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Introduction

Introduction.                               Taylor Vaughan & Rick White Topic A Strategic Approach to Expense Control and Cash Management. Financial Outlook.

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Introduction

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  1. Introduction                               Taylor Vaughan & Rick White Topic A Strategic Approach to Expense Control and Cash Management

  2. Financial Outlook With the economic downturn and the strains on cash management it is evident that there are very few recession-proof industries. Now more than ever, maintaining profitability depends on cutting costs. Most organizations have taken the low hanging fruit over the last few years with some tough decisions being made. Fortunately, cutting back does not have to mean reducing the workforce, compromising product quality or reducing services to your customers. In fact, it can mean improved quality, service and price.

  3. Discussion Topics • Perspectives on corporate spending in the U.S. • Common perceptions about procurement • Opportunities and strategies for savings • Efficient cash management • Financial management tools • What to do next

  4. Perspectives on spending Cash is tight for everyone

  5. How Businesses are Managing Source: McKinsey Global Survey

  6. Expense Management Common misconceptions • Establishing and achieving firm budgets will keep spending in check in an organization. • Spend under management means that the spend is reviewed frequently and held within budgetary limitations. • Corporate expenditures in routine/ non-core categories will remain fairly consistent YOY. • Advancements in technology and expense management best practices will be easily apparent to our business.

  7. Perceptions on Procurement

  8. Common misconceptions • Pricing from suppliers is applied evenly to similar customers. • Your expertise in purchasing in one cost category will produce similar outcomes in another. • National pricing agreements are always better than local or regional agreements with the same company. • Loyalty to a supplier translates into best pricing and service.

  9. CFOs surveyed say: Source: CFO Magazine

  10. The Opportunity

  11. Cost reduction can have very positive Outcomes Column1 Baseline 20% CostReduction EquivalentIn Revenue Revenue $ 100 $ 100 $ 140 Direct operating costs $ 35 $ 35 $ 49 Labor costs $ 35 $ 35 $ 49 Non-core indirect costs $ 20 $ 16 $ 28 Net profit $ 10 $ 14 $ 14 After tax (40%) $ 6 $ 8 $ 8 20% cost reduction = 40% increase in Net Profit$4M in expense reduction = $40M revenue increase

  12. Typical cost reductions by expense category

  13. Next Steps

  14. Expense reduction planning

  15. Steps for expense reduction planning • Identify components of non-core operating expenses starting with your General Ledger and a comprehensive supplier analysis. • Establish an overall strategy for cost reduction. • Develop a goal over a minimum threshold for each expense category . • Establish expectations for each person who will participate in the process. • Measure outcomes.

  16. Expense management challenges

  17. Maximizing Savings

  18. Look at processes

  19. Consider what you pay for goods and services.

  20. Consolidateyour purchases

  21. Create a competitive environment

  22. Capture the outcomes

  23. The bottom line To improve market pricing: • Use benchmark data (your own, plus market data) • Hire cost-category expertise (each category has its own pricing model, methodologies, jargon) • Eliminate emotion from buys • Put yourself in the shoes of your suppliers • Become a better customer to suppliers • Keep suppliers competing for your business

  24. Efficient Cash Management: • Using an Integrated Accounts Payable program • Some call this outsourcing Payables and that might work for some • For others, this is implementing a Treasury workstation.

  25. Efficient Cash Management: • Send a Payables file to the bank with all payment types • Approval already done through internal workflow • Determine method of payment in the file • Or let your provider determine best routing method for you

  26. Not having to go to various bank systems to either: • Create an ACH file • Submit wires • Print checks • Create Purchasing • transactions Efficient Cash Management: First National Bank

  27. 1 2 3 Buyer Approve Invoices forPayment GeneratePayable Filefrom ERP SendAP File to bank, bank sends file to card processor. Processes CardPayables Adjusts Card Limitsif Needed 6 4 5 Supplier Sends Remittance via Email to Suppliers Charges Account and IncludesInvoice Numbers Posts Reconciliation File Payables Automation - Process Flow Purchasing Card Programs • Schematic for P-Card

  28. Payables Automation: Features & Benefits Benefits • All necessary levels of approval obtained prior to payment • Eliminates need to produce checks for supplier payments • Improves transaction risk management and spend control • Can accelerate seller’s receipt of payment • Eases time-consuming reconciliation • Generates internal working capital by extending buyer’s time to pay • Generates fee income opportunity Features • Transaction flows through normal payable processes • Approved payables file sent to bank for processing (bank forwards file to card processor) • Credit limits automatically adjusted based on payment instructions on the file • Suppliers receive notice from processor to charge the card account assigned to them • Reconciliation reports provided to buyer • Buyer enjoys up to 25 day grace period • Additional volume to earn rebate

  29. Purchasing Card Programs • And speaking of Purchasing Card programs… • Using one of these is a good way of negotiating terms for payment dates • Keeping track of expenses • Getting rebates back to your A/P department

  30. Other Banking Changes you may want to know about • Repeal of Regulation Q. • Interest paid on Commercial DDA accounts • Hybrid Analysis Statements • Effect on other Treasury Products: • Sweep Accounts • Controlled Disbursement • ZBA • FDIC Insurance

  31. Summary:     • What should a forward thinking Health Care CFO be thinking about? • Using cash efficiently • Employing financial management tools • Controlling direct and indirect costs with the same sense of urgency • Mitigating risk through assessment and action • Use the market conditions for an advantage point • How can I turn expense lines into revenue streams?

  32. Who we are A Global Cost Reduction Consultancy To discover the untapped profit potential of your company with a customized collective profit producing solution contact: Rick White RWhite@ExpenseReduction.com 704-533-0792 To experience our innovative products and services and the promise to back each of the products and services with smart, relevant financial advice. Contact: Taylor Vaughan TJVaughan@firsttennessee.com (901) 523-4600

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