VentureTech Member Shares 10 Financial Best Practices

Solution providers looking for some financial best practices to help lead them out of the recession might find it wise to listen to a peer who has averaged 28 percent annual growth since 2000. That's what Ingram Micro offered to its VentureTech Network members at the VTN Spring Invitational conference in Hollywood, Fla., this week.

David Reid, president and CEO of Epic Information Solutions, a Winnipeg, Man.-based VAR and VTN member gave the audience of nearly 400 solution provider executives 10 tips on how to improve their business, balance sheet and profitability. Here's a quick look at each of them:

10. Report monthly financials within the first 10 days of the month's end

Smaller companies should be able to do it in just a few days, said Reid. "There's no excuse on why that shouldn't be achievable. If not, you have processes you need to fix or people you need to change. This is a funamadetal building block to doing things in your company," he said.

9. If you don't budget, forecast

The more accurate you can predict where your business is going, the more successful the business will be, Reid said.

8. Avoid using operating capital to acquire capital assets

Reid said he learned this lesson the hard way after buying some partners out in 1998 using surplus cash. "Do you remember what happened in 1999, 2000, 2001? It was a little tough. I was a little young in my biz savviness. I didn't set that [dot-com meltdown] coming. The next thing you know I was not paying myself, only paying employees.

7. Ask for money when you don't need it

When your balance sheet is strong, go to the bank or a distributor and get more credit, he said. "It's easier to negotiate up when things are going OK. When you have access to that you can respond more quickly on opportunities," he said.

6. Don't lease, borrow

Leasing companies like to lease because they make lots of money, but if you're not a risky company and you have a strong balance sheet, it's better to take out a loan, Reid said.

"It's easy to think if your payment is less that's better, but if you think further out, three to five years, borrowing is better. What happens in two years if you have an asset you don't want anymore. You can't sell it," he said.

Next: Buy A Building

5. Buy a building

Most companies lease office space, but the real estate market today makes a strong case to own a building, he said.

"It's the same concept as lease/borrow. I hate building someone else's equity. Every month I give money and get no return whatsoever," Reid said. "If I have my own property, a little of that lease goes to my equity line on that property."

Reid said he bought a building about six years ago and was able to sell it when his company grew to buy a bigger building. He had $1.1 million in equity in the old building. "If I was leasing, that would be in someone else's picket," he said.

4. Amortize training costs

Training employees can be a risky business if the employee leaves soon after or decides that his new skills are worth a significantly higher salary, Reid said. To decrease his risk, he asks employees to agree to pay back a portion of the training costs if they leave within a certain time period. "Check with legal counsel on this, but we've been able to successfully retain employees. If nothing else, it's a good handshake," he said.

3. Call the bank before they call you

An old business colleague gave this piece of advice to Reid, he said. The colleague said if the bank calls you, it's bad news. Update your creditors on your business to avoid difficult conversations.

"This happened to me once, in 2002. We bought the building and I was very distracted. I had removed myself from the day-to-day things I used to do in business. The end result was that I lost money that year," he said. "I picked an opportune time and I called them. I told them I'd already taken action to fix the problems and we were seeing an upswing back. I documented it for the bank. As a result, they asked me for a few things but they hung in their with me. That strengthened their relationship with me long term."

2. Utilize 12-month trailing graphs to analyze the business

Looking at month-over-month financial results can make it difficult to see trends, Reid said. One month might be significantly bigger in a year-over-year comparison, but the next month could be much worse than the year-ago month.

Use 12-month trailing graphs, which aggregate the last 12 months data each month to get a better business comparison.

"That takes away seasonality and the inconsistency of month-to-month data," Reid.

1. Create a monthly dashboard

"Get a set of reports. You can have anything you want in these reports. Mine is two pages. One page is the series of 12-month trailing graphs and some survey statistics and the other is a bunch of numbers. But you need to get a consistent way of getting information over time. It helps make quick decisions. If you need credit, you need financial statements to show the bank or distribution partner how you're doing."

As an aside, Reid wore a Canadian Olympic hockey jersey and started off the presentation noting that he was just as nervious as watching the gold medal game between Canada and the United States. "At the end of the day [Sidney] Crosby came through [with the game-winning goal for Canada]," Reid said. What does that have to do with financial best practices? "Nothing, I just had to take the opportunity [to mention it]," Reid added, garnering applause from the Canadian VARs in attendance.