Bank Reconciliations-DAILY

The CFO really needs to stress how important daily bank reconciliations are. The bookkeeper might react something like this: “Not that!! No!!! Why???”

The why is that no matter the economic integrity of the times, the business owner needs to be aware of his cash position daily, and in real time. The only way to do that is to do bank reconciliations every day. If cash is tight or you have full blown cash flow problems, you really can’t afford to find out that a customer’s check bounced 3 days after the fact when the bookkeeper gets the returned NSF check back in the mail. In three days time, you’ve probably already sent checks on that money and risk any number of important checks bouncing. What good is it to find out at the end of the month if an EFT out of your account or a debit card transaction hits more than once due to clerical error by a vendor or bank when you do the month end bank reconciliation? For that entire month, you thought you had money that you didn’t, and now the consequences are all on you. The discipline in implementing daily bank reconciliations needs to come from the part time CFO and cannot be allowed to waver.

Daily bank reconciliations should take less than 10 minutes a day with online access to your banking transactions, and those 10 extra minutes will bolster the confidence of the business owner when they’re paying their bills.

If it warms them up any to the idea, let your book keeper know that all these daily bank reconciliations will make the month end reconciliation a snap!

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The Importance of Preparing Business Plans

I believe business plan preparation is one of the most valuable services I offer to my CFO clients.  One of the key attributes of a CFO who is prepared to make business plans is that they have had prior business ownership experience themselves. With prior business ownership experience a CFO will have a better handle on the operational and marketing components of the plan. This experience will give the CFO the ability to ask the right questions to the business owner and staff. The CFO already possesses the skills to prepare the financial portion of the business plan. The main purpose of a business plan is to put a company on (or back on) the right track. Lots of times business owners say they are headed in a certain direction but as a CFO, as soon as you start to peel the layers away you find that the company is going in an entirely different direction, nowhere near what the Business Owner thought. A solid business plan will help put the business owner in the direction they want to go. In addition, business plans are of vital importance when the company is seeking additional financing. Whether that financing is coming form a bank, an angel, or a venture capitalist, a business plan is a must. Since it is imperative that CFOs offer finding financing as a CFO Service, it only follows through that the CFO should be able to prepare the business plan.

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Payback Associated With The Right Operating System

Included in a CFO’s Duties should be the research of and  ability to identify the right operating system for the business owner. I look at operating systems for my CFO clients is by first identifying which modules are to be purchased for necessity and which modules (if purchased) will produce a payback. For most manufacturing and distribution companies internet based systems allowing sales reps to enter orders from any internet connection including their laptops has a significant payback through saving administrative time and using commission only reps to enter the data and do more of the administrative work. Another module with significant payback offered in most operating systems are web based stores. Once again for manufacturing and distribution business owners web based stores can produce a payback through its communication tools. For example, in a web based store all of the manufacturer or distributors customers can purchase products on line. You can offer special pricing to individual customers, but more importantly you can make them aware of special pricing deals, new product introductions and closeouts. You can also put deadlines on when those special pricing deal offers will end and the system does that automatically. This has a tremendous payback as customers can place orders more conveniently and with more information at their finger tips. You can also put deadlines on when those special pricing deal offers will end. The CFO can really help the client business owner with a more profound understanding of the payback associated with operating systems.

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Getting Rid of Stale Inventory

One aspect of their business that the retail, manufacturing, and distribution clients in my CFO practice need to handle better is inventory–particularly they need to understand that it’s important to get rid of stale inventory as soon as possible.

Business owners hate to admit when they make a mistake (i.e. when they buy or produce something that does not sell). We all do it, I used to do it. It is a peril of the game. DO NOT TAKE IT PERSONALLY. Don’t let it delay you from taking the next step, which is what I like to call failing forward fast. That means as soon as you know something will not sell, get rid of it! This will allow you to use the cash from the sale to purchase more productive assets and more productive inventory. You know, the stuff that really sells.

Do not worry about the margin hit!! Take the margin hit, otherwise it is almost a guarantee you will sell it for less somewhere down the line. By selling the slow movers as soon as possible you will get more inventory turns which will result in less inventory and more profit. One of the most valuable CFO Duties is the management of  inventory turns and  impressing upon the business owner the extreme benefits of admitting inventory mistakes as soon as possible, converting them to cash and buying more productive inventory assets.

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Knowing and Understanding the Value of a Business

Consistently keeping track of the business value of your client is a significant CFO Service. Business owners should be kept abreast of the value of their business on a quarterly basis. Business Valuation can be utilized and needed for the following purposes:

  • Obtaining financing
  • Company is being acquired or merged
  • Shareholder buyout or disputes
  • Personal Financial Statements
  • Employee Stock Ownership Plans (ESOP)
  • Litigation or Divorces
  • Conversion of Corporate Status from a C-Corp to an S-Corp
  • For Estate and Gift Tax Purposes
  • For purposes of the business Owners goal setting
  • Shareholder Buy and Sell Agreements

CFOs should calculate two different valuations. One such valuation is what I call the Book Valuation. This valuation uses the traditional metrics like sales, EBIT, cash flow and assets. The second valuation that should be made is what I call the Synergy Valuation. The Synergy Valuation is a valuation that a strategic buyer would pay. A strategic buyer is a buyer who is in the same business and will be able to take advantage of economies of scale and synergies. This buyer will probably pay a higher price than the book valuation.

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On Tracking Patents and Trademarks

A temporary CFO can provide the valuable service of keeping track of the Patents and Trademarks for a company. Patents and Trademarks are easy to lose track of due to how very complicated they can become. The situation only gets worse if there are several of them. Understanding where each Patent and Trademark is in the process will be one less area for a business owner to worry about. Suggesting patents and trademark opportunities is another CFO service. If your company imports be aware that if a product has FDA approval that there can be some discounts on duty and tariffs on those imports. Also be aware that if a company is not registered with the FDA for certain products that shipments can be refused at customs. I learned about this when I was tracking a patent for a client. Another important factor in tracking Trademarks and Patents is understanding the costs. Legal fees can get way out of hand. Most recently I have used www.legalzoom.com and had a lot of success in filing a trademark at a quarter of the cost.

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The Duty Of A CFO

Can be narrowed down to three separate things:

  1. Forecasting and Management of cash
  2. Identification and assessment of all risk and preparation plans to mitigate those risks
  3. Understanding of the things that make the specific industry they’re engaged in unique.

It’s absolutely vital to grasp these 3 concepts as soon as possible if you’re a CFO. You can play a major role in the success of your company and their strategic plan once you’ve mastered those three things.

The CFO really needs to be in tune with the company’s cash flow (cash being, after all, the life blood of any business). The CFO must prioritize what needs to be paid when they’re trying to manage cash for troubled companies. The Chief Financial Officer should use a 4 to 6 week model to forecast cash needs, because this model has been shown to work best. With such a model the CFO can manage the cash according to what needs to be paid.

The business owner can find the land-mines in their business by assessing and identifying risk (an invaluable service CFO’s provide business owners). It’s the difference between a cloudy day and a rainy day, and if the CFO can differentiate between the two and let the business owner know, they will be worth their weight in gold.

Often people will ask me why a numbers guy needs to know about the industry in which they work, and the specific business for which they work. To them I say such knowledge is critical both to manage cash for your business and to identify risk for your business. With out first knowing about that business, trying to manage their cash or find any threats is like reaching for a light switch in the dark.

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Business Forecasting Matters

Finding the right number of “what if” scenarios in order to identify enough possibilities of what is going to happen is what business forecasting is all about. Many business owners mistake it as a way of knowing for certain what will happen in the future. That’s never going to happen, of course, because no one can predict the future. There are innumerable variables to consider that could throw off even the most sophisticated forecast.

When creating the best possible forecast, the Chief Financial Officer has the task of identifying the top seven (or so) most likely scenarios and doing a full “what if “ analysis on each of those scenarios. Included in the seven scenarios should be a best case and worst case. The tool to figure those out is one that has together in one a Profit and Loss, a balance sheet, cash flow, inventory plan and sales forecast. As long as they’re adaptable to retail, manufacturing, distribution or services (depending upon what type of business) schedules can be broken down by quarter, month or even by week. Key metrics and where the risks and opportunities are also need to be included in the model (the great thing about which is whenever a number changes anywhere in this model, all the other numbers adjust).

This type of model is a tool Next Step CFO uses in business forecasting as a part of its CFO Services. This model shows a wide range of scenarios to the business owner, along with all the risks and opportunities associated with those scenarios.  When a business owner is provided with all the information a Next Step CFO business forecast gives them,  they have the knowledge they need to make their decision making process much more thorough than a business owner who makes a sloppy or lazy forecast, or a business owner who forgoes creating a business forecast altogether.  The more thorough the decision making process, the more reduced  risk to the business owner will be, so every business owner needs to recognize the importance of Business Forecasting.

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Should CFOs Get Involved With Search Engine Optimization (SEO)?

Does this sound a little out there? One CFO Service that I think adds real value to the business owner is a CFO who understands Search Engine Optimization (SEO). Who said that CFOs are all about the numbers? In todays business world the CFO has to provide services for their client that go beyond the numbers that really assess risk and find opportunity. In today’s High Tech world giving the business owner guidance on SEO can really provide another opportunity for the business that did not previously exist. The thing that makes SEO suited for the CFO as part of a CFO’s Duties is the detail orientation of a successful SEO plan. By understanding the components of a successful SEO plan and by properly delegating the plan to the right people the CFO can help the business owner generate more business and have added value as a CFO.

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Why CFOs Who Work Part-Time Are Valuable

The most cost effective and productive way to use a CFO is on a part time basis. In other words, as a business owner the thing to do is find yourself a CFO Consultant. Back in the day, Chief Financial Officers were commonly called controllers, and controllers would pay a lot of attention to monthly closings, financial statement preparation and profit planning. With today’s operating systems and more sophisticated accounting modules, CFOs can share their attention with areas that are more productive to the business owner. For example: CFOs can focus on business forecasting, inventory planning and reduction of risk. These aforementioned productive CFO duties and CFO services do not take full time manpower. You can even add a number of other CFO services and it still will not require a full time CFO. When you hire CFOs on a part time or temporary basis they will not require benefits as most are of independent contractor status. Part time CFOs are also your CFO as long as you want to keep them. The Business Owner will not get a two week notice because they found another job. In closing, CFOs who work on a part time basis are more valuable than a CFO who is a full time employee because they will tackle the most important issues in your business while being extremely cost effective.

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