The Communications Company Audit pot

The Communications Company Audit
Craig Alexander Orr MBA, MSc, HND
Copyright 2011 Craig Orr
Smashwords Edition
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Table of contents
Chapter 1 - Introduction
Chapter 2 - The Cash Flow Formula
Chapter 3 - Creating Cash Awareness
Chapter 4 - Focus on Cash Customers
Chapter 5 - Strategic Solutions Plan
Chapter 6 - Conclusion
Chapter 1

Introduction
Cutting costs and improving Cash Flow are where most communications companies need to be right
now. The big question is where do you start? This guide provides the steps to help you to rapidly find
the Cash buried in your business. Cost cutting can be a bit like liposuction, providing an unsustainable
quick fix, unless you make the required life style changes the problem will quickly comes back. This
guide helps you work through a process of Cash Flow triage and create a strategic solution plan. The
plan will ensures that the life style changes required to sustain cost management and improve long-term
business performance become embedded into the company’s culture.
The Cash Flow Formula shown below was developed after extensive research into
understanding and improving the way communications companies handle Cash. The circular wheel
shown below is the ‘aide memoire’ to drive a systematic approach to analysing the cash flows
within your business. Each of the segments in the circle are broken down in detail in the various
resources available at and in the Finding Cash in Your Business ebook-
/>Cash in Strategy
With most of the world’s economies at their worst condition since World War 2, as never before a clear
“Cash in” strategy plays an important role in a company’s success. In today’s turbulent competitive
environment, communications companies more than ever needs a “Cash in” strategy that specifies the kind of
competitive advantage that it is seeking in the marketplace and articulates how the advantage is to be achieved.
As the Global recession bites it is important to review your current business product or service and
customers mix as a priority. It may be that your order book is still full making you feel insulated from the
recession. When in fact what you are actually experiencing is the effect of customers who are progressing
orders that were approved years in advance, and the current market condition may not take effect for months or
years. The key question here is can your customers still afford to pay?
AIR
In preparing for the future your company needs to:
Adapt to the market conditions; create an action plan based on what products and or services
are most likely to continue to be sold in a recessionary environment.
Initiate collaborative discussion with existing customers who are struggling.
Review existing and target customers and set new credit limits and create risk bandings based
on which companies are most likely to survive.

Remember you cannot live without AIR.
Adapt to the market, Initiate Dialogue and Review Customers.
Chapter 2
The Cash Flow Formula
The Cash Flow Formula was created to help you develop a systematic approach to understand
and improve the cash flows within communication companies. The Formula knits together a
number of accepted management techniques such as ratio analysis and Pareto to arrive at the Cash
Flow Formula.
The Formula can be started at any of the seven segments, especially if you already have
identified areas of concern, or a segment dose not apply to your company, however, generally the
Cash Flow Formula should be tackled sequentially.
Here are the 7 segments:
Competitors
Identify the common financial yardsticks used to compare the competitors in the
communications sector. Focus the business on improving the key financial yardsticks.
Communicating the improvements will crystallise future investments.
Cash Flow by Company
Focus the group on it’s rising star ie the company or area that is expected to demonstrate the
highest returns in the medium term. Where there is high growth potential the greatest opportunity
for poor financial controls exists.
Business Model
Develops an understanding of each operational Company’s business model and analyses the
business’s performance. Challenge the business to investigate if the business model is still current
and the strategy derived from that is still correct.
Internal Accounts
Take a close look at the Internal Accounts. Graph them over a 4-month period and compared
them to the previous years results over the same period. This trend analysis is used to highlight
areas where cash flow improvements are required.
Product contribution
Determining which products have the greatest contribution to the company’s profits can be

used to focus future product developments and withdrawals. The highest contributing products will
have the greatest impact on the management of Cash flows.
Cash Flow by Product/Service
Detailed deconstruction and mapping of the WCC for each of the products is used to determine
which products or services provide the best use of cash within the business, it also ensures that
suppliers credit terms are controlled and managed effectively.
Credit control.
Analyse when customers pay their bills so that irregularities can be identified before large debts
are amassed. Understanding the key dates in the WCC for a product or service allows better use of
the credit given by vendors and the debt owed by customers.
Chapter 3
Creating Cash Awareness
If after reading through the 7 segments you are still wondering where you can jump-start Cash
awareness within your business why not try the sales prevention department. Every company has a
one just ask your sales people and they will be only too happy to point you in the right direction,
beware they may even give names.
I was once asked to resolve a Cash Flow problem with order intake. The company in question
had the patent on the bulletproof business case acceptance criteria, where only 5 out of every 100
sales leads were turned into customers, and due to the shear volume of potential customers there
was a 4-week backlog on business cased feasibilities studies. Once operations had completed an
exhaustive feasibility study they could detail how the service would be delivered and predict the
costs with an amazing level of accuracy.
The finance department would then compare the predicted Sales revenue against the costs and
decide whether the lead would make a good customer. Operations and Finance loved it, strangely
the sales people and the potential customers didn’t, after waiting 4 weeks they most probably had
lost the will to live or taken their business elsewhere.
It cost the business on average £1000 to complete a feasibility study so for every £100,000 spent
£95,000 was wasted, 95% of operations, finance and sales time was wasted on investigating leads
that would never convert to customers. These leads would never bring cash in; and created a four
weeks delay in getting cash in the door from good business.

The solution was to inform the business of how much money it was wasting, dissolve the sales
prevention department and empower the Sales people to take make the decision on whether a sales
lead would make a good customer.
By harnessing both the operational wisdom for the cost structure and the financial requirements
for the customer acceptance criteria a new process was created that roughly estimated the feasibility
cost, compared it to the projected value of the customer’s business, and provided a detailed business
case breakdown. Suddenly, the 4-weeks wait disappeared as Sales people signed up customers on
the first visit.
The new process:
Allowed
• Sales people to instinctively know what a good lead looked
• Operations to focus on delivering customer services quicker and spend more time on
getting the cost base down
• Finance to focus on getting the cash in from invoices
Had
• Opened Pandora’s box, and for the first time sales people began to see, understand and
question the costs and the lead times incurred.
• Dissolved the Sales prevention department and created the most Cash aware Company
culture in the Sector.
The business was now running much more efficiently, it was true that it was carrying a higher
level of risk due to the assumed cost base, but the savings in terms of cash and time created a
reward well worth the risk.
Chapter 4
Focus on Cash Customers
“Having too many customers can break you, and focus on Cash Customers is essential!” What
many businesses don't get, is that the customer acquisition and maintenance cost are normally far
greater, than the money the customer will spend with you on their first sale. On average a business
need to bring each customer back at least 5 times before they will begin to generate a profit and
become good quality Cash customers.
One business I looked at had just over 700 customers, but was struggling to sell into their

customer base.
• Initially I asked for a historical list of how much each customer had spent with the
company.
• My next question was how many customers regularly do business with the company. Of
the 700 only 70 regularly did business with the company.
• Now comes the crucial question ‘of the 70 how many pay their bills on time or at all?’
now we are down to 30.
• I then asked for credit ratings for the 30 left and that brought the number of good Cash
customers down to 20.
The company had made the fatal mistake of not understanding the cost of customer acquisition
and maintenance. The expectation was that all customers are equal and so they were shared out
equally amongst the sales staff.
The average business spends 6 times more trying to win a new customer, than it does
generating new business from an existing customer.
In recognition of this fact the solution required a combination of reducing the size of the sales
team and providing a more appropriate level of account management.
The company now focuses on supporting the top 20 accounts with sales executives. The other
680+ accounts are managed by a combination of a telesales team and the bailiffs.
A typical fully loaded Sales Executive cost to the business was £100,000 and there were 30 in
the team including managers. Each sales executive handled over 20 customers. The business was
spending around £3m supporting customers who had no intention of buying. In fact only 1 out of
every 35 customers was worth supporting.
Contrary to popular opinion creating a smaller Sales team increased motivation, productivity,
salary and sales. The new smaller team had a reduced management overhead and had improved the
profit from existing turnover by around 7%.
The Sales executives had more time to spend with each of their customers that meant they
delivered a better quality of service and this in turn encouraged the customer to place more orders.
It was true that the business had redeployed staff but by doing so it more than just secured the
jobs of all that remained.
The business was now running much more efficiently, it has seen an on-going improvement to

turnover, and is in a much better place to manage the growth of the sales team going forward.
Chapter 5
Strategic Solutions Plan
Within the Communications sector companies have suffered from accelerated asset write-
downs, redundancy programmes and in some cases insolvency. Communications companies are
still trying to deal with pricing pressures, particularly from the wholesale market, and competition
from previously distressed companies emerging from Chapter 11 bankruptcy protection
proceedings.
In 2011 the Communications sector is in a very different position than in 2000. Banks no
longer role out the red carpet, and investors want to see if the companies they invested in are
capable of generating free cash flow (FCF) before they decide to invest any more money.
The working capital cycle shown below is an integral part of understanding a business’s capital
requirements, it’s capacity to service external debts, it’s ability to sustain growth and it’s potential to
generate free cash flow.
Using the Cash Flow Formula to highlight the areas that will provide the biggest improvements
in Cash flow in the shortest period of time a strategic solution plan can be implemented. The plan
ensures that the life style changes required to sustain cost management and improve long-term
business performance become embedded into the companies’ culture.
The strategic solutions plan should include the following;
 The detailed cash flow evaluation highlighting areas of concern
 A detailed improvement Solutions report detailing any system selection or configuration
change proposals, business process change / process reengineering proposals,The report will
include any 3rd Party Supplier proposals required, a proposed implementation timetable
No matter where your finances are today, improving Cash Flow will help you to optimise or
transform the performance of Your Business.
Chapter 6
Conclusion
This guide has provided you with an overview of the steps required to analyse and improve the
Cash Flow within your company; recent market conditions have had a dramatic impact on the
global markets, and as never before the lifeblood of the cash needs to pump through your businesses

arteries.
The global economy has started to contract and is unlikely to revert back to the heady days of
double-digit growth, at least for a while. So, for a while it will be hard to raise a loan or equity
capital, except for companies already generating free cash flow or those with a strong emphasis on
cash control. So the key to surviving the global credit crunch is to look for cash in your Business,
find it, handle it well and look for the golden opportunities it creates.
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About the Author:
Craig is a Business strategist with a fresh market perspective combining technological
awareness, deliverable experience with strong cost management and leadership skills. Craig likes to
think of himself as the engineer who understands costs. Craig holds both an MSc from Cranfield
and an executive MBA from Bradford. He has assisted Companies from start up to FTSE 100 in
nearly every region of the world for over 25 years. He states “that to survive in today’s competitive
marketplace companies need to focus on their core strengths, and outsource the areas that do not
differentiate them from the competition.” Whilst completing his studies Craig remodeled the
business plan for the company he was working for making them the most cost aware and successful
business in the sector. That success propelled him into BT where he was responsible for targeting
outsourcing opportunities, which now generate revenues in excess of £200m, and supports all
targeted communications providers.
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