CFO Services – Identify Metrics

Helping the business owner identify key metrics to measure business performance is an important CFO Service. I think there is a need for the Part Time CFO to identify metrics that are easy for the business owner to understand and to identify what is critical to the business in the following areas:

Sales

Gross Profit Margins

Employee productivity

Advertising effectiveness/Lead generation

Overhead

Fixed Asset Productivity

Interest Coverage

Every business/industry needs to take a unique look at the type of metrics that best evaluate performance. What may be an important metric for one business may be totally unimportant for another. Working together with the business owner to identify the critical metrics is the best way to go.

I also believe that you do not want to have too many metrics. With too many metrics things start to get complicated for the business owner to utilize and understand. Getting the business owner focused on the key metrics to measure his business performance will prove most productive in the long run. As the CFO sees the business owner utilize and understand the metrics presented, the CFO can introduce more metrics.

Do you know if you need cash?

How Much Money do I need to run my Business???

This is the question many business owners ask. Sure, start up entrepreneurs ask this question too, but I also want to address everyday business owners whether they have been in business for one year or thirty years they need to know how much money they are going to need to run their business. Their time horizon can be a month a year or five years, but they need to know if they have to put money in their business, get money from other sources or if they do not need money at all. If business owners knew in advance how much cash they needed or how much cash on hand that they had at different levels of sales volumes and expenses they would have time to react. As a business owner, I say tell me when it is cloudy not when it is raining. Next Step CFO has a sophisticated forecasting modeling tool called CashTell that can tell business owners what their cash position will be at any point in the future giving the business owner a great advantage in preparing for what is to come. CashTell was developed by Next Step CFO and is exclusively available to Next Step CFO clients.

CFO Services - Business Plan Preparation

Do you have a Business Plan?

Whether you are a start up or have been in business for 25 years, every business should have a business plan.

One great thing about business planning is it really gets you thinking about the direction you want to take your business. As a business owner as well as a Part Time CFO, I can tell you that business owners need to spend more time really thinking about the direction they want their business to go. Preparing a business plan provides the impetus to get you thinking about that direction.

Changes to the plan are encouraged as a business plan is not one of those things you write up once and stick in a drawer never to be seen again. A business plan is a working document that is subject to perpetual changes. It is the working document aspect of a business plan that makes the business plan effective.

Business plan preparation should be a part of every CFO’s arsenal of CFO Services.

Solving Cash Flow Problems - FREE REPORT

Imagine for a moment that it is one year from today. What would have happened in the last year that would make you happy with your progress? How about if you were able to say that the cash flow in your business has improved dramatically and is no longer the issue it was a year ago! What kind of weight would be lifted off of your shoulders if that was the case?

There is nothing more frustrating, time consuming and at times humiliating than having cash flow problems in your business. In addition to the frustration, time consumption and humiliation the biggest impact that cash flow problems have to the business owner is the disruption and distraction to what the business owner is most productive in their business. The business owner gets so consumed by the cash flow problems they find it difficult to do anything productive and the business continues to backslide. When vendors start calling about late invoices, key Employees find out about your cash flow problems and they start looking for other jobs as they do not want to stay with what they perceive to be a sinking ship.

Next Step CFO has prepared a free email report called "Solving Cash Flow Problems" which identifies the areas in your business that are causing cash flow problems and how to solve the cash flow problems in each area.

For this Free Report on Solving Cash Flow Problems Click here

Selling Prices too Low?

Are you maximizing the selling price of your product or service? One way to tell if your pricing is too low is by the number of customer complaints you get about prices. If the complaints about prices are diminishing or non existent your prices are probably too low.

I had a client who was getting absolutely no complaints about their prices. As a matter of fact they were getting a lot of compliments. Come to find out they were selling there product below cost!

The business owner usually has a good handle on what competitors are charging for their product or services. As a matter of fact most business owners price their products against competitors. However comments from the customer combines what the price of the product or service is with the value being delivered and therefore is the best barometer.

Collecting Accounts Receivable

Establishing a system of collecting accounts receivable so that your receivable strategy is consistent and timely is critical to successful collections. It is incumbent upon the CFO to provide the direction to implement the Accounts Receivable Collection strategy. Here is an example of a strategy that if applied consistently and timely will lead to successful Accounts Receivable Collections:

Assume an invoice with terms of net 30 days

Between the 35th and 40th day contact the customer. If the customer is a customer you know pays within 30 to 40 days based on a history that you have with that customer then do not contact until the 40th to 50th day.

If customer does not return your call or you were not satisfied with the customer’s answer then send a 10 day Demand Letter, requiring payment within 10 days or account will be put in collection.

If not paid by the 11th to 15th day then put the account in collection.

I always use a collection agency that has a legal staff so that if the account is not collected using traditional collection methods legal action can be taken right away. Once again the key to the process is consistency and timeliness.

Accounts Receivable collection strategy is one of many important CFO Services.

Break Even Point

I don’t hear much about Break Even Points. Does anyone use them anymore? I know business owners want to hear about them and since I am a CFO For Hire and work for multiple business owners it is important that I listen to the business owner. During challenging economic times business owners want to know where their New break even point is. What I mean by New break even point is now that they have downsized and adjusted their expenses for this new economy it is time for us CFOs to recalculate the break even points and communicate them to the business owner. After this calculation the business owner will then know what monthly or weekly sales levels will need to be attained. It is also a good idea to provide “what if” break even point scenarios especially for different owner salaries and other moving target expenses. By the way, for the small business owner I usually calculate break even point from a cash flow standpoint versus a pure income statement standpoint.

It is an important CFO Service to provide break even analysis. Many times the CFO forgets about calculating break even points because they get tied down with other aspects of forecasting.