Archive

Archive for March, 2009

The Q1-09 door is closing – Are you on target?

March 27th, 2009 Comments off

     Between a DJIA that dropped into the mid-6,000 range, a continued loss of jobs, ponzi schemes that seem to be coming up left and right, there is certainly no shortage of news events to distract us from the job at hand. While I am normally one to go through every peripheral news source and scan for info that might give me cause to adjust forecasts or gain some insight into sales channels, it seems most of the news lately has been more of a distraction. I’m not exactly sure when the switch was flipped, but it seems for the most part I have shut most of the information out and have retrenched and narrowed the focus to only what is happening in my specific industry. Right or wrong, that’s my approach right now.

      Not sure if it’s a source of validation, but we are coming up on the close of Q1 and have only a few days left to get last minute orders out the door. I am pleased to say that Revenues will hit our expectations, employee morale is good, Operating Expenses have been kept in check, and we will actually pay out nominal bonuses in Q1. No, I’m not particularly worried since hopefully nothing that will occur in the last 3-days will change what has already happened in the first 87-days of the Quarter. Staying focused on our target was not something that started in the last few weeks, but something that started in the first week of January. Monitoring open orders, monitoring incoming shipments to see what might be late, contacting customers to confirm order activity, reviewing A/R activity to monitor collections…and the list goes on. Nothing can be left to chance in this environment and you have to proceed as if the entire existence of the company and achieving your annual goal will hinge on what happens each week, and cumulatively, each the month.

     We’ll close the Quarter next week, we’ll validate our assumptions regarding Q1, and determine if we need to alter those assumptions in any way going into Q2. Don’t get me wrong, it’s something we’ve already had discussions on and incorporate into our weekly discussions. Where are we against Budget? Slightly off, but then again, I’ve written about the Budget, how that document is dated from the time it’s published, and where I then put a heavier reliance on the Forecast in order to incorporate unforeseen elements in the market that weren’t there during the budgeting process.  With respect to your company’s results, hopefully you already know where you’re going to finish and are already far into discussions for Q2 activities….because it’s already here.

Thanks for reading. . . .

Jeffrey Ishmael

Book Review: Patrick Lencioni and “The Five Temptations”…

March 18th, 2009 Comments off

     Right on the heels of some comments this morning regarding the evolving role of the CFO, I finished reading my latest book last night by Patrick Lencioni; “The Five Temptations of a CEO”.  While it might appear from the cover that it’s more directed towards a general management application, that’s exactly where the leading Finance folks seem to be finding themselves these days. If you haven’t read any of Lencioni’s works, they are great reading. While really simplistic in content, it’s refreshing to be reminded of concepts that really are simple and to reinforce the need sometimes to get back to basics. To put a focus on the values that, while maybe practiced daily, need to be communicated to others.

13742823

      In his first work, Lencioni discusses the five temptations that CEO’s need to avoid. His collection of these five temptations were developed as a result of his consulting work, compiled, further discussed, and affirmed through a wider audience. Simply, those five temptations are:

Temptation #1:   Choosing Status over Results

Temptation #2:   Choosing Popularity over Accountability

Temptation #3:   Choosing Certainty over Clarity

Temptation #4:   Choosing Harmony over Conflict

Temptation #5:   Choosing Invulnerability over Trust

     It really is interesting to see how these cross over to a Finance application and where we might fall into one of these areas.  With respect to Finance, I am almost always certainly pursuing Certainty over Clarity when it comes to making decisions regarding significant expenditures. Although we now find ourselves in an environment where speed and the speed of adaptation are playing a significant role, I am typically pursuing Certainty.  Moving to the last one, with respect to business, I trust few. When it comes to major decision making – What due diligence steps have been pursued? Do you have the supporting documentation? What is the source of your data and when was it last updated? Resume looks great but did you run reference checks?  Trust in Finance?….Not often, and only after I’ve developed a good history with the person in question. But then again, many had a long history with Madoff.

     Hopefully you enjoy the book as much as I did and I highly suggest reading some of Lencioni’s other works.

Thanks for reading . . . .

Jeffrey Ishmael

My final views on Executive Dashboards….

March 17th, 2009 Comments off

            My last two postings spent a little more time summarizing the different approaches that can be taken in developing an EIS platform. In this last installment I want to discuss the remaining elements that I chose to include in our first generation rollout. In the last posting we discussed the approach to Order / Revenue reporting.  Now it’s worth summarizing my approach to Operating Expenses, Balance Sheet, and Ratios. Again, it’s worth noting that this level of reporting is intended to only provide a quick “temperature” on what is happening with the Company.

 

            With respect to Operating Expenses, I chose to include this area since there’s always a need to keep tabs on major expense areas. I’m not interested in just a blended topline number, I’m interested in knowing what is happening in key expense areas. Out of the dozens of expenses, I chose to include only 12 that I would want to track on a constant basis. These ranged from 3rd Party Logistics, Advertising, and Bad Debt, to Professional Services and Travel. However, while the remainders of our reporting metrics will be reported on a weekly basis, these are only being updated on a monthly basis. Then why don’t we just hold this for review in our standard financial reporting? I chose to include because I want our OpEx to be a constant data source that our entire team will be conditioned into being sensitive to and not paying attention to on strictly a monthly basis.  With the reporting of the 12 areas I chose, we’ll be able to have constant oversight on almost 85% of our Operating Expenses.

 

            Next up, I wanted to focus on Balance Sheet accounts.  Again, I wanted to focus on those areas that should be tracked on a constant basis and not lost sight of.  We’re obviously following Cash/Cash Equivalents and Inventory, but I’ve taken a slightly different approach for A/P and A/R. For our Receivables, I chose to focus only on the 90+ column. We’re routinely seeing accounts in the Current to 60-day column, but my blood pressure starts going up when they hit the 90+ column.  I want to know if this column is growing.  Similar approach on the Payables side. I want to know if our A/P group is behind in paying vendors or if we are staying current, which is why I chose to follow the Past-Due column. Similarly, I will also be following the amount of early pay discounts that we are taking with vendors.  I want this number increasing every week. Since we have the ability to easily meet payables, I want to push the calendar a little more and start taking discounts.

 

            Last, but not least, were the E-Commerce/Dealer metrics and the basic financial ratios. I chose to include newly opened dealers, closed dealers, inactive dealers, as well as 5-key metrics for our E-Commerce efforts. Considering the current environment, I kept the financial ratios to the top level considerations of working capital rations, DSO, inventory turns, etc..  As mentioned in my first post, the intent of an EIS platform is not to be a data dump.

            -It’s intended to give a very top level view of what is happening with the Company.

            -It’s not intended to replace any of your financial reporting.

            -It’s intended to be an indicator of what further reporting needs to be addressed if there is a problem.

            -It’s not a static tool, but one that is dynamic to the needs of the Company.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Executive Dashboards – Part 2

March 16th, 2009 Comments off

                In my last post I wrote a very brief summary on the development of Executive Dashboards and some of the basic elements that can be tabled for consideration within such a tool. As with everything company, there are a multitude of approaches as it relates to measuring the business, and defining the necessary approach regarding the reporting of financials. More specifically, there will be a completely difference approach for the reporting of a Retailer versus the reporting for a company that might have an intensive R&D effort. Both will have a completely separate, and unique, set of needs for their reporting.  For the sake of this summary, I will keep those needs aligned with that of an Apparel or Footwear manufacturer.

 

            With respect to our Company, there were 5 key areas that I chose to focus on. However, it should be noted that your approach to any level of EIS reporting should not be static and should be open to change to accommodate the reporting needs of the company. But in planning such a tool, the areas chosen should be at a high enough level that there will be only subtle changes for long-term reporting purposes. For our first generation of reporting, I chose the following areas:

a.      Orders / Revenues

b.      Operating Expenses

c.       Balance Sheet

d.      Finance / Working Capital metrics

e.      Dealer / E-Commerce metrics

 

            With respect to each of the sub-areas listed above, it’s important to note the need for brevity in each of these areas. As an example, in Section A above, the intent is not to do a data dump of every area that the company records revenue under.  In our situation, we record revenues at both the International, Domestic, and E-Commerce levels, along with further delineation by Footwear, Apparel, Clothing, Accessories, and Other. For the sake of an EIS platform, the best approach is to take the 80/20 approach where you can get a consistent snapshot of what is happening, if you will, the “temperature” of the Company. Should something be sub-par, it would be apparent within the EIS and there can then be a follow-up with more detailed reporting.  For myself, out of the 30 potential combinations above (Orders + Revenue), I chose to follow only 10. However, the 30 above would represent just the financial portion. The 10 I have included also include metrics on Pair performance. While only a fraction of the total permutations, it will give me an immediate indication if there are potentially greater issues to deal with respective to our corporate performance.

 

            What’s important to note is that this is not just a “Finance” document; it’s a document that needs to be shared among the Management team and used to prompt discussion or decision making. The data needs to be unquestioned and easily updated. It needs to be a document that other team members are eager to receive and provides them with the necessary “temperature”. Are you achieving that with your current dashboard reporting?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Executive Dashboard…or Exec Data Dump?

March 12th, 2009 Comments off

One of the key projects I wanted to complete during Q1, which is almost finalized, is the introduction of an Executive Dashboard. For my current company, there has never been any form of EIS (Executive Information System) reporting in place so this involved the intro of a brand new reporting tool. For this type of situation there are countless pros and cons. On the one hand, there’s the open arms welcome of something that will help with key decision-making and provide new perspectives on the business. On the other hand, when everyone starts getting involved in “what they need” you run the risk of having what should be an overview turning into a data dump of so much info that it becomes more of a burden than useful tool.

                With respect to the creation of an Executive Dashboard, there are numerous off-the-shelf capabilities that can be integrated with your current reporting platform. For this company, which is using an older & customized form of MAS, I’ve chosen to take the more simplistic approach and build an Excel-based template that can be easily updated and will provide the snapshot that the greater management team will find of value. Especially since this type of tool has never been implemented.  Further considerations include the different segments or metrics that you believe need to be reported on.  In most cases, you’ll find a summarized reporting of Orders, Revenues, Balance Sheet, and Customer-centric items.

                But even then, with respect to each segment, do you really need to report on every item within each segment? For Revenue, I chose to report only to the level of Domestic and International for the segments of Footwear and Other, respectively. While we have additional segments such as Clothing, Accessories, etc., Footwear is still the core category that we need to watch the closest. I also chose to break this out at both a dollar and pair level. If any one of the team needs data on other softgoods then we can certainly pull that data but I don’t want to see a summary view turn into a data dump that can’t be synthesized in a matter of minutes. That’s really what the goal of the dashboard should be….a snapshot of the company that can be digested in a matter of minutes and provide a brief insight into the key areas that are critical to the success of the business. If any of these areas fall outside of the Company’s “comfort zone”, then it certainly warrants additional review and the pulling of details that are easily available.

                This is a much larger topic that I will be discussing in further detail and providing examples of what we implement for our own use.

Thanks for reading. . . .

Jeffrey Ishmael