Keep the books, or pay someone else to do it

That is a famous line in Philip Campbell’s book,  “Never Run Out of Cash.”  (www.neverrunoutofcash.com)  Philip equates keeping the books in a small business to doing the dishes at home.  If you let them pile up, bad things happen.

So yeah, I had been letting things slide while devoting 110% of my time to product development, customer support, and marketing.  Not to mention building the SurvivalWare “team” – the core of the company’s creativity.  Its DNA in more ways than one.

Things seem to be going really well.  We’ve got a major franchise customer(Alphagraphics www.alphagraphics.com) who has adopted SurvivivalWare as a system standard.  After January 1, all franchisees will have to report their numbers in SurvivalWare in order to be in compliance with their franchise agreements.   It has been a real boon to their field support staff – a tool to understand how their franchisees are doing compared to everybody else – to identify problems early, and spread best practices.

AlphaGraphics

Separately, we have had total strangers buy SurvivalWare right off the website without needing assistance to make the buying decision, or in getting started.  This is happening even before the website makeover due for completion in January, not to mention the “How to” videos, and the “ramp up” in PPC advertising still to come.  All very encouraging.

The release of SurvivalWare Pro in January should really extend the usefulness of SurvivalWare .  It allows consultants and power users to customize dashboards, KPIs, and reports for clients.  The Report Customizer could turn out to be the killer app that puts SurvivalWare on the map.

So, back to this whole “keep the books up-to-date” thing.  I recently paid the price for doing a sloppy job.  First, I bounced a check about a month ago.  It was totally preventable.  I took money out a few days earlier than I should have.  Luckily the bank covered it, so I didn’t have the embarrassment of re-assuring a vendor or employee.

The good news is that I am finally doing something about it.  I’ve contracted with OSI Business Services to do my book-keeping and accounting on an out-sourced basis.  We’ve had two conference calls and have started the process.  What is so good about them (besides ganging up on you on the conference calls to make sure things get done), is that they make all the processes so efficient.  Most of the transactions will be automated – bill paying, receipt of bank and credit card statements, etc.  I may upgrade my shopping cart software so that the website sales are entered into QuickBooks automatically.

And they will do a cash reconciliation for me DAILY.  That’s what I’m talkin’ about!

So think how embarrassing it was for me to sit down with the SurvivalWare Cash Planner yesterday morning, while everyone slept, and I paid my penance for neglectful record keeping.  I was setting up a file for a first cut at a cash requirements analysis for next year.  The last one I did was in September to get me through to the end of the year.  This is when I assembled my “team” and made commitments to them through the end of the year.  And sure enough it worked.  I was able to set aside worrying about cash for three months, confident that I had a workable plan.

There are a ton of things I want to do in the coming year, and I need to phase things in very carefully due to cash contraints and the uncertainty associated with new product introductions and new marketing initiatives.

So anyway, the opening screen wants me to enter my current cash balance.  And I realize I don’t actually know what it is.  At least I finally had online banking set up due to prodding by OSI.  So I checked the balance online, and the last 15 to 20 days of transactions to see if I could determine how many checks had been written but not cashed.  Note:  all this would be totally un-necessary of I had been keeping the books up to date.  Like I said, I’m paying my penance.  Also, if you find yourself in a similar circumstance, maybe I can help you claw your way out.

The next step is to go through the stack of bills and enter each one into SurvivalWare, including the intended pay date.  I entered all the payroll and sub-contract plans for the next four months.  I entered the OSI fees, and other significant payments.

Then I printed out a check register for the last three months to look at the pattern of regular payments.  This is where it gets really embarrassing.  I noticed a check to the Company Corporation for $410 in November.  I get a bill from them once a year, usually in August I think.  I always pay them late because I figure what a racket they have – they help me set up a Delaware Corporation for about $250 years ago, and then prey on my fear of tax filings to to charge me a “Corporate Registrar” fee year after year after year.  So you can imagine how I felt when I saw another check to them for $410 in December.  I just assumed it was still due because I always pay it late.

As an entrepreneur – and especially one who knows the importance of cash, good record-keeping, and purports to be an expert on cash flow planning – I committed an unforgivable sin.  It is only by ‘fessing up to it in public that I can begin my recovery.  If I were Japanese, I would commit hari kari.  I have besmirched the cash flow brotherhood.  I grovel in your presence for forgiveness.  I’ll have to figure out some public act of contrition.

I wonder if they’ll send it back, or whether they’ll just credit my account.

Anyway, I intend to chronicle the switchover to OSI Business Services over the next few weeks, and also how I am using SurvivalWare and some elbow grease to cope with everything during the transition.  It is too early to say I recommend them – but so far I have been really impressed with OSI Business Services.  If you can’t wait, call Bill Gerber at 1-888-858-9919, and tell him Rusty sent you.  www.osibusinessservices.com

OSI Business Services, Inc.

Coming Up Next

How to do a cash requirements analysis with the SurvivalWare Cash Planner.  I’m putting Luhring SurvivalWare on the equivalent of the Facebook Diet.  I lost 15 pounds on the Facebook diet by simply posting my weight on Facebook for everyone to see every day.  Then I refined it into the SurvivalWare Diet by counting calories, tracking exercise, and keeping good records.  Plus doing the proper analysis.  And I lost another 20 pounds.  Ok, 17 1/2.   The last 30 days have been tough.

Likewise I am going to post on this blog the progress Luhring SurvivalWare makes in cleaning up its act and eating its own dog food.

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Financial Modeling gets cheaper and cheaper

Cheap is Good

 How is it that Financial Modeling is finally within the reach of Small Business?  It is because SurvivalWare makes it cheaper – an order of magnitude cheaper – for a company to install and use a financial model that fits.  SurvivalWare provides the infrastructure that makes the model inexpensive to feed with data and easy to use.   With the new SurvivalWare Pro (coming in December), we have enabled consultants and accountants and bright analysts with the on-the-ground knowledge of a specific company or groups of companies to provide the final “fit and finish” on top of the solid Fort Knox model structure. 

Our Model Generator technology – set to be released shortly thereafter – promises to reduce the cost of developing a completely customized financial model.  You might want to have a highly specialized financial model for say for a franchise system, or a specific industry like convenience stores – to a fraction of what it was four years ago when we first applied Survivalware to such a setting.

Moore’s Law

People in the computer industry are familiar with the concept of Moore’s law.  It states that computer power roughly doubles every two years, and has done so for almost four decades. 

Below is a graph of transistor counts found in the Wikipedia entry on Moore’s law. 

Moore's law - transistor counts

Since transistor count is an approximation for power per unit of cost, we have seen dramatic declines in the cost over the years of processing power and memory.

 You may have seen this quote making the rounds on the internet, attributed to Bill Gates at Comdex in 1999 (there is some doubt he really said it):

“If GM had kept up with technology like the computer industry has, we would all be driving $25 cars that get 1,000 to the gallon.”

The rejoinder of course is that GM issues a press release that says if GM had developed technology like Microsoft,  cars would have the following characteristics: 

  1. For no reason at all, your car would crash twice a day.
  2. Every time they repainted the lines on the road, you’d have to buy a new car
  3. etc., etc.

But you get the point.  The cost of computing continues to get smaller and smaller while the power continues to grow.

Financial Modeling Power

 So what has happened to Financial Modeling power over the years and its cost per unit of power?

Financial Modeling Power per unit of cost - last 30 years

I’ve been in the financial modeling field for over over 30 years and can provide some insight.

Back in the late 1970’s, most financial modeling was done through commercial timesharing services who not only sold “raw cycles” but added value to their offerings by charging a premium to use 3rd generation software such as financial modeling languages.

Back then, I serviced the Marriott account for Comshare, which sold access to a really good financial modeling package called FCS.  They spent about $10,000 per month to do cash flow projections for Hotel development projects in the course of structuring deals and attracting investors to put up the money to actually build the hotels.  Marriott was great at getting hotels built with OPM – Other People’s Money.

I’m intimately familiar with those models and their complexity because I was the one that developed the models for them.  My estimate is that they were moderately complex financial models with a limited number of time periods analyzed, equivalent to about 2 SMU’s of power.  An SMU is a SurvivalWare Modeling Unit, and is equal to a standard 200 variable model applied to 12 months or 10 years for a month’s worth of usage.  So we can say that Marriott was paying a monthly fee of $5,000 per SMU.  Expressed as power per dollar of cost, we get 0.2 SMUs per $1,000.  This was in 1978 and 1979.

I started my first company in 1979 just to get out on my own.  I quickly realized that the microcomputers being introduced then were more powerful than most people gave them credit for.  I set out to drive down the cost of financial modeling by figuring out which features were absolutely critical, and which were not – and providing 90% of the functionality at less than 10% of the cost.  The first product was developed for the Apple II computer in 1980 and called RCS (which stood for Rusty’s Computer System – the ego thing started long ago).  I believe it was the first financial modeling software to appear on a personal computer.

RCS Brochure from Sept, 1980

RCS lowered the cost to Marriott from $5,000 per SMU to $500.  Power rose to 2 SMUs per $1,000.

ENCORE! Plus - 1988

ENCORE! Plus was introduced for MSDOS in 1988 with a power rating of 20 SMUs per $1,000.

ENCORE! for Windows - 1996

ENCORE! for Windows appeared in 1996 continuing the increase in power while holding steady on the cost.  We estimate the cost per SMU at about $20, equivalent to a power rating of 50 SMUs per $1,000.

SurvivalWare 3.0 - 2009

The combination of SurvivalWare 3.0 and the Fort Knox model as currently sold delivers about 10 SMU’s of modeling power.  If we look at the life cycle cost over 5 years, we can convert it to a monthly by dividing by 60 months.  Then divide the monthly cost by 10 to get the cost per SMU which turns out to be about $3 – equivalent to 333 SMUs per $1,000 of cost. 

That turns out to be a 1,700 fold improvement over 30 years. 

And when you look at applying SurvivalWare to a GROUP of small companies, the improvement is even more dramatic – another threefold increase is power per unit of cost.