construction101forwomen.com

During the startup of my company, the first actual event was the creation of a website. During this process, my company was incorporated, licensed and insured. The ease of creating a company with the assistance of another on-line business made perfect sense to me. The GoDaddy.com guided me through all the necessary steps and provided a roadmap for my company. It was quick, easy and frankly enjoyable as I know I was going to have a new website, initially an on-line store and email communication that would provide a cohesive element to my dream of owning a business.

Over the next three years, the development of my products and services were driven by the availability to research and interact with my service providers. Companies like ADI Global, www.adiglobal.com, and Honeywell, www.honeywell.com, provide my company with design tools, marketing literature, quick on-line pricing and much more. Since my company designs, sells, programs and installs security systems, Honeywell's programming tools provides S&B Systems with direct connection to any of my clients 24/7 via the Internet.

Additionally, with use of Facebook, Twitter and Linkedin, I have been able to successfully market to many. The use of social e-commerce has been an integral part of S&B Systems sales and account for 70-80% of our referral business. Although, I have canceled the on-line store as I reconsidered my niche and business plan going forward in 2010, I still use my website to drive attention to new and our best selling products.

By integrating and using technology, S&B Systems has grown to over 100 clients in only 2 years of actively e-marketing and incorporating e-business traits. One of the "10 Things You Must Know About e-Business" as described by Dr. Ravi Kalakota, is a theme I use daily in my business. It is that "e-Business is about using technology to innovate, enhance and entertain the entire customer experience" (Kalakota 2000). I believe this to be extremely important.

References:

E-Commerce,E-Commerce 2011 (7th Edition) (Pearson Custom Business Resources) Kenneth Laudon (Author), Carol Guercio Traver (Author)

10 Things You Must Know about e-Business, January 2000, Dr. Kalakota, Ravi, eAL Journal's interview with Tony M. Brown

www.site.construction101forwomen.com

Here's the scenario...I am your CFO and we need $20-25 million in the next year to fund our company and in order to attract investors, we need to do the following:

Develop a solid Business Plan – Our business plan will describe the company’s vision, mission, objectives, strategies and action plans.  Action plans for the following our key departments are vital; they will included a sales and marketing plan, an operating plan, financial plan including budgets for the next five years and staffing and training plans.

Solidify Vision and Mission Statements - The vision statement must be a single strong short message.  The mission will provide our potential investors with simple guidelines on how we plan to fulfill our vision.  Expressing the objectives of the company and strategies to reach the success we know we can do are also crucial elements that provide us with an opportunity to inform our investors that we know our business and that we are a good investment.

Set our Action Plans in Motion - Our departmental action plans will reiterate how each department will play a role in meeting the company’s vision, mission and objectives.  We will provide solid data using historical information along with recent market research, operating data, financial statements, etc. to ensure our plan is achievable, trackable, and goal driven.   

Our sales and marketing plan will include a review of our initial plan and how we met and exceed our sales goals, outline the growth areas including demographics and physical locations that we know our products will have a gain market share.   Additionally, the sales & marketing plan will include sales predications and growth metrics based on customer relations and their knowledge of the market.  Since our initial review has provided an avenue to double our sales, we must address how our sales team will grow to handle the increase in orders.

Our operational plan for the next year is critical.  We have to address our equipment needs, raw materials requirements, storage concerns, logistics and direct labor staffing.   Our plan must include a detailed analysis of the production levels will need to meet the projected sales along with staffing requirements for both fixed and variable costs.

By providing our financial statements for the last 3 years along with a project 5-year budget broken down by year with a special report on how we will incorporate the $25-25 million investment and our spending requirements into our financial plan, we hope to alleviate any unnecessary concerns.  We are profitable and we must provide a detailed listing of our variable costs, those we plan to incur and express how we use the new capital to invest in our growth such that we increase our profitability and provide a strong return on our potential investor’s money.   In this section, we must include our cash flow plan for the next 3 years at minimum.   Additionally, it is vital to express our owner’s seed money to ensure our investors recognize that ownership has and will play an active role in the company’s financially. 

Lastly, it’s imperative that we include our staffing and training plans as we are only as good as our team members.  With growth, we must hire and train our employees to become productive and efficient without losing sight our mission and losing any quality in our products and services.    More to the point, all of the departments staffing and training needs along with a detailed variable cost analysis and implementation schedule will be incorporated into this portion of the business.   We must align our resource to the schedule of implementation without increasing our labor forces too quickly and eat up the new investment capital.

We are strongly interested in attracting investors and below I have outlined some of the one’s we should pursue and why or why not?

Angel Investors – Truly in our case, we want Angel Investors.  We are an emerging company that is profitable.  We want to drive our business and stay focused our plans, strategies and growth.  Angel investors seek to align themselves with companies like us.  We are worthwhile and we just need to prove it to them.

Venture Capitalist-   This is not my top choice as Venture Capitalists tend to want predictable financial results and because they are so strong financially they may was to change the way we do business and align portions our business with other businesses they own.  For example, they could have to combine our financing department with another company’s financial department and consolidate resources to gain quick increase profitable.  They are about making a company profitable and increasing their position.   They just may to be too strong and we may lose our focus and control.

Going Public? – We are not really ready to take our company to an initial public offering (IPO).   We have to remember that only a very few companies make it and we are just too young and relatively small to consider this option at this point. 

Strategic investor / Selling Stock – If we cannot locate an Angel investor, this is another valid option.   We should investigate a company or individual who is interested in our products and services.  They may have an opportunity to merge resources and, or purchase stock in our company in exchange for ownership.   We do need to locate an investor with opportunities to benefit us by possible sharing of technical and other resources without requiring us to lose our focus and change our vision.

Consider this... based on the budget for Waterfall division the projected profit for the 2^nd quarter was $250,000.  The actual profit is only $197,000.  The Waterfall division has missed its budgeted profit by $53,000 and our profits are down by 21.2% 

As the financial manager for this the Waterfall division, there are two specific areas to examine to uncover the reasons for the shortfall.   One area to investigate is the sales budget and recognized revenue.  The other is the actual cost incurred for products the waterfall products.  

It is very important to consider the possibly that profits actual have been greater than the anticipated budget and sales met the budget but unfortunately, the company was unable  recognized revenue for the quarter as many orders have not been shipped to customers and in turn left unbilled.  For simplicity, let’s consider that all sales are billable within the quarter in which they have been ordered.  Thusly, there are two scenarios relative to a decrease in sales revenue that may have impacted profit. 

First, sales revenue was just down proportionally by 21.2%, equally to the profit decreased mentioned above.  In this scenario, everything is going according to plan with the exception of sales budget.  Possibly, the sales plan indicated that one of their customers would be making a large purchase in the 2^nd quarter that is now pushed to the 4^th quarter.    The most important issue for management to address in this situation is to reach out to the customer and confirm there will be an order the 4^th quarter because if not, cost cuts may be in order. 

Another possibility, sales revenue is down and it does not correlate directly with the decrease in profit margin.  For example if the sales revenue is down by 10% but the profit is down by 21.2%, there is a greater issue than just with sales; most likely there are major cost overruns, too.  On the other hand, if the sales revenue is down 35% but the profit is only down by 21.2% then the Waterfall division is doing a great job driving productivity and cost control measures.    In either scenario a detailed cost analysis and sales review is in order to understand and determine why there was a variance. 

If after reviewing the sales revenue it is found that the sales were actually in line or higher then with the budget and that the divisional manager was just making an arbitrary statement, “sales are down”, to cover up the real issue which was a divisional cost overrun, a complete analysis of the cost and estimate comparison is warranted.

Since most companies have a basic understanding of their budgeted cost to complete the work and have it broken down by cost type.  Some common cost types are labor, material, equipment, indirect costs, subcontracts, and other.   As the financial auditor, a detailed labor comparison is very important.  First look the actual cost to estimate cost for the quarter.  Then review the hours associated to the actual cost.  Confirm whether or not the production level was met.  If it was not met, ask questions to determine what caused the slower production.    Adjustment in staffing may be in order for the Waterfall division.

Next review the commitments made to vendors and subcontractors.  Analyze and determine if there was a cost variance in the budgeted estimates verses actual costs for these cost types.   If there is an increase in actual cost, review why this occurred.  Possible issues are that could have caused material cost overruns may be related to shipping and handling charges, double-handling of materials, materials delivered out of order, meaning not in the sequence originally planned, etc.   Operational management should review the process in detail and create a corrective action plan for materials.  If purchases were made for future quarters, these costs could be removed and accrued in the correct period. 

Additionally, review possible subcontract overruns, these are usually bit simpler.  Usually they are related to scope creep and are easily identified if there is a greater commitment then actually estimated.    The big picture issue that must be addressed is that if there is scope creep or a change in methodology to complete the work, it is identified.  If changes need to be made, they should be incorporated in the budget going forward. 

Further analysis of the remaining cost types should handled in a similar way.  If necessary, specialists in cost accounting should be utilized to aid in this type of analysis. 

The most important aspect of completing the budget review quarterly for the Waterfall division is to locate why there was a decrease in profitability.  In turn, the division may need a budget update and develop a recovery plan.  Additionally, detailing the lesson learned from this financial review can set the tone for the next two quarters and setting the budget in future years.  To improve the process, it is critical that the company uses historical data by gaining a financial understanding which must include the sales and operational processes reviews and lesson learned with information on how they impact the profitability is critical when projecting your budget going forward.   

Should management’s compensation packages be based on the company’s performance measurable?  Sure, why not?    We live in a society that realizes the importance of free trade and will and desire be successful.  One avenue is the opportunity to increase your earning potential.  With a result-oriented pay structure if you work hard and do your job well then, you shall be rewarded right?    Let’s consider both the pros and cons of performance based compensation match the company’s performance measurable and how they link to the company’s shareholders.

First let’s explore the Pros

• Measurement Motivates
  •  In business, an employee should strive to meet or exceed goals and they should be motivated to succeed.  We work to be paid.  If we work harder and increase the company’s performance, it is human nature to desire equal pay or additional compensation for these efforts.  Consequently, by understanding how to reach a goal knowing there is an opportunity of an incentive is a motivator.
• Corporate Self-Improvement
  • Being part of a company that provides a healthy competitive environment and a culture of reaching new goals, provides an avenue for personal and corporate self-improvement.  We start our learning process when we are born; it’s instinct.  We desire an opportunity to grow and be part of the success.  Performance driven compensation can provide more opportunity to learn and mentor others.    Given each individual a chance to be part of the “high performance work systems”.
• Leader verses just a manager
  • With performance based compensation packages, the middle manager collecting and applying facts is become extinct.  A new wave of leaders is emerging that not only want to drive the business for personal success but are driving accountability and ownership of responsibility at all levels.  They are making better decisions, hiring workers that can have similar traits and are preparing for the ever-changing business world.    They lead by example and look for innovation.
• Creating and continuously building a culture of loyalty
  • Valuing the relationships internally and externally become increasingly demanding in a performance based compensation workplace.  You must create buy-in and develop communication skills to gain acceptable from others to help you exceed your performance goals.  Integrating and building on success by rewarding people for a job well done creates a culture of loyalty.

Now let’s take a look at some of the Cons

• Unreachable metric
  • Nothing like working at a company that ties your compensation to goals that are unattainable.  Employees will catch on.  Eventually, they will ask why and how this measurable was created.  An example would be rewarding a collection specialist for keeping that DSO at 20 days or less.  Seems like a great goal as most business owners would like to get paid in less than 20 days.  But this seems truly unlikely when the sales team is accepting and issuing orders with net 45 terms.    Truly an unattainable goal that will not motivate the collection specialist and most likely cause friction internally and externally with customers. 
• Incorrect Performance Measurement
  • Some companies do not measure the right elements of business creating false reading that end of causing poor performance or an overstatement of performance.  IE:  rewarding or issuing sales commission prior to being pay by the customer for the product or service.     Construction projects are great examples where the reward of the estimator / sales associates tends to be based on the profit upon award.   This all sounds great.  Build the sales forces up and reward them for a job well done.  But now the project was bid with a 15% profit margin and after all the changes, estimate revisions and other cost issues end up with a margin of 10%.   This can cause much internal turmoil especially when the PM’s performance incentives are tied to ending margin.   Does not build team work.  Create a hostile work environment and diminishes innovation to work together to resolve any cost issues to maintain or improve the project margin on the project.

In the end, a company’s measureables are key informational elements to create investor’s buy-in.   Shareholders want to invest in a company that understand what aspects of the business drives performance and that the company watches these indicators to provide return on their investment.  Measureables such as managed sales growth that meets or exceeds the company’s business plan and measuring the return on assets (ROA) which according to Joshua Kennan “is the most stringent and excessive test of return to shareholders”.    With this said, it’s understandable to create direct ties for management compensation packages to these measurements.  Moreover, it’s imperative that a company balances its goals with the performance goals of its employees for a mutually rewarding relationship.    

References:

Sharma, A. (2009). Implementing balance scorecard for performance measurement. ICFAI Journal of Business Strategy, 6(1), 7–16

http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-roa-income-statement.htm

While I was a top executive at very large fire suppression contractor, our management team spent hours in discussion about rewarding our sales team and outlining a new bonus program for them. One day I spoke up and said, why don't we remove all rewards and make the entire company vested in the sale. Meaning not just race for the next biggest sale that provide commission to one person, but ask our professional engineers, project managers and account managers to work together to reinvest in our current customers and obtain repeat business that is profitable and within our means to perform. The entire room was silent and started in that we can take away time from operation and that our engineers are too value to work on bids instead of projects. I argued yes they are busy fixing mistakes and misguided sales efforts. So why not invest in ourselves and aid the sales team and reward the companies! In the end, we agree to try it and found that these projects were smoother, less headaches and our performance was rewarded with higher profits. But there were some who just wanted their bonus and disliked working as a team. I do not believe in this work strategy as there could be a better way when the reward is shared and all the people at the company take ownership of their work to obtain sales.

Additionally, by taking a proactive approach for each sale and allowing input from the operational and finance staff, there could be the elimination of duplication of work and a better understanding of payment terms and conditions at the inception of the sale. As stated, "concessions in the terms of trade" would be watched more closely. Not to say that concessions or negotiations are not necessary but by providing a close eye on the sales from an operation standpoint could provide other innovation ideas or experiences that could ultimately create a stronger relationship in today's market with customers.

After reading the article, Need Cash? Look Inside Your Company by K. Kaiser, there is one mistake that I have personal experience with at many companies I have worked for. It is "rewarding the sales force for growth alone". They are driven by the glory instead of the well-being of the organization to obtain and provide products and services at a fair market value that exceed the customer's expectations. Sales with no boundaries can lead to projects with misunderstood requirements and unreasonable expectations. The result could directly impact the bottom line and future business.

While I was a top executive at very large fire suppression contractor, our management team spent hours in discussion about rewarding our sales team and outlining a new bonus program for them. One day I spoke up and said why we don’t remove all rewards and make the entire company vested in the sale. Meaning not just race for the next biggest sale that provide commission to one person, but ask our professional engineers, project managers and account managers to work together to reinvest in our current customers and obtain repeat business that is profitable and within our means to perform. The entire room was silent and started in that we can take away time from operation and that our engineers are too value to work on bids instead of projects. I argued yes they are busy fixing mistakes and misguided sales efforts. So why not invest in ourselves and aid the sales team and reward the company?

In the end, we agreed to try it and found that these projects were smoother, less headaches and our performance was rewarded with higher profits. But there were some who just wanted their bonus and disliked working as a team. I do not believe in this work strategy as there could be a better way when the reward is shared and all the people at the company take ownership of their work to obtain sale. My thoughts were take the reward of higher profits and share it with the team. This strategy worked, sales increased and higher profits were realized.

Additionally, by taking a proactive approach for each sale and allowing input from the operational and finance staff, there could be the elimination of duplication of work and a better understanding of payment terms and conditions at the inception of the sale. As stated, "concessions in the terms of trade" would be watched more closely. Not to say that concessions or negotiations are not necessary but by providing a close eye on the sales from an operation standpoint could provide other innovative ideas or experiences that could ultimately create a stronger relationship in today's market with customers.

Customers know they have to pay for the goods and services. By outlining these terms up front during the sales process, there could be a lot of time saved on the collection end. Investors want to know that your company understands how to get money in the door and keep the DSO (Days Sales Outstanding) at an acceptable average. With a higher DSO, it is clear that the company takes a long time to collect on a sale. By establishing control that is incorporated in each sale, the cash flow could clearly improve and provide a solid means for funding the business and paying vendors in a timely fashion.

If a reward is made on the just the sale alone, then there could be many in an organization left to complete, collect and finish the work without the same motivation. I truly believe that a company should keep the sales force vested in the sale until the sales is complete, paid for and a customer satisfaction survey is completed that meets or exceeds the companies standards.

As CEO of the Carson Company, I am considering the need for additional funding. I want to grow my business and expand into a new geographic market. In order to do this, I have created a budget of the cost associated with hiring a new account representative in October of 2011 and a subsequently hiring a serviceman at the beginning of next year. Moreover, we need to hire a company blast off our advertising in this area along with establishing a presence by renting at least a 400 square office for a minimum of 2 years lease.

In order to accommodate the costs to be incurred for salaries, rent expenses, advertising and other misc. cost, I would like it issue 1,000 bond share and request an increase in our line of credit from our preferred lender. I would like to have the funding in line prior to spending a single dollar on this expansion.

In order to gain buy in from our shareholders, I have listed the pros and cons for increasing our bonds payable and short-term notes payable.

Pros:

Need Cash to Operate: With expanding into a new market, there is a need for operating cash. By providing a means for additional cash, we can complete this expansion without impacting our cash reserves.

Managed Growth at Cost: By providing a detailed budget for use of the funding, we can properly manage the additional funding against the costs for the expansion under its own cost center.

Anticipated Increase Earnings per Share: Based on my calculations and estimated revenues to be generated by expansion should clearly offset the cost of financing the growth and provide an increase to our current net income at 25% with an increased earnings per share by as much as $1 a share.

Cons:

Exceed Debt to Equity Ratios: Since our company already has a debt to equity ratio of 19%, we need to confirm that we do not exceed 25% with new financing. It is critical that our shareholders are comfortable with debt to equity ratios.

Balance Sheet Concerns: Additionally, we need to act quickly once the financing is in place. Time is of the essence as we do not want our balance sheet to reflect high long-term debt under non-current liabilities without an increase in our current assets. It is not in the plane to have to adjust our strategy at a later date and renew the financing for a long period. We have done our market research and we need to generate sales and billable revenue quickly to not compromise our financial statement and our investors’ faith in our company.

Repayment Terms: We must stick to our terms and drive our team members to generate the revenue to repay the note payable and be ready to meet the bond interest payable terms. We want to keep these options open in the future so let's get this expansion done and prepare for the next one 2 years from now.

We have set our goals and we need to leverage our financial stability to expand. Understanding our historical financial position with our current cash reserves, it is apparent we need to commit to the expansion by increasing our financing. Planning and executing our growth is a commitment that must be taken by us financially and operationally.

Carson Company is ready to grow. Are you ready to approve the request for additional funding to leverage our growth?