The Challenge

MSN Associates Inc of Los Angeles, CA specializes in providing CFO services focused on helping its’ clients build and maintain financial management practices that increase business value.   

One of MSN Associate’s clients, a media storage company doing approximately $5 million in annual revenue was experiencing cash flow problems.  Revenues were increasing and the company was expanding but inability to accurately forecast cash receipts made it difficult to manage and schedule cash disbursements.     

The company’s managers knew there was a problem but they had been unsuccessful in resolving it because of inaccurate information due to a lack of reporting and measurement.  Management was spinning its wheels; creating a tense atmosphere that was in it self counter-productive.   It was evident that the company needed assistance.

The Solution

MSN consultants began the evaluation by analyzing key ratios and collection cycles.  The company’s Day’s Sales Outstanding  (DSO) was very high.  The DSO represents an average number of days that a company takes to collect revenue after a sale.  A High DSO ratio means that the company was selling services to customers on credit and taking a long time to collect cash.  MSN then analyzed invoicing, recording, and collection cycles per major client in detail, diagnosing the strengths and weakness.  Meetings were held to understand where collection work should be focused.  

MSN also recognized that in order to plan cash flows the company needed to create projections of future receipts and disbursements.  To accomplish this MSN recommended PlanGuru.  With PlanGuru™ the company was able to create a model of their revenue and expenses as well as their cash flow.  The model helped them create a plan for the future as well as better understand the balance sheet and cash flow pressures that increased growth was causing. 

MSN Associates formed a plan of action and the implementation of the plan was done with the client’s management team.  The lead consultant stayed on to ensure that regular meetings, performance measurement and accountability were sustaining new policies. As a result meetings were now productive and calm.  Work and responsibility was clearly delegated.  

The Outcome

By following the plan laid out by MSN Associates the clients DSO declined by 25 days.  Small accounts were collected quickly and bigger clients were diligently tracked, billing was analyzed twice a month as opposed to once a month.  Occasionally, discounts were offered for early pay.  As a result, working capital needs were reduced thereby reducing interest expense.

The implementation was a success but to ensure continued growth as well as understand seasonality and client risks; the client along with assistance from MSN Associates will continue to prepare 1 – 3 year monthly projections using PlanGuru™ software.  MSN also takes part in discussions with the client’s bank using the company’s projections to demonstrate that the company is taking a proactive approach to managing its’ business.  Before the involvement of MSN associates money matters were discussed in a discontinuous manner.  Accounting personnel performed basic analysis without understanding the impact of accounts receivable on the company’s resources. 

In summation, Mohamed Noohu, head of MSN Associates Inc. said; “A great deal was being done by instinct and we changed it to being done by insight.”