Financial Insights & Digital Marketing Trends
We bring you the latest financial news and digital marketing trends from the world over.
We are dedicated to learn the in and outs of the financial world and digital marketing. Thus, we publish what we discovered so far to share with you the knowledge we gained.
Because knowledge is POWER
Whether you want to start a mom and pop store or an online store, it pays to have a sound financial know how.
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Transportation on sales can be seen as a cost item, or as a competitive factor. The choice of mode of transport has commercial implications for customer delivery time, overall selling price and company image, but also operational impacts on inventory management and packaging. So that’s part of the company’s strategy.
Choosing The Right Mode Of Transport
The choice of a mode of transport must reconcile, on the one hand, the objectives of customer service vis-à-vis the external (efficiency: quantity, quality, delay), and on the other hand the internal objectives (efficiency: economic constraints).
Several factors influence the choice:
- time or duration of transport, an essential factor. The longer the delay, the longer the stock will be longer,
- technical criteria that take into account the nature of the product to be transported (volume, weight, fragility, dimensions, product dangerousness, etc.), packaging constraints, and the way stocks are managed (average turnaround time, just in time),
- financial criteria that cover the intrinsic value of the product (for those with low value, favouring maritime transport over air transport), foreign exchange risk, late penalties, etc. arbitration with the cost of ownership of stocks (for this purpose, follow the ratio: cost of transport / cost of ownership of stocks),
- The company’s communication strategy to highlight its commitment to reducing CO2 emissions.
The management controller can list the determining factors for comparing different solutions between them in order to choose the most appropriate one for the company. Comparative analysis may include:
- mode of transport: main transport, pre-delivery, post-delivery,
- The number of load breaks
- Transportation costs: freight, packaging, insurance, pre-routing, post-delivery, ancillary costs, fixed costs. This cost can be related to the starting value,
- delays in days of transport, waiting, pre-delivery, post-delivery, and overall,
- safety (from ‘to’) transport and delay
Manage Transport Costs On Sales
This involves evaluating transport costs and measuring the productivity of the solutions chosen. The objective is to identify areas of poor performance and to opt for actions that allow:
- avoiding the extra costs associated with the inadequacy of certain modes of transport,
- reducing the rates offered by carriers.
However, these actions should not compromise customer satisfaction.
Valuing Cost Items
Analytic accounting must be designed to enhance:
- overall transport costs,
- Transportation costs according to the appropriate lines of analysis to the needs of the company: by customer, by geographical area, by family of products, by mode of transport.
- different components of transport costs: freight, packaging, insurance, pre-delivery, post-delivery and ancillary costs
These values can be a standard cost file that will facilitate the construction of the sales transportation budget.
The first step is to identify the factors of under-productivity that generate additional transport costs: shipments that are too split, single mode of transport, packaging ill-suited to transport, vehicles ill-adapted to the load, insufficient revision of contracts and tariffs, poor size of the fleet of vehicles, rounds of poorly programmed deliveries…
Then, pilot indicators should be combined with the dashboard, measuring for example: the number of parcels per shipment, the cost of transport per tonne, the rate of damage, the rate of filling, the price differential of competitors, the rate of use, the cost per tour…
The evolution of measures over time will reflect the impact of actions taken on productivity improvement.
Profitability analysis is at the heart of the financial analysis process. It aims to explain the value creation of the company. It also follows the analysis of activity (changes in sales). Finally, it precedes that of the financial balance of the balance sheet and the debt. Analyzing profitability involves identifying scissor effects and absorption of fixed costs.
Profitability: The Problem
If turnover increases by 10% and the result increases in different proportions, there is a phenomenon that needs to be explained. Profitability analysis essentially consists of detecting two major causes of variation in the result, the scissor effect and the absorption effect of fixed costs.
What Is The Scissor Effect?
It refers to a favourable or unfavourable change in the selling price in relation to the cost of purchasing goods sold for a distributor or the consumption of raw materials for an industrialist. The scissor effect is detected by changes in the commercial or gross margin (table of intermediate management balances) expressed as a percentage of sales.
A favourable scissor effect can come from:
- better negotiation of purchase prices, for example due to an increase in volumes purchased;
- improved “product mix” with higher-margin products being better sold;
- favourable exchange rate effect, import or export.
An adverse scissor effect may result from:
- inability to pass on the rising cost of purchasing raw materials into the selling price;
- a more aggressive trade policy of market share or a defensive response to increased competition.
For an industrialist, a scissor effect may also result from a change in the rate of loss on raw materials (brake) in the production process. The scissor effect may also result from a change in transportation costs. Thus, a supplier of low-priced weight products (cement, cartons, water, etc.) will have an adverse scissor effect by delivering geographically more distant customers.
The income statement only tracks gross financial data (sales and consumption). Therefore, its reading alone does not identify the origin of the scissor effect (variation in the selling price or the cost of purchase). Only the knowledge of the context of the company will allow us to know its origin.
For a distributor, the analysis of the commercial margin rate is often of crucial importance. Suppliers who conduct financial analysis of members of their distribution network often identify the minimum commercial margin rate. Below this rate, their client cannot materially cover his structural expenses and make a profit.
The “Absorption Of Fixed Costs” Effect
To analyze profitability, it is essential to look at the absorption effect of fixed costs. In the case of increased sales, fixed or rather fixed-dominant expenses change in stages. This will allow the company to absorb an increase in its business. This includes a constant workforce, the same space area and the same level of equipment up to a certain point. After a threshold, it will be forced to hire, expand, invest.
The detection of the absorption effect of fixed charges, favorable or unfavourable, consists of analysing the evolution of “fixed-dominant” operating expense items. They are expressed as a percentage of sales. For the profit account of a company in French standards, these are other purchases and external expenses, personnel expenses and depreciation and amortization.
An absorption effect of favourable fixed costs results from:
- Increased sales at a higher rate than the expense item;
- decrease in the cost position at a faster rate than sales
The impact of the presentation of the income statement
There are two main methods of presenting the income statement:
- Expenses are presented by type
- They are grouped by function (production, commercial, administrative, R&D).
The Two distinct presentations
Calculating a specific profitability rate requires a certain method of presentation. De facto, the interest of presentation by nature is to be able to spot a scissor effect in its purest form. This effect is detected by the analysis of changes in the commercial margin or gross margin rate. Apart from the change in the loss rate on raw materials, the gross or commercial margin rate varies only according to a change in selling price or cost of purchase.
Conversely, in the result count by function, the scissor and absorption effects of fixed loads are less apparent. The gross margin is calculated net of the cost of production of the products or services sold. Thus, for an industrial enterprise, an unfavourable scissor effect due to the increase in the cost of raw materials can be compensated by better absorption of fixed production costs. The latter is itself due to productivity investments or an increase in activity.
In many circumstances, the CFO is faced with the need to negotiate, argue, compose and decide. So many decisions to be made (which often have serious consequences) in a minimum of time.
CFO: different types of school curricula
When one dwells on the typical route of a CFO, one is often surprised by the trajectories taken by the latter. It is not uncommon to see that CFOs belonging to the 40-50 generation have often been trained ‘on the job’. Many of them come from management control. Academically, they have often followed a path leading them to accounting. The technical skills they have acquired are therefore often those that would have been followed by a student wishing to become an accountant or to work in an audit firm.
How could human skills be acquired? We find that they have been tested through field experiments.
Problems that are evolving
Faced with the challenges faced today by CFOs. We can see that they are not the best equipped to deal with it. Indeed, we must admit that today and even more tomorrow, we expect much more from a CFO. Not only is it hoped that he will have very strong and broader technical skills, but also that he will be able to demonstrate very specific human qualities.
Is squaring the circle the ultimate goal of a CFO?
The financial management of a company must be based on its main facilitator. The DAF is the conductor of the musical ensemble that constitutes the finance team. Indeed, he is above all a human being with his qualities, his defects. The human dimension he personifies must take on its full dimension in the appreciation that one is led to make of him or her.
For this reason, it seems essential that the following human qualities be developed in the latter:
Hierarchical and transversal management of the CFO
The CFO frequents the upper echelons of the company (participation in CODIR/COMEX, relations with the general management). He also manages a larger or smaller team of employees. In both capacities, it must be both flexible and firm. He adapts his speech to his interlocutors in a broad spectrum of tones and this, in a unit of time that can be a day.
Discussing leave plans with staff and talking with staff about the implications of the new capital increase on the same day requires a rhetorical and speechalized gymnastics that must be had. Similarly, he appears as a coordinator. Indeed, he asks the operational departments of the company to feed his dashboards. He is thus a client to persons over whom he does not have hierarchical authority. It is therefore necessary to handle these relationships as skilfully as possible.
Need to be emotionally intelligent
The current company is an ecosystem in which several generations evolve. They each have their own code, their value system and the way they operate. Having the ability to decode these grids in the interest of the company and to make these different layers work together harmoniously is a real quality. It is rare but very popular with businesses.
The CFO must be able to work on these different frequencies. In addition, he must know how to combine teams that work well. The ethnic dimension and the resulting differences must also be taken into account. Finally, the direction of change, a primary axis, must be controlled. The DAF is the captain of the aircraft. He accompanies the change of course with around him a close-knit team focused on the same goals. He is the guarantor of this cohesion.
Know how to negotiate in all circumstances
Negotiation is a central point, whether it is with the social partners, the management of the company, its employees or its banker. In this regard, the DAF must demonstrate real competence. Techniques must be integrated and mastered. He is here the guarantor of the interests of the company. Again, his ability to vary his speech according to the frequency on which he finds himself is a real asset.
Gaining a leadership posture
This means being in its place in the company. The CFO is a key contact for executives. No major strategic decision avoids the financial side, often at the heart of the debate. From then on the DAF became an actor in the final decision. He is a decision maker, so he becomes responsible for the consequences like everyone else who participated in this decision. This responsibility for those who are leaders must be well integrated and accepted by it. He became an actor in the change of the company. Acquiring this posture requires time, experience, during which confidence is strengthened.
It is a state of affairs of what a CFO should develop as a toolbox of human skills. Of course, this review is by no means exhaustive and does not have the ambition to cover all the tools, but these few axes undoubtedly form the basis of it.
One of the key questions in strategic business analysis is the existence of key skills or resources that enable the company to gain a competitive advantage, the VRIO model answers this fundamental question.
Understanding the VRIO model
The VRIO model formalized in 1995 by American professor Jay Barney provides a framework for answering this question.
Strategic analysis takes place in a competitive environment. As part of the internal strategic analysis, the VRIO model is designed to assess what Jay Barney calls the company’s “strategic capability,” i.e. its distinctive skills and resources (tangible and intangible assets) that give it a competitive advantage.
This strategic capability includes:
- Specific know-how, autonomous or interconnected skills in a business process: innovation, research and development, marketing, sales, production, logistics, HR management;
- Body assets, for example, for a hotel that owns its walls, the quality and location of the building, an important stock that ensures a complete product offering, a specific geographical location;
- Intangible assets: a patent, a well-known brand, a broad customer portfolio, well-established partnerships with suppliers or customers, an information system. These intangible assets are or are not recognized in accounting.
The acronym VRIO is the result of the following terms: Value – Rarity – Imitability – Organization that is confronted with the skills and resources of the company.
Competence or resource helps to create value for the customer, for example, allows to produce at a good level of quality, at a lower cost, to cover all the needs of the market is an attractive brand for customers.
The strategic skill or resource is unique if not rare. Rare skills are for example sheet metal and riveting for shipbuilding, mastery of leather work for the luxury industry, a unique technological monitoring system to meet all customer needs. A skill or resource shared by all market players would by definition not be distinctive;
While the resource is scarce but easily imitable, it provides a competitive advantage that is only temporary. If it is also difficult to imitate or substitute, it provides a lasting advantage. A new competitor should spend a lot of time and money developing this resource without necessarily having the assurance of making a return on their investment.
Often the distinctive know-how of a company is difficult to imitate because it corresponds to several uns formalized skills, implemented in interaction with each other in the course of a process and moreover, within the framework of a given corporate culture. The know-how is difficult to imitate because it forms a whole. The company then benefits from a barrier to informal entry. Experience shows that a strong corporate culture can make it more difficult to successfully integrate newly acquired companies.
This criterion refers to the ability of management in the broadest sense (information systems, the nature of objectives, decision-making method, etc.) to make good use of these resources. The strategic resource must be recognized as such by management in order to be sufficiently developed.
Not all of a company’s skills and resources are distinctive. The author uses the term “threshold capacity” to refer to the basic skills and resources needed to be able to intervene in a market, thus non-strategic. For example, for a frozen food distributor, cold chain management is a basic skill in claiming to intervene in the market. A threshold capability, of course, does not provide a strategic advantage. A company with no significant strategic advantage will obviously be vulnerable when competition intensifies.
Analysis from the VRIO model is a state of affairs at a given time that needs to be regularly updated. The efforts of existing or new competitors, technological change, changing customer needs, make it difficult to say that current strategic skills and resources will still be so in the future.
Strategic analysis consists of two main steps:
- External analysis focuses on macro-trends and the industry, identifying opportunities and threats;
- The internal analysis focuses on the company itself, it leads to the determination of its strengths and weaknesses to which the VRIO model attaches
Understand how the VRIO model interacts with other strategic concepts
The value chain scheme, created by Michael Porter, traces all the company’s activities that use specific skills and resources, which are compared to the criteria of the VRIO model;
The Key Success Factors refer to the skills and resources that determine the acquisition of a competitive advantage. If the company masters this activity better than its competitors, it increases its competitive advantage. While Key Success Factors are often very specific to each trade, they relate to the traditional functions of the company: design, marketing, production, marketing, logistics, etc. The company has a competitive advantage if it has the skills and resources corresponding to the Key Success Factors identified in the trade.
Identifying strategic skills and resources leads to the definition or improvement of its business model. The business model describes how the company organizes itself to satisfy its customers in the best conditions of profitability and flexibility. The company invests primarily in strategic skills and resources, avoids investing in other skills and resources, or even outsources them.
The VRIO model leads to determine the strengths and weaknesses of the company that then power the EMOFF/SWOT matrix.
How to use the VRIO model
This model is used to:
- Review the company’s skills and resources to identify those that provide a real strategic advantage;
- Improving its business model raises the question of outsourcing “threshold capabilities” in order to improve the profitability and flexibility of the company (variabilization of expenses);
- Strengthen underutilized strategic skills and resources to increase competitive advantage;
- Identify new business segments for which our current skills and resources would provide a competitive advantage.
The position of CFO is an enviable professional perspective for many executives in accounting, management and financial functions. Financial management is a key cross-cutting function that contributes to the company’s economic performance and secures its financing. You obviously don’t start your career as a CFO, you become one on a career path. The purpose of this post is to clarify the background and skills of the CFO.
What titles for the CFO?
Several names exist to designate the head of the finance function (in the broadest sense, encompassing accounting and management control). He is appointed CFO, Chief Financial Officer in larger companies and even deputy general manager in charge of finance for a large group. On the other hand, in smaller companies the function is carried out by an administrative and financial manager. The person in charge of finance is also sometimes referred to as a financial controller.
Sometimes the CFO is overwhelmed by the non-financial aspects of its function (the C then prevails over the F!) because it is deferred all activities not directly generating revenue (DSI, general services, purchases, legal service, etc.). He then created the position of financial controller, reporting directly to take charge of purely financial matters. The title of financial controller is also awarded to the person in charge of the finances of a group’s subsidiary. As funding is often managed at the group level, its function then focuses on budget management, the animation of dashboards, the reporting of its unit.
CFO, what profile?
The CFO compares himself to a conductor. The latter knows how to play one or more musical instruments but not all of the orchestra. The CFO also leads a team of many expertises that he does not have complete command of (he masters some of them) but which he must have a sufficient understanding of. Sometimes, he must know how to convince an expert to apply a choice in accordance with the interest of the company even if that choice does not always correspond to the rule of art as part of his expertise.
You become a CFO at the end of a career course during which you have developed different expertises. In SMEs, when the position is created, the financial management is sometimes entrusted to the Chief Accountant.
In ETIs, the CFO is more frequently spent by an audit firm or through the management control function. Large audit firms provide very comprehensive training and performance management is often at the heart of financial management. More rarely, the CFO comes from the treasury function because this function is very specialized and focused on the banking relationship or the financial markets. Some of the CFOs of industrial or commercial companies are from the bank.
The company hires a former banker for his expertise in investment financing or merger and acquisition. He then moved into the company as a full-fledged CFO. Finally, some companies entrust financial management to an operational framework, such as a production manager to whom they provide appropriate training.
The financial and human resources department often collaborates with each other because they have in common the need to be cross-cutting functions throughout the company.
The CFO is most often selected for his technical expertise. However, it must develop a know-how in terms of management, communication and leadership. In addition to the classic qualities of hierarchical management and leadership, two skills are frequently needed:
- Cross-cutting management is about animate a community of people who are not hierarchically dependent on themselves. This is often reflected in finance. Examples: A CFO leads a community of subsidiary management controllers hierarchically attached to the boss of their subsidiary. A credit manager group animates a community of decentralized credit managers, etc., ….
- The accompaniment of change. There is no shortage of transformation projects in the finance sector. Thus, for the digitization or dematerialization of document flows, the CFO will often rely on an external provider for project management but it is personally his responsibility to have his teams adhere to change, which is by nature a managerial act.
Implementing financial management
It implements the financial policy desired by shareholders and also suggests one when the shareholders are not financial. Financial management, of course, is about financing choices, but not just. It also covers all operational actions that affect both the capital committed and the result. The CFO’s mission is to ensure the medium and long-term sustainability of the company and its financial performance.
CFO’s contribution to improving economic performance
Improving financial performance depends on economic or operational performance. All actions that sustainably improve the return on capital employed ratio (ROCE) contribute to an entity’s economic performance. They are grouped into the name “cash culture.”
The CFO first contributes to improving economic performance by implementing or suggesting specific procedures or tools. Examples:
- setting credit limits to limit outstanding receivables on at-risk clients;
- procedure to regulate the negotiation of derogatory customer payment deadlines;
- requesting customer instalments
- setting up an amicable collection procedure and active handling of commercial disputes delaying customer receipts;
- setting targets for inventory and supply management;
- procedure to control the allocation of premiums paid to salespeople, reimbursement of travel expenses;
- Centralisation of purchases;
- implementation of an investment selection procedure based in particular on the cost-effectiveness study. In this context, the CFO is expected to behave not only as a censor (no, the project is not profitable enough!) but as a solution provider: by investing more gradually or by outsourcing such a task that is particularly consuming committed capital, the project is brought to the required standard of profitability).
The CFO also contributes to improving economic performance by making suggestions at executive committee meetings of which he is a full member. To do this, he needs to know the business well, be recognized by the operational staff, and come out of his office frequently to see the reality of the field. Even if shareholders impose high financial objectives, it should not give the impression of being above the other coding members.
The majority of these operational actions go beyond the scope of his position, the CFO may face the refusal of the various operational managers over whom he has no hierarchical leverage. As part of the cash culture approach, it begins by raising awareness among the Directorate General of the importance of taking action to require operational managers to develop proposals for an action plan that will help improve economic performance. These action plans are most often known to all, which is most often lacking in the desire to change habits. To increase the chance of success of these action plans, it is obviously better to have them expressed beforehand by the operational managers rather than imposing them. The CFO then accompanies the operations by helping them to quantify the cost, benefits and profitability of the proposed shares.
Implementation of financing: anticipating and diversifying
The second part of financial management is the implementation of financing, based on two key terms: anticipation and diversification.
The CFO first anticipates the different financing needs by constantly updating the forecasts:
- The medium- to long-term financing plan (5 to 7 years most often) is the central tool for identifying needs and defining appropriate funding methods;
- Short-term cash forecasts. The annual cash budget (one-year horizon) is used to assess the need for cash and to negotiate short-term lines of credit with banks. The slippery cash forecast (one to six months) provides liquidity throughout the year. The CFO must be comfortable explaining the source of the information, whether it is certain, moderately safe or unclear, the reprocessing done and the actions in progress to redress the cash flow in the event of a drift.
Forecasting is an art that the CFO must master personally, he cannot simply delegate it. In the past, the CFO was partly evaluated on his ability to certify accounts (the past), he is increasingly judged on the reliability of his forecasts (the future) because they are the support of the majority of financial decisions. Knowing how to convincingly present your forecasts to bankers, shareholders, etc., is a key skill that ensures the credibility of the CFO.
Then, the CFO ensures the sustainability of the company by diversifying its sources of financing, if one source dries up, he will still have access to other: conventional bank loans, asset financing (lease, leasing, factoring, specific stock financing), disintermediated loans (euro private placement), access to financial markets for the largest companies.
The cleaning industry has a lot of opportunities. Therefore, if you run a cleaning service, you can work as a commercial cleaning service to your city’s organizations and offices, work as a construction cleaner residential cleaning, or as a cleaner for residential homes.
These three niches are great, but of the three, working as a commercial cleaning service is the most lucrative. That’s because most commercial organizations, such as banks, usually have a decent cleaning budget, which allows them to pay a decent rate to cleaners.
Therefore, as an owner of a cleaning service in a city like Miami, your aim should be to delve into commercial cleaning services Miami.
However, it’s not enough to delve into commercial cleaning services. You need to know your way around to make it in that niche. For example, you need to find out how to get cleaning contracts with banks because of the competition in getting lucrative contracts is high.
How to Get Cleaning Contracts with Banks
Here are some fantastic strategies that will help you get cleaning service contracts with any bank;
1. Do your Research
Make a list of all the banks in your locality. Start by writing down all the banks’ names. Then, strike out some bank names from the list of options until you’re left with the ones with which you’ll like to work.
The next step is to gather information about the cleaning service company that currently holds the contract for each of the banks you have on your list.
You need to know the company you’re up against so that you can construct and package a better offer for the bank, one that will beat the already existing contract offer. That’s why it’s essential to do your research, especially finding out the rate and service they currently provide.
2. Come up with a Better Offer
Your focus should be on things the current cleaning service company fails to offer when doing the research. Your findings will show you where you can come in and break the already existing contract. If you also made your service more affordable and attractive than the current company offers, it would help.
Some examples of the extra services you can offer to outsmart your competitors include; waste disposal services, window cleaning services, standby cleaners, seasonal floor stain removal, free waste bins, and complimentary cleaning products. Offer anything that will present your service better than that of your competitors.
3. Write a Business Proposal Letter
Address your letter to the bank’s property manager or anyone in charge of making contractors-related decisions in the bank. Also, ensure you write the proposal with your business letterhead and in a formal letter.
Introduce your business in the letter, telling them what you do, who you are, and your number of years in the industry. You should also tell them the fantastic offer you have for the bank and point out that your service is more affordable, even though you offer more value.
End the proposal by telling them you’ll love to have a face-to-face meeting to discuss a tailored proposal and unique ideas that you have in stock for them. Then send the letter and make sure you follow it up adequately.
4. Sell your Service in the Face-to-Face Interview
If any organization invites you to a face-to-face interview, it shows that they are interested in your service. Consider going to the interview with two or three of your employees dressed in a cleaning company uniform. Also, go with profile pictures showing the jobs you have done in the past or current one.
Ensure you communicate all the cleaning service features and tailor them to the bank’s benefit – emphasis on how it will help the bank improve their business. For example, don’t just tell them about your company having insurance. Let them know the insurance covers any damage your crew may cause. Consider going with your brand’s souvenir and gifts if you can afford it.
5. Work with your Employees
Banks and some other organizations have the legal right to conduct background checks on contractors. Therefore, your employees have to be aware of your quest to sign a working contract with the bank. You may lose out of the deal if the bank finds out that any of your employees have a previous criminal record to their name.
Each of your employees also has to consent to this check, which may include digging into their private lives. If any of your employees declines, you may need to hire additional staff to fill up the gap and ensure you have enough hands to effectively and efficiently carry out the job when you eventually get the contract.
Negotiating commercial cleaning service with banks is usually challenging and time-consuming. That’s because banks are generally selective about the organization they work with due to security concerns. But the contracts are often lucrative. Therefore, you need to be smart and strategic with it as discussed above.