Tax Planning-Just Another Cash Conservation Strategy

Identifying all the ways a business can conserve cash is my responsibility as a Part Time CFO performing CFO Services. Cash saving guidance for services I don’t perform is one such way. For example, when it’s that time of the year again, I always advise my clients to have an end of the year tax planning meeting with their CPA or Income Tax Preparer.

Exponentially more times than not, these year-end meetings help the business owner to reduce their current tax liability and conserve cash flow for the business. Most of the strategies revolve around purchasing fixed assets such as vehicles or equipment before the end of the year. However, especially for cash basis tax payers, there are other year-end strategies to discuss with your CPA or Income Tax Preparer; Paying as many expenses as possible before the year-end or the proper timing of year end bills, for instance.

Year-end tax planning sessions are something virtually every CPA and Income Tax Preparer offers. They can be done over the phone, won’t usually last more than an hour, and it will be the most profitable hour or less you have ever spent in November/December.

To help business owners through challenging times, a CFO should have as many resources as possible, and one of them should be a knowledge of good CPA’s and Tax Preparers to share with their clients. If you are currently looking for a good CPA, please feel free to contact me:

Michael Barbarita

Next Step CFO

CFO Services


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What are Rolling Forecasts and why do you want One?

Business and Cash Flow Forecasting is one of the most important CFO Services. It offers the foresight business owners need to take appropriate action when they run into cash turbulence problems, such as a cash flow problem. And yet, businesses are run every day without any thought as to what will happen in a month, in a quarter—or even in a week! Many business owners don’t see the urgency for Business and Cash Flow Forecasting, and as a result, their competition that does gets the upper hand.

If you don’t use or understand Business and Cash Flow Forecasting, what does your competition see that you don’t?

Business and Cash Flow Forecasting will:

  • Reveal the weaknesses and strengths within your organization.
  • Find ways to solve those weaknesses and improve on those strengths.
  • Tell you more about your business.
  • Predict potential trouble down the road, like cash turbulence (ie a cash flow problem), giving you more time to be proactive about problem solving.
  • Make the people in your organization accountable
  • Generally give the business owner piece of mind

If there’s a problem with Business and Cash Flow Forecasting, it’s that after 30 days the forecast becomes outdated and after that it is often forgotten completely. The solution to this problem is to perform a Rolling Forecast. A 12 month Rolling Forecast will allow you to enter results for the most recent month while the rest of the forecast rolls forward to the next 12 months. I personally suggest a 24-month Rolling Forecast because it will give you a longer-range perspective of where your business is going. With the monthly updates provided by the monthly occurrence and planning process of a Rolling Forecast, the CFO and business owner can identify problems and make changes as needed. Again, personally, I like to combine the results of my clients’ Rolling Forecast with an analysis of their Key Performance Indicators for the month.

As a business owner, you’ll want a Rolling Forecast because it keeps you on top of your game and gives you the advantage over the many business owners who overlook having one.

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Self-doubt and the CFO Entrepreneur

I learned a tough lesson last week.

I was faced with a past regret when I received an email from a company called On24. What stood out to me immediately were their virtual trade shows, and they stood out to me because I had that idea long before they did, but never acted on it.

As an entrepreneurial CFO, I’m a part time Chief Financial Officer that performs CFO Services with a background primarily in the owning and operating of small businesses throughout my career. In addition to my CFO practice, I still co-own a property casualty insurance agency with a partner even today. Back in the year 2002, I created a business plan for Virtual Trade Shows that small companies who couldn’t afford to attend or exhibit at important trade shows could attend online in lieu of showing up physically.

Their latest virtual show looks exactly like what I had envisioned all those years ago. It’s frustrating to see them succeed with an idea I had but didn’t follow through on, and looking back, I know the main reason I never followed through with this concept was that I was fraught with self-doubt. I allowed myself to become bogged down by worries that I couldn’t raise enough money, couldn’t get the technical programmers, couldn’t get enough people interested at that time, and so on and so on.   I had only ever executed business plans that were on a much smaller scale prior to this idea, and I let that small business mentality daunt me to the point I abandoned the idea entirely. Sad not only for me, but for the companies my idea was intended to help.

Meanwhile, On24 has picked up my slack, possessing 3 Venture firms on their board and certainly looking like they’re doing extremely well. Apparently whoever founded On24 did not let their doubts about raising money, finding programmers or their project’s timing deter them, and look at the wonderful result they have to show for it.

If you take away anything from this little story, it’s hopefully that you should never let self-doubt stop you from serving the world.

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Lacking more and more in the business world are business owners who hold people accountable for their performance. The result is the burden of accountability falling instead on the business owner alone. After all, the business owner is the one responsible for everything that happens in their business, the buck stops with them. As a Part Time CFO, I can tell you that this additional burden of accountability is unproductive to business owners and will negatively affect your bottom line. One person cannot do it all, even if that person is the business owner. The people under you need to be held accountable for their responsibilities.

Primarily 3 things will cause a lack of accountability in an organization (not in any particular order):

  1. Inaccurate and untimely financial statements – Financial statements are the supreme measure of business performance, like a scorecard for the business. Inaccurate or late/irregular financial statements make it impossible to measure performance properly. If you don’ know or you’re unsure of the real measure of performance, you can’t hold anyone accountable for anything because you might be wrong.
  2. Fear of Losing an Employee – Some favoritism may come into play if a business owner thinks the loss of a particular employee would be detrimental to their business, and they will purposely deflect as much pressure and accountability away from that employee as they can, even if the employee is at fault.
  3. Lacking a strategic plan – Your business will lack direction without a strategic plan. With a strategic plan that they can communicate to the rest of the organization, a business owner can give employees the reason to be accountable. If they’re not given a reason to be, an employee will not be accountable. Accountability will also break down if the strategic plan is applied inconsistently or changed too often, so it’s crucial to keep your plan consistent and be adamant about its application if you want accountability from your employees.

To increase the bottom line, increase the value of their business, but mostly just to sleep at night, business owners should ensure that everyone in the organization is accountable.

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Why is tracking Direct Labor Hours So Important?

There is no metric more important if you are a company in the trades or manufacturing than direct labor hours. As a Part time CFO performing CFO Services, I know the performance and productivity of a business in the trades or a manufacturing business are best evaluated by tracking the metrics which involve direct labor hours.

The hours worked by those employees who work on actual production of a product or who work on performing a service are Direct Labor Hours. Payroll records can track these hours, however payroll may also include travel and down time. It’s best to exclude travel and downtime when at all possible, and account for that time separately.

The key metrics I like to track are:

Sales Per Hour – To get the Sales Per Hour, divide Sales by the Direct Labor Hours. Whether or not your pricing has integrity and how efficient your direct laborers are can be deciphered through this metric.

Overhead Per Hour – To get the Overhead Per Hour, divide your Total Overhead by your Direct Labor Hours. Often, the small business owner is confused about how to ensure the overhead will be covered in their selling price. Overhead Per Hour will tell you what your overhead cost per hour is and apply that to your selling price, which ensures you are covering your overhead.

Material Cost Per Hour – To get the Material Cost Per Hour, divide the Cost Of Materials Needed (to produce the product or perform the service) by Direct Labor Hours. It’s a bad sign if this metric is too high. It means that either you are not buying effectively (prices are too high), or you are inefficiently consuming materials.

Utilizing metrics will enable you to spend more time finding new business. A Part Time CFO can help you calculate metrics using the heart and soul of managing your trades or manufacturing business–Direct Labor Hours. Tracking Direct Labor hours will identify for you key metrics so you can evaluate performance and productivity in your business.

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