Defogging the Crystal Ball

By the end of the second weekend, I had achieved my primary objective — beating my son Will in the NCAA Men's Basketball Championship Pool. The fact that I was then well-positioned to win the $1,500 first prize in the Pool the following weekend was less significant than my closing the deficit to just two, 8-6, in our 14-year rivalry to pick the right winners in the 64-team field.

This long-running on-line competition, the creation of our friend Sergio, rewards creativity in the selection process: points are awarded for each victory based on the round (1, 2, 4, 8, 16, and 35 points for the six rounds, respectively), plus the value of each winning team's bracket seeding. So the victories of 12th-seeded Cornell in the first two rounds were worth a total of 27 points for me. Thus, a strategy of picking mostly favorites usually guarantees that your $50 entry fee will end up in someone else's bank account.

Now I am not a rabid follower of college basketball, except perhaps during the last two weeks of March. But the fourteen-year history of picking more winners than losers in the Tournament — though still not as many as Will — has resulted from combining objective (like strength of schedule) and subjective (like having an experienced point guard) elements to inform my selections. Drawing from multiple on-line resources plus USA Today's annual Tournament Preview, I can usually put together a competitive "card" in a couple of hours.

Much of the same approach describes the process that the best of my small business clients over the years have adopted in predicting their wins and losses in the tournament of the marketplace. In each case, there's been an experienced sales manager as "point guard," developing selling tactics and passing the ball to those in the best position to score. More importantly, however, these successful sales managers keep score and make sure that the rest of the management team knows the score.

Like NCAA Tournament web sites, there are all kinds of CRM (Customer Relationship Management) software packages available which seek to involve everyone from the receptionist to the shipping clerk in the process of tracking and recording each contact with the customer. The problem with this approach is that in compiling a thorough relationship history, your players turn into scorekeepers, creating information overload for the average small company management team.

As the Financial Manager, I want the sales team to keep the Sales Manager and me posted on the score, both today's successes (shipments; deals that close; bookings received) as well as tomorrow's prospects and suspects. In a simple Excel spreadsheet, here's what comprises the scorecard at the Monday morning sales meeting:

1. Last week's total invoiced sales — what actually went out the door and was recorded as revenue.

2. Month-to-date and year-to-date sales compared with the same period last year.

3. Last week's total bookings — new orders received, but not yet shipped. The total of all firm orders not yet shipped comprises the backlog.

4. The expected gross profit for each booked sale.

5. Month-to-date and year-to-date bookings compared year over year.

6. Importantly, the book-to-ship ratio (total new bookings divided by sales for the same period) for week, month, and year-to-date. If you can keep it above 1.0 while recording steadily growing revenues, you'll stay in the ball game.

7. A tally of each of the above, attributed to each salesperson.

8. The list of prospects, coupled with (a.) the likelihood of your team's closing a sale within three months (greater than 50% probability percentage for each); and (b.) the dollar amount of each prospective order.

9. The list of suspects (less than 50% probability) with the same dollar/probability assessment.

10. A running commentary of notes next to each prospect/suspect updated with the latest status report from the salesperson. With this history for all to see, accountability takes care of itself.

11. The total probable revenue, which is the product of the likely dollar amount of each order times the probability of its closing, all added together.

12. The closing ratio, which is the dollar value of contracts won, divided by the dollar value of contracts bid, usually calculated and compared quarterly.

Financial Managers helps the managers of smaller companies and non-profit organizations develop reliable financial information for operational decisions.

On an affordable retainer basis, FM serves as the part-time controller and senior financial manager for multiple clients, leading them to profitability and positive cash flow.

The goal is for the organization to outgrow Financial Managers' services, at which time FM will take the lead in identifying and hiring the right full-time financial person for the firm, and effect a smooth transition to his or her management.