Cash-Flow Woes Hinder Toner Firm
Coming a long way from its humble beginnings in a garage, Faro Communications is on track to post $1.2 million in sales this year.
Sounds like a success story, but Faro has cash-flow problems. They are severe enough to jeopardize growth of the 7-year-old Inglewood company, which remanufactures toner cartridges for fax machines and printers.
If every penny came in when it was billed, cash flow would not be an issue, said Robert Scalfaro, vice president and treasurer.
But customers take an average of 52 days to pay. Because the company has to pay for the cost of making its products before then--including making payroll for 10 employees--Faro can end up short of cash for 30 to 45 days or longer.
“I would like to take this business up to the $5-million mark in sales in the next two to three years,” said Scalfaro, whose company takes old, discarded toner cartridges, replaces the worn-out parts, then resells them.
“The market potential is there. . . . But cash flow is definitely a limiting factor. And the ramp-up costs for growth are pretty high.”
He estimated it will take a staff of 25 and new facilities to meet his target sales mark. So Faro turned to The Times and consultant Kenneth W. Keller, principal of Keller & Associates, a Valencia marketing consulting company, for ideas.
Faro’s problem with collections is common, Keller said.
“I think everybody is thinking they can make a penny or two holding onto other people’s money,” the consultant said.
Compounding the problem, Faro doesn’t have a system to track its finances day to day.
The first step for Scalfaro and his partner, company President Tony Drenth, is to set up and monitor key financial measurements of the company. Then at any point they can see who owes money, how much, for how long and, more important, whom to call to get it, Keller said.
He suggests Scalfaro track four numbers daily:
* Invoiced sales.
* Incoming cash (anticipated revenue).
* Expenses (outgoing cash).
* Inventory.
Scalfaro admitted that he isn’t diligent enough about collections. The company doesn’t have a written policy on it--or on anything else.
Keller said the company should do more than formalize its policies and procedures. He suggested establishing a formal credit and collections department.
Right now both partners do sales and collections. That can be a problem because both play the good cop--as in sales--and the bad cop--demanding payment. With a separate collections department, the partners could concentrate on sales and refer delinquent or troublesome collections to a credit manager to enforce company collections policy.
Keller suggested checking with the Burbank-based California Credit Managers Assn. to find experienced candidates.
Faro has evolved into an organization that needs management tools, Keller said. That means the partners also need to formalize things such as long-range strategic business plans and weekly partnership meetings.
Scalfaro and Drenth meet every Tuesday morning for breakfast to talk about the business. But both come from sales backgrounds--they were top copier salesmen for their companies before Faro. Consequently, their casual get-together may overlook issues that need attention.
A formal agenda at these breakfasts could solve that. Keller suggested that the meeting agenda include, at minimum, discussion of the company’s finances, cash-flow status, sales and marketing, customer-care issues, production and quality control, distribution, human resources, strategic alliances and long-term planning.
Drawing up a long-range business plan will help Scalfaro and Drenth develop direction for their business and establish priorities to get there. It’s especially important because of rapid change in their industry.
Scalfaro sees tremendous growth in Faro’s Internet sales (https://www.tonerusa.com). A long-range business plan, therefore, might include looking at the Web site every three or four months to update it as necessary, Keller added.
Other suggestions from Keller:
* Increase marketing. All of Faro’s printed materials--business cards, invoices, sales fliers, fax cover sheets, shipping boxes and even the delivery truck--need to display the Web site address. Scalfaro should also check out https://www.websitegarage.com for a free diagnostic check of his Web site. Another site, https://www.selfpromotion.com, provides information about how to register with search engines. (The site is free, but the host asks for a small donation.)
* Continue professional development. That includes listening to tapes (a good starting point is “The E-Myth” by Michael Gerber), reading professional journals and meeting with peers. Organizations worth considering include the Executive Committee (https://www.teconline.com), an international organization of chief executives who share information, advice and expertise; and the Alternative Board (https://www.thealternativeboard.com), which offers forums and advice.
* Institute employee rewards. With the kind of sales that Faro has and the low employee turnover--10% a year--the company should consider rewarding and recognizing employee longevity and quality of work.
“They are loyal and good employees, and that says a lot in today’s environment,” Keller said.
“I think they [the two partners] have a lot going in their favor. They have built up a substantial business base. I think now is the time for them to get into that second stage of growth and really make this business a bit more professional.”
If you would like your company to be considered for a Business Make-Over, you can now download or print an application online at https://www
.latimes.com/bizmakeform. Or you can write to Business Make-Overs, care of Karen E. Klein, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
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This Week’s Company Make-Over
* Company: Faro Communications Inc.
* Headquarters: Inglewood
* Type of business: Laser printer and fax machine service and supplies
* Status: S corporation
* Owners: Robert Scalfaro and Tony Drenth
* Founded: Jan. 1, 1993
* Start-up financing: $9,000 loan from family
* 1998 gross revenue: $569,000
* 1999 gross revenue: $785,000
* Outstanding loans: None. Company financed through receivables, business line of credit.
* Employees: 10, including the two partners
* Customers: Across the board from Fortune 500 companies to individuals; primarily local but expanding nationally with Internet sales.
Main Business Problem
Cash flow; customers are not prompt enough with payment.
Goal
$1.2 million in sales for 2000; $5 million in two to three years.
Recommendations
* Establish key financial measurements for the business, including invoiced sales, incoming cash, expenses, inventory.
* Have a formal weekly partnership meeting, with an agenda that includes financial update, cash-flow status, sales update, marketing effort update, customer-care issues, production and quality control, distribution, human resources, strategic alliances, long-term planning.
* Establish a separate, formal credit and collections department.
* Ramp up Internet marketing.
* Develop a written, long-range strategic business plan.
* Continue professional development.
Meet the Consultant
Kenneth W. Keller is principal of Keller & Associates, a Valencia-based marketing consulting company that focuses on the needs of small and growing businesses. Since 1994 the firm (https://www.keller-associates.com) has assisted more than 3,000 businesses.
