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Tag: financial health

Is This Essential Element Missing From Your Business Plan?

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Is This Essential Element Missing From Your Business Plan?

In building your business, do you ever:

  • Feel out of control – you’re getting by, dealing with one crisis after another, but just barely hanging on?
  • Find that your longstanding products and services just aren’t selling like they used to, but you can’t find time to develop new offerings?
  • Think about retiring after selling out to a group of your employees, but you know that they (and you) are nowhere near to making that possible? (see our post on exiting your business for more on that)

A big step towards resolving these issues, and many others, is to have a business plan – an effective business plan.

Many businesses get by without one. “It’s in my head,” you might say. Or, it could be a document you put together years ago, maybe because your bank required it to extend financing, and you haven’t looked at it since.

According to a survey by business and finance software provider Exact, companies that have a business plan in place were more than twice as successful at achieving their goals than those that did not (a 69% success rate versus 31%).

What’s wrong with many business plans?

If having a business plan is so important, how can your company get the best possible benefit out of the work that goes into preparing one?

Our work here at the CFO Centre has found that while having a business plan helps, there are some important elements to success (many of these are presented in more detail in the e-book).

One is that the plan must be a living document – it needs to be something that you review frequently, updating it as circumstances change, and using it to provide guidance on what your daily, monthly and yearly priorities should be.

Another aspect of success, believe it or not, involves packaging. You may be aware that a business plan that is used as a finance-obtaining tool will succeed more if it features attractive layout and design. But having a document that’s pleasant to look at – not just text on a page – will work better even if it’s just used internally. That’s because the people who read it, including you, will have a greater sense of confidence that the ideas in it can be made to happen.

How a timeline helps make it all happen

But the one important aspect, that many business plans miss, is the element of time. Without a clear picture of what is to happen by what time, a business plan is just a wish-list.

The best way to help make sure that the business plan stays alive – and more importantly so that what’s in it comes to pass – is through including a timeline.

A timeline (or timetable, if you prefer) sets out the milestones of your business plan – the number of employees, number of locations, sales targets, net revenue expected and other targets – and indicates what date they are expected to be reached.

For example, let’s say you have a winning retail concept that you want to turn into a franchise. Maybe even a national franchise.

To do that, you need to determine what processes need to be implemented in order to manage a store like yours effectively. That, in turn, leads to a set of written procedures –  such as the steps to be taken upon opening the store or on closing, how to make each of the products that are sold, and other aspects of success. Maybe then you need to establish a time by which you expect to have that first satellite operation running, maybe as a corporate-owned location, just to see what happens when you’re not on site to trouble-shoot all the time.

It could be that this sounds so complicated and intimidating that you never actually get your franchising idea off the ground.

Here’s how a timeline helps make your business plan happen:

  • It breaks down big, scary projects into smaller, bite-sized chunks you can actually do
  • It reassures you by pointing out that you don’t need to do everything right now
  • It moves you along because you see a deadline for one of those “chunks” coming up, so you can get working on it

Start with the end in mind, then work backward

This involves a  5  step process.

  1. Get a firm image of your goal. Established business wisdom says to consider first where you want to be (say, 20 franchise outlets across the country, ten years from now) and then spell out in detail what that will look like. Going into detail gives you a more clear idea of what needs to be in place for that to happen. Set a date for that to happen.

 

  1. Determine the big milestones along the way. This might include writing out the elements of success in your current business, creating written procedures, testing those procedures to see if they cover all reasonable contingencies, opening a second outlet to further test those procedures, selling your first franchise to someone you know already, and onwards.

 

  1. Think of the resources you’ll need. For example, at some point, you’ll need to engage a franchise lawyer to consult and help in the preparation of a franchise agreement. Think of the finance you’ll need to have in place, maybe from a bank or friend-or-family source, to make the rest happen (to learn more about how to avoid cash-flow problems that might drag you down, see our post here).

 

  1. Write out your timeline. It might be on paper, on a computerized document, on a calendar program that will remind you about deadlines, or whatever works for you. Maybe multiple formats will be a good way to keep you on track.

 

  1. Implement. The rest is up to you and your team. Delegate tasks, outsource, do it yourself – but be sure to stay with your timeline.

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Do These 6 Things Before You Plan For The Year Ahead

by charlottenoble
Do These 6 Things Before You Plan For The Year Ahead

Now is the perfect time to reflect on the year just gone and plan for the year ahead.  The last two years have thrown many of us challenges and/or opportunities never seen before.  So how can your business go further or do better in 2022?

Below is a checklist for businesses to help you when planning for the future:

  1. Know Where you Stand

Does your financial reporting provide you with an accurate and timely view of the financial performance of your business? These could contain:

  • Historic balance sheet, profit and loss and cash-flow together with a set of key performance indicators (KPIs) that the management team use to run the business on a day to day basis.
  • Rolling forecast balance sheet, profit and loss and cash-flow driven by the same KPIs. Even a static annual budget is better than no target at all.

  1. Analyse

Have you analysed all of your products or service offerings and identified those that should be invested in and those which should be scaled back to improve the performance of the business?

  1. Review Costs

Have you reviewed all of your costs and identified all of those costs where alternative suppliers can be identified and current deals can be renegotiated? This helps to minimise your cost base and refine your negotiation skills.  Are there possible savings from systems and/or process streamlining?

  1. Review Customers

Have you reviewed all your customers and identified the good ones form the bad ones i.e. those that take ages to pay and/or beat you down on price etc.? It may be time to let the bad ones go and focus on the ones you want.

  1. Assess Risk

Have you assessed all of the obvious risks in your business and made sure that you have a contingency plan in place to avoid those with the highest likelihood and most significant impact?

  1. Your Personal Goals

Take the time to really reflect on why you started the business, are those goals still the same today and are you getting closer to achieving them?

Plan:

Once you have considered the above, you are ready to start planning.  A clear operational plan for the future of the business, which shows you the steps required to implement that plan is the best road to success.  If you do not have this it will be impossible to identify opportunities that arise next year that fit your plan for the business.

Most of our clients have been through this process with our guidance and as a result many are now looking to exploit the opportunities, to expand their markets and recruit key staff to help drive their businesses forward in 2022.

To get your business in the best shape for 2022, contact the CFO Centre on 1- 800 – 918 – 1906.

The CFO Centre is dedicated to helping businesses meet their strategic objectives. Find out how it works by watching this short video on our website –  https://www.cfocentre.com/en-ca/how-it-works/

 

What Is The Most Important Number In The Universe?

by charlottenoble
What Is The Most Important Number In The Universe?

Numbers matter.

Our mathematical universe is constructed of numbers.

Some we can see. Most we can’t.

From the speed of light to the parabolic curve of a free-kick in soccer, maths underpins the laws of the universe.

We can also deconstruct our entire lives in numbers.

The average human lives for around 80 years – or 28,385 days.

Most of us will spend 33 years in bed. That’s 12,045 days. For those who hit snooze when the alarm goes off in the morning, it might be closer to 34 years…

You’ll likely spend around 13 years and 2 months (4,821 days) at work. Hopefully, doing something you love.

And 11 years and 4 months (4,731 days) staring at a screen.

That doesn’t leave a huge amount of time for the things that really matter in life…

Spending quality time with family is remarkably, although perhaps unsurprisingly, a very small part of our modern day lives. We’re down to just 38 minutes a week or 104 days in our life time.

That one makes you think.

When it comes to socialising, there’s a little improvement – we’re up to 1 year and 3 days. Again, it’s not a lot, is it?

In business, it seems like we focus constantly on the numbers…
…Leads, opportunities, wins.

Year on year growth.

Cash flow, profit, valuation.

But how often do we put these numbers into context?

How often do we ask ourselves ‘what is the number that really matters to me?’

When we ask entrepreneurs this question, they often find it hard to answer.

It’s an unusual question and causes an interruption in our conditioned daily thought pattern.

One entrepreneur said the number that really mattered to them was ‘6’ as it represented the number of weeks they spent each year skiing, because they had designed their business to support their lifestyle.

Another said ‘13’ to denote the $13m asking price for their business which meant they could retire early and never worry about money again.
The numbers that appear on your P&L and balance sheet matter, but when was the last time you stopped and asked yourself ‘what is the number that really matters to me?’

It’s a powerful question and invariably creates an energetic shift which can fuel a new trajectory for your business and indeed your life.

If you’re struggling to answer that question, we’d love to help: www.cfocentre.com 

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Thriving in the New World Guardian

by Matthew Booth
Thriving in the New World Guardian

Thriving in the New World requires a CFO to expand their Guardian role for the organization.  The CFO must see themselves driving the organization’s efforts to harness increasing levels of complexity while embedding behaviours and systems to defend against existing and emerging threats to business continuity.

Organizations of all sizes have relied on their financial leaders to develop internal control systems and financial compliance with taxation and regulatory bodies.  The business owner and key stakeholders will better navigate the future by ensuring their financial leader is accountable for maximising the organization’s overall information integrity and for broadening the compliance framework.

Successfully achieving this broader mandate will require the CFO to elevate their collaboration and partnership with other functional leaders.  Success will also depend on how intensely the leadership team commits to sharpening their ability to convert information into insight.  There are two initiatives your CFO can pursue to create greater visibility of information related opportunities and potential compliance challenges.

Harnessing Digital Transformation

The recent pandemic has accelerated the digital transformation for every business.  Over the past year, it has become clear that companies who want to win must consistently adopt emerging technologies to exploit the opportunities offered by digitization. Businesses who select the right solutions will convert the promise of richer information into higher revenue and lower costs.

It is likely your business is headed towards larger technology investment. Business leaders must, of course, rely on their technology advisors and their market oriented leadership to drive digital transformation; however, the contribution of the CFO should not be overlooked.   Owners and CEOs should seek to pair their technology advisor with their financial advisor to ensure the technology selection process is sufficiently thorough and holistic.

Decision makers often desire greater amounts of information; however, there is no guarantee it leads to better decisions.  For most organizations, their finance teams have the most experience in digesting large amounts of information and structuring it to make recommendations.   Fostering collaboration between finance staff and your digital marketing leaders will promote more streamlined, more accurate, more actionable information.

Creating a Compliance Culture

The reality is that discussions regarding “compliance”  are low on the excitement list for most individuals, and almost certainly not the driving force for most CEO’s or owner operators.   For finance and operations teams, compliance may not be their primary passion; however, their functional success links directly to processes that ensure compliance requirements are visible and achieved.    The challenge for compliance in a post pandemic world has grown. Workers remotely accessing business systems and confidential data puts greater pressure on protecting customer information and maintaining adherence to internal practices.

It is no surprise that the first step to creating a compliance culture begins with the leadership team. For many business the choice to task the CFO to take on compliance culture responsibilities will reinforce to employees the organization’s commitment to a disciplined overall compliance framework.  Your CFO should bring a compliance mindset to the organization. Equally importantly, they should bring proven methods to establish compliance systems.

Once the initial building blocks of leadership commitment and senior level accountability are established, the CFO can work with their colleagues to put in place three additional elements that have proven effective in financial compliance.  These elements are Visibility, Review and Corrective Action.   These three elements have been essential for every finance leader to demonstrate a reliable compliance framework to tax authorities, regulatory bodies, and financial stakeholders.

Thriving in the New World Operator

by annbeldia
Thriving in the New World Operator

In this series of Thriving in the New World, The CFO Centre explores what exactly it means to be an operator in the “new world” and essential elements that allow your business to thrive.

Most owner-operated businesses would agree that increased cash and more access to capital would help them exceed their business objectives.   Recent societal and economic realities have strained or even exhausted cash resources for many companies.   Even those companies enjoying unprecedented growth are scrambling to fund unexpected expansion.   The essential building block for liquidity has always been Operational Excellence, defined as consistent and reliable execution of each business’ unique processes to acquire and satisfy customers.

High performing operations processes have always been the foundation for generating cash from within the business.  Equally important for those business owners seeking to thrive in a post Covid world is the critical need to demonstrate operational excellence to third party financing sources.  Seeking to expand your credit line with your bank or pursuing additional investors will require the business owner to present a clear and compelling story for how the company will produce profits, cash and sufficient return on capital.

The traditional role for a CFO in Operational Excellence is to provide accurate financial information and act as leading voice in cost reduction.   Creating a truly reliable foundation for generating cash and profits; often requires financial leaders to contribute more than they have ever before.  The experience, attributes and mindset of many CFO’s positions them to act as a catalyst for delivering cash and profit maximization across the full range of business processes.

Fix the Finance Foundation

The processes and practices of the finance function must be viewed as rock solid by the owner and the rest of the organization to create a path for participation or preferably leadership of broader operational improvement initiatives.

There are three key functional outcomes that must be in place to give the finance team the credibility to extend its involvement to other operational processes.  Without these deliverables in place, the organization’s ability to undertake deeper process review will be severely impaired.

The first base level capability is timely, accurate and useful financial reporting.  If the leaders of the company are not receiving this level of financial reporting, then it is unlikely that the finance leader has earned the right to apply their team’s expertise to general operating processes.

The second must have competency from the finance team is an understanding of the cost drivers for the business. The understanding of costs does not have to be perfect; however, there must be a methodology in place to capture and analyze the complete range of items that form the cost of  products or services

The third requirement for finance team effectiveness is to have a solid grasp of the company strategies that will drive future growth and success.   If your finance staff are seen just as number crunchers it will be difficult for them to contribute to operational initiatives.   The first installment of our CFO contribution series suggests a practical approach to engage your finance leader in developing future proofing strategies.

Own Cash Flow

The responsibility of generating positive cash flow clearly belongs to the CEO and the entire organization; however, expanding the mindset of your financial leader to thinking and acting as the owner of cash flow can be a powerful tool.   Finance and accounting staff have historically only been tasked with producing cash flow forecasts based on inputs from other leaders.

We suggest making a clear organization signal showing reliance on the finance team to go beyond analyzing cash inputs and outputs. The new expectation should include concrete actions aimed at increasing the amount or timing of cash inputs while reducing the amount or timing of cash outputs.  One example of a high impact cash inflow recommendation is to convert the finance team’s experience with both external and internal obstacles to timely collection of receivables into operational practices that eliminate these obstacles in advance.

Refine and Revolutionize Business Processes

Each organization varies in complexity of business processes, capabilities of process analysis, and often very different levels of CEO interest or prioritization of process improvement initiatives.  Given the nature of many small to medium-sized organizations, there can often be aptitude and attitude gaps leading to under prioritizing  detailed data-driven process review work.

Even a small finance team can become the internal champions for generating improved results achieved through documenting and enhancing your most critical processes.   Elevating the CFO to, at minimum, a shared level of ownership with the firm’s operational leaders will apply complementary expertise to process review efforts.  Converting process improvements into additional cash and profit can often involve just a few additional questions that may be missed by other functional areas.

Create Compelling Capital Acquisition Content

There is a high probability that pursuing operational excellence will lead to capturing more cash from optimized processes and deliver positive returns in the short term.

The longer-term benefit of intense CFO involvement in the operational aspects of the company is the ability to work with the owner to put a more convincing investment case forward to potential sources of debt or equity financing.   Revenue growth is understandably the primary focal point for future investment; however,  the business case is significantly strengthened by a tangible action plan showcasing gross margin enhancement, profit improvement and positive cash generation.

Reviewing, examining and revising processes has always been part of running a successful enterprise.  Although most companies have made improvements over the life of their business; there is often a substantial opportunity to further optimize the organization’s capability to convert every dollar of revenue into more profit and more cash.   One of the positive byproducts of the turmoil related to the pandemic is that business owners, management and employees are more aware and likely more open to the need for change than ever before.   The time is right for businesses to count on their CFO to bring a thorough, disciplined methodology to deliver operational excellence and improved financial results. Uncover more.

Thriving in a New World Strategist

by annbeldia
Thriving in a New World Strategist

In the introduction to our CFO Contribution Series, Thriving In the New World Strategist, we suggested that most business owners may not be well served by high-level, third party driven, divergent strategic exercises. Certainly, there is significant value in undertaking far reaching, blue sky thinking. Most small to medium size organizations will be better served by incorporating their own foresight into targeted, most probable future scenarios developed by highly engaged participants directly linked to the success of the business.

There can be no doubt the Covid 19 pandemic has led to unprecedented change for most businesses. Revenue levels have plunged for some firms while others are experiencing unexpected increases in new customers and unforecasted demand levels. Supply Chains have been disrupted. Optimizing employee productivity and satisfaction have become more art than science. Short-term cash availability and long term capital requirements are highly uncertain. Even the most confident experts are reluctant to make a call on the economic climate we are likely to experience a year from now or even six months from now.

Success in this uncharted New World requires business owners to make effective decisions to address today’s challenges and to establish a strong market position in an uncertain future. We call this Future Proofing your business. The path forward will be unique for every enterprise. For most businesses, the contribution of an integrated senior financial leader can be a major factor in making the best decisions for steering the business towards a successful future.

Owner operators will particularly benefit by injecting their full time or part time CFO into idea

generation and implementation planning to future proof their business using the following four-step process.

Developing Most Probable Future Scenarios

The insight of the CEO along with sales and market-oriented management will understandably be

essential to develop and select three or four most likely market scenarios. Important dimensions for assessing your business’ future would include revenue outlook, new revenue sources, changes in access to customers or preferences of customers, competitive forces, regulatory factors and assessment of staff effectiveness. Identifying these factors specific to your business and your industry should be considered in conjunction with the team’s projections of potential future operating environments.

Involving a holistic professional with the ability to stretch the team’s future thinking to include the full spectrum of potential obstacles often leads to more robust, more complete future scenarios. Team members should expect the organization’s financial leader to embrace the uncertainties inherent in guessing at potential futures while also expecting them to act as a catalyst to describe the leading scenarios with sufficient clarity to facilitate resiliency testing and implementation planning.

Leveraging Emerging Technology

The pace of change over the past five to ten years combined with the recent accelerated societal and economic changes linked to the pandemic forces all businesses to adapt and respond quicker and more intensively than ever before. Adapting and responding effectively requires timely and appropriate application of emerging technology solutions to uncover new connections to customers and to unlock methods to streamline and enhance business processes.

A few of the more pervasive and perhaps highest potential technology trends destined to shape the future are Artificial Intelligence, Blockchain Technology and Internet of Things. Finance leaders bring essential analytical skills, as well as opportunity and risk assessment expertise. These attributes will help the business select the most advantageous solutions and deploy these applications to deliver favourable returns.

Stress Testing Scenarios and Strategies

Once the business has collaboratively generated their high probability future scenarios and articulated corresponding strategies to maximize results; a critical need emerges for disciplined evaluation to ensure the selected paths forward can stand up to expected obstacles and deviations.

The CFO’s involvement in scenario testing is likely to be most accepted and welcomed by the business owner and the future proofing team. A New World CFO is one that passionately embraces uncertainties and optimism while maintaining their proven ability to rigorously apply a check and balance approach to the team’s chosen future scenarios and strategies.

Commitment to Highest Impact Initiatives

The hardest decision for many organizations undertaking future proofing activities during today’s tumultuous environment will be to commit the necessary financial and human resources to those chosen few initiatives expected to best position the business over the next six months to five years.

Creating the internal and external confidence to act now often hinges on the development of concise, compelling business cases to define the initiative, its costs and expected profits. The involvement of your financial leader in the entire future proofing process will significantly enhance the quality and effectiveness of these strategic business cases. In situations where the organization is seeking external financing or participation from partnering organizations; the voice of an informed, engaged, credible CFO will be a significant factor in securing the desired external support.

Business owners and their management teams have the responsibility to navigate the firm through today’s urgent challenges and opportunities. They also bear the greater responsibility to establish direction and take action to prepare the organization to succeed for many years ahead. A New World CFO welcomes this responsibility and possesses the knowledge and dedication needed to deliver results today and in the future. Discover more.

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

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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

_____________________

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

Keys to Profitable Growth – Financial Reporting

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Keys to Profitable Growth – Financial Reporting

Have you ever been so far off the grid – on a wilderness expedition, maybe – that your smartphone doesn’t know where you are? If you click on your “maps” app, your phone just shows you a blue dot, figuratively shrugs its shoulders and says, “You’re on the blue dot. But I have no clue what’s around you, where you’ve been or where you’re going.”

That uncomfortable “lost” feeling applies to more than just wilderness trekking. It can apply to your business – when you have no clear idea of which products or services are most profitable, how much you can afford to spend on new equipment, and whether you are on track to your goal (maybe, a comfortable retirement?).

So what’s the “maps app” for your business, so you can see how to get where you want to go? It’s your financial reporting system.

Financial Reporting – One Key to Profitable Growth

To be successful, you and your senior managers need regular access to accurate insights into your business. You need to be able to spot problems when they first emerge; measure and assess what’s working; identify and capitalize on opportunities, and recognize and manage threats.

When you know the reality of how your business is actually performing, you have a platform to confront the reality and can make decisions based on facts rather than speculation, bias and anecdotal evidence.

The importance of business reporting is twofold:

  1. To have visibility into the future (knowing what is likely to happen around the corner).
  2. To have retrospective visibility over past performance (that is, to analyze performance data and use it as a tool to course correct for the future).

A lot of businesses wait too long to introduce a proper business financial reporting structure. But without the right information collected in a timely way, effective analysis and robust planning is impossible.

Well-constructed business reports are the secret weapon for CEOs and business owners of ambitious growth companies. They will reveal how your company is performing and how far you are from reaching your goals.

Three key aspects to your financial GPS

While large companies have sophisticated financial systems tied to human resources metrics, production equipment, and inventory controls, you don’t need to get that elaborate – yet.

Start with mastery of three key financial statements:

  • The Balance Sheet
  • The Cash Flow Statement
  • The Profit and Loss Account

These reports can reveal such information as:

  • How effective your team is at controlling costs and deploying expenses to generate sales
  • Which of your products or services are the fastest growing and the most profitable
  • Your highest growth potential and most profitable customers
  • Where your break-even point is (how much sales the business needs to produce to cover all its costs)

Having all your business data at your fingertips means that you can spot gaps and weaknesses at a glance, have clear visibility over the future and course correct daily to ensure you are still en route to your destination.

Your company’s balance sheet: shows what your company owes and what it owes at a given time.  It reveals:

  • The net value of your company (which is useful if you plan to raise capital to finance future growth, sell your business, etc.)
  • Current and long-term debt obligations
  • Asset management (how effectively you’re managing your assets) and liquidity ratios

Lenders, investors and potential customers can use your balance sheet to assess your company’s creditworthiness, as well as its stability and liquidity – indicating its ability to fund growth without resorting to outside financing.

Profit and loss account: while the balance sheet is like a still image posted to Instagram, the P&L account is more like a video. It is the main way businesses determine how well they’re performing over time.

This is the main tool businesses use to gauge their profitability. It shows how well (or not) your company performed over a particular period of time in terms of revenue, expenses and earnings.

The Profit and Loss Account reveals the steps you can take to increase profitability (for example, whether to focus on more profitable product lines or services or to cut unnecessary expenses).

Investors will use your Profit and Loss Account to assess the ability of a Company to generate cash from operations, service current financing obligations and assess the level of risk involved in extending additional credit or venture capital to your company.

Cash flow statement: reveals how your company spends its cash (cash outflows) and where the money comes from (cash inflows) during a period of time. It is divided into three sections related to your company’s business operations: cash flow from operations, financing, and investing transactions.

Essentially, the Cash Flow Statement reveals whether or not your company has the cash to cover its daily activities, pay bills on time and maintain a positive cash flow. It also helps you to determine whether you’ll need additional working capital to buy inventory or to fund seasonal fluctuations.

Interpret your key financial statements using ratios

To interpret and understand the numbers contained in your financial statements, you should use financial ratios. The ratios are computed from numbers taken from the Profit and Loss Account and the Balance Sheet.

They measure performance in percentage terms rather than raw numbers. This means you can compare your company’s performance with other businesses in your industry, with your previous results and with your projections. _

Typically, owners, managers, and stakeholders look at four categories of ratios to analyze a company’s performance:

  • Liquidity ratios – show your company’s ability to meet its financial obligations
  • Profitability ratios – help evaluate your company’s ability to generate a return on its resources
  • Leverage ratios – show how your business is using debt, relative to capital
  • Efficiency ratios – reveal how effectively your company is managing assets.

Some ratios will be more applicable to certain industries and businesses than others. If you provide a service rather than sell products, then ratios like return on assets and inventory turnover are unlikely to be relevant to your company whereas the receivables revenue is critical to your business operations.

It’s best to choose the five most relevant ratios to your business and track those as part of your monthly management operating plan.

Conclusion

The benefits of having regular access to high-quality financial management reports are far-reaching. Good reports reveal the efficiency (or otherwise) of the constituent parts of the business and enable you to deal with potential threats and take advantage of opportunities to grow your business.

The compound effect of making regular, quick and high-quality decisions based on a strong set of data and reports cannot be overestimated.