Archive for the ‘Cash Flow’ Category
08/23/2010 | 5:47AM
Sports teams compete against each other and they keep track of the score. They know who wins and who loses, and each player on the team has more statistics on their performance than they know what to do with. Individual sports athletes, like golfers and runners, meticulously measure their performance against themselves and others and use their numbers to find ways to improve.
Is running a business any different? Is there a way to know if you win or lose each day? Each week? Each month? Each year? The answer to all of these questions is yes, and I write about how to accomplish this in my recent American Express OPEN Forum Article: 4 Reports that will Keep Your Business Thriving.
08/16/2010 | 7:00AM
Every business should project its cash flow at least 90 days into the future. It should be broken down weekly and should be reviewed and updated weekly. Microsoft Excel is often an adequate tool for this important weekly report.
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08/4/2010 | 8:20AM
Very few business owners are thinking about taxes in August. Even if they extended their returns, the deadlines to file corporate and personal returns are in September and October, respectively. With no urgent deadline to meet, business owners are happy to not think or worry about taxes and focus on other parts of their business.
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07/19/2010 | 7:00AM
Compliance is not very interesting or fun according to most entrepreneurs or business owners. That’s why they usually put off discussing taxes until the very last moment possible. Not only does this usually cost them more in taxes, but the entire process can be one of the most compelling things they do, if they do it right.
In a recent article I wrote for the American Express OPEN Forum, I share 4 Tips to Get the Most From Your Tax Planning. In addition to using the right professionals, defining objectives, forecasting, and the right timing/frequency, I want to address one more element that underlines why so many fail to properly plan to save taxes – complexity.
Most businesses are complex organisms with many dynamic and ever-changing components to them. It is hard enough to build a business in this difficult and extremely competitive and often litigious economy. Most business owners and entrepreneurs are juggling many priorities, initiatives, and tasks to try to maintain or maybe even grow their businesses. Adding another complexity, planning for tax, is often neglected with one of the following statements:
“Why should I plan for tax? I will just pay what I owe, and planning cannot change how much income I make.”
“I cannot understand why I have to pay more in taxes every year than I have brought home from my business. But I just pay it because my CPA tells me too.”
“Every year is a big question mark on what amount I will put on the check to the IRS. I don’t understand it, but I pay it and hope the IRS does not audit me.”
Just typing those often-uttered sentences makes me cringe. If you don’t understand taxes, then it’s time to start. I’m not suggesting you become an expert, but the principles are not complex in theory, just in practice. Understand the theory and take ownership of your tax situation. It needs to be a priority to you because it is one of the major cash outflows of every business (and business owner).
Sorry, that was a little bit of a rant, but claiming ignorance is not a valid excuse, in my opinion. Rely on your tax CPA and/or advisors to help you understand. If you cannot understand them, then fire them and hire some who you can understand. The point of all of this is that shying away from taxes and tax planning because they are complex is not acceptable.
Some tax planning strategies require adding some complexity to a business, and this is OK as long as the tax savings are far in excess of any extra costs to handle the additional complexity. Embrace the complexity of taxes and tax planning and you will see your cash flow improve!
03/16/2010 | 4:09PM
Again, my blog-writing time has been devoted to writing for the American Express OPEN Forum website. Here is my latest article that published on their website earlier today: 40 Tips to Accelerate Cash Flow.
02/15/2010 | 7:10AM
Start-Up companies do not need theoretical or impractical advice. They need tips and suggestions that they can easily and swiftly implement to improve their chances for success. In the spirit of this need, here are ten tips in the areas of accounting and finance that they should consider implementing in a hurry:
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01/18/2010 | 6:00AM
Most businesses have at least some seasonality to them. Perhaps the first quarter of every calendar year is always slow, or your business comes to a stand-still every November through December. Here is an example of a business that slows dramatically ever summer:
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12/21/2009 | 8:50AM
With 2009 coming to a close, we look ahead to what we can expect and should plan for in 2010. Here is my list of the top ten trends founders, CEOs, and entrepreneurs of start-up, emerging, and medium-sized businesses should consider as they prepare for the new year.
1. The recession will not end, regardless what anyone says - There are just too many issues that still need resolution before this economy can rebound, like the write-down of ALL of the bad assets on the books of the financial institutions. The fact that they are still not lending much to existing or new customers should be a sign that they know they still have a lot to lose before they can begin to gain again. In addition, the new business models that are emerging in this recession are leaner and meaner than we have seen in a long time, meaning they aren’t going to help unemployment any time soon. The effects of this recession could last quite a while.
[Author's Note:I realize I will take some heat for this prediction, but please know that I am only bearish on a macro-economic level. There are and will continue to be many businesses that grow and thrive through this time, and I applaud them all for it! If more businesses were like them I would be much more optimistic about an economic recovery.]
2. Bootstrapping will be king!- Usually you will hear me say that cash is king. In 2010 the entrepreneurs that have learned to boot-strap will be king – because boot strapping is the best chance for cash generation. Many of their competitors have gone out of business or are in some sort of a death spiral. Those who made changes early and are continuing to adapt to the changing economic market are going to win. I hear lots of businesses take the mentality of: “If we can make it through the recession will be poised to do well.” That attitude is just not going to cut it. Survival cannot be the only goal – those that can figure out how to generate positive cash flow in the tough times are the ones that will win when things turn around.
3. Solving lots of customers’ needs will raise capital- If you are starting a business and your whole focus is on raising capital, you will not get any in 2010. If, on the other hand, your focus is on getting and satisfying customers with a great product or service, then you have a much better chance to get the money you need (if you even need it). Ben Peterson, a successful entrepreneur and angel investor, identified one of the major sources of this problem. He said that the focus in business schools and entrepreneurial education is on teaching how to raise money, not how to grow a successful company that is actually worthy of investment capital. Get to work, and the money will follow you if you can take care of lots of customers and your need for capital will really add value to your efforts to serve your target market.
4. Business Lending requirements will increase – It got a lot tougher to borrow money in 2009, and it will continue to become more difficult in terms of requirements and complexity. For example, a business just obtained a small $125,000 line of credit and the legal documents the bank sent to their customer were over 150-pages in length. Even though the mean credit score in the US is on the decline, banks have raised their requirements on business owner credit scores and they are mandating more collateral (as a secondary source of repayment) than before, especially if it is real estate.
5. The cloud will continue to gain a share of all things computer- We are seeing more and more companies abandon traditional software and convert their operations to the cloud. This is a great trend for entrepreneurs who can accomplish just as much as big businesses for a lot less expensive cloud-driven solutions. Here is just one example: 2 years ago almost every business used Outlook or some other computer-based email client for its employees. Today we are seeing some companies, especially those with entrepreneurs under the age of 40, switch to web-based and SaaS applications. Google Apps seems to be the most popular for now, but the point is clear - the practices of purchasing expensive software to load on each computer and servers to host all of the company’s data are becoming antiquated and cumbersome.
6. Social media overload will drive users to the best content sources and filters- Even status updates in LinkedIn are tough to keep up with anymore. The flow of information through social media tools has grown so dramatically that most feel like they are on overload and like it is impossible to keep up. While providers are trying to figure this out, we are all going to be driven to the sources of the best and most reliable content, especially if it allows us to filter it quickly and effectively.
7. Health insurance will continue towards high deductibles and consumer-driven care - I have long been an advocate for high deductible health insurance plans with HSAs or other medical savings accounts. Yet such plans represent such a stretch from traditional health insurance that adoption rates have been very low. It seems like employers and employees alike are warming up to this idea and the popularity of these plans will continue to increase.
8. Being big will become less advantageous to being small – Big will no longer necessarily be better. There are many reasons for this, but here are the main two – small and medium-sized companies are often more flexible and more hungry to satisfy their customers and big-company economies of scale are becoming less relevant. For example, with its use of remote, flexible, and contract workers, Jet Blue is able to do more for its customers than any of its larger rivals – and that is in a very capital-intensive business. Service businesses may find even greater advantages as compared to their larger competitors.
9. Focus on relationships will pay- Relationships have been and will always be the key to building a successful business – mainly because they help us establish trust. I’ve included this on my trend list because it seems like to some the practice of building trust is a lost and fallen art. Obtaining more followers on Twitter and increasing your pool of friends of FaceBook are only relevant if we build relationships in the process. We will see relationships and trust-building come back to the forefront of business as filtering tools allow us to connect with those who matter most and with whom we want to foster and strengthen our relationships.
10. Knowledge workers will take more contract and less full-time work - This recession is helping to accelerate our economy to more of a knowledge-based worker model. These knowledge workers are finding more benefits in contract and part-time work. Some appreciate the flexibility, while others feel their value-added to and sustainability in these roles are more secure and potentially more profitable. Our CFO services business is just one of many examples of this trend.
I would love to hear any thoughts, concerns, questions, modifications, additions, or deletions you have for this list and how 2010 will impact you and your business. All the best for a prosperous 2010!
12/4/2009 | 10:17AM
Although the phrase “working capital” is common in business and finance circles, it is often very misunderstood. Here’s an example: if I asked you if you would rather own a business with a lot of working capital instead of a little working capital, what would be your answer? Most people would prefer the business with a lot of working capital. But the answer is not that simple, and, in many cases, smaller working capital actually indicates better management and cash flow generation. I will take a few paragraphs to discuss the two main reasons why working capital is misunderstood and then discuss the best measurement tool I know to monitor it.
WORKING CAPITAL DOES NOT EQUAL CASH
Working capital is often misunderstood for cash. Working capital is the difference between all of your current assets (cash, accounts receivable, etc.) and your current liabilities (accounts payable, accrued expenses, etc.). Notice that cash is actually only a part of this equation, and it is usually a smaller part at that. So, what in the world is working capital?
The easiest way to explain it is in terms of the number of days difference between when you pay for things and when you get paid. Here is a simplified example:
Cash goes out to pay for parts and labor to build a widget. After 10 days the widget is ready to be sold. It takes another 20 days to sell the widget to a customer on credit (net 30 terms). The customer pays early – in 25 days. The total working capital cycle is 55 days. Hence, the business needs to have enough “working capital” to fund this transaction until it gets paid.
WORKING CAPITAL IS A CYCLE OF CASH FLOW
Based on the example above, a business will need a certain amount of “working capital” to handle this 55-day cycle. But what if the company can improve its manufacturing process and get paid a little earlier, reducing its working capital days to 42? This means the company would need less working capital to fund its operations. Since most people confuse working capital for cash, we think a bigger number is better. But companies that run an efficient working capital cycle require lower working capital, the sign of a well-run and efficient business.
HOW SHOULD WORKING CAPITAL BE MEASURED?
There are lots of measurements that comprise working capital - days sales outstanding, inventory days, payables days, and more. Trying to look at all of these and make sense of the company’s working capital progress is tough. So, we use a ratio that measures working capital days – one number to illuminate the entire working capital cycle. This puts the number into context and makes it easy to initially spot issues and challenges.
Very simply, the formula for working capital days is:
(Average working capital for a period/sales for the period)*(# of days in the period)
If I told you that you have a working capital balance of $500,000, it would be hard to understand if that was good or bad until you compare it to other periods of time in your business. If you are growing or shrinking, it becomes more difficult to know if your working capital cycle is accelerating or decelerating, or if you are squeezing more or less cash out of your operations. Here is a quick application of a real company’s working capital days:
HOW SHOULD WORKING CAPITAL BE FINANCED?
Financing working capital is actually quite simple once we understand the working captal days ratio. At a company’s maximum efficiency, there is a minimum number of days in its working capital cycle – maybe it is 15 days, or maybe it is 60 days. Regardless of the number, this part of working capital should usually be funded with permanent debt or equity.
I have yet to see a business that can function at their most efficient working capital cycle for very long. This is caused by spikes and drops in sales as well as new opportunities and new challenges that often arise daily. The days in the working capital cycle above this most efficient level are usually best financed with lines of credit or other revolving debt facilities. Sometimes it is financed with retained earnings or equity, but that may not be the most effective use of the firm’s capital.
CONCLUSION
Working capital is a measure of the firm’s ability to streamline its operations to generate cash as quickly as possible. When understood in this light, less is actually more. Our CFO services help companies get their arms around this concept and maximize their cash flow. Business is, ultimately, about cash generation. The working capital cycle of a business can either gobble up more than its fair share of cash or it can be managed as an efficient cash flow system. If managed, it can become one of the company’s most significant competitive advantages.
AUTHOR’S NOTE: This discussion assumes that the company keeps a target balance of cash and cash equivalents and either invests the rest into fixed assets or growth or distributes cash in excess of the target balance to owners or other operating entities. Target cash is frequently set at between 2-4% of annualized revenue, with many exceptions based on industry, growth/shrinkage rate,and several other factors.
10/14/2009 | 8:57AM
CFO WISE founder, Ken Kaufman, appeared as a Guest on the Small Business Trends Radio Show that aired October 13 at 1:30pm EST
PLEASANT GROVE, Utah, Oct 13, 2009 – CFOwise founder, Kenneth A Kaufman, appeared as a guest on the Small Biz Trends Radio Show that aired on October 13, 2009 at 1:30pm EST. Ken was intereviewed on the following topic: Unlocking the Cash and Profit Hidden in Your Financial Statements.
Ken Kaufman stated, ”Anita Campbell has turned Small Business Trends into one the foremost authorities on starting and running a business. It was an honor to be a guest on her weekly radio show.” In addition, Ken mentioned that listeners to the program will have an opportunity to visit the CFOwise website to receive a free industry report.
Staci Wood, the Operations Manager at Small Biz Trends described Ken with the following excerpt,”In addition to his role as Founder & CEO of CFOwise, a regional Chief Financial Officer (CFO) firm with over two centuries of senior-level executive experience, Ken Kaufman also currently serves as the part-time CFO for a dozen start-up, emerging, and medium-sized companies in many different industries. Ken will share the insights he has gained from helping entrepreneurs and small business owners use their monthly accurate and timely financial statements to drive cash flow and profitability to new levels.”
Click here to visit podcast website
Click here to listen to the podcast
About CFOwise With over two centuries of senior-level executive experience, CFO wise is the premier provider of permanent part-time CFO services to start-up, emerging, and medium-sized companies in the United States. For more information, please visit: www.cfowise.com or contact Kim Waldron at 801-380-5615.
About Small Business Trends Small Business Trends is an award-winning comprehensive online publication for small business owners, entrepreneurs and the people who interact with them. They offer a variety of features to help you stay informed about the small business market.
10/1/2009 | 8:30AM
The statement of cash flows is the most valuable, the most under-used, and the least understood of the three main financial statements (profit & loss, balance sheet, statement of cash flows). Since a lot of businesses use QuickBooks, I feel it is critical to make sure we all understand what needs to happen to make this reporting feature more accurate. It is likely that our QuickBooks-generated statement of cash flows is incorrect for the following three reasons:
CLASSIFICATION OF ACCOUNTS
Each time a QuickBooks user creates a new account the system looks at the type of account and, if that account type is on the balance sheet, it is classified into one of the three sections of the cash flow – cash from operations, investing, or financing. QuickBooks is often right in its inclusion of accounts on the statement but it can be very wrong on the section of the statement in which the account should be included.
For example, a working capital line of credit is often coded as a current liability. QuickBooks assumes this account should be in the operating section of the cash flow, but that is not always the case. A line of credit is usually reported in the investing section of the statement.
The classification of all accounts can be manually changed in QuickBooks by going to Edit, Preferences, Reports and Graphs (Company Preferences), and then click on the Classify Cash button in the Statement of Cash Flows section. An account is placed on the report when a checkmark is next to the account in one of the three fields, which represent each section of the report.
DEPRECIATION
The whole purpose of the statement of cash flow is to adjust the net income reported on the profit and loss to the cash position of the company. Depreciation is a non-cash expense, and, therefore, is added back to net income as a first order of business on the statement of cash flow. Since depreciation is not a balance sheet item, QuickBooks, by default, does not even include it on the statement of cash flows. QuickBooks does, however, include accumulated depreciation on the report, but it is reported in the investing section (depreciation is technically part of the operating section).
To correct this situation, two things must be done. First, follow the instructions above and remove the accumulated depreciation account from the report. Second, add the depreciation account to the operating section.
CHANGES TO PRIOR PERIODS
This issue causes problems with all three of the financial statements. Once a period is complete, all of the accounts are reconciled, and financials have been issued, there should be no more changes to that period or earlier. By simply using the Closing Date and Password functionality of QuickBooks, the company can lock prior periods and protect them from any attempts to add to, delete from, or change any transactions in the closed periods. This is easy to use and can save the business from a lot of headaches in the near and long-term, not to mention safeguard the accuracy of it’s reporting.
This is done by going to Edit, Preferences, Accounting (Company Preferences), and then clicking on the “Set Date/Password” button in the Closing Date section. This will allow you to set the date of the close as well as only allow people to make changes prior to that date if they know the closing date password.
CONCLUSION
If I could only receive one of the three financial statements, I would always pick the cash flow statement. It is the most valuable for any business, especially start-up and emerging businesses. It is the best indicator I have in my role of part-time CFO and business finance consultant for any business, especially start-up and emerging businesses. By setting up QuickBooks correctly and then using it correctly it is capable of cash flow reporting that will help entrepreneurs and CEO maximize their cash flow.
09/9/2009 | 7:30AM
Short term working capital financing is most commonly facilitated with an asset-based line of credit. As its name suggests, the loan is secured by an asset in the business – usually accounts receivable. If you ever consider using this type of a vehicle in your business, here are the 5 most critical terms you should understand and know how to negotiate.
ASSET
What is the asset that will be securing the line? These loans are normally tied to current assets like accounts receivable and inventory, but they can also be secured by equipment and even intangible assets like intellectual property and goodwill.
If we default on our payment of the obligation, the lender will have the right to seize ownership of the asset. Banks and lenders do not want to have to do this and they will be the first to admit that they are not structured or equipped to effectively liquidate such assets. These assets are usually very valuable to the business which makes payments on the line of credit a top priority for most businesses.
BORROWING BASE REQUIREMENTS
Assuming the asset is the accounts receivable of the business, the lender usually sets limits and conditions on the amount of the receivables that can be included in the borrowing base. The two most commonly used limitations are past due accounts and customer over-concentration.
The lender will often only allow current receivables in the borrowing base. This is often set as all receivables less than 60 days old or only receivables less than 60 days past due. Lenders will often limit the percentage of the total receivables that one customer can hold. This is usually set at no more than 20% of the total eligible borrowing base. For example, if we have total receivables of $1,000,000 and they are all current (very unlikely in this economy), no single customer can account for more than $200,000 of the total receivables. If they do, then all amounts over $200,000 are excluded from the borrowing base.
Once the total borrowing base is established, the lender will then often only allow a certain percentage of those assets as the final base. On accounts receivable, this percentage usually ranges from 60-80%. As an additional note, borrowers are usually required to report on the status of the borrowing base on a monthly or more frequent basis.
So, how does all of this work. Here is a basic example: let’s assume the lender allows us to borrow a maximum of $100,000 against 75% of our eligible receivables. The lender excludes all receivables over 90 days old and has no limit on customer concentration. Our total accounts receivable is $150,000, but $50,000 is over 90 days past due and we are about to write it off as bad debt. This means our eligible AR is $100,000, which means our borrowing base is actually only $75,000 ($100k AR times 75% of eligible AR).
MAXIMUM
This is very simply the maximum amount the lender is willing to lend on the line of credit, regardless of the value of your borrowing base. Most lenders set this amount by looking at their secondary sources of repayment, which are usually the financial strength of the owner(s) and/or the equity in un-related assets (like their home). These are often secured with a personal guarantee.
FEES
Each bank structures its fees a little differently, and it is important to understand these so that we can make an “apples-to-apples” comparison on costs. Most lenders assess an origination fee of between .5-1.5%. In addition, they will often charge document and other fees. We have also seen banks require borrowers to pay an independent third-party to verify and validate the assets in to be secured. We recommend receiving proposals from more than one bank and then comparing the total cost proposal from each potential lender to understand which may present the best deal for you.
INTEREST RATE & FLOOR
When you establish your borrowing base and you draw on the line, interest will begin to accrue. Most banks are setting the interest rate on these lines at prime plus 1.5-2.0%. Prime is currently at 3.25%, so that would equate to an interest rate of 4.75-5.25%. Because these rates have dropped so low, most banks have instituted a floor, or a rate below which they will not drop. Interestingly, those floors are being set at 6.5-7.0% in this market.
CONCULSION
Asset-based lines of credit are an affordable and effective way to finance the peaks and valley in working capital. As a word of caution, most require a personal guarantee from all owners of 20% or more of the business. We recommend you seek legal counsel before agreeing to personally guarantee the debt, especially if the guarantee is unlimited – which means each partner can be held responsible for 100% of the obligation personally.
In our role of part-time CFO, we have helped our clients secure tens of millions of dollars in asset-based credit. I hope this brief explanation will be helpful as you consider this option for financing your business.
08/19/2009 | 10:00AM
Every sensible financial model projects the results of all three major financial statements – the profit & loss, balance sheet, and statement of cash flow. The balance sheet, not the profit and loss, is what drives the cash flow of the business. If the balance sheet is not correctly modelled, then the cash flow forecast is most likely inaccurate and worthless. Yet the balance sheet is the part of the model that is usually the most neglected and least understood.
In order to help get the balance sheet forecasting correct, we have identified three common mistakes that entrepreneurs, CEOs, business owners, and even business financial consultants make: NO balance sheet projections, failure to correlate operating activities on the P&L to changes in the operating assets and liabilities on the balance sheet, and disregard for the debt and equity transactions of the firm.
BALANCE SHEET IS MIA
The most common mistake made is the exclusion of a balance sheet forecast from the financial model. The balance sheet represents the most complex transactions of the company and may be left out of the model because the company lacks the expertise of a CFO or a CFO firm to assemble this critical part of the model.
CORRELATION OF OPERATING ACTIVITIES AND OPERATING ASSETS AND LIABILITIES
The major operating assets include accounts receivable, inventory, pre-paid items, and more. The major operating liabilities include accounts payable, taxes payable, and other accrued expenses. When sales go up, accounts receivables go up, and cas goes down. But does the model capture that? If sales go up, can we expect our inventory level to stay the same? Most likely it will need to increase. The increments of these changes are dependent upon the relationship between our days sales outstanding and our inventory turnover.
As sales increase, our accounts payable usually increase as well. The timing of our payments against our accounts payable is a major outflow in the cash flow puzzle that is called working capital. We need to define the relationship that payables have with our operating activities and implement this relationship in our balance sheet model.
There are several other operating assets and liabilities that dramatically impact cash flow. We will avoid all of the details of each, but it is fair to say that without properly forecasting them, our cash flow forecast will never be accurate.
DEBT & EQUITY TRANSACTIONS
Are we bringing in any more equity investments during the period we are modelling? What is our dividend policy for shareholders? Is some or all of the active shareholders compensation coming through equity? All of these items can have a significant impact on cash flow, although none of them show up on the P&L.
In addition to equity transactions, the structure of all of the company’s debts and obligations need to be correctly reflected on the balance sheet. An interest only line of credit will keep the same balance until more is withdrawn or some is paid back based on the cash flow of the firm. Term loans need to show the correct amount of principal being reduced every month.
Obviously these items can seriously change our cash flow, and they need to be included in the financial model so we can correctly forecast our cash flow.
CONCLUSION
This list of common mistakes is certainly not comprehensive (you’ll notice we did not address capital expenditures at all), but should create a positive foundation to build the balance sheet model. Our CFO services firm has built hundreds of complete financial models that have helped our clients get a handle on their companies, make the best strategic decisions possible, raise necessary capital, and perhaps most importantly, track their progress so they can correct problem areas and make more valid assumptions in the future.
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08/8/2009 | 12:10PM
Do you ever wonder why some companies have no AR collections problems and some do? Over the years of my career, I have seen my share of companies that have collections problems. Most of the time, it is because they don’t make a priority of contacting the customers before they became problems. On the other hand, those who did not have collections problems contacted customers well before collections had any potential for problems. Effective collection procedures begin well before the bill is due and payable. The elimination of problems, before the payment due day, will greatly enhance the ability of the company to be paid on time.
First of all, when you deliver products or services to your customers, make sure the invoice(s) have been created, and delivered at the same time. Few days after the invoice has been delivered, your AR person should call the customer, not email, whether the product(s) or service(s) have been delivered satisfactorily. This MUST be perceived as a “Customer Service Call,” not a call to see if the bill is going to be paid. We are making sure that everything is satisfactory with the order and our service. More as an “after thought,” you are checking to see if the invoice was received and that payment is anticipated as per the terms of the invoice. Problems must be addressed and corrected before an invoice is due for payment. Your call may go like this:
“This is _________, from XXX Co. I am calling to make sure everything is satisfactory with your job.” Pause and wait for a response. If the customer has a complaint, this must be addressed immediately.
“Also, I would like to be sure you received our invoice for $__________ dated _________”. Pause and wait for a response. If the customer has not received this invoice, this should be addressed immediately. If the invoice was not received, see that a copy is faxed or emailed to them and then that a duplicate is mailed immediately. If the bill was received and no problems exist that would delay payment, simply respond:
“Thank you, we appreciate your business. I’ll indicate, on my records, that everything is satisfactory and we can expect payment on ______________________________(the due date).”
This call should not be made to aging accounts or accounts with other payment terms. Remember, the purpose of the call is to eliminate delays that cause delinquency. The sooner you receive a commitment to be paid, the less likely there will be a problem getting paid on time. Hopefully these tips will offer some financial help for small business and businesses of all sizes.
08/3/2009 | 9:00AM
How many forecasts do you keep concurrently in your company? If the answer is zero, then we have some serious work to do. But if your answer is one, you may be falling well short of what is necessary in these difficult economic times.
Here is a real story of a conversation I had with a banker in the last 6 months about a client of our CFO firm. My client needed to finance some heavy growth and we stretching to try and use only bank financing to accomplish this growth. The banker was concerned about the effects that our plans for growth could have on the business.
He said: “Ken, I have your projections in front of me, and I understand they are conservative, but I’m not going to feel comfortable about this deal until you can show me convincingly that a 25% downturn in this company’s top-line will not kill this company.” I agreed to re-work our forecasts based on his request, and I went ahead and ran an additional model with 25% additional growth on top of the already projected growth trends. In about two hours we went from one forecast to three, and the exercise was overwhelmingly valuable.
In the July/August issue of CFO Magazine, Tenet Healthcare CFO Briggs Porter said: “Developing a plan on three different levels (baseline, high, and low) is a good idea in any environment, but it is a necessity in this one.” I could not agree more with this statement. Forecasting is tough enough, but these uncertain times make it even more difficult. And the stakes are high – if you fail to plan for each scenario, you can quickly put the company in a world of hurt.
Financial modeling and forecasting is an exercise that ultimately only proves beneficial if we use the models and forecast to validate or invalidate our assumptions, make necessary and timely changes in our businesses, and continue to try and stay ahead of the where we are going. In large organizations, the CFO usually runs and updates the model. Those without a full-time CFO can access CFO services from a CFO advisor or CFO consultant that specializes in helping many companies create and then use their model effectively.
I have and will continue to make this promise to anyone willing to take this challenge: If you will put a forecast/budget in place and track your actual performance next to your budgeted performance every month for 12 consecutive months, you will know more about your business and industry than at least 80% of your competitors and the competitive advantage you gain from the insights and knowledge you will gain during this process will add an overwhelming amount of value to your business.
