Vanessa Bates went from secretary to president of Block Tops Inc., a large, successful fabrication operation with three locations in California that works with solid surface, stone and e-stone. She is the new president of ISSFA and has a master’s, which she earned while advancing the business. Her straightforward answers to some financial questions provide an insider’s perspective on finances.
Surface Fabrication: What financial controls are important for a fabrication company to implement?
Vanessa Bates: Good accounting and reporting systems and financial controls go hand in hand. There are basic control systems that every fabrication business should have regardless of its size. These include:
1. Separate accounts payable from accounts receivable (if not possible, make sure an owner or officer is auditing the outgoing payments and the invoicing to minimize the chance of fraud).
2. Make sure you reconcile your banking statement monthly — this should also be separate from the check paying function. An owner or officer should receive the bank statement unopened and review the checks prior to handing it off to whomever will be doing the actual reconciliation.
3. Automate the time punching function. If you have installers that come back after the shop is closed, install a time clock in a locked, weatherproof cabinet outside for their use.
4. Your inventory is the single most costly item; physically count and reconcile monthly. Many companies use the percentage of sales method and count annually. If you have theft, waste, etc., you won’t catch it until it is too late to determine what happened and why.
5. Make sure you are getting a monthly balance sheet, profit & loss and statement of cash flows. If your CPA is providing this information, have him or her explain the statements. Don’t be deceived by looking just at the bottom line and assuming if you are profitable that everything is OK. You can be profitable and be suffering extreme cash flow problems. Good cash flow can make or break a business, particularly if they are growing.
6. Watch the age of your receivables. Someone else is using your cash flow if they do not pay according to credit limits and terms. You are a fabrication business, not a bank.