CFOWise

Working Capital – Less is Often More

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.

Responsibility, Accountability and Team Work

Most employees are responsible. Employees will do their job well,(at least, they think they are doing a good job.) Employees generally feel responsible. These feelings of responsibility are feelings of obligation, and are pretty much instilled in all of us since childhood.   So why aren’t these employees measuring up?  Well, we need to look first to accountability and then past the individual to the team and processes.

Remember you and your employees are in business not busyness. Busy work is not the work of business. Doing the wrong things well helps no one. So responsibly doing busy work is worthless.

So what is the answer? We all need to be held to account to do the work that needs to be done. And that is what accountability is all about. Accountability occurs when managers specify what they want subordinates to produce (quantity, quality, time and resources), judge how well the subordinate worked and thereby manage the employees. A manager may be reluctant to have the hard conversation, but part of the manager’s job is to ensure that  employees are being productive.  Human beings are of course social animals.  So management must never tolerate or allow bad behavior to be rewarded; think of it as a moral issue for management.  No retailer would ever think of using an open cash draw instead of a cash register.  An open cash draw rewards bad behavior.

Beyond the individual, most work is done in teams. Again, almost all employees strive to be a part of a winning team. The main inhibitors of teams are unclear work processes, bad incentives, unclear decision making, bad communications and/or lack of knowledge of how the rest of the firm works.  Almost all of the problems and issues happen at the margin or transitions–the handoffs, decision points, approval points etc. If you really want to improve employee performance, look at what happens between the teams. Now as the financial crisis on Wall Street shows, the bad incentives can really mess up ever the most profitable business. Well done financials can, of course point the way.  This is one of the focal point of the CFO services we deliver to our clients.

Fix the process, particularly the incentives and many employee problems take care of themselves.  FedEx is a good example. Here is what Charles Munger, Warren Buffett’s partner said…”the Federal Express system requires that all packages be shifted rapidly among airplanes in one central airport each night. And the system has no integrity for the customers if the night work shift can’t accomplish its assignment fast…”  Federal Express could not get the night shift to get the packages out on time.  “They tried moral persuasion. They tried everything in the world without luck. And, finally, somebody got the happy thought that it was foolish to pay the night shift by the hour when what the employer wanted was not maximized billable hours of employee service but fault-free, rapid performance of a particular task. Maybe, this person thought, if they paid the employees per shift and let all night shift employees go home when all the planes were loaded, the system would work better. And, lo and behold, that solution worked.”  (from an article “The Psychology of Human Misjudgment”).

Collections – The Pleasant Nuisance Theory

Every economic downturn is marked by extended receivables collection.  More businesses need to rely on their vendors, suppliers, and contractors to finance the increased time and effort required to collect their receivables – this creates a significant tightening of cash flow through and entire supply chain in each industry. 

The tightening credit markets have only accentuated the problem as most businesses are not able to rely on traditional banks for to finance their working capital – which is defined as the difference between the time a business needs to pay its payables and the the time it takes to collects from its customers.

We subscribe to and teach the Pleasant Nuisance Theory.  In its simplicity, it uses consistent yet pleasant messaging to be just annoying enough but pleasant and professional enough to ensure that we are first in line to receive any payments being sent by our customers.  Here is more detail on how it works (we will assume that all customers in this example are invoices on a net 30 basis).

First, someone in the firm needs to fill the role of “pleasant nuisance.”  This individual needs to devote a specific amount of time every week to contacting customers that owe money.  Sometimes 1 or 2 hours is all it takes.  The entrepreneurs, founders, CEO, and anyone involved in sales and marketing should NEVER fill this role.

Second, the “pleasant nuisance” should contact every customer within 15 days of when the customer receives an invoice from the company.  The call (yes, an actual phone call, which should not be confused with an email, text message, tweet, or status update on FaceBook) should go something like this: “Tammy, this is Steve with the XYZ Company.  I wanted to thank you again for paying our last invoice so promptly.  Also, I was calling to make sure that you received our invoice #15224 dated June 1st.  Have you seen it yet?”  If Tammy says yes, then respond with something like this: “Great.  Thanks for confirming that.  Do you have any questions or concerns with it?”  If she says no, then say something like this: “Oh, I would have thought you would have it by now.  May I email or fax it to you right now?”

The third step comes with a phone call within about 1-10 of the invoices due date.  The call may go someting like this: “Tammy, this is Steve from XYZ Company.  We discussed invoice #15524 a little while ago and you were able to confirm receipt of that invoice with you at that time.  Are there any concerns or hesitations with paying it by its due date next week, June 30th?”

I hope you can sense the pleasant part of this process.  It isn’t really much of a nuisance.

Fourth, if we call have not received the payment on the due date, we might have a phone call like this: “Tammy, this is Steve.  Today is the due date for invoice #15224 and we have not yet received payment – we were expecting it today.  Could you confirm that the payment has been issued to us?  What date was the check mailed?”

If the customer does not confirm payment, then we step up our pleasant nuisance efforts by seeking commitments and then holding them to those commitments.  Our leverage points may be finance charges, late fees, or termination of their credit terms altogether.  We’ll save those parts of the pleasant nuisance theory for a future blog post.

Conclusion – you will be surprised that two things happen.  First, you will start getting paid on-time and sometimes even early more often.  Second, you will train the AP clerk or accountant at your customer to expect your follow-up and want to give you good news each time you call.  You may even establish a good relationship with them!  It is likely that any CFO, part-time CFO, CFO consultant, or business finance consultant would agree that implementing the Pleasant Nuisance Theory is among the best practices for collections.

Locks Keep Honest People Honest

I believe most people are honest.  Yet with the right amount of opportunity, even the best are tempted to steal from their employer.  This is why every business, regardless of its size, needs to have some internal controls in place to protect the company and the its honest employees.

The examples of employee theft and embezzlement are far too many to cite.  But most of us have heard at least one horror story.  I met the owner of a company yesterday who had an employee embezzle over $1,000,000 from the company.  And this employee was an upright member of the community known for being honest.  So how did this happen?

It starts with a company that gives more and more control in the accounting and finance functions of the firm to just one person.  Phrases like: “I would trust him with my life,” and “I know I can trust him – he is honest and loyal to me,” become the basis for giving more and more control.  The challenge is that the more control someone has, the greater the temptation becomes to steal because no one is looking and no one will notice.

As the temptation grows for the employee, he or she begins to have more of an entitlement mentality towards the employer.  Thoughts like: “I deserve to take this from the company because I’ve been working overtime for six months with no extra pay or bonus.”  I was once part of terminating an employee who had stolen fuel from our company.  His response was that he had worked some overtime and, instead of putting it on his time sheet he thought he would just make up for it by taking a little fuel.  Again, entitlement begins to creep in.

Once the employee gets away with a little theft, it can become addicting.  They become so entrenched in the lies they are living they begin to distance themselves from reality with overwhelming justifications for their behavior.

So, how does a small to medium-sized business owner avoid this problem?  First, please know that there are many people who are dis-honest and will try to steal from you no matter what controls you put in place.  With that as a disclaimer, you should consider some of these suggestions as low-cost alternatives to trusting just one person with all of the controls:

1. Consider separating the activities of creating invoices, receiving payments, applying payments, opening bank statements, and reconciling bank statements between at least two people.  Even if you need to have someone work a couple of hours a month on a couple of these functions, it could be well worth it
2. Regularly audit your customer and vendor list to validate they are real
3. Regularly audit payroll by verifying the existence and value added by all employees
4. If you or your employees handle cash, put systems in place to hold those employees accountable for every penny they touch.

These are just a few suggestions, and there are many more.  By establishing the right controls in your business in a cost-effective manner, you will be taking steps that will help protect you, your company, and your employees.

One additional thought – I recently met a business owner who installed security cameras in his business in very visible locations.  He never hooked them up, and the cameras never actually recorded any video.  But the theft of time and inventory by his employees dropped to almost nothing.  With the cameras acting as “big brother,” the employees were incentivized to remain honest.  Sometimes an outside CFO consultant or a part-time CFO can be the “big brother” that helps keep honest people honest.

One Massive Layoff, or Slowly Let People Go?

I was asked this question today, and I think it deserves a little bit of discussion.  I will share my take on the subject, and then share the opinions I received from several of my friends on Twitter.  Feel free to add your comments.

Let me come straight out with my main opinion – any excuse to not take care of the layoff all at once is covering selfish motives.  Either we don’t want to hurt someone’s feelings, we don’t want to face the music, we don’t want to be the “bad” guy, or we are just scared or a bit cowardice.  If the layoff is what the business needs, then it has to be done – period.  Not doing it all at once will cost the firm money and could put everyone who is left in jeopardy as well.

I recently heard an entrepreneur needing to do a layoff say that he would reduce everyone’s wages (instead of doing a layoff) and wait for certain people to quit.  I have two issues with this – first, this entrepreneur is a coward who is afraid to confront his people with the truth, especially the ones he wants to let go.  Second, if I were a betting man, I would bet that the employees he wants to leave will stay and his star players will leave.

I posed this question on Twitter and here are the replies from folks from all walks of life (just a quick reminder that Twitter only allows responses in 140 total characters or less, so please appreciate the abbreviations and brevity:

@GoodGrapes – Go massive if that’s what it really needs – cut deep, then re-group and move on.

@jeremyhanks – Layoff all at once if u at all can. Get the shock through the system, people hate change, slowly might get u into the death spiral.

@MaritaR – Better putting things to an awful end than to perpetuate an awful time – massive layoff sadly better than a long time uncertainty.

@IFRS exorcist - To avoid uncertainty and negative morale if you know who you are going to lay off it is better done all at once.  Just my opinion.

@LearnSolMary – If must lay off, get it over with & move on so wound can heal. Wd ask client to be absolutely sure layoffs are the only way.

@virtualcfo – One cut and let the remaining employees now that they are ok . If not, moral and productivity will be hurt while waiting for the ax.

@VAinParadise – IMO Massive layoff and get it over with. When done is spurts it puts unnecessary stress on everyone and kills moral/production.

1 Way To Reduce The Anxiety You Feel Towards Your Business

Every entrepreneur and business owner I have ever met feels anxiety towards his/her business.  In these difficult economic times, anxiety levels usually rise. What is the source of the anxiety? How can you start to get rid of it? Please allow me to try and answer: the greatest anxiety usually comes from the unknown.  Here is an example.  Let’s assume your largest customer represents 25% of your business.& Your customer tells you that she is having significant financial problems and she may need to reduce or altogether eliminate her business with you in the next 6 months. Enter Stage Left – ANXIETY.

How can you survive that? What will you do? As these and other questions arise in your mind and remain unanswered, your anxiety towards your business will most likely increase.

Here is the way to begin to alleviate your anxiety – we will continue with the example above.

First, we need to create a projection, pro forma, or budget of our operations for the next 12 to 24 months without the loss of the customer included in the projections. This needs to include both the income statement and the balance sheet so we can understand both the profitability and the cash flow of the business during the specified time.

Second, we need to understand all of the elements of our relationship with this customer that we might lose. The easy part is saying we need to reduce sales by 25%. But what about this customer’s impact on gross margin? Do we earn a higher or lower gross margin with them than our company average? Are there elements of our fixed cost structure that might go away if the customer goes away? Does this customer pay faster or slower than our customers? These questions begin to derive the true impact of the loss of this customer on our overall profitability and cash flow.

Third, we need to make adjustments to our projections to account for the loss of this customer. This can be a bit tricky, but is certainly possible.

Fourth, we need to objectively analyze the results. What impact would the loss of this customer really have? Sure we have had to make a few assumptions, but we will be pretty close to knowing the answer to this question. With real answers, the anxiety will begin to subside. Even if you don’t like the outcome, knowing the outcome immediately removes a big part of the anxiety. This information will empower you to handle this or any other issue that arises in your business.

The CFO of an organization should be the largest factor in reducing the anxiety of the executives and owners running the company. Whether this CFO position exists full-time or with a professional in the capacity of part-time CFO, every business can benefit from this benefit, not to mention the rest of the value proposition that a senior finance executive brings to the company.

Accounting Coach

Here is a great website I found for anyone that wants to improve their accounting skills: www.accountingcoach.com

The author of the website also has a Question & Answer blog that he respnds to frequently. This is an interesting and valuable for tool for many, and could also provide financial help for small business.

New Resource for middle market Companies

We found a great blog about growth and exit strategies for middle market companies and thought we would share the link with you. http://www.corporatefinanceassociates.com/blog/.

Often exit strategies can mean CFO job openings increase, mainly because the head finance position is either consolidated into a new organization or the new leadership brings their own CFO to the company.

Suggestions for Weathering Hard Times

This Article is from Daniel Crosby with  SPERDUTO & ASSOCIATES, INC. The most recent downturn in the U.S. Economy has prompted widespread fear and comparisons to the Great Depression. Notwithstanding the negative reality of the current economic milieu, there are things that can be done to survive, and perhaps even thrive in a recession. The suggestions below represent a synthesis of ideas on “recession-proofing” your business, learning from the hard lessons of the past, and adapting to a changing economic reality. Some of the ideas are intuitive, some less so, but all can be held up against your current business practices as you inevitably look for ways to weather the current economic storm. 

-Be flexible

-Stay lean and nimble enough to adapt to a changing marketplace.

-Cross-sell existing clients, revisit old clients, send them a hello letter, a thank-you for their business in years past, revisit the possibility of working together.

-Utilize social networking sites.

-Sites such as LinkedIn are free and allow broad marketing potential at no cost. Contribute to the community and broaden your exposure by answering questions and contributing to discussions in your area of expertise.

-Tapping into client “pain” is an important way of marketing your services. Currently, there is pain all around. Identify the clients’ pain and explain how your services can help reduce some of the pain that seems to be everywhere these days. Identify and reduce non-essential expenses.

Increase customer service

– Send thank you letters to existing clients, thanking them for their loyalty in hard economic times. Take added measures to ensure that customer service is better than ever so that you can retain the clients you do have. Increased customer service is one of the only ways to add value without actually spending money.

Hang on to star employees

– Your employees have financial problems of their own during an economic downturn, and their first allegiance will be to themselves and their families. In you have cutbacks, don’t lose sight of compensating and treating your best-performing employees well, or they will look elsewhere.

Utilize technology

 – Technology may provide some solutions for streamlining some expenses. Determine whether any of your business operations can be automated. Use email, telephone calls, and video conferencing to save clients money on travel expenses. Optimize your search engine placement by updating and expanding your search terms. Start a blog and make regular entries. With each entry you increase your footprint on the web, and increase the likelihood of being found.

Innovate

 – The tendency of many businesses is to lick their recessionary wounds during a downturn. However, hard economic times provide new marketplace realities that yield new opportunities. Seek to understand the new economic reality and find a niche. By staying forward-thinking while others are focused on the dismal present, you may grow exponentially relative to the competition.

Increase your skills

– Hard times may leave you with more time on your hands. Use this time to increase your skills. Continue to attend conferences, read books, and attend professional networking events. This will keep your relationships vibrant and ensure that you remain on the cutting edge of your field.

Offer payed sabbatical

 – Hoping to retain talent and cut costs, some companies offer payed sabbatical. This entails letting an employee stay out of the office, at a fraction of their salary (typically 25%), while business is slow. When business picks up, the employee is guaranteed their job back at the original pay scale. This allows companies to cut costs without the loss of morale that accompanies more traditional layoffs.

CFO Partner with others that have synergistic aims

– Unfortunately, many companies become increasingly insular during difficult times. By partnering with others with synergistic aims, businesses can share information, maximize resources, and form valuable new relationships. This provides all parties a smaller piece of a bigger pie.

Reserve discounts and maintain prices

 – Slashing prices will reduce profit margins and dilute your brand. Avoid getting in a bidding war with the “Wal-mart” of your line of business.

Offer employees non-monetary incentives

 – Offer employees incentives such as extra vacation, reduced work hours, and casual days in lieu of cash incentives. These incentives allow you to maintain your liquidity while showing your employees that you want to reward their hard work.

Renegotiate contracts

– This is no time to have excess office or warehouse space. If possible renegotiate your contracts in a way that provides your business adequate room without overspending on wasted space.

Free up cash flow

 – Now is the time to call in old debt. Approach those that owe you money in an attempt to increase your liquidity. Doing so will ensure that you are able to pay your employees in a timely fashion and remain committed to a marketing strategy going forward.

Look to expand

 – Be alert to ways in which others’ loss may be your gain. Have competitors lost talented employees or good clients? Is there a piece of business that you might not previously have been able to afford that is now within reach?

Strengthen relationships

 – Your clients will remember who stuck by them during difficult times. If you can prove valuable to a client during a tough stretch, you will have won a loyal client for life. Adversity often forges tighter alliances than do times of prosperity; take advantage of this fact.

Give back

 – Volunteering as well as staying involved in civic and religious groups increases face time with potential clients. Additionally, it boosts employee morale and gives perspective during trying times.

Diversify

 – The more services you offer the more clients you will be able to reach. Try repackaging existing products or services in such a way that you can reach new clients.

Offer a referral reward program for existing clients to incentivize giving referrals.

Organize and energize your staff

 – Reassure them within reason and keep them abreast of changes in the marketplace and within the organization. Uncertainty and fear are distractions, and will negatively impact their morale as well as their performance. You can effectively combat these distractions by keeping them in the loop.

Continue to advertise

– Many businesses cut advertising budgets first but the effects of doing so can be disastrous. Reassess your advertising strategy to ensure that each dollar spent is resulting in a return for the company. Focus advertising on any products or services you have that are “recession-proof” or assist clients in the economic situation in which they currently find themselves. Streamline and tailor your advertising, but do not cease advertising altogether. A part-time CFOwe know well stongly advises his clients to cut everything but advertising.

Learn from the past

 – Revisit the history of your business. When have you faced tough economic times in the past? Which strategies worked and which did not? Research mistakes and successes of others. What has the competition done historically that has proven effective in lean times?

Tie compensation to productivity

Maximize profitability

 – Which of your products or services provide the largest profit margin? Examine your lines of business and identify the most profitable among them. Seek to funnel business in the direction of your most profitable goods and services.

Be positive

 – Some of the most successful industries during the Great Depression provided non-essential services. Certain entertainment industries thrived as people looked for respite from their day-to-day concerns. Stay positive when interacting with clients and employees and seek to be the bright spot in an otherwise bleak economy. Over-communicate good news and be sure to let your employees know of any successes that arise.

Negotiate

– Try and get better deals with suppliers. Remember, they are trying to hang on to your business during the downturn.

This report represents a synthesis of ideas taken from articles found in Business Week, The Wall Street Journal, CNN Money, morebusiness.com, steveshapiro.com, midmarket.eweek.com, smsmallbiz.com, powerhomebiz.com, reuters.com, ehow.com, ezinearticles.com, and white papers from the Pennsylvania Small Business Development Center as well as Deloitte and Touche.

Five year End Tasks to Financial Strength

Issue: # 2008-06 Nov/Dec 2008

Five Year End Tasks to Financial Strength

INTRODUCTION
If you do not take control of your business, it will take control of you. With that thought in mind, we recommend the following five tasks to help you take control of your business, finish the year strong, and make sure you are positioned for a healthy 2009: Plan for Tax, Plan for 2009, Collect Your Receivables, Fortify Your Banking Relationships, and Improve Your Web Presence.

PLAN FOR TAX
Business Owners have the most complex tax issues, but they also have the most tax-saving opportunities available. Every business owner should meet with their tax CPA BEFORE the year is over. Our experience shows that although this may cost a little bit of money, it usually comes back at least ten-fold in the form of tax-savings. We find that if these meetings are run properly, our clients usually save thousands if not tens of thousands of dollars in tax.

Here is how you make the meeting efficient and profitable. Schedule the time with your tax CPA at least 1-week in advance. At least three days before the meeting, send your tax CPA all the information they will need to estimate where you will be at the end of the year. This includes financial statements from the business through October or November (cash or accrual based on how you file) and a description of anything major that has changed during 2008. We also recommend you include an agenda of all of the items you would like to discuss as well as strategies you have heard about that you might like to explore. During the meeting, follow the agenda and document the decisions you make; then implement everything before the year is over.

PLAN FOR 2009
If you are a business owner who escapes planning for each new year with an excuse like: “I don’t know what will happen next year, so there is no need to plan for it,” then we offer you a different perspective. If you diligently plan for each new, then perhaps you can pick up something to improve your current process.

You need to start by reviewing your 2008 budget, if you had one, and how you performed relative to that budget. Which assumptions remain valid, and which need to be revised? Plug your old, new, and revised assumptions into your income statement and balance sheet projections for 2009. What sales do you expect and how do they need to be adjusted for season trends in your industry? Are your variable costs increasing or decreasing from you own price reductions or increased labor, material, and other costs? What fixed costs will remain the same in 2008, and which will change? Why? How will your current, debt-to-equity, days sales outstanding, working capital, and other key rations change throughout the year?

Once all of this is put on paper, two things will occur. First, you will clearly see if you like or do not like how 2009 is shaping up and you can make changes to your operations to enhance or make more realistic the results. Second, monthly budget versus actual reporting with a focus on the gross variances (more than 5-10%) will allow you to make adjustments during the year more quickly and effectively.

COLLECT YOUR RECEIVABLES
Most businesses struggle to collect between Thanksgiving and New Year’s Day. This does not have to be you. Review your list of receivables every few days between now and the end of the year. Your customers’ accounting staffs will take time off. Find out when that is and make sure they pay you before they leave on vacation. Track the promises they make and politely and professionally hold them accountable to those commitments.

FORTIFY YOUR BANKING RELATIONSHIPS
Your banker has had a tough year. You might want to consider taking your banker to lunch before the year is over to renew your relationship and find out how you can better become one of the bank’s favorite customers. If the bank has lent you money, make sure you are compliant with all of the loan covenants. With the credit markets still quite a ways away from stabilizing, your bank may become one of your most critical assets, if it isn’t already.

IMPROVE YOUR WEB PRESENCE
It does not matter the industry in which you operate. It is irrelevant if your customers buy your products or services online. Here is what does matter – our society will rapidly continue its trend towards online existence. Regardless of where you are at with your online presence, you can do more. Do you have a blog? Are you using social networking to its maximum potential for your business? Does your website generate marketing and sales results? Can your website improve the experience your customers enjoy? The right investments into your web presence can improve your cash, profit, and time.

CONCLUSION
By completing these five tasks, you will empower you and your business to finish the year strong and prosper in 2009. With economic turmoil on the horizon for most if not all of next year, those who focus on these and other critical tasks will be in the best position to survive the tough times ahead and thrive when our economic outlook turns more positive.

Internal Controls Needed with Quickbooks

QuickBooks is an affordable and realtively easy-to-use accounting software that a lot of companies use. Amongst the finance and accounting community, it has very few controls within the software to help the company protect and preserve its assets. There needs to be financial help for small business with internal controls for quickbooks. So we found this article with 5 great tips to use QuickBooks and still established some good internal controls.

High Speed Internet on the Rise

High speed Internet access is on the rise in urban, suburban, and even rural area. Two trends, in our opinion, are part of this continued need for more speed – SaaS and streaming video.

Software as a Service, or SaaS is software that you access, update, and use through your Internet connection. The need to host large software and hardware is being replaced by the ability to affordably access the programs you need through a decent high-speed Internet connection. You simply log in and update your CRM (Customer Relationship Management software), your accounting system, and any other program that offers financial help for Small business from anywhere in the world with just an Internet connection. You do not need to log into or remotely access another computer or server. Obviously, these SaaS applications work much more efficiently on high-speed Internet connections.

Streaming video is in its infancy – our access to the world is going to become more and more dependent on streaming video. This takes up a lot of bandwidth. As the technology improves, high-speed Internet will play a critical role in granting access to the masses.

A few years ago, businesses were concerned about their customers still on a dial-up connection. We do not hear this concern any more. Most businesses are making decisions on the assumption that their customers that are serious about accessing products, services, and information through the Internet have already converted to a high-speed connection.

Do Employers Benefit from Their Tuition Reimbursement Plans?

While the potential benefits of tuition reimbursement plans are widely discussed, the real question is can they prove that they are actually receiving these benefits, and that the benefits are outweighing the costs.

According to an article in CFO in April 2008, a recent study of 180 companies found that almost half of them neither measure the impact of their tuition reimbursement plans on retention and recruitment nor follow-up with employees and managers to learn how the programs affect job performance.

For emerging and medium-sized companies, this can be a powerful benefit to offer. The key is to track the investment you make to make sure you are receiving an adequate return. Deciding whether a tuition reimbursement plan is right for you can easily be decided by an interim CFO Advisor.

The Value Proposition of Blogging

At CFOwise, we have decided to start a blog for two reasons: We hope the content we write will, in some way, add value to our clients and to start-up, emerging, and medium-sized businesses around the world, and Experts in Internet marketing have told us that by publishing this content on the web, the opportunity for our influence as CFO consultants in the capacity of part-time CFO jobs in our market space to grow will be enhanced.  Hopefully it is fitting that we try to define the value that blogging can bring in our first blog.

So, here it goes (please note that our comments on blogging refer only to professional content used for commercial purposes): Blogging helps position you and your firm as an expert in your field of expertise. It is like a newsletter, but is typically more informal, allows others to make comments, and is often more frequent than a monthly newsletter. For those who are interested, it could give them reason to come back and visit you often. In essence, you can establish a faithful and even an extremely loyal following who are hungry for your content.

I’ll share a personal example: A good friend of mine has fought a horrible disease for the last several years of his life. He grew weary of continually repeating the updates on his condition to the dozens of people who cared about him and his family. There were those that cared about him that purposefully kept themselves in the dark on his situation just to avoid him expending his energy re-telling his story dozens of times. He began keeping a blog in which he gave updates. Interestingly, his absolutely hilarious sense of humor came through perfectly on his blog, and everyone was able to remain a part of his life without overwhelming him. He still updates his blog and my wife and I visit it often – we have become very loyal followers. In fact, if he forgets to update the blog for a week or two, we are disappointed and become anxious to hear how he is doing. That example has many applications to business. With a small effort, a business can reach a large audience through blogging. If you need to reach people on the web, you can optimize your blog based on your Search Engine Optimization (SEO) strategy. I have been told that the more content you have, the more likely you are to be picked up in keyword searches on the major search engines. If you want to accomplish this, then I definitely recommend you meet with an expert in this field and receive their assistance.

How do you determine the value that blogging can bring to your firm? Let’s suppose someone in your organization spends 2 hours per week on your blog, or about 100 hours per year, representing about 5% of a person’s time with a regular 40 hour work week. Assuming the person writing your blog receives annual compensation, including payroll burden and benefits, of $75,000, you are committing almost $4,000 towards this activity. Using the perception that the compensation is a sunk cost with no opportunity cost, we can conclude that you should make the commitment to blog so long as it will add at least $13,000 ($4,000 desired gross profit divided by assumed 30% gross margin) in new business (either from new or existing customers). Starting the blog is easy. Committing to and delivering the content regularly is usually the hardest part. If you make the commitment, blogging will certainly increase the value of your brand, and you will probably be able to justify the expense by the business it stimulates.

Do Unto Your Vendors As You Would Have Your Customers Do Unto You

In the short and long-term, your business will benefit greatly by paying your vendors the way you want to be paid by your customers.

LONG-TERM

Customers who pay early will, over time, receive the highest quality and best service and price offered by their vendors. Do you respond more quickly and intently when your quickest paying customer presents problems with your product or service? Are you more willing to think outside of your normal operating procedures to help solve that customer’s problems? If you have any responsibility for the cash flow of your business, then your answer would probably be YES!

Anecdotal and empirical research suggests the same conclusion – you will receive additional benefits in the long run from your vendors if you pay them quickly. How would your vendors classify your payment timeline? Are your payment policies getting your business more or less from your vendors? Regardless of your answers, consider the potential short-term impact of an early payment policy.

SHORT-TERM

If you currently spend $100,000/month with a vendor, and you typically pay them in 40-days, it may be worth a lot to that vendor if you accelerate your payment cycle to just 10-days. In fact, for this example, let’s assume your vendor offers a 2% discount for doing so. Would the 2% discount be worth tying up your cash by paying down your accounts payable by $100,000 to get your company in-line to pay for all of your purchases with that vendor within 10 days?

Assuming your cash flow from operations can keep you at or below 10 days with this vendor for the next 12 months, and assuming that you borrow from your line-of-credit (12% interest per year) to make the one-time catch-up payment of $100,000, let’s see if your business will receive any economic benefit. You will receive a total discount on your purchases with the vendor of $24,000 ($1.2 million in annual purchases times 2%) and you will pay $12,000 ($100,000 at 12% per annum) in interest to cover the one-time payment. All other things being equal, this means you will actually net a $12,000 gain by accepting their offer of a payment discount. You don’t have to hire a CFO figure out the advantages of this scenario.

Whether or not you have the option to use advantageous early-pay discount terms with your vendors and suppliers, your business will still benefit in the short and long-term from a strategy to be one of their best paying customers.

CONCLUSION

With a weekly cash flow report produced by your internal bookkeeper, accountant, or controller, you should be able to determine how and when to speed-up your payments to your vendors. This will inevitably improve your business relationship with your vendors. Without a weekly cash flow report, it may be very difficult for you to have any type of strategy to receive the highest quality and the best service and prices from your vendors. A well-planned and executed cash management and finance strategy will allow you to truly partner with your vendors to gain a significant and sustainable competitive advantage. If you do unto your vendors as you would have your customers do unto you, you will receive short-term benefits and long-term rewards!