Monday, May 10, 2010

Inventory Control

clip_image001[1]This article was written by Ted McDaniel, SCORE Orange County Management Counselor

In these tough business days, each of us has to be aware of all costs connected to the business. I don’t need to explain why. However, how many times have you as a manager walked through the plant or store and noticed the same items in the same place as before? You then review the financial reports and notice the large amount of cash tied up in inventory -- and many of you stop right there. After all, inventory is needed to make the sales and perform the services that are the life blood of your business. If the inventory level doesn’t appear to be too far out of line, you don’t look too closely. But you may be missing the full picture!

The cost of inventory is usually a major item in most businesses. Let’s look at some controls:

1. How big should the inventory be? A fair test would be to find out how many times your inventory turns in a year. The more it turns, the better it is being utilized. One way to measure turnover is by comparing it to sales. For example you have $500,000 in sales and $100,000 in inventory, you have five turns a year. (You have to be careful here since too high a turnover rate might indicate too many “stock-outs,” which represents another problem!)

2. Strict accounting rules require that the average inventory is compared to cost of goods sold. This requires more effort on your end since cost of goods sold must be developed and will depend on your type of business. Good business software (such as QuickBooks) will be very helpful in developing these figures and their ancillary reports. In any case you most know the facts! Making decisions on the basis of faulty data is a sure ticket to failure.

3. Preparing and analyzing inventory costs and turnover and cost of goods sold will not expose another common inventory problem: old and/or obsolete inventory gathering dust on your shelves. The cost of that inventory continually carried on your books steals money from you each and every day! You bought it, yet it just sits there. That money could be used for other more productive purposes. Remember, it’s not only the cost of the product but the space it occupies and the fact that it prevents you from spending those dollars for things that would help you grow your business. This problem is common in many businesses, however it’s not often addressed effectively! To help eliminate this problem, there are a variety of methods that work toward solutions. A simple one is to determine how long a product had been in house. You can code each item when it arrives. For example you can use a number according to the month (1 for January 2 for February, etc) followed by a hyphen and then the year. Therefore, inventory that arrived in February, 2010 could be coded 2-2010. Not only is this helpful information but it will make it obvious in a hurry which inventory isn’t working for you. If your inventory aging analysis shows that your inventory as a whole turns 5 times a year, and the item you’re looking at has been on the shelf for a year and a half, you know you need to take some action is required to get rid of it!

4. One of the most common inventory control techniques being used is the product identification code. Most of us know this as the “bar code””or Universal Product Code (UPC). You see it on items at your grocery store, etc. UPC systems are constantly being upgraded and reevaluated. If you want to use UPC to control your inventory, you will need a bar code scanner that will interface with your accounting or inventory software. Virtually all of the popular software programs are equipped to do this, because use of UPC codes is very pervasive in today’s business world.

The point of all of this is to make it easier for you to keep good business records and be able to produce the reports you need to make good decisions. If you haven’t implemented systems like this, I recommend you do so right away.

Identity Theft – The Other Shoe Drops

This article was written by Jim Roberts, SCORE Orange County Management Counselor

We’ve all heard numerous stories in the media about identity theft, one of the most common crimes in our society. However, there is a severe exposure to identity theft you probably don’t know about. What’s worse, it’s most likely right in your office and you may be contributing to the problem every day.

Almost every business has a copier in the office. Many of these are leased and when the lease is over you return the machine to the leasing company without giving the matter much thought. That’s when the problem starts. If your machine is a digital copier (and most machines today are) it has a hard disk drive inside that stores the images it has copied. The number of these images can run to the hundreds of thousands for a machine that has been in use several years. The exposure is particularly significant if the machine is a high speed copier, or a copier that can also scan and fax.

If your customer’s personal information falls into the wrong hands because someone has acquired the hard disk from a used copier after you retire it from service, you may be legally liable for the consequences. If yours is the type of business that copies sensitive information such as financial records or medical histories, the liability could be staggering. So what can you do to eliminate or reduce this exposure?

· Be aware that it is a common practice of identity thieves to purchase old copiers returned from lessees. They don’t care about the copier, they just want the disk drive. They especially target machines with high volume counts that have been returned from business that are likely to have a lot of sensitive information.

· Call the equipment supplier you acquired your copier from and ask them if it has an internal disk drive and retains images. If it’s a type that doesn’t have a hard drive, you’re in the clear.

· If the machine has a disk drive, ask if the machine has an option to delete the files stored on the disk either manually or automatically according to a schedule. If so, establish a procedure to delete all the stored files (images) on at least a weekly basis.

· If the machine’s firmware does not provide for deletion of stored images, ask the provider if a software upgrade can be installed to provide this capability. If not, it is your responsibility to make sure that the hard disk is wiped clean before it leaves your custody. In some cases, this may mean removing the drive and destroying it.

You can imagine what could happen to your customer relationships and the reputation of your business if you are responsible for the unauthorized release of your client’s personal data. It could easily happen to you if you don’t properly safeguard your customer’s privacy. Images stored on a copier are no different than information on your office computer system. Protect your clients, and protect yourself.

It’s just good business!

Small Business Outlook for 2010

clip_image001This article was written by John Lafare, SCORE Orange County Management Counselor

Forbes and CIT jointly sponsored a study just published that makes the case for greater optimism as small business owners emerge from the ordeal of 2009.

Indeed, of 220 businesses surveyed, with revenues ranging from $1 million to $15 million, 59% experienced revenue declines, sometime by as much as 40 or 50%, and only 6% reported significant growth. Falling incomes led to additional pressure on liquidity, and nearly 2/3 found it much more challenging to manage their companies’ cash flows.

Even those who did well in 2009 reported significant challenges in 2009, due to tight credit. Shmaltz Brewing grew revenues grew by 30%, actually prospering in a down economy. In spite of that, after 5 years of profitability, and an almost perfect credit score, the company saw its $40,000 credit line revoked on 3-day notice, thereby cutting the operating budget in half.

Sadly, the economic stimulus programs coming out of Washington appear to have had little to no effect, though small business owners remain hopeful that recent proposals to raise the SBA lending limits may provide some benefit during the coming year.

After working a lot harder and longer in 2009, and for a lot less, companies are nevertheless looking ahead to 2010, though nearly 50% of business owners still think that we have yet to reach the bottom of the financial and economic crisis. Most do not envision solid growth until 2012 or later (the Federal Reserve Bank of San Francisco does not see the economy humming until 2013, at the earliest).

There is general agreement that the old ways of doing business won’t work and that success will require finding ways to explore and take advantage of new market opportunities. There is a broadly stated commitment to run businesses more aggressively, conserving cash while spending more on marketing and advertising, investing in growth or expansion, and pursuing new revenue streams.

The business owners in the survey recognize the importance of planning, though they rarely do it. It seems to be a bit like working or flossing your teeth regularly: it’s hard to get around to doing it regularly enough. This in part reflects the uncertainty with which companies view 2010.

In spite of the fear and uncertainty, the business owners in the survey staunchly believe that they will lead the country out of the recession, sometimes in spite of rather than with the support of the government. Their greatest hope is that access to financing will ease up as the Small Business Job Creation and Access to Capital Act gets enacted, especially the part that raises the SBA loan limits.

Building Tomorrow’s Entrepreneurs


This article was written by Andrea Hurt, Associate Director, Center for Entrepreneurship


The Center offers strategic consulting to businesses looking to take their firms to the next level. We assist our clients by helping them identify where they would like to take their business and providing direction on how to get there.

The Small Business Institute (SBI) at California State University, Fullerton (CSUF) is hosted by the Mihaylo College of Business and Economics (MCBE) and is managed by the College's Center for Entrepreneurship (CFE). The purpose of the SBI is to strengthen the small business sector of Orange County's free enterprise system through increasing the effectiveness and impact of small business teaching, consultation, and research at the University.

The principal way the SBI does this is by offering student consulting to fast growth businesses in Orange County. The students are MBA students or graduating seniors majoring in business. The students form consulting teams and work like apprentices, closely supervised by a select group of experienced faculty experts.

In addition, many undergraduate teams are coached by volunteers -- Entrepreneurs in Residence, Executives in Residence, and members of the Service Corps of Retired Executives (SCORE). Faculty grades students on the practical results they achieve for the client. It is a win-win process where all involved gain a better appreciation of what it takes to succeed in Orange County's challenging small business arena.

To learn more

Open Mouth, Insert Foot!

Editor’s note: Jim Nichols is a Senior Partner at Catalyst:SF. He submitted this column to VentureBeat. (Reprinted by permission)

Saying the wrong thing can totally screw up a pitch. And sometimes even the best salesman finds something utterly moronic coming out of his or her mouth. Trust me, I’ve heard plenty.

I asked a wide number of buyers and sellers about the stupidest things they’ve heard in meetings. Here are the top 14 (I’ve deleted the names to protect the guilty). Heard something as stupid – or worse? Sound off in the comments below.

1.       From a Seller: “We flew to a client, and the head of the department came to the lobby to tell us that our key contact died during the night. And my boss said, ‘Well, who’s her replacement? We flew up here and expect to present to someone.”

2.       From a Seller: “I fell asleep. While the client was talking. They had to poke me to rouse me.”

3.       From a Buyer: “I was working for Dr. Pepper . A vendor catered lunch at headquarters. With Coke products.”

4.       From a Seller: “A seller said, ‘What’s your title? We usually present to someone higher up than you.”

5.       From a Buyer: “I always make a point to say hello when vendors visited my team. One day, I did my drive by hello, and when I left the room the rep said, “Your boss is smokin’. Is she single?”

6.       From a Buyer: “Spelling my name wrong on slide one. It’s Smith.”

7.       From a Buyer: “We had a salesman that visited monthly and told me stories of his drunken escapades. After six months, I told him I’m Mormon and didn’t care for it. So he apologized, and then joked ‘So, how many wives you got?’”

8.       From a Seller: “How many times do people have to see it in sitcoms before they stop saying ‘when is your baby due?’ to an obese woman.”

9.       From a Buyer: “Our consumers are predominantly Latino – as am I and some of my team. A couple years ago an ingredient supplier came in and referred to all Hispanics as Mexicans, and called our language Mexican. Throughout the meeting, we looked at each other thinking, ‘Did he really say that? There! He did it again!’ We still joke about it. And we don’t work with them anymore.”

10.    From a Seller: “Our rep resigned while presenting. Just stopped and said, ‘I don’t really think I want to be in this business.’ Picked up her bag, and left.”