How a part-time CFO can help you to resolve your cash flow problems

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. This means you will have:

• One of Canada’s leading CFOs, working with you on a part-time basis
• A local support team of the highest calibre CFOs
• A national and international collaborative team of the top CFOs sharing best practice (the power of hundreds)
• Access to our national and international network of clients and partners

With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision- making. After all, you’ll have access to expert help and advice whenever you need it.

In particular, your part-time CFO will assess your company’s cash flow position and take the following steps:

Identify all the immediate threats to your business

A part-time CFO will look for all those things that could plunge your company into serious financial trouble if they’re not addressed immediately.

These could be factors such as the payment of wages or salaries, the payment of taxes or the payment on a due date for vital goods, etc.

Address those imminent threats

Your CFO will look for ways you can meet your most pressing financial requirements and buy the company more time. This might involve:

• Chasing late-paying customers. To encourage those customers to pay, consider offering a discount for immediate payment or asking them to pay immediately by credit card.
• With invoice discounting and factoring, you’ll receive up to 85% of the value of the outstanding invoice, sometimes within 24 hours. You’ll receive the remaining 15% minus a fee once your customer has paid the outstanding invoice.  An invoice discounting service can be confidential so that your customer will be unaware of the financier’s involvement. Factoring companies, however, undertake a full collection service (including sending out statements, making reminder calls and collecting payment), so your customers will be aware that you’re using their services.
• Arranging short-term loans or operating line of credit with your bank.
• Considering other funding sources besides banks and other lending institutions such as self-finance, or loans from family and friends, partners, investors and alternative finance like peer–to–peer lending.
• Asking for better terms from creditors. You may find they’re open to extending your repayment schedule.
• Identifying and addressing the underlying problem.
• Assess the business to identify the cause of the cash flow problems. Address those issues to avoid a similar situation occurring again.

Prevent cash flow problems from recurring

As well as identifying and resolving the imminent threats to your business, your CFO will review all inflows and outflows of cash to determine where improvements and savings can be made. This is likely to involve:

• Working out your break-even sales figure (the number of sales required to cover total expenses without making a net profit).
• This will mean reviewing your sales figures for the past six months to check that you exceeded that breakeven point. It’s then possible to calculate how much you’re likely to make in sales for the next two months. If you’re unlikely to break even, you’ll need to plan how to increase sales and reduce costs.
• Looking for ways to increase your profit margins such as raising prices. You can do this without losing valuable customers by offering packages or bundles of goods or services.
• Reducing your salary or personal draws from the business until your revenue improves.
• Cutting costs. The beauty of cost-cutting is that it can be done in hours or days, unlike revenue-boosting measures which take longer to implement and to take effect. Such cost-cutting measures might include doing any of the following:
  • Stopping work on non-critical capital projects.
  • Reviewing your inventory and selling off obsolete, damaged, or discontinued products.
  • Eliminating slow-moving products or less popular services from your line since selling unprofitable goods or services is likely to send you out of business faster.
  • Negotiating price discounts for volume purchases from your suppliers.
  • Consider downsizing. Bigger is not better if your company is always struggling to stay afloat. If your profit margins are consistently small, reassess your business goals. Rather than expansion, focus instead on profit.
  • Ditching products or services with the lowest profit margins. This change of focus may mean you can also reduce the size of your borrowings, staff, advertising, and marketing campaigns, premises, etc.
  • Reducing labor costs (without triggering a drop in productivity). Any cost-cutting measure that triggers a drop in staff morale will have negative consequences for productivity. Your CFO may advise you to defer salary increases and bonuses or to cut salaries from the top-down. You might also consider introducing a temporary freeze on overtime. Other measures might include lowering the number of employees through attrition or redundancies.
• Speeding up the sales process. Your CFO will encourage you to accelerate the speed with which your customers’ purchase orders are converted into cash. In particular, you’ll be asked to consider what steps in the sales process can be combined or eliminated. For example, asking for payment at the time of the order, accepting credit card payments, or offering automatic account debiting.
• Lowering miscellaneous expenses. You’ll be encouraged to find ways to make small savings on things like insurance policies, office rent, bank service charges, utilities, etc. Lots of small savings across the board can have a significant impact.
• Refinancing your debt obligations. Your CFO might suggest approaching your lenders to see if you can lower your monthly payments on your term debt obligations by taking the remaining principal amount and spreading it out over a longer period.
• Analyzing if you can outsource jobs or services. You’ll be asked to look at your operations to determine if any of your activities, services, or functions could be provided at less cost by an outside company or contractor.
• Holding a sale of surplus or slow-moving inventory.
• Approaching suppliers to negotiate better deals.
• Asking your suppliers to take back excess inventory.
• Selling off your underused assets and renting the equipment instead.¹

With all that support and expertise at your fingertips, you will achieve better results, faster.  It means you’ll have more confidence and clarity when it comes to decision-making.

Improving credit control.

Your CFO will help you to get tighter controls over your credit. That will mean:

• Getting written agreement to your credit terms before taking on new clients.
• Many businesses are not clear about credit terms with their clients and often simply set out conditions on the face of the invoice, but that’s too late in the process. Instead, you should always ensure that an authorized representative of your customer has agreed to your credit terms in writing before you agree to supply products or services.
• Carrying out credit checks on all new customers, no matter how large or influential they may appear.
• Invoicing at the time of a sale or close to it. Instead of waiting for the month’s end to issue invoices do it daily or weekly.
• Making sure your sales invoices are accurate. Unfortunately, some customers will use any excuse for not paying invoices on time and any inaccuracies (such as an incorrect address or date or no purchase order number) could be enough for them to justify delaying payment.
• Treating the collection of monies owed as a high priority. If you haven’t already done so, set up a computerized system to provide notification of late payments.
• Setting up an invoice dispute resolution process. It’s important that your company records any documentation related to invoice-related disputes. You should also keep a record of those customers who challenge their invoices or raise questions so it’s possible to see if any do this regularly as a way of avoiding settling their accounts.²

Investigate the use of regular cash flow forecasts

Your CFO will encourage you to use regular cash flow forecasts so you know how much cash is going to be needed in the coming months. It means you’ll know in advance if you’re likely to face a cash shortfall and can make arrangements for extra borrowing, or take other appropriate action.

It will also make it easier for you and your senior team to make decisions such as whether or not to:

• Hire more staff
• Change your prices
• Move premises
• Tender for a large contract
• Find new suppliers.

You’ll be able to see at a glance the impact such decisions might have on your cash flow.

Cash flow forecasts can also highlight potential problems so that you have time to take action to avoid them.

Conclusion

Your cash flow keeps your business alive. Having control of your company’s cash flow which allows you to operate within your means, and move away from a ‘feast and famine’ situation is usually a huge relief to everyone within the business.

It means that decisions can be made and checked against the cash flow forecast to determine whether they are viable. This increased visibility can be introduced quickly and can have a hugely positive impact on the whole business.

It also means that reserves can be built up gradually to give the business a cushion and alleviate the stress of not knowing what lies around the next corner.

Having the right cash flow management processes in place and being able to spot peaks and troughs in trading to improve cash flow is one of the most critical components of any finance function.

Put an end to your cash flow problems now by calling The CFO Centre today.

tel: 1-800-918-1906
email: [email protected]
www.thecfocentre.ca

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1 ‘How to manage a cash crisis’, NAB (National Australia Bank) Ltd., 2011

2 ‘Top Tips for Enhancing Your Invoicing Process – and Avoiding Problems with Your Business Cashflow’, Finlay, Mitch, Talk Business magazine, www.talkbusiness.co.uk, Jan 2015