers didn’t, after waiting 4 weeks they most probably had lost the will to live or taken their business elsewhere

It cost the business on average £1000 to complete a feasibility study so for every £100,000 spent

£95,000 was wasted, 95% of operations, finance and sales time was wasted on investigating leads that would never convert to customers These leads would never bring cash in; and created a four weeks delay in getting cash in the door from good business

The solution was to inform the business of how much money it was wasting, dissolve the sales prevention department and empower the Sales people to take make the decision on whether a sales lead would make a good customer

By harnessing both the operational wisdom for the cost structure and the financial requirements for the customer acceptance criteria a new process was created that roughly estimated the feasibility cost, compared it to the projected value of the customer’s business, and provided a detailed business case breakdown Suddenly, the 4-weeks wait disappeared as Sales people signed up customers on the first visit

The new process:

Allowed

• Sales people to instinctively know what a good lead looked

• Operations to focus on delivering customer services quicker and spend more time on getting the cost base down

• Finance to focus on getting the cash in from invoices

Had

• Opened Pandora’s box, and for the first time sales people began to see, understand and question the costs and the lead times incurred

• Dissolved the Sales prevention department and created the most Cash aware Company culture in the Sector

The business was now running much more efficiently, it was true that it was carrying a higher level of risk due to the assumed cost base, but the savings in terms of cash and time created a reward well worth the risk

Chapter 4

Focus on Cash Customers

“Having too many customers can break you, and focus on Cash Customers is essential!” What many businesses don't get, is that the customer acquisition and maintenance cost are normally far greater, than the money the customer will spend with you on their first sale On average a business need to bring each customer back at least 5 times before they will begin to generate a profit and become good quality Cash customers

One business I looked at had just over 700 customers, but was struggling to sell into their customer base

• Initially I asked for a historical list of how much each customer had spent with the company

• My next question was how many customers regularly do business with the company Of the 700 only 70 regularly did business with the company

• Now comes the crucial question ‘of the 70 how many pay their bills on time or at all?’ now we are down to 30

• I then asked for credit ratings for the 30 left and that brought the number of good Cash customers down to 20

The company had made the fatal mistake of not understanding the cost of customer acquisition and maintenance The expectation was that all customers are equal and so they were shared out equally amongst the sales staff

The average business spends 6 times more trying to win a new customer, than it does

generating new business from an existing customer

In recognition of this fact the solution required a combination of reducing the size of the sales team and providing a more appropriate level of account management

The company now focuses on supporting the top 20 accounts with sales executives The other 680+ accounts are managed by a combination of a telesales team and the bailiffs

A typical fully loaded Sales Executive cost to the business was £100,000 and there were 30 in the team including managers Each sales executive handled over 20 customers The business was spending around £3m supporting customers who had no intention of buying In fact only 1 out of every 35 customers was worth supporting

Contrary to popular opinion creating a smaller Sales team increased motivation, productivity, salary and sales The new smaller team had a reduced management overhead and had improved the profit from existing turnover by around 7%

The Sales executives had more time to spend with each of their customers that meant they delivered a better quality of service and this in turn encouraged the customer to place more orders

It was true that the business had redeployed staff but by doing so it more than just secured the jobs of all that remained

The business was now running much more efficiently, it has seen an on-going improvement to turnover, and is in a much better place to manage the growth of the sales team going forward

Chapter 5

Strategic Solutions Plan

Within the Communications sector companies have suffered from accelerated asset write-downs, redundancy programmes and in some cases insolvency Communications companies are still trying to deal with pricing pressures, particularly from the wholesale market, and competition from previously distressed companies emerging from Chapter 11 bankruptcy protection

proceedings

In 2011 the Communications sector is in a very different position than in 2000 Banks no longer role out the red carpet, and investors want to see if the companies they invested in are

capable of generating free cash flow (FCF) before they decide to invest any more money

The working capital cycle shown below is an integral part of understanding a business’s capital requirements, it’s capacity to service external debts, it’s ability to sustain growth and it’s potential to generate free cash flow

Using the Cash Flow Formula to highlight the areas that will provide the biggest improvements

in Cash flow in the shortest period of time a strategic solution plan can be implemented The plan ensures that the life style changes required to sustain cost management and improve long-term business performance become embedded into the companies’ culture

The strategic solutions plan should include the following;

 The detailed cash flow evaluation highlighting areas of concern

 A detailed improvement Solutions report detailing any system selection or configuration change proposals, business process change / process reengineering proposals,The report will include any 3rd Party Supplier proposals required, a proposed implementation timetable

No matter where your finances are today, improving Cash Flow will help you to optimise or transform the performance of Your Business

Chapter 6

Conclusion

This guide has provided you with an overview of the steps required to analyse and improve the Cash Flow within your company; recent market conditions have had a dramatic impact on the global markets, and as never before the lifeblood of the cash needs to pump through your businesses arteries

The global economy has started to contract and is unlikely to revert back to the heady days of double-digit growth, at least for a while So, for a while it will be hard to raise a loan or equity capital, except for companies already generating free cash flow or those with a strong emphasis on cash control So the key to surviving the global credit crunch is to look for cash in your Business, find it, handle it well and look for the golden opportunities it creates

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About the Author:

Craig is a Business strategist with a fresh market perspective combining technological awareness, deliverable experience with strong cost management and leadership skills Craig likes to think of himself as the engineer who understands costs Craig holds both an MSc from Cranfield and an executive MBA from Bradford He has assisted Companies from start up to FTSE 100 in nearly every region of the world for over 25 years He states “that to survive in today’s competitive marketplace companies need to focus on their core strengths, and outsource the areas that do not differentiate them from the competition.” Whilst completing his studies Craig remodeled the business plan for the company he was working for making them the most cost aware and successful business in the sector That success propelled him into BT where he was responsible for targeting outsourcing opportunities, which now generate revenues in excess of £200m, and supports all

targeted communications providers

Discover other titles by Craig Orr at Smashwords.com:

Finding Cash in Your Business - http://www.smashwords.com/books/view/62199

I’m sure on the basis of this guide you’ve got questions and comments I trust the information shared has struck a chord with you There’ll be other areas you want me to expand upon Either

way I want to hear from you…

Connect with Me Online:

Smashwords: http://www.smashwords.com/profile/view/craigscopy

Podcast: Cash in Your Business podcast Blog: http://craigscopy.blogspot.com/

Twitter: http://twitter.com/craigscopy