Will You Know WhenYou Need Cash?

How Much Money does it take to run a Business?

 

Many business owners—whether they’re a start up entrepreneur or they’ve been in business for thirty years—ask themselves this very question when trying to figure out how much money they need to put into their business. The business owner needs to be able to determine if hey need to put their money into their business, get money from other sources, or if hey don’t need money at all whether their time horizon is in a month, a year, or five years. Knowing in advance how much cash they need or how much cash is available on different levels of sales volumes and expenses would give business owners much more precious time to react. I want to be told when it’s cloudy, not when it’s raining, and I say that as a business owner myself. Cash Tell is Next Step CFO’s sophisticated forecasting modeling tool. It tells business owners what their cash position will be at any point in the future, giving a great advantage to the business owner in preparing for whatever comes. Next Step CFO developed CashTell, and it is a tool exclusively available to clients of Next Step CFO.

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Identifying Metrics

Identifying key metrics to measure business performance for the business owner 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.

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Manage your Entire Business on One Sheet of Paper

Did you know business owners have the capability to manage literally their entire business from a single sheet of paper? A CFO can use metrics or key performance indicators to help the business owner put together a sort of Financial Dashboard. This Financial Dashboard is something many CFO’s share with their clients to help them identify key performance indicators in which to manage their business. What I’d like to ensure, however, is that the CFO shows the business owner how to use this tool more effectively to manage their business. Explaining to the business owner how to really use the financial dashboard may take a little more time and a lot more patience, but instilling that in them will go a long way in improving business productivity in general, and the productivity of the business owner individually. Using the financial dashboard to manage your business provides simplicity in the face of complex business problems, and also helps anticipate problems to circumvent future troubles.

 

I recently exhibited for one of my clients how in a simple metric called overhead per labor hour, a trend can show how well the business owner is doing managing their over head costs (which commensurate with managing their payroll costs). If you are not maximizing your overhead and payroll expense controls, giving a look at the way a metric trends can give you a quick indication. Probably the most productive way to visualize these trends is through the use of a graph.

 

Using the method of “finding benchmarks” is an okay strategy, but it will only take you so far. To “find benchmarks” means to find service or statistical bureaus that compile metrics from other companies in the same industry as your own so you can draw comparisons between yourself and your competitors more easily. Certainly, it’s useful and interesting information, but I personally believe no two companies are fully alike even if they are in the same industry. I suggest that all “benchmarking” be done internally, with the CFO, business owner, and advisory board all present to determine the most productive key performance indicators to track the target goals for each key performance indicator, and the way the business owner and CFO will use them to manage the business. Benchmarks are good to acknowledge, but I wouldn’t base my entire business strategy on them.

 

Of all the services provided by a CFO for hire, getting a business owner on board with the idea of using metrics to manage their business and teaching them to understand their uses is one of the most effective.

Bookmark and Share

Identifying Metrics

Identifying key metrics to measure business performance for the business owner 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.

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