Advisory Board

Even if you have a working partner that may fill one or more of these roles it is always a very good idea to have an advisory board. It is ok for you or your partners to fill these roles, but it is unlikely that all of the roles of the advisory board can be filled by the management of a small business. Even if all of the advisory board roles can be filled by management it is still a very good idea to have people outside of management to bounce ideas off of.

Today there are many opportunities to have an advisory board that will either cost nothing or very little. Develop a relationship with the following professionals and have them part of your advisory board:

1. CPA – You are going to need a CPA to prepare your tax returns and possibly to perform a compilation, review or an audit. Usually if you hire a CPA to do these things they will be part of your advisory board. Usually they will be on the advisory board for nothing if you give them the aforementioned tax preparation business and you develop a good relationship with them. CPA’s can also refer you to funding sources and other support services including referring to you more business.
2. Lawyer – You should develop a relationship with a good business attorney. It must be a business attorney. One of the perils of business is that it exposes you to legal situations. Certainly do not use attorneys if you do not have to and there are other opportunities to get more cost effective legal advice like Prepaid Legal Services and others, but you want to get an attorney on your advisory board. Therefore it is a good idea to develop a relationship with an attorney who you can trust and will bill you in a professional manner. I have seen some attorneys bill me $75 for sending a fax! It can get that crazy. However by developing the right relationship with the right attorney you can have a trusted and valuable advisory board member who you can call when the need arises for legal assistance. Lawyers can also be a source of support services, funding sources and may refer more business.
3. Insurance Agent – There are several situations in business that call for specialty insurance and special protection. A professional insurance agent will be able to identify perils and risks that need to be insured.
4. Part time CFO – By using a Part Time Chief Financial Officer you have the opportunity to get a number of financial services on an as needed basis. In addition you have a valuable advisory board member. Here are some of the CFO services a part time CFO can perform:

• Solving cash flow problems
• Determining cash needs
• Designing a plan to work with existing cash and other resources
• Structuring an exit plan
• Determining Business Value
• Optimize operations
• Drive results and drive the bottom line
• Contribute to business development
• Shape financial strategy
• Understand, identify and assess the risks of business ownership.
• Prepare the Financial portion of your business plan.

5. Technical or operations professional depending on your industry – This is where you add someone to your advisory board that has the operations or technical expertise related to your product or service. You may have someone in management but once again it is always a good idea to get perspective from someone outside of management if available.

These professionals on your advisory board may charge a fee. I would be leery of this. My suggestion is to do everything you can to build the right relationships and to promise giving business to these professionals down the line.

I have a business associate who says he never has or never worries about any problems in his business. The reason is he gives all problems to his advisory board and lets them figure out all of his problems and lets them assume all of his worries. Advisory Boards can be very helpful and it is worth the time and energy to build the right one.

One way to Clean up a Balance Sheet

As a CFO I am always trying to attain a clean balance sheet especially for my start-up clients who are looking for second round financing.

If you are an entrepreneur looking for outside investment capital it is a good idea to try and clean up your balance sheet. If you have current stockholders who put money into the company as debt ask them if they will convert the debt to equity. New investors who are contemplating putting new money into a company want the dollars to go to something that will move the business forward like machinery and equipment or Research and Development. They certainly do not want their new money going to service or payoff existing stockholder debt. Investors shy away from situations where the new money is going to payoff or service existing stockholder debt.

Asking existing stockholders to convert existing debt to equity is not an easy thing to do. Believe me, I have done it and I recognize the difficulty. You are asking people who stepped up to the plate, probably when the company was just an idea and put real money in the company to increase their risk. Furthermore, there was probably a legitimate reason for the stockholder to put money in as debt in the first place. However the facts must be faced. The company probably needs the new money in order to go to the next level. Cleaning up the balance sheet will help. Sometimes the company needs the money not only to go to the next level but to also survive!! If this is the case and the company needs the money to survive the existing stockholder has a lot of incentive to convert their debt to equity. If they do not convert and the balance sheet is unattractive, it is likely the company will not get the needed investment capital and it is likely the stockholder will not get their debt instrument paid.

Although the stockholder increases their risk by converting the debt to equity they are potentially increasing the value of their stock and giving the company a chance to get to the next level which was the dream that stockholder had when they originally put the money into the company.

What it means to Provide CFO Services

What does it mean to provide Chief Financial Officer Services? Companies from start up to 10 million in sales cannot afford nor do they require the services of a full time CFO. Why not find someone who provides these high quality professional services on an as needed basis?

It is best to use a CFO who truly understands the risks of business ownership. A CFO who understands what it feels like to have to make a payroll on a Friday with no money in the bank account on Wednesday. A CFO who understands what it feels like to see employees sitting around or being disruptive. A CFO who knows what it feels like to have a lot on the line.

What are CFO Services? Well as I go through these CFO services please keep in mind that you can choose one of them, some of them or all of them and at any time. You certainly do not have to do everything at once. That is the beauty of the flexibility of having a Part time CFO. Also a good Interim CFO works in your office location

And now for the services….

The CFO should make sure you have good financial numbers. Making business decisions without good numbers is like a Doctor making a decision to operate on your ankle without X-rays. It simply shouldn’t be done. So the first thing to do is if your numbers are not right the CFO should make them right.

The Part Time Chief Financial Officer should also Identify, assess and mitigate risk. Whether you are Microsoft or the local pizza parlor your business has risk. The question is how severe are those risks? You should be able to work together with your Chief Financial Officer to Identify the risks in your business. The CFO should also assess the severity of that risk and if severe suggest actions to mitigate the risk. Severe risks in your business could be cash flow problems, low or no cash reserves, the need for financing, employee risks, inventory obsolescence risk, legal risk and personal liability risk just to name a few.

A CFO should be able to tell you when it is cloudy not when it is raining.

Business Owners hate surprises. They need to be prepared so they can review options and have time to fix whatever needs to be fixed. The last thing business owners want to do is go into fire drill mode and have no time to react. The CFO should have business forecasting and modeling tools that give the business owner the needed foresight to take action. Forecasting tools that give the business owner the time to react to both downturns and upturns in their business. For example Next Step CFO developed an exclusive forecasting and modeling tool called "CashTell".

There are several things that a good forecasting tool should do but let me hit the major points:

First of all any forecasting tool including CashTell is based on a solid set of assumptions. The beauty is the business owner can change those assumptions any way they want creating multiple what if scenarios.

A good forecasting tool can tell you how much cash you will have or need at any point in the future based on whatever assumptions you give it.

So if you want to know if you will have enough cash to survive a 20% decrease in business. A good forecasting tool can tell you that.

If you want to know if you will have enough cash to survive a 50% increase in business. A good forecasting tool can tell you that.

Can your business absorb the purchase of equipment, machinery or a new computer system? A good forecasting tool can tell you that.

A good forecasting tool also tells you what you need to do to increase cash flow. It isn’t always more sales.

A good forecasting tool helps determine key metrics to evaluate your business on a going forward basis.

In one sentence a good forecasting tool helps you figure out the strategies that need to be implemented that drive profits and cash flow. Then it is the job of the CFO to implement those strategies.

A good CFO should help you determine and develop metrics to evaluate your business. Metrics are quantitative parameters that help you evaluate the performance and productivity of every aspect of your business. Metrics are a terrific management tool.

The best CFO's will help you Drive results, contribute to business development, help shape your financial strategies, identify employee theft, improve controls and processes leading to operating efficiencies and also help you develop and execute exit strategies. After all someday you will be separated from your business.

I hope this was helpful to the small business owner in making them aware that the Part time CFO option exists and how they can help them.

Going concern opinions - A Tough Call for the CPA

It is a basic theory in accounting that a business should be considered a going concern which means the business will be in operation usually over the next 12 months. If a business is a Going Concern the business has little risk of liquidating or ceasing operations in the foreseeable future. Financial statements are prepared with this theory as the premise.

A Going Concern opinion is one of the most difficult opinions a CPA needs to render. A Going Concern Opinion is rendered by a CPA when it is the opinion of the CPA that the company is no longer a going concern and that there is considerable risk that the company will not be in business by the end of the next fiscal year. Material uncertainties must exist to lead the CPA to this opinion. These opinions are difficult to render because it is not good news for management, the company’s lenders, the company’s suppliers and creditors. Based on all of this dissatisfaction the CPA has to have as much evidence as possible to support this opinion. If the CPA does not issue a going concern opinion and the business liquidates or ceases operations within the fiscal year, the CPA will be at tremendous risk. The material uncertainty that exists could be something that is more evident like the strong likelihood of an unfavorable ruling on a lawsuit, or the strong likelihood of an unfavorable geo-political event.

Would CPA’s have less risk if they had access to financial modeling tools that can forecast with great accuracy based on a solid set of reasonable assumptions the future cash position of a company at different levels of sales volumes and expense levels when rendering going concern opinions? I think so. It not only reduces risk for the CPA, but provides a more solid basis for explaining to the client why a going concern opinion is being rendered.

Currently most CPA’s use metrics and similar indicators to help render their opinion. If financial modeling tools were available at a reasonable cost that identified with great accuracy the forecasted cash position, inventory position and liability position of the company at selected volumes of sales, selected levels of expenses, and selected levels of inventory in confluence with a solid set of reasonable assumptions I believe that would give the CPA greater confidence and more solid footing in rendering this difficult opinion.

Next Step CFO has such a financial modeling tool and it is called cashtell.

Learn From Your Competition

Most of you who read this post will have competition. Competition is what makes us better business people. Your first step in reviewing the competition is Know Who the Competition is! I can’t tell you how many people go into business without knowing who their competitors are and what they do. Not knowing who your competition is would be like a team from the National Football League preparing for the Super Bowl and not know who they were playing and not doing any scouting report. You are not learning who the competition is so you can worry and obsess about them. You are learning who the competition is so you can learn from them and develop strategies to compete against them.

One thing I always used to do is go to trade shows to seek out who my competitors are. Trade shows are a great way to stake out your competition. Get information from their booths and even speak to their representatives. Look at their advertisements; discover the different ways they market and communicate to the market place. See if you can figure out how their logistics work or if they use contract manufacturers. See if you can find out what their distribution strategy is. If you market regionally you should develop relationships with businesses that do what you do who are not in your market. I cannot overemphasize the abundance of information you will get out of those relationships.

Take what you learned from the competition and put together a plan on what things you will do the same and what things you will do differently. You need to figure out what separates your business from the competition.

A valuable CFO Service is to help and influence business owners to learn more about what their competition is doing and then help them figure out a strategy to compete against those competitors.

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.

Pricing Your Product

Creativity in pricing has never been needed more than during these challenging economic times. The Part Time CFO has to help the small business owner strategize their pricing program. I am a major advocate for small business and small business owners. The small business owner really needs to be creative as they are constantly going up against the big guy who is heavily discounting in order to obtain market share. In the meantime, the small business owner cannot compete because if they do they will be selling their product for near or below cost and that will bring them down. If you are a retailer you can at least put pressure on suppliers to speak with these bigger companies who are discounting and you can use special make ups and good close outs to compete. I know it is not easy, but be happy you are not a service operation where the only way you can compete is better service. My only advice to the service organization is to develop strategic partnerships. (see my post on Strategic Partnerships) The right strategic partnerships will help you to keep pace with these big guys who are ruining the market and give you the best chance to compete.

There is a tendency for small business to expand their product lines in other areas during these difficult economic times. I think that is a mistake because you lose your focus on what you do best and there is always more of an investment in a new product or service than anticipated preventing the business owner from investing in what they do best. New product lines also dilute your advertising dollars.

The pricing strategy during these challenging economic times is one of the many valuable CFO Services.

Product Cost

Helping a client understand what their product or service costs, is high on the list of valuable CFO Services.

Understanding product cost which includes the components of cost is very important to a business owner in order to price their product properly. I have had several clients who did not understand the cost of their product or service and actually sold their product or service for less than its true cost. Once the actual cost of the product was understood profits were being made. Another reason why it is important to understand product cost is controlling that cost. The only way you can control or reduce a cost is if you understand that it exists. If you do not know if a cost exists or what the cost is there certainly isn't any way you can work to reduce it or control it.

Understanding what a product or service costs is the first step in understanding how to price your product and have the proper knowledge of how competitively priced you can be. It also helps to reduce the risk of business ownership.

Exit Strategy – It is inevitable

Do you have an Exit Strategy? No matter how long you think you are going to be with your business there is going to be a day that you will no longer be with your business. Either you live longer and survive your company or your company lives longer and survives you. Your separation from your business could take any one of the following forms:

You sell the business to an interested third party

You sell the business to an interested family member

You sell the business to employees

You plan for an untimely death by funding a life insurance policy.

You cease the business operation and convert all assets to cash.

You file Bankruptcy

Through the use of strategic buyers and buyers who are looking for vertical integration opportunities a business owner can maximize value on the sale of their business. Even unhealthy businesses that are looking for a quick exit due to a distressed economy in their industry can maximize value in the same manner.

Any way you slice it, a business owner is much better off developing a strategic exit plan versus a seat of the pants exit plan which almost never maximizes value. It is a valuable CFO Service to help the business owner put together the well thought out exit strategy.

CFO and Public Speaking Skills

In a previous post on my CFO-Chief Financial Officer Blog on Blogger.com I stressed the importance of the CFO to have good communication skills. One of the critical components of communications skills is Public Speaking. It is an important CFO Service to have good public speaking skills. The CFO must give presentations to banks, to clients, to venture capital groups and to boards of directors just to name a few. Good public speaking skills allows the CFO to not only better communicate ideas, strategies and concepts but also helps to sell those ideas, strategies and concepts.

There is no better teacher of Public Speaking Skills than Jacki Rose of Boston MA. Her website is http://www.jackirose.com. She does both group and private coaching and she will turn your presentations into compelling commentary that will get results. Give her a call. You will be glad you did!

Hey Retailers, DO NOT GET STUCK WITH INVENTORY

It is a valuable CFO Service to solve inventory problems.

If you are a retail business there is only one thing that will bring you down real fast and that is too much inventory. In this current economic environment the cost of carrying inventory is even greater because with many banks not lending, capital is hard to get. If you overbought inventory identify the inventory that is slowest moving and reposition it on the sales floor and price it to move. You may also want to take a look at the signage in the store to make sure you are communicating clearly with your customers as to what deals you have. You may want to package items together as customers always like package deals. Yes, your profit margins are going to suffer, but with the cash you get from the sale of the slow moving goods you can use that cash to buy inventory that sells and therefore your inventory will turn quicker getting you into a profit position quicker.

During this process you may have to work with your inventory suppliers. Once again identify the slower moving merchandise and go to those suppliers to ask for extended dating. Sometimes certain styles and types of inventory that you bought may not be selling in your market, but may be selling in other markets. If that is the case it is possible that the supplier will buy back the inventory or replace it with faster moving goods and the supplier can sell your slow moving inventory in the other market where it is selling. The key to these supplier strategies is keeping the lines of communication open with your suppliers and the supplier’s sales rep.

By the way I did not forget that suppliers get angry when you discount their product. This is where constant communication with your suppliers and their sales reps really helps. If you are identifying slow moving merchandise quickly enough then it is important to communicate with the supplier what your intentions are to alleviate the slow moving problem as soon as possible giving the supplier time to react and time to work with you to resolve the problem. The CFO who has experience in business ownership is going to be able to understand the business ramifications as well as the financial ramifications.

I know, it is not easy, but the critical component of the entire process is identifying slow moving goods as soon as possible, communicate with your supplier and cut your losses!

The Chief Financial Officer and Strategic Partnerships

During these challenging economic times, now more than ever businesses should be looking to develop strategic partnerships. Before I give you an example let me define what I mean by strategic partnerships. Strategic partnerships are developing relationships with the objective of pooling resources with the purpose of both partners obtaining more business or both partners cutting costs.

By way of example, let me use the food industry. There are all different types of food vendors but let me use a distributor of frozen cookie dough and a distributor of frozen appetizers. These are clearly non competitive entities. Both of these companies need frozen storage, both of these companies need more business. Why can’t these two companies form a strategic partnership and share offsite storage costs or one company sublet frozen storage to the other if one of the companies already has onsite frozen storage. Both of these companies see accounts that can use both products so why can’t they share leads and a finder’s fee would go to the referring company. Both companies use office supplies so once again to obtain bigger discounts both companies could pool their resources. Does one company have the financial resources to buy equipment that both companies can use? The bottom line is the possibilities are endless.

The CFO should assist the business owner in creating ideas for finding and negotiating strategic partnerships.