Your Competition can Teach You

I’m going to assume that if you’re reading this, you have competition out there in the business world. Having rivals out there makes us better business people. But to utilize the competition like any other business tool, your first step is knowing who they are. Too many people go into business with out understanding who their competitors in that business will be or how those competitors do business.   Such a blind leap into the business world is tantamount to an NFL team preparing for the super bowl not only without doing any research on their opponents, but without even knowing who their opponents will be. Studying your competition does not equal obsessing over them. If anything, being aware of your competition will allow you to learn from their mistakes with out having to make them yourself, and develop more productive strategies against them, therefore decreasing the time you spend worrying about them at all.

Trade shows are an easy place to hunt down your competitors. You can get information from their booths, look at their advertisements, and observe the different ways they market and communicate in the workplace, even speak to their representatives. You can possibly figure out if they use contract manufacturers or how their logistics work. If you can work out what their distribution strategy is, you can market regionally and develop relationships with businesses that do what you do who are not in your market. There is no overemphasizing how much information you will get out of those relationships.

Plan for your own business by using what your competitors taught you. Consider what things you want to do the same as they have and what things you want to do differently. The differences will be what separate your business from the competition, and you’ll want your business to stand out.

Influencing business owners to learn more about what their competition is doing and then helping them strategize against those competitors are valuable CFO services.

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The CPA’s tough call-Going concern opinions

A basic theory in accounting is that a business is considered a going concern if the business will be operating over the next 12 months. The business has scant chance of liquidating or ceasing operations in the future if a business deemed a going concern. This theory is the premise on which Financial statements are prepared.

One of the most difficult opinions a CPA will have to render is A Going Concern opinion. When the CPA feels that the company is at risk of going out of business by the end of the next fiscal year and is therefore no longer a going concern, they have to render A Going Concern Opinion. For the CPA to be lead to this final opinion, material uncertainties need to exist. Naturally, the CPA rendering a Going Concern opinion is bad news for all the company’s management, leaders, suppliers and creditors, so it’s difficult for the CPA to do. The CPA REALLY needs as much hard evidence as possible to back up their opinion because of all the dissatisfaction they are going to face. However, if the business does liquidate or cease operations within the fiscal year, and the CPA has failed to issue a Going Concern opinion, the CPA will then be at a tremendous risk them selves. The strong likelihood of an unfavorable geo-political event or ruling in a lawsuit, or something equally evident could be the existent material uncertainty.

I think these CPA’s can reduce their risk greatly if they have access to financial modeling tools that can accurately forecast the company’s future cash position at different sales volume and expense levels based on a set of solid, reasonable assumptions. In addition to reducing the risk for the CPA, good financial modeling tools provide a more solid explanation for the client as to why the CPA is rendering a Going Concern opinion.

For the most part CPA’s currently use metrics and similar types of indicators to aid them in rendering their opinion. I believe that the CPA would have much greater confidence in rendering their difficult opinion if they were given the solid foundation provided by access to financial modeling tools that accurately identified the forecasted cash, inventory, and liability position of the company at selected volumes of sales, levels of expenses, and levels of inventory at a reasonable cost.

Cashtell is Next Step CFO’s answer to such a financial modeling tool.

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What Does it Really Mean to Provide CFO Services?

No matter their place on the corporate ladder, no business (from start ups to those that have ten million in sales) can afford to pay a full-time CFO, nor is the full time assistance of a CFO necessary. What business owners should do instead is hire a part time CFO: a person with all the same skills as their costly full time counter part who instead provides the business owner with their services on an as-needed basis.

The CFO that really understands the risks of owning a business is your best choice as a business owner. Someone who knows how it feels to have no money in the bank account on Wednesday and a payroll to make on Friday is the person you want as your CFO. Someone who knows firsthand the same annoyance you feel watching employees causing disruption or just sitting around the office because they too have experienced it first hand—that’s a CFO you want to hire, because they truly understand the position you’re in as a business owner, having been there themselves.

The beauty of having the flexibility of a part time CFO at your dispense is that you can choose one, some, or all of their services at any time. You aren’t forced to select them all at once.

So what are CFO services every Chief Financial Officer should be able to and willing to perform?

Making sure you, the business owner, has good financial numbers. There is no way for a business owner to make good decisions with out good numbers. The first thing the CFO should do is make your numbers right if they aren’t already.

Specifically the Part Time Chief Financial Officer should be able to identify, assess and mitigate risk by working together with you. There is no question that your business, big or small, comes complete with risks. The only question is about how severe those risks are. The CFO should assess the severity of those risks and if they are severe enough, suggest actions to mitigate them. Severe risks can include anything from cash turbulence, low or no cash reserves, need for financing, to employee risks, inventory opulence risk, legal risk or personal liability risk.

You’ll want a Chief Financial Officer who will be able to tell you when it’s “cloudy”, not one that lets you know that it’s already “raining”.

This should come as no surprise—because business owners hate surprises. Business owners need time to review their options and fix whatever needs to be fixed, and to do that, they need their CFO to prepare them by eliminating as many surprises as possible. The thing business owners want the most is time to react, so the sooner they’re made aware of a problem, the better. Being made aware of a problem that’s already happening is useless to the business owner, because A) they already know and B) they can’t do anything to prevent it now. Business forecasting and modeling tools are a must for the worthwhile CFO to give the business owner the necessary foresight. Forecasting tools give the business owner time to react to downturns and upturns in their business. Next Step CFO, for instance, exclusively developed a forecasting and modeling tool called “CashTell”.

The major points a good forecasting tool should be able to perform include (but are not limited to, this is just a brief list of the bare minimum requirements of a satisfactory forecasting tool):

Being based on a set of solid assumptions the business owner can nonetheless change at any time, anyway they want through the creation of multiple “what-if” scenarios. All forecasting tools, including CashTell, work this same way.

Based on the assumptions you give it, a good forecasting tool will tell you how much cash you will have or need at any point in the future. For instance, a good forecasting tool will be able to determine your answer if you want to know if you will have enough cash to survive a 20% decrease in business. By the same token, it can also tell you if you have the cash to survive, say, a 50% increase in business.

A good forecasting tool can also tell you things like whether or not your business can absorb the purchase of equipment, machinery or a new computer system.

Your forecasting tool should tell you how to increase your cashflow. It isn’t always increasing sales that will increase your cashflow–a good forecasting tool can give you the answers regarding what else will help you.

And a good forecasting tool will help you determine the key metrics to evaluate your business on a regular basis going forward.

To sum up a good forecasting tool in one sentence, it allows you figure out the strategies that need to be implemented to drive profits and cash flow.

Once that’s been determined, your CFO can step in and implement those strategies.

Quantitative perimeters that help a business owner evaluate the productivity and performance of each separate aspect of your business are called Metrics, and metrics are an exceptional and necessary management tool! Determining and developing metrics to evaluate your business is something your part time CFO should be able to help you with.

A good part time CFO will work in your office location, and help you to get real results, contribute to business development, identify employee theft, shape your financial strategies (and exit strategies for when the time comes you are separated from your business), and improve the controls and processes that lead to the desired operating efficiencies.

Hopefully this proved helpful to small business owners by making them aware that a Part time CFO is an option that exists as an alternative to a more expensive and frankly not as sensible route.

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