Cash Flow Management Can Spell the Difference Between a Successful High Tech Firm and a Failed One
At the point where your high tech firm is looking to make the leap from early to growth stage, it’s likely that cash flow and management of cash is becoming an increasingly more difficult challenge. Cash flow management can spell the difference between a successful business and a failed one, because in any business venture cash is always the king.
While your firm may be profitable, that doesn’t necessarily translate to a cash rich business. Cash management and having enough cash on hand is generally a function of timing – between selling an item and collecting a payment; or between times you purchased items for your business and paid for them. So cash management really deals with knowing where cash is coming from, when you will get it, where it needs to go, and when it needs to get there.
Having the right accounting systems in place is fundamental to understanding and budgeting for cash flow. These are functions where your accountant can be of enormous assistance. With your management team, they can also recommend strategies for improving cash flow, for example:
- Set and stick to a cash management budget
- Managing and tighten your customers' credit
- Weed out unprofitable customers, those that cost more to maintain than they add to the bottom line
- Invoice promptly and take measures to encourage prompt payment
- See if payments to suppliers can be extended
- Renegotiate contracts
- Attract new customers or sell additional goods or services to your existing customers
- Keep a close eye on budgets and expenses for new product development
- Kill pet projects that are unproductive and a drain on cash
Another critical area of cash management for high tech companies moving to the growth stage is effective inventory management, and for companies looking to protect their cash it’s smart to minimize inventory. According to Chris Gordon of WIPRO Consulting Service, “high-tech businesses often cannot satisfy demand for their most popular products due to availability issues, and also experience inventory overhangs when a slump in demand catches them off guard.”
Your inventory management best practices may include the following strategies:
- Make your vendors keep your inventory
- Have vendors ship the inventory to customers
- Outsource components of the manufacturing process
- Order inventory just-in-time
- Pay only as you use the inventory
- Order in real time
- Educate employees about your goal to reduce inventory and give them an incentive for making it happen
- Make products to order instead of to sell
- Allow only limited access to inventory to minimize theft
- Use the same inventory items to create multiple products
- Stock only items that have a quick turnaround
- Get rid of obsolete inventory
There are, of course, other more sophisticated inventory control strategies and technologies that require greater involvement with your team of accounting and operations management advisors.
It’s unfortunate that so many high tech companies fail to make the leap to a growth stage because of cash management issues. While this blog post provides a brief overview of why cash flow management is important, and a number of strategies for improving cash flow, our recommendation is that you make this issue a priority in your planning efforts.
Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on cash management and inventory control strategies for your high tech company. Call us at 716.847.2651, or contact us here.
8 Core Elements of Business Process Management
High tech companies that are successfully making the leap from start up to growth stage continuously seek ways to improve productivity and operational efficiencies. With growth comes more exposure to competition, and demands from customers for more value and higher quality at lower prices. Customer loyalty and satisfaction becomes increasingly more important, as does requirements for cost and time savings and greater levels of employee productivity.
High tech firms moving to a growth stage need to consider increasing productivity though Business Process Management approaches and technologies. According to SearchCIO, Business Process management (BPM) is “a systematic approach to making an organization's workflow more effective, more efficient and more capable of adapting to an ever-changing environment. A business process is an activity or set of activities that will accomplish a specific organizational goal.”
BPM pinpoints opportunities to improve key business processes through analysis, measurement, and use of benchmarks to identify ways to streamline these processes for effectiveness and efficiency. Employing BPM for your firm should result in increased productivity levels, improvements in staff morale, and positive impacts on customer loyalty and relations.
- Identifying Key Business Processes - Select only key business processes that have a direct impact on the organization and its customers, and develop the benchmark against which success will be measured.
- Identifying the Voice of the Customer - Collect data through your internal and external feedback mechanisms to get their perspective on the good the bad and the ugly of your key business processes.
- Develop a Current Value Stream Map - Use subject matter experts to identify everything that is included in completing each portion of the key business process, and then create a detailed flowchart of this information to identify what is being done and why.
- Measure the Process - Identify the direct costs, people costs, overhead costs and opportunity costs associated with the business process.
- Completing a Root Cause Analysis of the key business process - Identify all of the blockages and barriers preventing the business process from immediately reaching its defined "improvement" requirements.
- Developing the Ideal Value Stream - Identify the blockages and barriers to reaching your defined success measures. Create the "ideal" process map that will address the root causes of all identified issues, concerns, problems and challenges in the current process.
- Developing Solutions - Generate a list of possible options and solutions that can be implemented, and then select the best possible options and solutions, ensuring that these will overcome the root causes. Some firms employ business strategies such as Six Sigma to improve quality and productivity.
- Developing the Implementation Plan -Develop a detailed implementation strategy to ensure that the solutions are successfully realized. Include who needs to do what, when and with what resources.
BPM has the potential to reduce costs, enhance efficiency and productive, and minimize risk and errors. It also serves as a means for helping company management direct, monitor and measure company resources.
Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on business process management for your high tech company. Call us at 716.847.2651, or contact us here.
Use This 17 Point Checklist to Get Started on Selecting a New ERP System
There’s going to be an inevitable point in your high tech firm’s evolution from start up to growth stage where you will outgrow your IT and Enterprise Resource Planning (ERP) platform and software. In fact, without an ERP system that meets your needs and is scalable, your ability to make the leap onto the growth stage may be severely hampered.
Selecting, installing, managing and using an ERP system is expensive and fraught with risks. Considering that most systems have a shelf life of between 10 and 15 years, you don’t want to make a mistake at the beginning of the process that will haunt you for years to come.
So, our first piece of advice is to hire an ERP system consulting specialist who can work with your management and ERP implementation team throughout the process. This consultant should be independent (i.e. not a software vendor representative), have at least a basic understanding of your industry, and a well-defined process. This is a huge investment requiring an exhaustive change management process, undertaken with the promise of huge returns over time.
At the 10,000 foot level, selecting the right ERP system involves defining what you need, pinpointing expectations for results or benefits from the system, becoming familiar with the ERP market, and then searching for the right solution. Along the way you’ll get into a discussion of cloud based ERP systems, vendor recommendations and references, and get exposed to lots of horror stories about ERP projects that have gone horribly wrong.
17 Point Checklist
Here is a 17-point checklist from www.erpsoftwareblog.com that can help you navigate the daunting process of selecting the right ERP system for your company. This is, of course, a very preliminary list and we offer it as a starting point for your journey:
1. What business challenges do you plan to solve with ERP?
2. What key issues and concerns do you have with your current system? What functionality do you think your system is missing but needs?
3. What functionality will you actually use? This way, you don’t pay for features your company doesn’t need now or don’t foresee using in the future.
4. Is the solution scalable and flexible to meet today’s needs – and provide a framework for future growth?
5. What will define success for your new system? How will you quantify this success – in terms of increased productivity, reduced costs, or other factors?
6. What’s unique to your industry and business that new software would need to address?
7. Does the ERP solution strategically align with its purchase justifications (business case, return on investment, etc.)?
8. How much customization will be involved – and what is the impact of that customization upon the solution?
9. How intuitive is the user-interface for employees? In other words, does the ERP system offer an interface similar to software that most employees already use – which reduces training time and improves employee buy-in? Or is this something totally new that employees need to learn from scratch?
10. How much employee training will actually be required to optimize the value of the new system once deployed?
11. What deployment options do the software and vendor offer – on-premise or hosted or combination of the two; one-time license fee or monthly subscription?
12. What is the deployment process and expected timeframe?
13. What will be required of your in-house staff during deployment?
Vendor support requirements
14. What on-going services should you expect from your ERP vendor?
15. What are the different levels of support plans offered by the vendor?
16. What is the availability of after-hours support?
17. What response times can the vendor commit to achieve?
Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on ERP system selection for your high tech company. Call us at 716.847.2651, or contact us here.
Earlier we published a blog post about about that discussed not losing your business to occupational fraud. Check it out here.
Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on fraud detection and prevention for your high tech company. Call us at 716.847.2651, or contact us here.