When to Consider Hiring a Temporary CFO
By: Jeff Wright, Senior Vice President, Hennessey Capital
In my 27 years of asset-based lending and commercial loan workout experience, I have consulted with many small businesses that know how to manufacture a product but have difficulty managing the financial aspect of their business. This includes companies that are experiencing significant challenges as well as growth-oriented companies. Many rely on trusted advisors like their CPA, banker, or attorney to provide assistance on financial matters affecting their business. However, these key advisors are often handling many clients, or may not have experience in your industry to provide targeted guidance on some of the complexities of the situation. When this is the case, a temporary CFO can provide invaluable insight and expertise in evaluating and managing your business finances. Owners can draw on the CFO’s experience to fill skills sets management does not possess. This frees up management to address operational issues and marketing initiatives. Owners, however, must be willing to give up some control.
It goes without saying that small businesses need strong financial support in place. A temporary CFO with experience in the industry can provide invaluable support in the strategic planning, budgeting, and cost control for a small business as they grow. Their objective opinion can be helpful when considering taking on a new project, investing in new equipment, or evaluating overhead expense to improve cash flow. A temporary CFO’s experience can also be used as a resource when discussing financing options with a lender or suppliers, and in dealing with customers. They can also implement financial systems to monitor the financial performance of the company and provide timely reporting to help management make educated business decisions.
The primary role of a temporary CFO is to manage the cash of the business. Ownership can draw on their skills on an as-needed-basis without expending significant dollars usually required for a full time CFO. If you could use additional assistance in managing your financial operations and benefit from an outside perspective, it may be time to consider a temporary CFO for your business.
The Risk of Undercapitalization
Filed under: Business Tips & Tactics, Finance Talk
By: Toby Dahm
A horrible week came to an end with the worst moment of all - Jay had to inform his employees that he could not meet payroll that day. Instead of focusing on quoting new work, Jay had spent this week fielding calls from angry suppliers seeking payment and tracking down his company’s own balances due from customers. His business had run out of cash.
I see this scenario played out all too often, in companies big and small across the country. The whole world watched it unfold as General Motors and Chrysler came to the brink of financial disaster. What enabled Ford to continue executing its business plan while General Motors and Chrysler endured seemingly endless scrutiny, extraordinary professional fees, and months of distraction? In a word: CAPITAL.
Having sufficient capital enables a company to sail through rough seas and
concentrate on steering out of the storm rather than fighting the storm itself. It doesn’t matter how good your product is, how many sales opportunities are around the corner or how efficient your operations are if you can’t pay your bills. That’s right – if you can’t pay your bills, it’s all for naught.
Having capital is as important as having a keen grasp on every other of business management that inspires an entrepreneur to go into business and succeed.
Step 1
The first step in establishing capital is to know how much you will need. A good business plan will address the capital need conservatively. It’s important to have contingency reserves because Murphy’s Law is very real – if something bad can happen, it usually will. There are many resources that provide assistance with a business plan including State and County Agencies that do this at no cost or low cost. You may want to check out your local SBTDC or SCORE office.
Step 2
The next step is to approach funding sources that are appropriate to your life cycle stage and industry. Trusted advisors, such as your accountant, attorney, mentor, as well as the above mentioned government agencies can also help you with this. You may be asked to give up substantial ownership, which you will have to weigh against the risk of operating with insufficient capital, as our friend Jay did.
If you find that capital is limited, you will need to adjust your business plan to succeed on the smaller capital base. This usually translates into slowing your growth trajectory. If you find yourself in that position, remember that slow and steady usually wins the race.
As you build your business, keep in mind that capital is critical to making the entrepreneurial equation work.
Keys to Managing Your Collections Process
In today’s economy it is more important than ever to focus on collections. When sales are slow, companies tend to focus on increasing business and securing new contracts, however it is important to stay just as focused on managing collections.
The popular expression “Cash is King” rings true. Sales don’t pay bills, cash does. While increasing sales is a critical part of building a successful business, if you aren’t being paid for your product or service, you are causing your business more harm than good.
There are some steps small business owners can take to manage the collections process and positively impact the bottom line.
Before you make a sale or enter into a contract, you should understand the value of your product and the competition. It is important to know your customer and your “customer’s customer.” It is important to be aware of end-users ability to pay your invoice. Can they honor the terms of the PO and will you only be paid after your customer gets paid? For example, if you are selling your product through a distributor to a large retailer, you will likely be paid once the distributor gets paid. When evaluating the risk, it is the distributor not the retailer who is responsible to pay the invoice, so you will need to look at the strength of the distributor. Balancing sales with collection is looking at risk versus the reward. As a business owner, you should ask yourself “how much am I willing to lose?” and “how many ‘good’ sales do I need to make up for the ‘bad’ sale?”
The internal collections process is often overlooked, but it is crucial that you establish a clear collections procedure for your business and stick to it. Be sure you know what you can bill for, when you can bill for it and where to send the invoice. Send your invoices in a timely fashion and make sure to get customer approvals or “signoffs” on your work. It is also important to make sure you have a purchase order before you start work. Too many invoices don’t get paid because there was no formal purchase order issued.
As with any other aspect of your business, communication is imperative. You should follow up with your customer’s Accounts Payable (A/P) department early. It is much better to be aware of an issue early rather than after the payment is not received as expected. Building a trusting relationship with your customer will keep the lines of communication open and increase the speed and reliability of repayment. Internal communication with your sales department can also be helpful, as they may be able to collect an invoice as they are making another sale.
Unfortunately, despite efficient processes and consistent communication, issues can arise. Note red flags along the way and respond accordingly. Some key indicators include slow payments, rush orders, change in payment form and excuses are signs that you may have a problem. When this happens, know your leverage points. If you can not negotiate a payment plan, be prepared to scale back work or human resources and file liens where appropriate. You can also consider legal action or collection agencies but weigh the costs against the benefits.
While you will likely not collect 100% of your invoices 100% of the time in your business, however, following these tips may make it easier to secure your firm’s most precious resource cash.
If you are interested in learning more about this topic, Mike Semanco and Candace Pavliscak will present “Improving Collections” on July 21, 8:30 - 10:30 a.m., at Walsh College, Troy Campus. Learn more
Access To Capital
We recently held a webinar discussing how entrepreneurs can gain access to capital and how to determine what type of financing makes sense for their business.
Take a listen below…. (it’s about 20 minutes long).
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Access to Capital Webinar
Entrepreneurs throughout the country are encountering challenges in gaining access to capital. With credit markets dried up and few banks lending to small businesses, it’s become increasingly difficult for small enterprises to get the working capital they need to grow their business. If you are interested in learning more about the financial spectrum and where to turn when your credit line shrinks, register for the upcoming “Access to Capital” webinar.
Thursday, March 18
9 a.m. EDT
E-mail name and company to: Nicole@macombcountychamber.com.
12 Tactics Entrepreneurs Should Consider
This outstanding Bnet article offers insight on 12 tactical moves (defense and offense) that small business owners can put into play now to weather the economic storm, particularly in the area of cash management. In a challenging economy, it’s important that business leaders focus on cash flow and are proactive in recognizing long-term working capital needs. It is beneficial for entrepreneurs to identify an alternative lender early in the process, before there is an immediate need. Also, CEOs and CFOs need to do their homework – does your working capital provider understand your business and industry, is there transparency regarding fees and processes and can they understand how the additional cash will be used and repaid?
