Strategic Management Control

Our approach aims to manage corporate profitability from a strategic perspective: how?

Entrepreneurs always know the health of their company: we translate these insights into numbers and improvement objectives, implementing appropriate strategies to reduce costs and boost sales.

Starting from historical accounting data series, we build specific strategies, with future scenario analyses and estimates, to project the best possible result for the end of the year.

Historical data series help us understand how costs move, which are usually divided into fixed and variable costs but which we prefer to classify as compressible costs (which we can intervene to reduce) and non-compressible costs (which we cannot intervene on or intervene only marginally to reduce).

The more the study of the past highlights cyclical trends, which repeat themselves over time (as usually happens in every company), the more reliable the estimates we make will be.

The most effective methodology for achieving the best possible profit leverages the past (i.e. the accounting or accountant's balance sheet, which alone is of little use precisely because it represents the past), to guide the future based on the concept of Break Even Analysis.

Our methodology reverses the traditional decision-making process: we first define the costs (fixed and variable, or rather compressible and non-compressible) to establish both the Break Even Point (or minimum turnover required to break even on all costs) and the Sales Budget (or turnover to be achieved as a target).

If, along the way, the Sales Budget is not achievable, we implement appropriate strategies to reduce costs and increase turnover, defining the product/service lines with the highest added value and the customers to focus on.

How can you reduce costs and increase sales?

We define specific budgets for expenditure and revenue items, which the entrepreneur can choose to intervene directly or, even better, by identifying the people responsible for these budgets within their company.

Sharing the objectives to be achieved with your collaborators creates accountability, delegation, and self-control over individual expense items.

Indeed, the continuity of this process over time increases the level of cost awareness across the entire organizational structure. This, involved in achieving clear and shared objectives, will lead to questioning the reasons for any deviations in results and taking appropriate action.

But is it possible to reduce procurement costs and increase sales without an industrial accounting system?

The answer is YES.

Let's take an example, starting from the definition of a fundamental quantity: the COGS, an acronym for Cost of Goods Sold. To simplify, COGS represents the cost of purchasing raw materials and packaging (in industry) or goods (in commerce), net of the so-called inventory delta (opening inventory minus closing inventory), easily deduced from the company balance sheet. Let's assume that the COGS ratio to turnover is, for example, 40%: what does this mean? This percentage represents an average and determines a watershed between products with higher and lower added value, characterized by a lower and higher COGS ratio, respectively. Therefore, if a given bill of materials shows a raw material ratio lower than the aforementioned 40%, we will be dealing with an overperforming product in terms of profitability, and vice versa, if the ratio is higher than 40%. By applying the bill of materials to sales, we will have a company "TAC," even without the need to implement analytical-industrial accounting, obtaining the COGS% of each product sold. We will therefore be able to boost the turnover of high-value-added lines, characterized by a lower incidence of raw materials. and optimize purchasing or outsource the production of those products with lower added value, in which the incidence of raw materials is higher than the company average. Determining the COGS for each individual product sold also allows us to understand the average profitability of each customer, with consequent analysis and optimization of the sales mix.

This approach, which focuses on COGS analysis, is very effective for companies with a high incidence of raw materials: other production costs will instead be monitored in their absolute value or in relation to turnover.

How do we operate?

We've created a Predictive Analytics Simulator that, by applying specific algorithms to historical accounting data series, can open a window onto the next 12 months and predict the path the company is about to take. This allows us to manage the data in advance and build the future, rather than passively endure it.

The heart of this software is the Rolling Forecast Report, consisting of:

• A company accounting report reworked for management purposes, analyzing monthly data variances compared to the same period the previous year; it serves to "take stock of the situation," generating awareness of what has happened;
• The Income Statement Budget, which represents the target to be achieved in terms of costs and revenues; it serves to stimulate and refine the ability to plan the activities necessary to achieve the objectives;
• Rolling Forecast, or the income statement forecast, which projects the break-even point and the expected results of company operations at the end of the year. It is constructed using actual data for the past months and the remaining budget for the months to come, with the aid of statistical algorithms. It serves to measure the ability to achieve the objectives set in the budget and to implement the necessary corrective actions.
• Historical data series relating to previous years' financial statements, which, in addition to becoming the reference basis for future estimates, provide a complete view, over time, of cost and revenue trends.

By putting all the numbers together, the Rolling Forecast leads us to the following question: are we satisfied with the expected year-end results? If not, we'll have time to decide and implement the necessary strategies.

To be even more timely and effective in making decisions, however, it is necessary to make an extra effort, because annual analyses are important but not sufficient to define an action plan in the short, indeed very short, term.

The key is in the monthly data analysis: for each individual month of the following year, we determine the Break-Even Point and the Sales Budget which, compared with the Open Orders (which will translate into actual sales), allow us to understand whether the monthly revenue target is achievable or not.

This information dashboard represents the "joystick" needed to drive the company.

We periodically analyze and validate the data processed by our Simulator together with the entrepreneur, to build the future without passively undergoing it and to achieve the best possible outcome for the company.

We also implement analytical and industrial accounting to clearly identify margins achieved (by product, customer, or target market), in order to support both operational decisions (pricing, sales mix definition, and continuous improvement activities) and strategic choices (market selection, business development plans, and investment decisions).

Bank Rating and Financial Planning

Financial credit risk is a real risk for small and medium-sized enterprises, requiring constant monitoring of the financial sector to improve relationships between companies and banks, thus fostering growth.

It is therefore essential to ensure that financial commitments are consistent and sustainable with actual business performance, identifying the most suitable financial structure and therefore the instruments, terms, and conditions of existing financial contracts based on the business's growth and/or development prospects.

We support businesses continuously, guaranteeing the following advantages:

• always have the highest financial skills available at a low cost;
• permanently supervise the financial area;
• establish a constructive relationship with credit institutions;
• improve the bank rating;
• have a better chance of accessing bank credit.

We project the company's cash flow, based on the monthly budget, to assess the evolution of financial needs and plan for adequate coverage, as well as to assess the feasibility of planned investments.

We optimize treasury and operating cash flow (cash flow budgets and financial statements) with a view to minimizing the impact of financial charges and reducing the use of bank credit lines.

We also handle extraordinary financial transactions (Mergers & Acquisitions), evaluating every aspect related to mergers, demergers, acquisitions, and/or corporate due diligence, through market analyses, feasibility studies, counterparty identification, and negotiations with the counterparties themselves.

We also plan the international structure of business groups, optimizing national and international taxation.

Business plan for start-up companies or projects

The launch of a new business (or any other business project) must be supported by a feasibility study or analysis that provides a series of business-related data, which can then be used to establish guidelines for the business. This is ultimately achieved through the drafting of a document: the business plan.

Drafting a business plan is, first and foremost, essential for determining the entrepreneur's goals and the strategy they intend to employ to achieve them, but it is also important for accessing subsidized public funding or bank loans.

We support our clients in drafting and implementing business plans, which summarize the content and characteristics of the business project and are used both for business planning and management and for external communications, particularly to potential financiers or investors. Specifically, we provide the following information:

• description of the investment project or type of business you intend to create;
• presentation of the entrepreneur and management;
• market, competition and critical success factor analysis;
• sales objectives, sales organization, marketing plan and strategic positioning matrix;
• technical feasibility of the project and five- or three-year economic-financial feasibility plan;
• overall financial requirements (for technical and intangible investments and for working capital) and related coverage;
• expected profitability of the investment and risk factors;
• investors involved and any proposals for participation by third-party stakeholders;
• timeline for the development of activities.

How to reorganize a business

Client: A company specializing in the processing and installation of glass for furniture, partition walls, railings, and industrial applications; turnover of €13 million.

Challenges: Inefficient production scheduling (delivery delays amounting to 50% of the order backlog); limited staff autonomy in carrying out their duties; incomplete and erratic inventory management; lack of in-depth knowledge of actual costs and production standards sufficient to support management's decision-making process.

Intervention: An 18-month corporate reorganization program, including a complete review of planning and production flows. Given the short delivery lead times for customers (an average of 11 days from order placement), the following were gradually introduced: the use of phase schedules to monitor production according to scheduled dates and a "pull" approach, in which the downstream process "pulls" from the upstream process only the required quantities, at the right time, and in the desired quantities; weekly workload monitoring; "on-site" data collection at the terminal; and departmental time and method analysis to optimize batches, cycles, and production schedules (delivery delays reduced to 10% of the order backlog). To increase autonomy in work management, specific training, accountability, and proactive human resources engagement programs were introduced, defining roles, tasks, procedures, and company objectives. Inefficient inventory management was resolved by implementing barcodes to correctly record production/warehouse loading and unloading operations and ensure material traceability. Finally, cost-based industrial accounting was implemented to determine the hourly cost for each process (grinding, tempering, layering, etc.) rather than for each individual job, given their excessive number and the limited return on investment in terms of information useful for decision-making. Furthermore, sales price lists are determined based on scheduled jobs. Therefore, these jobs were identified as cost and revenue centers on which to base the company's profitability analysis.