Managing Seasonal Product Inventory

Distributorships in the business of handling seasonal merchandise know that correctly managing supply and demand can be the difference between being left with an empty warehouse (ideal) or the burden of leftover inventory (the result of poor planning) after peak season.

Accurately forecasting the demand for seasonal merchandise isn’t easy, because there are many variables to take into account. However, you can better plan the boom and bust cycle of seasonal inventory by studying historical sales data, forecasting future demand and considering the unexpected.

Tracking historical sales patters

Before you can begin more accurately forecasting demand for seasonal products, you must carefully study historical sales patterns, homing in on products that show marked fluctuations in sales. Keep in mind that “seasonal” can have multiple definitions when it comes to product distribution. Consider products that are tied to the annual back-to-school timeframe, a holiday, or a type of weather, sport or leisure activity.

Keeping accurate sales records will help you identify patterns and return on investment for products over time. You can then better determine what types of seasonal inventory are smart investments based on their return.

Forecasting sales for the season

Taking a rolling average of sales during the past six months with more emphasis placed on the most recent month is useful in forecasting demand for nonseasonal products — those that have consistent usage and sales. To help accurately forecast demand for seasonal products, on the other hand, you must take a future rolling average, which involves comparing a future period to the same time period from the prior year, with more emphasis on the month being forecasted.

Be sure to consider other variables that can affect the demand for seasonal products in the current year. Thus, you’ll also need to consider overall trends in the growth or decline of your company’s sales, changing market conditions, competitor activity, and any conflicting events.

Planning for the unplanned

Combining an understanding of historical sales patterns with the use of future rolling average forecasting and an automated software package, you can significantly improve your distribution business’s management of seasonal inventory.

But because unplanned occurrences are inevitable in a dynamic marketplace, a perfect demand forecast for products isn’t just unlikely, it’s next to impossible. A sudden economic slowdown or atypical seasonal weather, for instance, can put an unexpected damper on sales.

So what can you do to reduce or get rid of seasonal leftovers? Two viable solutions include marking it down sooner rather than later or giving excess inventory to charity.

For the former, applying smaller markdowns while sales levels are still high can help entice customers to buy more, lessening the amount of leftover inventory and improving profitability. If you wait until the end of the season, you’ll be forced to apply big discounts to move items, cutting deeply into your profitability.

For the latter, your distribution business may qualify for a tax deduction on seasonal inventory that you donate to a qualified charity. The available deduction will vary depending on factors such as the structure of your distribution business and the type of inventory donated. Your tax advisor can help you properly determine the applicable deduction.

Enjoying the benefits of seasonal merchandise

When handling seasonal merchandise, it can be the best of times (when demand is high) or the worst of times (when your warehouse shelves are full of products no one wants). Successfully planning a seasonal product cycle is no easy feat, but with some extra legwork you can reduce the variables and reap more of the benefits.

Valerie Colin, Senior Vice President, Gumbiner Savett Inc.

Simple Ways to Minimize Check Fraud

If yours is like most construction companies today, your profit margins are thinner than usual. To protect the bottom line, it’s critical to implement solid internal controls to minimize fraud, error and waste.

Fraud is a serious problem in the construction industry. In the 2010 Report to the Nations on Occupational Fraud and Abuse, a survey conducted by the Association of Certified Fraud Examiners, construction ranked ninth among all industries in terms of both frequency of fraud and median loss ($200,000).

One of the most common schemes today is also one of the simplest: check fraud. It’s relatively easy to create a forged or counterfeit check with nothing more than a computer, scanner and printer. Fortunately, there are simple solutions to this problem.

Positive pay

Positive pay is one of the most straightforward — and effective — safeguards against check fraud. With each check run, you transmit an electronic file to your bank with a list of check numbers, account numbers, dates and amounts. Bank personnel review checks as they come in. And, most important, they won’t pay a check that doesn’t match the list without your approval.

For added protection, many banks allow you to set up special rules. For example, you might reserve the right to approve checks that exceed a certain amount or have been outstanding for a specified period of time.

If you don’t have time to put together a list of checks each month, find out whether your bank offers “reverse positive pay.” Under this approach, the bank sends you information about checks as they come in, and you approve payments on a check-by-check basis.

Payroll Card

Another way to minimize check fraud is to reduce your reliance on paper checks. Many construction companies use direct deposits for payroll. If you have employees who are “unbanked” — that is, they have no bank account — you might consider using “payroll cards.” Employees can use these cards to withdraw cash from ATMs or, in some cases, as a debit card.

Eliminating paper checks not only reduces opportunities for check fraud, but also decreases your administrative costs. To prevent unauthorized payments, use separate bank accounts for electronic and paper-based payments.

Focus on Prevention

The best strategy for combating fraud is to be proactive. In some cases, your bank may ultimately be liable for unauthorized payments. But a better idea is to work with your bank to prevent check fraud from draining your account in the first place.

Kevin Yardumian, Executive Vice President, Gumbiner Savett Inc.

The “Welcome to Gumbiner Savett Inc.” video provides viewers with information about the types of clients we work with, firm culture and service delivery. Our “A Career at Gumbiner Savett Inc.,” video discusses what the firm is looking for in new and experienced hires and what it is like to work here.

Michael Savoy, managing director stated, “We enjoy what we do, the videos are viewer-focused and reflect the spirit of the firm. We also wanted to reinforce our position as a large local accounting firm with exceptional depth and global reach in the industry.”

Irene Valverde, Director of Marketing Gumbiner Savett Inc.

Rather than focusing solely on cost cutting, look instead to optimize your capacity. A capacity utilization approach can balance operating expenses with product demand, trimming only unnecessary costs and identifying where additional resources are needed.

Calculating utilization capacity

Calculate capacity utilization by dividing your company’s actual output by its potential output, taking into account the number of workers, facilities, machinery and other capital outlays that contribute to productivity. A manufacturer’s average capacity utilization rate typically rises when the economy is vibrant and falls when the economy is anemic, making it a good indicator of the manufacturing sector’s general health.

Balance is important when it comes to capacity utilization: Too-high utilization can leave plants struggling to keep up with demand and lead to price inflation, while too-low utilization means businesses are squandering their investments. Many financial experts suggest that manufacturers should aim for 80% utilization, meaning the average manufacturer today needs to boost its figure.

Streamline capacity and expenses

To increase your capacity utilization, review your production-related expenses and determine whether they make sense as a whole. If you have enough workers and plant space to produce 20% more product, but outdated machinery is holding you back, for example, it may be worth upgrading that equipment to boost productivity. Conversely, if you’ve been forced to reduce your workforce because of the recession, it may be time to downsize to a smaller facility or consolidate multiple locations under one roof.

Before undertaking significant changes, make sure you’re not cutting items that you’ll need to replace if you increase production in the future. Restarting a plant, for example, often requires a hefty outlay of time and resources for training and other start-up costs. Other strategies for boosting utilization, such as bringing component suppliers or other previously outsourced functions in-house, can also backfire if you don’t carefully compare all costs to potential revenues.

Keep an eye on sales

In addition to streamlining expenses, it’s just as important to examine the other side of the equation: sales. Even though dwindling demand has sparked the recent drop in capacity utilization, savvy manufacturers are finding ways to increase their market share.

One vital step is to diversify your customer base, which keeps demand steadier during uncertain times. Next, brainstorm new ways to market your products and connect with potential customers, such as revamping product lines or freshening up advertising campaigns.

Alignment for long term profitability

Aligning demand with expenses takes careful consideration, but the work pays dividends when done correctly. By moving your capacity utilization to where it should be, you can help your manufacturing company weather the economy’s valleys and increase your chances for long-term profitability.

By Michael Reiff, Executive Vice President, Gumbiner Savett Inc.

Making Social Media Work For You

Use these social media sites constructively.  Instead of trying to deliver long, drawn out information (as we tend to do in professional services) in a Twitter or Facebook posting, use these tools to direct readers to more lengthy and useful information on your website. You can link back to articles, blog posts, whitepapers, service descriptions, biographies, etc.

Although you may be tempted to cut/paste previously-written material and leave it on your site for the duration, you must put yourself in the reader’s shoes. What might interest them? What new trends should they know about? Rather than getting into the intricacies of the legal code, post articles that focus on practical issues readers are likely to confront. For example, a firm that provides estate planning services might want to post an article that addresses issues related to transferring ownership of closely held businesses or other types of wealth.

You can also use the articles to assemble online newsletters. Send your contacts a quarterly or monthly e-mail with descriptive blurbs and links to the articles. To attract return visitors and better results in search engines, update your site regularly with fresh content. Remember to also include SEO (search engine optimization) in your content, (see my blog post from April 13, 2012). The keywords and tags you include will help visitors find you, especially if they’re not already familiar with your firm.

Calling All Bloggers

Don’t limit your written material to static articles, though. More and more professional services businesses are launching blogs aimed at target audiences. Recruiting several partners or managers to contribute to blog content will help ensure it is updated regularly with fresh material from different perspectives – the posts can be short, unlike the usual 1,000+ word articles professional services providers are accustomed to writing. Blogs are also a great way for those who like to write, to get noticed and show-off their expertise.

Publicize your blog — include a link directly from your website’s home page; add it to the signature box of all outgoing e-mails; add it to your company page on your social media sites. The more you blog, the more likely you are to get noticed. Studies show that weekly posting (or more frequently) will increase your chances of acquiring new clients.

Social Media and Your Marketing Plan

Online marketing has become indispensable, but you should use the vehicles that are best for you, your clients and potential clients. Clients may not be on Twitter or Facebook, but it’s likely they use the Internet for research. Don’t make the mistake of neglecting your website to jump into the social media pool — social media is simply one piece of your marketing plan.

By Irene Valverde, Director, Gumbiner Savett Inc

Is Your Law Firm Website Working For You?

Attracting prospective clients to your firm’s site takes a well-strategized and -executed marketing plan. Central to that plan is excellent content and search engine optimization (SEO) — which means using your content to maximize your ranking among Internet search engines so that your firm’s site is among the top search results.

Understanding How SEO Works

The web offers many general and specialized search engines, but Google garners more than 60%of all search traffic. Most law firms, therefore, focus on optimizing their sites for Google’s search algorithm. Google closely guards and frequently alters the formulas it uses to rank sites, however certain key factors are known to raise a site’s profile, including:

Keywords. You can improve your firm’s online visibility by including in your site’s content keywords that are commonly used as search terms (for example, “intellectual property” and “estate planning”) and that accurately reflect your site’s content.

Original Content. Original timely content is what search engines look for; therefore they favor professionally built websites with useful information that is kept up to date.

External and Internal Links. Incoming links from other reputable websites, particularly high-traffic ones, and back links to other pages in your own website can give your site a significant Google bump.

Don’t Create Your SEO Alone.

If these sound like simple-to-implement ideas, they’re not, but they are well worth the effort. Researching the most effective keywords, and then integrating them into your website’s content, takes considerable time and expertise you may not have in-house.  

Instead, talk to SEO consultants who specialize in working with law firms. If you’re building your website from scratch or redesigning an outdated site, be sure to include an SEO specialist on the project team. It’s a lot easier to implement SEO practices during the design stage than to have to go back later and “retrofit” your site. Once you launch the site, this consultant can help you find other ways to boost your rankings and set a plan for you. The day-to-day maintenance of your website can be accomplished by a savvy intern who can use Google’s Keyword Tool , or someone in your marketing department who understands SEO practices.

SEO Will Make Your Website Work for You

With such intense competition for clients and web presence, you simply can’t afford to ignore the boost that search engines can provide your website in terms of site traffic. Landing on the first page of Google’s search results could be the difference between a well-known practice and one that isn’t.

By Irene Valverde, Director of Marketing, Gumbiner Savett Inc.

 But what sounds easy and fair on the surface can actually work against the unwary property owner. Here’s why: Although the cap rate equation involves only straightforward math, the variables going into net operating income and sales figures can make applying the formula a challenge.

 No Two Properties are Exactly Alike

To calculate a building’s valuation, the assessor first chooses several properties that seem comparable to yours and then, using those properties’ net operating income and sales price, calculates a typical cap rate for the property type in your market.

 The trouble is, no two properties are exactly alike. They carry unique financing (or none at all), have a different mix of tenants, and generate different expenses. They’re never managed the same and, unless they’re both fully occupied, they won’t have the same vacancy rate. There can also be differences in the accounting used. And the sales price may, or may not, have included business value.

 The Complexities of Calculation

Net Operating Income: The trickiest component of cap rate calculation is net operating income. Net income should include earnings, but not depreciation, business taxes or interest expense. Taxes paid and depreciation taken are excluded because depreciation depends on the initial cost paid for the property and taxes paid are often influenced by depreciation taken. Interest expense is also excluded so the property’s value isn’t influenced by the type, terms and amount of financing used to purchase it.

 Rental Income: Rental income is a primary component of earnings. But which income should the assessor use? Both in-place current rents (based on current leases) and estimated rental values (open market rents) should be identified.

 Expenses: There are many variables that may, or may not, be included in the expense calculation — Do the managers pay themselves a fee to run the building? Is that fee reasonable? Do they have on-site maintenance personnel who receive discounted or free rent as part of their compensation package, or do they use outside contractors to do the work? What’s included in the list of expenses that appear on tax forms, such as office expenses and supplies?

 When the property being valued is retail, industrial or office, the complexity of calculating net operating expenses increases dramatically. In addition to having more complex lease terms, commercial tenants build out their spaces individually. A sub shop and an upscale restaurant may both serve food, but they entail different business risks and would finish their interiors quite differently.

 Working with Your Assessor and Your Advisors

Correctly determining a cap rate can be mind-numbingly complex. And yet, it’s important that your assessor get it right when calculating property values for tax assessments. Get your financial advisor involved so you pay no more than your fair share of property taxes.

By Ray Blatt, State & Local Tax Principal, Gumbiner Savett Inc.

There is always new information posted, so I visit regularly.

Evaluate Your Financial Position.  Prior to exploring the possibility of securing a consolidated loan, it is important to evaluate your financial position with the help of an advisor.  I always tell my clients that the first and most critical step is to have clean and accurate financial statements in order to put their best foot forward to a lender. At our firm, we have clients send us their monthly financial statements so we can review them and see if there is anything that stands out. If we see anything out of the ordinary or out of balance, we discuss it with the client.

It is very important to be proactive.  If the books and records of a company are not updated, it is very difficult to analyze a full balance sheet. It is crucial to have up-to-date financials in order to make a proper decision as to when to consolidate and when not to consolidate.

Debt consolidation is nothing new.  There are numerous reasons, however, why businesses fail to explore this avenue —overwhelming debt, they feel the process is too involved or they think they will not qualify.  I have seen many clients that have charge cards as liabilities on their corporate balance sheets and they use their credit cards as part of their loan strategy for their company.  This is extremely expensive, so what we try to do is take all their loans, bundle them up into one package, and have a financial institution fund the amount at a much lower rate (provided the company is making a profit).

The upside to loan consolidation is that you usually can adjust to a much cheaper rate.  Consolidation will generally reduce your interest charges, allowing you to have more money available as working capital.  A move toward consolidation will help save your bookkeeping time because those hours spent each month reconciling multiple accounts will be lessened to one or two accounts.

Do your homework.  You need to be careful of the promises that are made to you by debt consolidation companies. You need to ask the lender specific questions about the loan type, length of the loan, prepayment penalties, interest rate terms, etc.  Often times, people like an attractive low introductory rate only to find out that once they have the loan the lower rate is only available for a short time. Consequently, they are left paying the same high rates they had before the consolidation.

If you are interested in debt consolidation, talk to your accountant as he/she can advise you of the potential benefits that can be derived from the process.

By Rodney Fingleson, Chairman, Gumbiner Savett Inc.