Accountability

As a Part Time CFO I find that business owners making people accountable for their performance is lacking more and more and as a result more of the burden of accountability is falling on the business owner. Since the business owner is responsible for everything that happens in their business, the buck stops with the business owner. This additional burden of accountability is not only unproductive to business owners, but it is negatively affecting the bottom line as well. One person simply cannot do it all!!! Therefore people have to be held accountable!!!

What causes a lack of accountability in an organization?

Primarily 3 things (not in any particular order)

1. Inaccurate and untimely financial statements - The financial statements are the scorecard of any business and are the supreme measure of business performance. If the financial statements are inaccurate or untimely then how can performance be measured properly? If performance cannot be measured properly how can one make anyone accountable?
   
   
2. Fear of Loss of the Employee - If the business owner thinks very highly of the employee and the business owner looks at the employee leaving the company as a detriment to their business they will deflect as much pressure and accountability away from that employee as possible.
   
   
3. Lack of having a strategic plan - Without a strategic plan the business lacks direction. When a business owner has a strategic direction that they can communicate to the rest of the organization it gives employees the reason to be accountable. An employee will not be accountable if they are not given a reason to be accountable. The strategic plan consistently applied gives the employees reason to be accountable. Consistency in the strategic plans application is critical because if the strategic plan is inconsistently applied or changed often accountability is sure to break down.
   

Having everyone accountable in an organization increases the bottom line, increases the value of the business and allows the business owner to sleep nights!

A CFO Entrepreneurial Lesson Learned

Don't let your small business make you small minded.

This is one of those tough lessons I learned this week. I am an entrepreneurial CFO. This means that I am a Part time CFO that performs CFO Services and my background consists primarily of owning and operating small businesses all through my career. Even now, in addition to my CFO practice I co-own a property casualty insurance agency with my partner.

What I learned this week is that as a small business owner we can become small minded. What I also learned that a large part of what drives that small mindedness is self doubt.

Here is my story:

Back in 2002 I put together a business plan to create Virtual Trade Shows. These virtual trade shows would help small companies who cannot afford to attend or exhibit at important trade shows an opportunity to attend over the internet.

Here is an excerpt of the concept from the Executive Summary:

"Tradeshowsonthenet.com, Inc. ("TSON" or "the Company") was created to streamline commercial trade shows and make them much more cost effective and more productive to the participant. The trade shows would take place on the internet providing both exhibitors and attendees with more capabilities and tools in order for them to accomplish more at a lower cost than they would if they all were actually at an exhibit hall. The Company's purpose is not to eliminate trade shows, but creating them in a virtual environment while maintaining all the advantages that trade shows afford and increasing efficiencies, data and participation."

As I reflect back on why I did not pursue my business plan, I remembered I was fraught with self doubt. Self doubt that I could not raise the money, self doubt that I could not come up with the technical programmers, Self doubt that the idea was before its time and so on.

Last week I received an email from On24 a company among other things creates and builds virtual trade shows. They have 3 Venture firms on their board and look like they are doing extremely well. I saw pieces of their latest virtual trade show and it is exactly what I envisioned. Evidently the founder of On24 had no doubts about raising money, finding programmers and the timing of the project.

I had prepared and executed business plans before but they were on a smaller scale. I let a small business mentality make me small minded and I let self doubt prevent me from executing this plan.

The take away here is:

Wouldn't it be a shame if self doubt prevents you from serving the world!

CFO Services – What Are Rolling Forecasts?

One of the more important CFO Services is Business and Cash Flow Forecasting. This CFO Service gives the business owner the foresight to take action. Many business owners operate their business on a day to day basis without any business and cash flow forecasting and without thinking about what is going to happen next month, next quarter or even next week! As a result they never understand the benefits of business and cash flow forecasting and guess what? Their competition does understand the benefits. Their competition understands that business and cash flow forecasting:

• Reveals weaknesses and strengths in your organization.
  
• Finds solutions to solve those weaknesses and improve on those strengths.
  
• Helps you to learn more about your business.
  
• Helps you to be proactive about addressing potential trouble down the road like for example, a cash flow problem.
  
• Makes people in the organization accountable
  
• Gives the business owner piece of mind
  

One of the problems with business and cash flow forecasting is that once the forecast becomes 30 days old it is stale, outdated and most times forgotten. To address this problem the state of the art CFO performs what are called rolling forecasts. Rolling forecast capability allows one to enter actual results for the most recent month and then the rest of the forecast rolls forward for the next 12 months. This is called a 12 month rolling forecast and should be done every month to keep the forecast current. I usually prepare a 24 month rolling forecast for my clients to get a longer range perspective of where the business is going. With these updates the CFO and business owner can make changes as needed as well as identify any other problems. The rolling forecast makes the forecasting process a monthly occurrence and a monthly planning process that adds tremendous value. With my clients I also combine the results of the rolling forecast with an analysis of the key performance indicators for the month.

With tools like the rolling forecast, the business owner can be on top of their game and gain a competitive advantage against the many business owners who do not do so!

CFO Services - Another Cash Conservation Strategy

As a Part Time CFO performing CFO Services it is my responsibility to identify all the ways a business can conserve cash. This includes providing cash savings guidance for services I do not perform. The best example of this is during this time of year I always advise my clients to have their year end tax planning meeting with their CPA or Income Tax preparer.

These year end meetings many more times than not help the business owner reduce their current year tax liability and conserve cash flow for the business. Certainly most of the strategies evolve around purchasing vehicles, equipment or some type of fixed asset before the end of the year, but there are other year end strategies especially for cash basis taxpayers that are discussed like paying as many expenses as possible before year end and the proper timing of the year end billings.

Virtually every CPA or Income Tax Preparer provides these year end tax planning sessions. They usually last no more than an hour and can even be done over the phone and it can be the most profitable hour in November/December that you will ever spend.

A CFO should have many resources to help the business owner through these challenging times. One of those resources should be good CPA’s and Tax Preparers. If you are in need of a good CPA please feel free to contact me.

Michael Barbarita

Next Step CFO

CFO Services

781-326-3822

yourcfo@nextstepcfo.net

CFO Services - An Option to Consider

As a Part time CFO I run in to situations where business owners are relocating. I always liked the strategy of owning the building you do business in. The way I look at it is you have to pay for facility costs one way or another you may as well build equity through the facility payment.

One mistake I made is with an insurance agency that I have an ownership interest in. I have had this equity interest since 1983. We kept leasing the same office space for years. We paid almost $700,000 in rent in 27 years. If at some point in the process we bought the property we would have probably still paid about the same in facility costs, but we would have enjoyed tax advantages and today we would own an asset that has resalable value. This is the typical falling asleep at the wheel scenario.

Even though the real estate market is down I still believe the right thing for business owners to do is own their building. SBA 504 programs are providing good financing options and believe it or not banks love to do them. The SBA guarantees a large percentage of the loan among other things so the banks are all in on that. However if you cannot finance a purchase today a lease with an option to buy can be a very productive strategy. Through a lease with an option to buy:

• You are not committing to a purchase
  
• You are controlling the property and it cannot be sold from you
  
• You can try the property to make sure it fits your business needs before you buy
  
• You have time to work toward a down payment
  
• You can lock in a favorable option purchase price in this current real estate market
  

Sometimes you have to make a nonrefundable payment for the option but in this real estate environment that can usually be negotiated. Keep in mind any nonrefundable payment you make toward the option should go toward the purchase price should the option be exercised.

With the aforementioned advantages of ownership a lease with an option to buy could give you the opportunity to purchase an asset for your facility dollars instead of accumulating rent receipts.

Exploring different avenues when locating can be one of the many valuable CFO Services.

CFO Services - Excess Cash

As a Part time CFO from time to time I get requests from clients as to what to do with excess cash flow. I know it sounds strange during these challenging economic times, but some companies do produce excess cash. This can occur if business is really good or just from a seasonal fluctuation in a seasonal business. When these situations occur we have a tendency to think only about putting the money in an interest bearing bank account. However, if you have seen money market and CD rates lately you know that if you can get an interest rate of 1% per year you are lucky and this does not seem to be changing anytime soon.

Here are some things that can be done with excess cash:

1. Call all Trade Vendors to see if they will offer early pay discounts. Some offer them as a matter of policy but I would make a phone call to them anyway to see if they would accept a higher discount. After all you may be inquiring at a time where they need cash.
2. Call the Landlord and see if he will give you a discount for prepaid rent.
3. Call your expense vendors and see if you can get a discount if you pre-pay your expenses.
4. Pay down your line of credit as long as you can dip back into it and the bank doesn’t freeze your line as you pay it down.
   

If you think about points 1 thru 3 these are operating expenses you have to pay any way in the near future. It is not like paying the credit line which is additional dollars outside of ordinary operating expenses. That is why with respect to the credit line I suggest you make sure you can borrow back into it.

I think it is very likely that the aforementioned four points will yield appreciably better results than an interest bearing bank account.

CFO Services – Accurate Financial Statements

After being a Part time CFO for over 4 years now, I am seeing a trend that is not good and not productive for the business owner. The alarming trend is there are too many business owners who have inaccurate financial statements.

Many business owners want to know two things no matter how interested they are in financial information. That is they want to know what their sales are and they want to know what their net profit is. Even the most uninterested business owners in financial information want to know those two metrics. However, if the financial statements are not accurate you will not know those two metrics or if you do know those two pieces of information they will not be accurate.

Why does the business owner need accurate financial Statements?

To make better business decisions – How can you make business decisions on Collections, pricing, what vendors to pay, capital expenditures, inventory purchases and much more without accurate financial statements?

To get bank financing and to obtain leases – Banks will take you a lot more seriously if your financial statements can back up what you tell them. Furthermore when a banker sees inaccurate financial statements (and many financial types can usually tell inaccurate financial statements merely through looking at them) there is very little chance to get a loan.

To Keep Bank Financing - Many business owners have credit lines that need to be extended or converted to term debt. Without accurate financial statements, at the very best case you are going to make your banker nervous not to mention you may not get the credit line extended which requires you to payoff the credit line immediately.

Allows for better financial analysis – Without accurate financial statements there is no basis for solving problems or for strategic planning. For example without accurate financial statements you cannot solve cash flow problems nor do a business and cash flow forecast. You cannot determine with certainty whether a change in business model is going to work for you.

Estate Planning – If you are going to have an effective estate plan the accuracy of your financial statements are a critical part of the process.

Selling a business – The amount of earnings that a business has is critical to its valuation. Inaccurate financial statements will be discovered by the buyer during the due diligence process and your deal could be in jeopardy.

Shareholder Buyout or Disputes – Just like selling a business accurate financial statements are critical in any shareholder buyout or dispute. Similarly the following events also require accurate financial statements:

Employee Stock Ownership Plans

Litigation or Divorces

Shareholder Buy and Sell Agreements

A Part time CFO can be a very cost effective way to make your financial statements accurate and alleviate any problems you may have with any of the aforementioned events.