Saturday, December 25, 2010

CFO Services - Don't Shoot From The Hip

Whenever former Boston Red Sox Manager Joe Morgan was questioned on why he made certain decisions in a game, his answer very often would be "six-two and even". This was an expression he used which really meant he didn't have a logical reason for making the decision and he was using gut feel and shooting from the hip.

Too many small business owners shoot from the hip. They simply don't have the information or the proper analysis to make quantifiable, sound business decisions. A Part Time Chief Financial Officer provides the tools to avoid shooting from the hip. Through forecasts and financial dashboards the Part Time CFO can provide the small business owner the information and analysis that provides quantifiable guidance to the most commonly asked critical questions like:

Will I have enough cash to get through a dip in my business and what kind of dip can I withstand without needing more cash?

What will happen to my business if I invest in a new product line and what will be the impact on cash flow?

What will happen if I maintain the status quo and keep doing business like I have been?

Should I discontinue a product line and dropping this line make me more profitable?

Should I buy a truck or new piece of equipment?

What will happen to my business if I try a new advertising campaign?

I want to get involved in internet marketing. What investments need to be made in people, time and money and how does this impact the entire business?

Should I add a location and can my business handle the additional investment in adding the location?

What is the liquidation value of my business should I decide to discontinue my business?

Can my business be more productive and are we operating at peak efficiency?

Is there another business model that would be more effective?

Should I add another employee or is that just going to build additional expense with very little benefit?

Should I lay off staff and what impact will that have on the business?

How do I evaluate sales performance?

Is my overhead too high?

Are my selling prices where they should be?

Are my gross profit margins where they should be?

These are critical questions in business. Answers to these questions can make or break your company. An Interim CFO has the tools and the expertise to provide the quantifiable analysis that will make the answers to these questions much clearer. So the next time you have to answer any of the aforementioned questions, make sure your answer isn't "six-two and even".

Monday, November 29, 2010

EPISODE26 - Cyber CFO Show 21 - Author: admin Posted: Sun Nov 28, 2010 9:17 pm...

Sunday, November 28, 2010

Pick One Strategy and Go For It!

As a Part Time CFO, I have clients who are either startups looking for investor money or are startups that are self funded and are putting together their first strategic plan. I am an entrepreneurial CFO so I understand the thought process that goes into the strategic plan. We see so much opportunity with multiple market channels to pursue.

As entrepreneurs we always think we can go after all the markets and all of the channels all at once. Create our strategic plan around attacking every possible opportunity. Fire all the guns at once! After all, why leave a stone unturned? The logic is if one or two of the market channels are doing well you can just focus more resources or all resources to those channel(s). However, in reality when we try to go after all market channels we dilute our resources and find that we are not successful at any channels because each channel individually deserved more resources and more attention in order to be successful. I can't tell you how many times I went kicking myself thinking about a specific market channel and saying "if I only had more resources I would have been successful in this channel". Knowing I would have had more resources if I did not try to pursue all the market opportunities at one time.

The challenge is convincing yourself and any investors why the channel you did not select is not the right strategy, however what your plan can ultimately show is you think one channel, let’s say "mom and pop retail shops" is the best opportunity in the short term (first 2 or 3 years) and then when the company has more resources or is ready for another round of financing it can incorporate "the big box retailers". Then down the road once after it has established itself and profited with big box retailers maybe the Canadian market channel can be pursued and then international and so forth. If it takes 3 or 4 years instead of 2 or 3 years to profit and be successful with the mom and pop retail shops then so be it. At least you preserved your resources so that you could survive the extra time it needed to profit in that market.

The other thought that goes through the mind of the Entrepreneur that makes going after all the market opportunities so tempting is beating any competitor to the punch. Once again you need to avoid this temptation. In my view if you are first to the market place with a product or service you should choose the channel that gives you the most brand recognition opportunity. That way you will always be perceived as the pioneer and being first in the market place when you finally enter that new market channel, even though someone else beat you to that new market channel. There is always a distinct brand recognition advantage in being first to the market place no matter what channel is pursued.

I know it is hard. I know you want to go after it all. I know you have good reasons to go after it all. Avoid those temptations. Pick the best market channel and pour all of your focus, energy and resources on that one channel and you will give your startup the best chance to succeed!

Sunday, November 14, 2010

If you are thinking of starting a business... - Author: admin Posted: Sun Nov ...

Sunday, November 7, 2010

CFO Services - Selling Your Company to Employees

As a Part Time CFO I often get involved in exit planning and executing exit plans. The purpose of this post is to give you a preliminary check list when selling your company to employees. Generally it is normally not advisable to sell your business to employees. The reasons are that employees usually do not have the financial resources to make a significant down payment nor do they have the credit capacity to assume personal guarantees that may be outstanding. However some business owners who have significant trust in employees they have employed for years or want to reward employees that have been loyal for years really do want to sell the business to these employees and are willing to assume the additional risks.

Below is a preliminary check list to consider when selling your company to employees:

• Does the potential employee buyer or buyers have as much skill
as you do? Do they think like business owners or do they think
like employees?

• When you retire, what skill sets that you brought to the table
in the day to day running of the business need to be filled?

• Will the new employee Owner(s) have those skills sets?

• If not, what is the best way of finding someone who has the
required skills and should they be hired before the sale or your
retirement date to break them in?

• When should the closing date be of the new employee owner(s)?
Timing is important. For example are you selling the business
going into peak season or going into the slow season? If you
are selling into the slow season this may bet the new employee
owner(s) off on the wrong foot.

• Does the stock ownership to employees become gradual or all at
once on a retirement date and what are the income tax
ramifications of each?

• How does personal liability get transferred?

• If multiple employee owners will they work well together and
make good partners? If not, that could spell disaster.

• How much is your business worth today?

• How much will the business likely be worth at your planned
retirement date?

• How much money do you need from the business in total?

• What form can this payment take? For example, lump sum or per
year for how many years. If you need to take a note for any
part of the purchase price which is a likelihood what is the
credit worthiness of these new owner employee(s)?

• How much money do you need to live on after retirement?

• What portion of that retirement amount must come from the
proceeds of the sale of your business?

As previously mentioned this is a preliminary list to think about and consider. As a CFO I usually hand this list to the business owner when they are contemplating selling to an employee as this list gets them thinking in the right direction. There are many other factors that need to be carefully considered about your specific situation. Make sure you have a team of professionals helping you.

Monday, October 25, 2010

CFO Services – Explanation of Accrual Versus Cash Reporting

As part time CFO I constantly get asked the question as to what the difference is between the cash and accrual basis of accounting. For those of you who are QuickBooks users you probably know that QuickBooks (thru the "Modify Report" Button) provides the user with the option of reporting financial statements under either cash or accrual reporting basis. Many times my clients see a significant discrepancy in their profit and wonder why. One of my CFO Services is to explain to the client the difference between the cash and accrual reporting basis.

Under the Accrual Reporting Basis revenues are recognized in the month the product is sold or the service is performed whether the cash on the sale is received or not. To give you an example, if you sell computers and the computer is shipped to the customer in the month of May with 60 day terms. Under the accrual basis the sale will be recognized in May and not 60 days later in July when the cash is received. Under the Accrual Reporting Basis expenses are recognized when incurred and are not recognized when paid. For example, if part of your cost to produce the computers you built and shipped in May were to hire outside contracted labor with 30 day terms the expense would be recorded in May even though you paid for the contracted labor in June.

Under the Cash Reporting Basis revenues are recognized in the month the product is paid for by the customer and not in the month when the product was shipped to the customer. Going back to the computer example the computer is shipped to the customer in the month of May with 60 day terms. Under the cash basis the sale will be recognized in July when the product is paid for, not in May when the product was shipped. Under the Cash Reporting Basis expenses are recognized when paid and are not recognized when incurred. For example, if part of your cost to produce the computers you built and shipped in May were to hire outside contracted labor with 30 day terms the expense would be recorded when you paid the expense in June and not when you incurred the expense in May.

So which is method is better? For income tax purposes both methods of accounting are allowed and you should consult an income tax professional to find out. For management purposes, in my view the accrual basis of accounting is better hands down. The accrual basis is better because it provides a more accurate matching of expenses with revenues. Taking a look at the computer company example under the Accrual method the product is shipped in May and revenue is recognized. The expense associated with the product (outside contractors) is recognized in May when incurred. This is a perfect match of revenues with the expenses that produced that revenue. Now take a look at the same example under the cash basis. The revenue would be recognized when paid in July and the expense would be recognized when paid in June. There you have an obvious mismatching of revenues and expenses.

Through utilization of the accrual basis and the proper matching of revenues with expenses more useable management reports are available and in turn better decision making. Certainly the CFO as well as the business owner will be able to better utilize and make more effective judgments with the accrual basis of accounting. As previously mentioned the IRS allows for both methods of accounting however under GAAP (Generally Accepted Accounting Principles) only the accrual reporting basis of accounting is allowed.
Cash Needs - Author: admin Posted: Sun Oct 24, 2010 7:33 pm

Sunday, October 24, 2010

CFO News Week Ending October 15, 2010 - Author: admin Posted: Sun Oct 24, 2010...

Saturday, October 9, 2010

What is Educational Marketing?

As a Part time CFO I need to be able to play a large role in helping the business owner make strategic business decisions. In order to do this the CFO has to know more than just the numbers. The CFO needs to understand the whole business. This includes having a solid understanding of marketing.

Today I want to discuss a marketing concept that in my view is very effective. It is called educational marketing. Educational marketing is defined as informing your customers on how to make the best buying decisions. In other words stop selling and pitching and start helping and informing your customers on how to buy. Educational marketing converts skeptical shoppers who became skeptical because they were sales pitched to death and turn them into informed buyers. Educational marketing is a specific type of marketing where you assume an expert and training role and you engage potential customers and clients through information. Educational Marketing is more effective than traditional price driven advertising as it helps consumers do their homework so the prospect can make an informed buying decision.

The hard sell is getting very stale. Have you noticed that people are avoiding and running away from being sold and pitched? They look for information that helps them buy the right products. By informing your customer you are inherently building a relationship and trust which is the basis for who people do business with. In addition to the credibility you build, you become an expert and a resource instead of just another supplier or vendor.

Think about it. Is your primary objective in marketing your business to promote what you do? Is it to promote your product or services? I say NO and NO! I say the most important function that your marketing serves is to establish that you and your company are knowledgeable, capable and can be trusted. To do this is going to require a radical shift in traditional thinking!

By answering the questions that customers are asking themselves when they are making decisions to buy your product or service is the exact approach you should take in determining your educational marketing message. Put yourself in the customer’s position and ask the questions. It is the educational and instructional answers to those questions that will produce your marketing message.

Here is the point. If you are the one who is informing the prospect and providing solid information to the prospect. Guess who the prospect will develop a relationship and trust with and guess who the prospect will think of, when it comes time and when the prospect is ready to make the ultimate buying decision? That’s right, you, because you are the person who provided the information and education and you are the expert and the prospects resource! It’s providing your prospect with educational based messages not selling based messages that will turn the prospect into a customer.

Resist the urge to pitch and start educating your prospect. You will gain the credibility and trust that will earn you much more business!

Thursday, October 7, 2010

Employee Theft or Embezzlement - Author: admin Posted: Sun Oct 03, 2010 9:37 p...

Sunday, October 3, 2010

Do you keep growing your backlog?

As a Part Time CFO I look very carefully at sales order Backlogs. I understand that given the current state of the economy, having long backlogs have not been the problem, but I still think that it is a discussion point. First let me make sure I say that healthy backlogs are different times frames for different industries. Some industries are not considered healthy if their participants do not have a 6 to 12 month backlog. Some industries customers expect backlog. In this article I am asking the business owner to assess their backlog from the perspective of what is healthy in their industry.

Backlogs can be an indicator of the customer's propensity to buy. Backlogs can be an indicator of demand. Backlogs can be a solution to cash flow problems by increasing production, staff or capacity to cut into the backlog and accelerate the receipt of cash from the customer. Backlogs have their place. They keep the business owner in a state of harmony. They keep employees busy and minimize layoffs. However, there has to be limits. There has to be a point where the backlog is too long. The longer the backlog the longer customers are waiting for product and services. The longer the backlog usually means the longer the cash cycle because inventory and labor is needed well in advance of delivery of the products and services. So although backlogs can solve cash flow problems by cutting in to the backlogs, they can also cause cash flow problems if they get too long. The bigger the backlog the longer the cash cycle the more strain on cash flow. Also, by accelerating sales and cutting into the backlog you will increase production thereby decreasing fixed overhead, have faster inventory and sales turnover and make more money.

The business owner together with the CFO has to make it a point to assess the backlog. Some of the things that need to be assessed are:

If their currently a cash flow problem?
What was cash flow and profits like with a shorter backlog and faster turnover?
What is the staffing availability?
What is the customer’s patience level?

The CFO should prepare a business and cash flow forecast to help answer these questions and more with respect to the size of backlogs.

Just like there are optimum inventory levels and optimum employee levels there are optimum Backlog periods. Don’t get me wrong, backlogs can be great, but an optimum backlog must be determined. The optimum backlog period depends on the industry.

Sunday, September 12, 2010

CFO - Profit Does Not Equal Cash Presentation - Author: admin Posted: Sat Sep ...

Monday, September 6, 2010

CFO - Why Do We Forecast - Author: admin Posted: Mon Sep 06, 2010 4:49 pm ...

Tuesday, August 31, 2010

The Business Forecast - Good Versus Not Good - Author: admin Posted: Thu Aug 2...

Wednesday, August 25, 2010

The CFO Provides the Tools for Success

It is often said, that in order to succeed in business you need 3 things. One is the ability to take action. Two is Self Mastery which is taking control of your mind and thoughts and three is you need the proper tools.

The ability to take action and self mastery come from within, but the proper tools can come from a good CFO.

Your CFO needs to use tools that:

1. How much cash they will have or need at any point in the future.
2. Allows business owner to choose multiple scenarios to see what can happen if:

* Sales/revenues change up or down.
* Expenses change up or down.
* Inventory changes up or down.
* Debt structure increases or decreases.
* Capital Expenditures increase or decrease.
* Headcounts increase or decrease.

3. Determines optimum inventory levels.
4. Determines optimum timing of making trade and expense payables and determines
how much to pay.
5. Determines a company's ability to make capital expenditures.
6. Determines whether a company should lease or buy capital equipment.
7. Determines when a business owner can retire and still pull out a paycheck from the
8. Determines how much debt you will have at any particular point in time.
9. Determines what the business owner has to do to increase cash flow.
10. Determines Break even points.
11. Determines optimum inventory receipts or manufacturing output.
12. Determines optimum expense levels.
13. Helps develop operating budgets.
14. Helps determine optimum headcount.
15. Assists in determining Business Valuation.
16. Helps Determine key operating metrics.
17. Determines the effect of adding or eliminating a product line or business segment.
18. Determines the effect of adding or eliminating a store location.

With the proper tools from the CFO the tripod of success can be completed and success will be achieved.

Sunday, August 22, 2010

Oh No! Don't cut Advertising and Marketing

One of the CFO Services available to my clients is an expense review. During this analysis I look for alternative vendors with more value or negotiate with existing vendors for lower pricing. No matter how good the CFO is in cutting expenses I have never seen a P & L with zero expenses. Eventually you are going to need sales growth.

With this difficult economy still continuing, businesses are still looking to cut expenses which is a good thing and cutting expenses should be an ongoing practice no matter what economic condition we find ourselves in. However as this current economic difficulty continues I see businesses now cutting into their advertising and marketing budgets. Like other expenses, a review and analysis of advertising and marketing expenses should be ongoing no matter what economic condition we are in. When this analysis is done and certain advertising is determined to be ineffective then it should be cut. I am fine with that. However, what I am seeing is that business owners are starting to cut more effective advertising and putting off new promotions that they believe will be effective and in my view this should not be done. Cut elsewhere but not advertising and marketing unless said advertising and marketing is determined to be totally ineffective. As a CFO, I am well aware of the risks involved in advertising and marketing. However, I am also aware that businesses owners cannot retreat forever or they will retreat right into bankruptcy court.

I am also well aware that in difficult economic times your most effective form of advertising isn't as effective in difficult economic conditions as it is in peak economic conditions, but it is still your most effective form of advertising and cannot be cut. Making the decision to keep more effective advertising going and making the decision to take on new advertising and marketing opportunities that you believe will work is where the risk of entrepreneurship in its most precious and sacrosanct form comes to the front. This is what separates the good business people from the not so good business people. More importantly this is what separates you from your competitors because your competition is retreating!

When someone either cuts more effective advertising and marketing or passes on a new advertising and marketing idea that they really like, I am reminded about the story of the Hot Dog Vendor.

A Man lived by the side of the road...and sold hot dogs.

He was hard of hearing, so he had no radio. He had trouble with his eyes, so he had no newspaper. But he sold good hot dogs.

He put up a sign on the highway, telling how good they were. He stood by the side of the road and cried, "Buy a hot dog, mister!" And People bought.

He increased his meat and bun order, and he bought a bigger stove to take care of his trade. He got his son home from college to help him. But then something happened. His son said, "Father, haven't you been listening to the radio? There's a big Depression on. The international situation is terrible, and the domestic situation is even worse."

Whereupon the father thought, "Well, my son has gone to college. He listens to the radio and reads the newspaper, so he ought to know." So, the father cut down on the bun order, took down his advertising sign, and no longer bothered to stand on the highway to sell hot dogs.

His hot dog sales fell almost overnight. "You were right, son", the father said to the boy. "We are certainly in the middle of a Great Depression."

If the business is cutting into advertising and marketing because the advertising and marketing is ineffective that is one thing, but if the business is cutting more effective advertising and taking a pass on new advertising and marketing opportunities that they believe will be effective, I think they need to re-think that!

Friday, August 13, 2010

The CFO and the Risk of Employees

From looking at the unemployment rates it appears that businesses are starting to understand the risk in employees. This Wall Street Journal Editorial by Michael P. Fleischer, President of Bogen Communications in Ramsey, NJ identifies all you need to know with respect to the risk of employees. However if that was not enough let me add some other risks:

• What if a new hire is only a sub par performer on the job? Here you are risking all this money and the productivity isn’t even there. This employee who you interviewed multiple times and had your current employee’s interview multiple times who all giving this prospective employee rave reviews isn’t working out. Now you have to lay off this employee adding to your unemployment insurance contributions.

• The risk of rising health care costs and the latest health care plan providing much uncertainly among many business leaders and small business entrepreneurs.

• Take a look at existing employees. Can you really afford to have sub par performers?

• The risk of laying off or firing an employee is another burden of having an employee. One never knows when they layoff or fire an employee what legal action awaits. Even if you win the case you lose as you lose the legal costs to defend!

In the final analysis, subcontracting work and responsibilities has got to be a more viable option than ever before. Today’s business owner needs to take a look at this option. Subcontractors can be interchanging movable parts and if they do not work out it is easy to let them go. When you let go a sub contractor there is virtually no risk of legal action especially when compared to the risk of letting go an employee. With subcontractors there are no health costs and no benefits. Keep in mind that I am talking about Sub Contractors, not independent contractors who in the eyes of the taxing authorities could be employees in disguise. Hiring people as independent contractors could get you into a lot of trouble. Subcontractors are real businesses that can do work for you and other customers that needs to be done within your business. Independent contractors are individuals who are looking for work and really do not operate a business in their field and come and go as an employee would. For IRS distinction click here.

A reputable Part Time CFO who is a subcontractor and not an employee or independent contractor can help you assess the risk associated with your current or proposed employees. A good CFO will also help you identify, assess and mitigate other risks in your business.

Sunday, August 8, 2010

The CFO is a Sounding Board in Assessing Risk - Author: admin Posted: Sun Aug ...

Saturday, August 7, 2010

What is a Virtual CFO? - Author: admin Posted: Fri Aug 06, 2010 11:23 pm ...

Wednesday, August 4, 2010

Check out my advice in recent Boston Globe Article - Author: admin Posted: Wed...

Monday, August 2, 2010

EPISODE19 - Risk of Employees & Contract Manufacturers -

Sunday, August 1, 2010

Business Risk

I wrote an article on understanding the risks of business ownership some time ago but I wanted to revisit this topic under the heading of "Business Risk". The more I think about Business Risk the more I think it is valuable for the business owner to understand what Business Risk means. As I see it, especially in this so called "New Economy" the business owners must be more sensitive to risk than ever before.

When you are a business owner, risk is all over the place. The critical element that keeps your sanity is your assessment of that risk. What should be going through your mind is whether the risk you are assessing is mild, concerning or severe. Just by opening up for business and putting the lights on there is risk. Every single day you are likely to encounter at least one (likely more than one) of the following risks:

Buying equipment
Not Buying Equipment
Leasing Equipment
Not Leasing Equipment
Purchasing inventory
Not purchasing inventory
Hiring employees
Not hiring employees
Incurring debt
Not incurring debt

Do you see where I am going with this? Every decision you make whether you do something or you do not do something carries risk. This is by no means a complete list! I could go on and on with inventory mix, collections of accounts receivable, choosing suppliers and so on. This is why it is so challenging to be a business owner. This is why it takes a certain mentality, a certain make up and a certain mindset to be a business owner. The job of the business owner and CFO is to assess each and every one of these risks. If the risk is severe or cannot be tolerated then the risk must be mitigated.

Do you see why the business owner needs help with this? Do you see why the Chief Financial Officer can play such an important role no matter what the size of the business is? Even in the smallest of businesses these risks need to be assessed and mitigated if severe.

Saturday, July 31, 2010

Business Plans - A Brief Overview - Author: admin Posted: Fri Jul 30, 2010 8:3...

Wednesday, July 28, 2010

Knowing What Your Product Or Service Costs - Author: admin Posted: Tue Jul 27,...

Wednesday, July 21, 2010

Controlling Your Health Care Costs - Author: Tina Wright Posted: Wed Jul 21, 2...

Monday, July 19, 2010

Bookkeepers and the CFO Work Great Together

I had a prospective client/business owner recently who was ready to hire me. He said before he hired me he had to ask his bookkeeper their opinion. The bookkeeper had not met me and did not know me and although I thought it was a strange way to operate I said that was fine. When I followed up with the prospect he said that the bookkeeper thought that a Part time CFO was not needed and based on that, the business owner said he was not going to hire me.

I was surprised by this. I felt bad for the business owner on how he would let the bookkeeper make such a decision. I told this prospective client and business owner that in my experience there were only two reasons why a bookkeeper would say no to CFO services without knowing or meeting the CFO:

1. The Bookkeeper is acting very inappropriately in the day to day responsibilities of their job (possibly stealing) or;

2. The Bookkeeper is afraid to have their numbers scrutinized in fear that inadequacies in the bookkeeping will be exposed.

The point is that bookkeepers and CFO's work famously well together. They compliment each other. The Part Time CFO goes into the engagement happy when they know a bookkeeper is on staff preparing the numbers and the CFO and bookkeeper work together to make sure the numbers are right so the best business decisions can be made for the client. The Bookkeeper and CFO are a powerful combination in terms of helping the business generate accurate financial numbers. That is why when a bookkeeper repels a CFO who they do not even know or never met, that should raise the eyebrow of the business owner.

Wednesday, July 14, 2010

EPISODE24 - Options For Troubled Businesses - Cyber CFO Sho - Author: admin Po...

Sunday, July 11, 2010

Business Owner Trap - Author: admin Posted: Sun Jul 11, 2010 12:50 pm ...

Wednesday, July 7, 2010

Benefits of a Part Time CFO - 15 minute Presentation - Author: admin Posted: W...

Saturday, July 3, 2010

The CFO Must Find The Softest Landing Possible

One of the biggest challenges I have as a Part Time CFO is working with distressed companies. These are companies that are very insolvent and have had a recent history of significant operating losses or were companies that were always on the edge and then developed more significant problems during the current economic downturn. These are usually companies whose business owners never admitted there was a problem until it was too late. These are usually companies who did not prepare business or cash flow forecasts or a strategic plan or exit plan. These are usually companies who are reactive versus proactive. Since in business it is 80% ingenuity and guts and 20% luck, these could be companies that were simply not lucky.

When working in these situations you look for the softest landing possible. 95% of the time the softest landing possible is viewed by the business owner as a nightmare. This is understandable because the softest landing possible usually isn’t selling the business for millions of dollars which is the dream of most business owners. Most of the time the softest landing possible crushes the hopes and the dreams of the business owner and it is not an easy position for the CFO.

The personal liability situation of the business is an important consideration when seeking the softest landing possible. Usually the rule of thumb is the more personal liability exposure the harder the landing. This is usually the case because the more personal liability exposure the business owner has the less the impact the corporation has to protect the business owner.

I am going to write about 3 possible options when a business is insolvent that may provide the softest landing. I am going to explain each one only briefly because I am not an attorney and I urge everyone contemplating these options to consult an attorney.

1. Bankruptcy – I think we are all familiar with this one. This may have to be combined with personal bankruptcy of the business owner due to excessive personal liability incurred in the business. Another consideration with this route is also the cost. It can be expensive especially the business bankruptcy. Sometimes a bankruptcy filing can be used as leverage with creditors and also at times with hostile partners. You have two forms of business bankruptcy which are Chapter 7 which is a complete liquidation and closure and Chapter 11 which is a reorganization. With a Chapter 11 or reorganization one of the most important factors is will the trade supply you? This is when the business owner has to rely on whatever relationship equity they have built with the trade. Chapter 11 is only viable if there is some type of debtor in possession financing available or if operations can be funded by only paying current expenses and a very small piece of old debt.

2. Private Foreclosure Sale – This is when there is a bank or other senior creditor in first position to be able to take all of the assets under a security agreement with a filed UCC. An acceptable offer is made to the senior creditor by an outside investor usually for less than what is owed the senior lender but probably for more than the senior lender would get if they liquidated the company. Only the assets of the company are simultaneously seized and sold to the investor in a private foreclosure sale. The liabilities are left in the old company. A deal is made by the outside investor with the current business owner for either equity in the new company or a job/consulting position or both depending on the business owners desires. Available cash before the foreclosure sale is used to pay down or negotiate with personal liability creditors. Another consideration with the Private Foreclosure sale is how the trade will react. On one hand the trade loses what ever the company owed them, but on the other hand they could perceive new management and new majority ownership and a new day to do business with someone who will pay.

3. Strategic buyer – This is when you can find a buyer who is in the substantially the same business. A strategic buyer will be in a better position to work fast and also will pay the most while seeing an opportunity to expand their business. The strategic buyer buys all or selected assets and none or selected liabilities. The purchase price and earn out (there is likely to be an earn out as we are talking about a depressed business with an uncertain future) needs to exceed personal liabilities and any secured creditors with perfected security interests (filed UCC’s). The seller needs to be prepared to offer settlements to creditors giving priority to creditors with personal guarantees. This is not easy to do but can be a way out. In this option the trade knows the strategic buyer and although the trade knows they have probably lost the receivable they have a stronger company to do business with who they are familiar with.

Once again, these are all complex strategies and every situation is different. Experienced lawyers must be obtained to see if any of these options is right for you. I have personal experience with all of these scenarios and it is important to review each option carefully to flag the risks and opportunities. These are 3 possible options to provide the softest landing possible for an insolvent company. The challenge here for the CFO is to explore all of the options available to the company knowing that each option likely presents unpleasant downsides for the business owner and you must identify the option that presents the least unpleasant downsides. Keep in mind that it is also likely that the worst thing you can do is nothing. Therefore it is important that the Chief Financial Officer stays focused on continuously influencing the implementation of the softest landing possible.

Sunday, June 27, 2010

Answers To Commonly Asked Questions - Author: admin Posted: Sun Jun 27, 2010 3...

Wednesday, June 23, 2010

Why You Need a Part Time CFO - in 15 seconds - Author: admin Posted: Tue Jun 2...

Monday, June 14, 2010

C-Suite Belief Systems May be Causing Mediocrity - Author: admin Posted: Sun J...

Thursday, May 27, 2010

The Value In Business and Cash Flow Forecasting

As a Part Time CFO I have the following questions:

Does the small business owner see the value in business forecasting?

Does the small business owner see how the business forecast helps you to become proactive versus reactive?

Does the small business owner see how the business forecast allows you to take a look into the business’s future using multiple what if scenarios allowing the small business owner to understand what is going to happen and arming the business owner with multiple strategies ready to implement depending on which scenario becomes reality?

Does the business owner see how commonly asked questions like:

Should I add or cut a product line?
Should I add or cut a location?
Should I add or cut an employee?
Should I Lease or Buy Equipment?
Should I add a truck or van?
Will I need more cash in 6 months?

can all be answered through business forecasting?

Does the small business owner see how you can solve today’s problems with business forecasting?

I don’t think they do!!

Sorry for the rant, but I just do not understand why the value of business forecasting is underestimated by the small business owner. Fortune 500 companies and large businesses are always forecasting and they see tremendous value in it. To the Fortune 500 Company everything is about what is going to happen next and how can we strategize for what might happen next. Everything is about being proactive because if you are reactive the quality of decisions go way down and the value of your stock and the value of the company go down and people get eliminated! To many small business owner’s who have viable businesses the lack of business and cash flow forecasting will reduce the quality of their decisions and the value of their companies and they will be eliminated. Do you think these Fortune 500 companies would spend the huge amounts of time on forecasting if it was not important, if it did not add tremendous value, if it did not work? It is not valuable only to the Fortune 500 Company because they are big. It is valuable to the Fortune 500 Company because it is an effective way to operate a business!

Many small business owners will say “Gee I wish I saw that cash flow problem coming”. The point is, it would be very likely to identify a cash flow problem in advance with the right business forecasting tools. In addition, you will be able to avoid other problems like for example, inventory problems, because for each level of sales you plug into a forecasting model you will get an optimum inventory and receipt plan. If sales start to slip or increase, you will be able to adjust to a new and different receipt and inventory plan. It is widely known and accepted that the quality of decisions are much better if they are made proactively versus re-actively. Is there such an urgency to simply survive one more day in your business and block all possibilities for planning and for being proactive? Even if you wanted to do that and just survive another day there are part time CFO’s and business consultants out there who can do the forecasting and planning for you in order to give you the immediate and long term picture you need. I know, this sounds very self serving because I do business forecasting, but as a small business owner who has owned retail, manufacturing and service companies all of my life I constantly relied on business forecasting and strategic planning to run my businesses and it was valuable.

The proper business forecast is a solid predictor of the future not because the forecast or person doing the forecast is some kind of soothsayer or gypsy lady that has ESP, but because one can enter multiple “what if” scenarios covering as many different likely possibilities as one would like. With each scenario a strategic plan can be developed. As any one of these scenarios start to unfold, the business owner can work the strategic plan devised for that unfolding scenario.

One of those scenarios that you want to look at could include something like “what would the financial picture look like if you cut or added an employee, cut or added a location, cut or added a truck, cut or added a product line, leased or bought equipment and what will the impact on cash flow be for anyone of those scenarios.”

And guess what, I have a solution for those small business owners out there who are only worried about the problems of the day and wants to be in reactionary fire drill mode all of the time. For those of you only worried about the problems of today, a business forecast can help identify how to solve those problems that are happening right now! The proper business forecast that prepares monthly projected income statements, balance sheet and cash flows encompass everything that is happening in the business and therefore can solve any problem and/or answer any questions. This includes identifying the best course of action and the softest landing for troubled businesses as well.

A client was having a cash flow problem and there were a number of factors on the surface that were causing the problem: They were:

1. Too much debt
2. Owners Salary too high
3. Selling prices too low

However while doing the forecast for a scenario where sales were flat to the previous year, the forecasted inventory receipt plan that correlated with those flat sales was much less than what happened the previous year. This forecast showed that inventory turns could improve by 1.5 times and this efficiency in inventory receipt and turns would increase free cash flow by $40,000 per year. This improvement would have never been made if the forecast was not done. Furthermore, finding this kink in the armor took pressure off the owner to have to reduce their salary and it took pressure off the business to have to increase prices too much in a competitive environment.

By the way I want to repeat something. The proper business forecast will have projected monthly income statements, monthly balance sheets and monthly cash flows all tying into each other. If your forecast does not have cash flows, then throw it out with the bathwater. It is no good!

Attention Small business owners. See the value in being proactive versus reactive. See the value in answering questions you ask yourself every day, see the value on putting together a strategic plan based on what the forecasts tell you, and for those of you who are just trying to survive one more day, see the value in solving today’s problems today through business and cash flow forecasting.

Saturday, May 15, 2010

Labor Burden - Author: admin Posted: Sat May 15, 2010 10:49 am

Calculating Overhead

There are 3 components of cost. These 3 components of cost are material, labor and overhead. As a Part Time CFO, I see a lot of business owners eliminating overhead from their cost calculations. This can lead to operating losses and cash flow problems. Usually the reason the business owners misses overhead is they do not understand how to calculate overhead nor do they know how to incorporate overhead in their analysis.

The easiest way to calculate overhead is as a percentage of sales. Take all of the projected overhead expenses for the period you want to analyze. The period can be a month, quarter or year and divide these projected expenses by the amount of projected sales. As you go forward if sales are lower or higher than projections by 10% or more you should recalculate the overhead rate based on the new projected sales. The same recalculation needs to be done if your projected expenses are off higher or lower by 10% or more. This percentage needs to be applied to the sales dollars associated with each sales transaction or quote. You can also simply take last year’s actual results for overhead and sales and perform the same calculation on actual results instead of projected results. I like to use projected results. Other than sales there are other ways to calculate overhead using labor dollars or labor hours, but I like to use sales. However for the Trades (General Contractors, Painters, plumbers, electricians etc…) and manufacturers I like to use labor hours. That way we can come up with overhead costs per direct labor hour and all you have to do is estimate the labor hours for a job and you know your costs.

There are many schools of thought regarding the calculation of overhead and incorporating overhead in cost calculations. Some do not like accounting for overhead in their cost calculations because they say no matter how much the sales price exceeds material and labor, the overhead will begin to be paid and that is their only objective. I say a couple of things about that. First, sales better be high enough otherwise if you employ this school of thought you will guarantee yourself you will not be profitable. Even if sales exceed material, labor and variable overhead by just a few dollars you will eventually pay for all of the fixed overhead but the sales must be high enough and that is a huge risk. Second, an argument can certainly be made that a sale that at least covers some overhead is better than no sale at all, however are you sure there is no other sale out there that you are not making that covers more of your overhead or all of your overhead or do you justify giving your product and service away just to make a sale knowing it is covering some overhead?

Note I added the term Variable Overhead above. Sometimes there are expenses that a business owner calls overhead, which can be considered overhead but are actually expenses that are variable to sales. Expenses such as credit card fees or gas where a service performed is going to require going to a specific location need to be identified as variable. Variable overhead should be incorporated as part of the expense component deducted from the selling price to determine profit before fixed overhead.

My view on overhead is that the business owner needs to know what the overhead component of their product or service is so that they know what their true bottom line is on each and every transaction/quote. Unless your expense and/or revenue projections are way off, knowing the true bottom line on every transaction will give you the piece of mind that all costs are accounted for and that the bottom line on the transaction/quote is credible. At the end of the day the business owner can use their own discretion as to whether a sale that does not entirely cover fixed overhead is worth making. If it were me I must be extremely confident that there is no other sale to make that will give me a better return before I would accept a sale that only partially covered fixed overhead. For example let’s say you know with reasonable certainty that your business is in a state of low demand maybe due to seasonality or economic conditions. If I am convinced there is no other sale out there that is going to give me a better return or if I think the customer is worthwhile to keep because the customer will give me long term potential at higher profit margins then I would make the justification that I am at least covering some fixed overhead. Otherwise make sure your selling price covers all three components of cost which once again are Material, Labor and Overhead.

Calculating Overhead is one of many important CFO Services.

Friday, May 14, 2010

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Monday, May 10, 2010

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Thursday, May 6, 2010

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Friday, April 30, 2010

CFO's first make sure the client understands - Author: admin Posted: Fri Apr ...


One of my clients is having a real good year. I know that is unusual for the current economic environment but this particular client makes very unique and effective sales presentations which has lead to his success.

My client recently (within the last two weeks) added some new employees in order to keep up with the demand and he asked me if he should buy a new truck. He said he thought it would make one of his new crews more productive.

I said “hold it” as I immediately went back to my business experience and how when I had a peak in demand and was doing really well how I went overboard with capital expenditures, how I added locations and how I added product lines as I thought the great demand was never going to end. This was a big mistake. I said to my client “Exuberance” as I thought of my own exuberance. I went on to tell my client that we have not even tested our new employees to see if they are going to make the cut as permanent employees and we are thinking about buying trucks to make them more efficient. My client went on to say that he could take one of the new guys and let him go solo on the truck to do some lower end jobs. I told my client that we should do nothing and review this in another two months. In two months we will see if we still have the same sales backlog, we will see if the new employees are working out, we will also have a better idea how as a business we handled this excessive amount of sales activity from a quality standpoint and we will know if it is profitable to do these smaller jobs. We will also have a better idea to see if there is time to market the smaller jobs for the truck strategy my client talked about. I told my client that business owners (me included) have a tendency to really over spend when times are good. They almost do it because they have the cash available to do it and things are going so well so they think they need to capitalize on this success without thinking that these great times are not going to last forever and the overspending still has to be paid for. As I told my client this he began to understand and he thanked me for putting the breaks on the idea. I told him you must be equally as disciplined in managing upturns as in managing downturns and you must never think you can afford something just because the cash is currently available. You must constantly look to conserve cash unless a real return on the investment can be forecasted with accuracy and all of the other areas of the business are stable and tested as cash is the lifeblood of your business.

This exchange between my client and I is just one more example of how it is a great advantage for a business owner to have an entrepreneurial chief financial officer. The entrepreneurial CFO can reflect back on the many real life business experiences and apply those experiences for the benefit of their clients.

Tuesday, April 27, 2010

Successful Real Estate Business is REAL! - Author: HAMZA1234 Posted: Mon Apr ...

Monday, April 26, 2010

3 Secrets to Overcoming Your Fear of Self-Promotion - Author: admin Posted: M...

Wednesday, April 21, 2010

Michael Barbarita Interview on WBNW 1120 AM on CFO Services - Author: admin P...

Friday, April 9, 2010

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Thursday, April 8, 2010

CFO Core Concerns Conference

This is a special post to let CFO's know about an upcoming conference.

If you need answers to any of the following questions, you can’t afford to miss the CFO Core Concerns Conference:

· How do I identify the most threatening risks to my organization?

· What cost cutting and working capital techniques really work?

· What are the latest best practices in pricing strategies?

· As the credit crunch continues, what alternative financing sources should I explore?

· What are the keys to maintaining worker morale in the wake of downsizing?

· How should I prepare for future financial regulation?

CFO Core Concerns Conference
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Monday, April 5, 2010

Private Foreclosure Sale - Author: admin Posted: Sun Apr 04, 2010 10:31 pm ...

Thursday, April 1, 2010

Managing Cash

As an entrepreneurial CFO I am able to share real life experiences on managing cash flow.

In the late 1980’s I owned a chain of retail ski stores in the Greater Boston area. You might think that due to the seasonality of that type of business that the cash flow would be terrible in the summer time, but I never needed to use my line of credit.

Other than tight expense control and cash conservation strategies throughout the year there were two main reasons why we never needed to use our line of credit:

• First, we closed the stores in the off season. Our specialty was ski equipment, ski clothing and ski accessories. Those were the areas we were experts in. Those were the areas the consumer knew we were experts in. If we were to sell summer goods like all of our competitors did, we not only would have slow inventory turns, but we would also have carryover of these unproductive non-ski inventories preventing us from investing in what we did best and preventing us from investing in what the consumer was conditioned to know we did best. The sale of ski equipment, ski clothing and ski accessories. Tying cash up in unproductive inventory creates cash flow problems, unplanned markdowns and lost profits. Investing only in inventory that is productive with high inventory turns and lower unplanned markdowns creates cash flow and profits.

• Second, I ran my inventory down so that I had very little merchandise on December 31. I worked with suppliers so that I could purchase close out merchandise in January, February and March and pay for it in October. As a result I was able to take my sales from January, February and March which are still strong periods in the ski business (especially if there is local snow) finance the summer. In August and September which is the real start to the winter buying season I would have a grand opening (because my stores were closed in the summer I could have a grand opening every year) as well as a major tent sale. These sales would easily cover the October close out bills.

Understand that when you own a seasonal business or if your business simply has periods of low sales activity that you need to identify your business cycle. I am defining the business cycle as the time you receive the inventory or raw material until you get paid for the final product. The objective is to receive payment for the final product before paying for the inventory and/or expenses of production and/or the expenses of selling the inventory. If you understand the business cycle you can create strategies and work with suppliers to most productively meet your needs.

The CFO can help you identify the business cycle, put together operating strategies and work with suppliers to manage cash during slow periods.

Sunday, March 28, 2010

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Wednesday, March 24, 2010

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Wednesday, March 17, 2010

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Monday, March 15, 2010

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Thursday, March 11, 2010

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Sunday, March 7, 2010

Employee theft - Author: admin Posted: Sun Mar 07, 2010 5:21 pm ...

Saturday, March 6, 2010

CFO Services from One Piece of Paper

In a previous post on metrics I pointed out the importance of metrics and some of the metrics a business owner can calculate and track. However what I did not point out is how the CFO can use these metrics or key performance indicators to help the business owner literally manage their business from one piece of paper. A Financial Dashboard if you will. Many CFO’s help their clients identify the key performance indicators in which to manage their business. Many CFO’s use financial dashboards and share them with business owners. I am just not quite sure if the CFO is showing the business owner how to use this tool to more effectively manage the business. It takes time and patience but really explaining to the business owner how to use the financial dashboard and to instill the discipline to use it at least on a monthly basis can go a long way in improving the productivity of the business and also the productivity of the business owner. Managing the business from the financial dashboard not only provides more simplicity to complex business problems but it also helps anticipate problems and circumvent trouble.

For example, I showed a client recently how a trend in a simple metric called overhead per labor hour can show how well the business owner is managing their overhead costs commensurate with managing their payroll costs. Looking at the way this metric trends can give you a quick indication on whether you are maximizing your overhead and payroll expense controls. Using graphs is a very productive way to visualize these trends.

Finding benchmarks are ok but in my view they can only be taken so far. Benchmarks means finding service or statistical bureaus that compile metrics from other companies in the same industry so that comparisons can be made with others in the same industry. This is certainly interesting information, and it can be useful to a point but I am of the belief that no two companies are really alike even if they are in the same industry. Overall I believe that the benchmarking should be done internally and the CFO, business owner and advisory board should get together to first determine the most productive key performance indicators to track, the target goals for each key performance indicator and the way the business owner and CFO will use them to manage the business. Certainly look at the benchmarks, but do not use the benchmarks as the target.

Getting the business owner to understand and on board with using metrics to manage their business is one of the more effective CFO Services that can be provided.

Friday, March 5, 2010

13 Examples of Continuity Income in a Service-Based Busines - Author: admin P...

Saturday, February 27, 2010

12 Questions Critical to Achieving Sales Plans - Author: admin Posted: Fri Fe...

Thursday, February 25, 2010

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Saturday, February 20, 2010

How Women Entrepreneurs Will Help Corporate America Find It - Author: admin P...

Friday, February 19, 2010

The Internet Marketing Secret That Stops Small Business Own - Author: admin P...

Sunday, February 14, 2010

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Thursday, February 4, 2010

CFO Services – What Angels Need To See

If you are an Entrepreneur and you want to be prepared for an Angel or an Angel group you are best served to have the following ready:

• An Executive Summary – no more than 3 or 4 pages.
• Pitch Deck – 10 to 20 page power point presentation.
• Be prepared for a lot of questions
• 6 to 12 character references – after all they are investing in you!
• Names of customers or potential customers.
• Financial Model and Business Forecasting Tool
• Where is the money going to be spent?
• What are the real economic levers in the business?
• How does it look like over the next 4 quarters
• What hypotheses are you trying to test.

The Interim CFO or Part Time CFO can help you with the final 5 points.

Angels want to know if you financially thought through the project you are proposing. You need a financial model that addresses all of the contingencies and possible what if scenarios. You need a financial model that shows the angels you know how much cash you need and when you will need it. You need a financial model that shows the angels that you are on top of:

• Headcount and employee plan
• Purchase and/or production plan
• The costs related to your marketing and advertising plan
• Where their investment is being spent
• The metrics that will measure the businesses performance

Angels know that every business/investment opportunity they look at is going to have a set of hypotheses that the entrepreneur is going to present as there are no certainties. Each hypothesis needs to be carefully thought out and presented. The Angel needs to know what hypothesis or solution to a problem you are trying to test. What are the economic levers that are dictating that your solution to the problem is the answer and what economic levers are going to drive your solution to the market.

Speaking of angel investors there is a solid list of them on the following website Angel Capital Association

Wednesday, February 3, 2010

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Sunday, January 31, 2010

CFO Services – More than the numbers

Recently a client emailed me a complaint about two things:

  • That he is losing touch with his customers because he decided to delegate
  • Things are getting crazy, disorganized and disjointed. I liked it much better when we were more organized.

As an Interim CFO addressing these kind of issues is commonplace. Business Owners look to the CFO for direction and guidance.

With regard to my client feeling like he is losing touch with his customers I responded to him as follows:

In business you either go up or down. There is really no state of neutrality. Any business that does not try to grow usually goes down. If you strive for neutrality you are very likely to go down. Therefore you must continuously strive to grow. Having said that, as you grow you are going to continuously feel a disconnect with your customers. However there is a solution. It is called communication. I think on a consistent basis you need to call these "delegated customers" directly and get the feedback from the customer on how it is going and on how your company can do better. I know it is more work but it is part of managing the growing process. Your employees will never in a million years tell you that there is anything wrong with their service until it is blatantly obvious and then it is usually too late. Tell your employees in advance that you will be calling these customers and give these employees both positive and negative feedback as to the results.

With regard to my client feeling that his business is crazy, disorganized and disjointed and liking it better when things were more organized, I responded as follows:

I think you need to change your mind set a little bit here. When I was in the retail business I knew business was going well when things got a little crazy, disorganized and disjointed because that meant things are growing as planned. When things are not in that aforementioned state then believe me there will not be joy in organization there will be potential stress and loss of focus as being human we all get complacent. The challenge is as things get crazy, disorganized and disjointed to be ready with solutions and improvements so when the current set of circumstances happen again you will be able to avoid the crazy, disorganized and disjointed and move on to new things that cause more craziness, disorganization and disjointedness. Believe it or not that is the winning formula for running a successful business.

Being a Part Time CFO is not just about working the numbers, the metrics and the forecasts. Being a CFO means you need to have a thorough understanding of business ownership and in turn understand how the inner workings of business work.

Tuesday, January 5, 2010

Controlling Payroll Costs

As mentioned in a previous post the four major expenses for most businesses are payroll, rent, advertising and insurance. One way that the Interim CFO can work to control payroll costs is through the use of forecasting tools like CashTell. The beauty of using a forecasting tool for the purposes of controlling payroll costs is that you can optimize both the headcount and the labor hours for different levels of sales.

For example, when forecasting, several different possible business scenarios should be assessed and analyzed by both the business owner and the part time CFO. One of those many different scenarios is different sales volumes. When forecasting one must look at what happens to the model when different ranges of sales volumes are entered. A good forecasting model should be able to determine the optimum headcount and the optimum amount of labor hours for each level of sales. This is a great tool because with this information the business owner and CFO know in advance as sales go up or down how to schedule workers helping to maximize efficiency and manage payroll costs.

Many times when the word “labor hours” is used we think of mainly manufacturing, however managing payroll costs through labor hours can be done in all types of businesses. When I was in the retail business, store managers were given a set amount of labor hours each week for scheduling employees. They could not go over those allocated labor hours unless they had permission together with a logical reason. My forecasting tools determined those labor hours and then if at the start of the week sales were deviating from the forecast I would issue or withdraw more hours as needed. It was also interesting that although the store managers complained about the small allocation of hours that they got it was amazing how the job got done with more efficiency and no sacrifice on service.