Financial Data

[James Robert Crow <jr1crow@mindspring.com>]

Hello Group:

I have for some time looked at financial data as a by-product of the
system.  Rather than focusing on the financial data you should instead
focus on understanding the system that produced them.  Some time ago I did
some work with a company that overhauled corporate aircraft.  When talking
with the CFO I asked her what was critical to the business.  
"Cash flow" came the reply.  
"Is that a problem?"
"Yes."
"Why?"
"We have a problem getting invoices out."  "We do the work and at some time
in the future the customer will be billed."
"Can you get me the data regarding billing?" I would like to have the date
the aircraft was delivered, the date the invoice went out, and the date the
customer paid the bill."

She had this information the next day in a long print out.

I put together control charts that showed that the system was totally out
of control.  Some invoices would be delivered with the aircraft and some 3
or 4 months later.  The customer was likewise reluctant to pay taking
sometimes up to 6 months after receiving the invoice.

We did a weekend session with the management group and began backing into
their system.  I began with the customer and the bill being paid.
"The customer has just paid the bill."  "What takes place just prior to the
customer paying the bill?"
"Usually a negotiation process."
"What do you mean?"
"The customer usually does not want to pay all of the bill.?
"How much was negotiated away this past year?"
After a brief hesitation, "Probably around $400,000."
"How do you stay in business?"  "You are very show in getting out invoices,
and the customer is equally slow in paying and the customer only pays part
of the bill."
"If the job will be over $100,000 we get 1/3 up front and another third
about half way through so we are only billing for the final third."

Thus you can see why cash flow was so inportant and continually bringing in
new business was the key to cash flow.  They wern't as concerned about the
final invoice as long as new business was coming in.  The problem with this
system was that their profit was in the final third.  This company is no
longer in business.  Their parent company began a quality initiative and
this caused my involvement with the local office to come to an end.  My
guess is that they were never able to change their system to get invoices
out with the aircraft and concentrated on managing their cash flow and
bringing in new business.  Both of these are critical, but you must also
get paid for your work.

  
Robert Crow
Principal
Crow Consulting
165 River North Circle NW
Atlanta, GA 30328 USA
Voice 770-396-2280
FAX 770-396-7010
jr1crow@mindspring.com
www.crowgroup.net