Author Archives: Jerry Mills

Jerry Mills

About Jerry Mills

Jerry L. Mills, CPA, founded B2B CFO in 1987 and currently serves as the CEO of B2B CFO. B2B CFO is the nation's largest CFO-for-hire firm with more than 200 partners in 40 states working with more than 800 small business owners in North America.

Selling the Company

6 Steps to Selling Your Business

If you’re a typical small business owner, you spend more of your time working on today’s issues than tomorrow’s potential. That may keep the doors open for now, but what about when you’re ready to retire, or no longer have the will or energy to run your business?

As mid to large businesses grow, owners typically realize they’ll need to find a way out, but most small business owners do not have an exit strategy. Rather than simply selling inventory and closing the doors, the suggestion is that small business owners can increase their wealth by capitalizing on the goodwill or customer base they’ve built up. Here are some basic business practices that many entrepreneurs overlook, but can help keep the company buffed up and ready for the marketplace.

Key Business Practices:

1. Write down the business processes You can’t sell a business that is in your head. So, you need to write it down. Entrepreneurs don’t typically like dealing with details and the fine points, but you must document how everything works in your organization. For example, spell out the roles of management and employees, not titles, but their actual responsibilities. Or describe a typical customer visit. Franchise companies list these types of details; a small business owner can use the same tactics to show the value of their company to a potential buyer.

2. Set financial goals You cannot sell a business that is not making money. And, how do you know if you’re growing if you don’t know where you started and where you’re going? Once you’ve set some target goals, measure them on a regular basis. Look at the internal processes of your business and make sure they are still working for your customers and your company alike. You may be pleasing customers, but are you making money? Know what your return on investment is, so you can explain it to those interested in buying your company.

3. Have a marketing budget and plan Many small business owners don’t allocate money for marketing. A marketing plan, with a corresponding budget, is key to attracting and keeping customers. One rule of thumb is to spend the equivalent of one staff salary on your marketing and advertising. Think of it as your “silent” employee working 24/7. Market awareness of your brand and demonstrated customer loyalty can dramatically increase the value to potential purchasers. Marketing is the last thing you cut even if times are bad.

4. Keep track of customer information Often, the most valuable aspect of a business to a potential buyer is your customer list, especially if your potential buyer is a competitor. Keeping track of customer contact information including name, address, phone number and email (along with permission to contact them electronically) is a must. Being able to deliver customer profiles and buying habits to a new owner demonstrates how well your business is run and makes your customer list invaluable. If business owners don’t have customer data, they’ll be in trouble.

5. Keep employees in the loop Your staff represents your company to customers and buyers alike. Make sure they know your goals. Communicate with your employees and ask for ideas. They can help you dress the business up for sale. If you’ve decided to sell because the business is in trouble, let them know. It is unlikely to be a surprise and few things demoralize a staff more than having to rely on water cooler rumors. Try to avoid staff salary cuts if possible. Your people are the face of your business and a salary cut may backfire. Try looking at your business processes and finding ways to save money instead.

6. Get professional advice Identify the areas of your operation that need improvement and look for specialized help to simplify your processes. Make sure to test them before the potential buyer does. There are consulting professionals on a part-time basis who have knowledge implementing transition strategies for businesses and can help you, for a reduced fee.

So, don’t ignore one of the most vital elements of your business plan, the exit strategy. With careful planning and monitoring from day one, your last days of business can bring rich rewards.

Predictable Time Off Helps Prevent Working Off The Clock

Do You Sleep With Your Smartphone? Give Predictable Time Off A Try

I am always on the lookout for “brain food” — seminars, podcasts or articles on subjects of interest to me. One of my regular haunts is the Harvard Business School (HBS) Working Knowledge blog distributed weekly by HBS. You don’t need to be an HBS alum to subscribe, and I highly recommend it.

A recent Working Knowledge issue highlighted a new book by HBS Professor Leslie Perlow called “Sleeping with Your Smartphone.” In the book, Professor Perlow described an experiment she conducted with the Boston Consulting Group (BCG), an elite professional service firm where the consultants consistently work many hours per week. In developing her baseline, she discovered through a poll of BCG staff that 70 percent admitted checking their smartphone daily right after getting up, and 56 percent did so right before going to sleep. A full 26 percent confessed to sleeping with their smartphone on the pillow next to them. Does any of this sound familiar to you? It did to me.

Professor Perlow described this situation as being caught in the “cycle of responsiveness.” While the pressure to be always available stems from seemingly legitimate reasons, like being responsive to requests from clients or customers in different time zones, people begin adjusting their work and life schedules, their interactions with friends and family, and their own expectations to make this 24/7 availability the new norm. People checked in frequently just in case something urgent came up, not because they knew it would. Then, insidiously, their own expectations for quick response by others moved into these extra hours. Everyone was caught up in the new behavior, and those who didn’t play along risked being branded as less committed to their work. Even as people began resenting how much their work was spilling into their personal lives, they didn’t recognize they were a major part of the problem, their own worst enemy, in the pressure they felt to be connected all the time.

At BCG, Professor Perlow convinced teams to experiment with something she called PTO, Predictable Time Off, a time when team members would not be expected to check email, answer calls, etc. It was hard at first, but as the team embraced a shared goal to allow each team member to have just one night off per week, they developed systems and processes that would facilitate that, while still allowing the overall team to be responsive to client needs. The business results were profound. Over a period of four years, the Predictable Time Off practice grew from a single BCG team to more than 86 percent of BCG’s teams across five continents. The number of staff who stated they were excited to start work in the morning doubled, and the teams’ perceptions of providing significant value to clients increased from 84 percent to 95 percent. Just as important, BCG clients reported a range of experiences with Predictable Time Off teams, from neutral (nothing seemed different) to extremely positive — no client reported a negative experience.

What are the broader lessons from Professor Perlow’s experiment for us as individuals and as owners and employees of small businesses? I see a few:

  • We, rather than our clients or customers, are the primary decision-makers on how connected we need to be. We set the expectations, and as long as the expectations are clear, we don’t need to worry about negative reactions from those with whom we deal.
  • Even a modest amount of disconnection, like one evening a week, can have a profound impact on personal and work productivity and happiness.
  • Setting a group goal to allow everyone some PTO makes it easier for everyone to comply.
  • Even if you can’t resist looking at your email in the evening, you don’t need to respond immediately, in most cases. Holding your response until the next day helps break the “cycle of responsiveness.”
  • Most mail systems like Outlook allow you to set an “out of office” response to any emails with start and stop dates/times. It’s just as easy to set for an evening as it is for a week.

I recognize the smartphone addition habit in me, and I’ve made a resolution to give Predictable Time Off a try. Join me?

A Guide to Applying for a Bank Loan

A Guide To Applying For A Bank Loan

Every business at some point will require outside financing; his generally means obtaining some form of bank loan. For many, this turns out to be a very aggravating and frustrating process. You may be financing a new business or simply be in need of seasonal financing, but proper planning will substantially enhance your chances of obtaining a bank loan. Additionally, you’ll learn more about your business through this process.

Various methods of outside financing include venture capital, an outside investor or bank financing (the most common method). Many banks offer both conventional and SBA loans. Talk with your banker to see which type of loan makes more sense for your particular situation.

Preparing the Loan Package

There are five components to preparing a loan package. I’ve broken the sections down below. Remember to customize each to your specific situation.

1. Financial Data

Usually two to three years of internal financial statements will be required as well as three years of projections on the balance sheet, income statement and cash flow statement. Other financial data may include prior year’s tax returns, financial ratios, information of historic growth rates, etc. Include any other information that will convince the banker of the fiscal soundness of your business. If your financial performance has been poor, emphasize the positive aspects of the business such as improved gross margins, increases in cash flows or key financial ratios.

Businesses that are start-ups will not have prior financial data. In these situations, projections and budgets are critical. These budgets and projections should be supported by factual information to support the fact that goals are creditable and not just “pie in the sky” wishes.

2. Industry Data

Including knowledge of pertinent financial ratios and industry statistics will further convince your banker of your creditability. Be sure to point out areas where you exceed the industry’s performance in a particular area. Sources for this type of information are trade associations and Internet resources. One such Internet source is First Research.

3. Ownership Information and Resumes

This information is important no matter whether you are starting a new business or trying to obtain funding for an existing business. Information about you and other principal stakeholders in the business regarding background, education, experience and capabilities is vital.

4. Financing Plan

In a well-written narrative format, explain the reasons for the financing request and the amount and repayment terms of the request. Identify the use of the loan proceeds. All of your loan package, including this section, should be tied together into a concise, financing plan.

Other information may be needed to substantiate your loan request. When requesting financing for a new business, always include information on marketing, management plans, industry background and predictions, and pro forma financial information.

If a working capital loan or line of credit is requested, you should provide information on how much funding will be needed during slow periods and how it will be repaid during peaks.

One important rule to remember is not to hide unfavorable information. A particular area where this comes into play is the strengths and weaknesses of the company. Such information should be fully disclosed, including how you plan to overcome the problem. Full disclosure will add to your professionalism, while the failure to disclose will undermine your creditability.

5. Secure a Second Opinion

Last, but certainly not least, is to have someone else look over your loan package; this includes a financial advisor or CPA. This person can offer an objective analysis of your efforts, point out shortcomings and make suggestions for improvements.

Do your homework before applying for a loan. Know your business, know your industry and know the answers to questions before they are asked. Having this information will greatly enhance the probability that you will be successful in obtaining your loan.

For more information about applying for a bank loan, visit B2BCFO.com.

Ways to Boost Financial Performance in Face of Economic Uncertainty

Ways To Boost Financial Performance In Face Of Economic Uncertainty

Here we are in a challenging economic environment that spans almost every industry. Every day we are reminded of this with still high unemployment rates, less than hoped for corporate financial results, bankruptcies and foreclosures, low consumer confidence, etc. With this news constantly put before us, I frequently hear from business colleagues that it isn’t possible to succeed in this environment. However, the one commonality among all of these is that business owners generally cannot control them in the sense of the larger economy.

Instead of crawling into a cave and hiding, a better alternative is to focus on the things that we can control in our businesses. There are many things we cannot control; some of the larger macroeconomic issues listed above are among them. What then can we control? To name just a few, we can control new product development, marketing, internal costs, operational efficiency, reliance on debt to run businesses and the amount of time and money we invest in growth (i.e., resource allocation).

To illustrate a more positive approach, I provide the following example of one of my partners and their clients. Their industry was down about 25 percent in 2009, and the business was definitely feeling the downturn early in the year. During the 1st quarter, a key competitor went out of business and liquidated. Instead of sitting on their heels and letting the poor economic environment hold them back, the owner and his team sprung into action. Together we were able to quickly put together a financial projection for the business.

Based on the projection, the client decided to hire the competitor’s top salesperson, a key customer service rep and a technical expert. We also worked with the client’s bank, presented the financial plan and were able to increase the line of credit to support the several-million-dollar increase in business. By the end of 2009, instead of being down 25 percent and having real struggles, the business was up 7 percent for the year and had increased market share in a very competitive space. This year, the client is expanding his warehouse and office space in anticipation of future growth.

The lesson here is that prudent risk, even in the face of economic uncertainty, can provide the impetus for excellent financial performance. Here are some thoughts that come to mind when I think of ways to be more aggressive in this shaky world:

  • Invest in new equipment that will reduce manufacturing cost and increase gross margin. The financial tools to use to help with this decision are a return on investment and discounted cash flow analysis.
  • Develop or acquire a new product/service that brings unique value to your market or provides access to a previously untapped market. The financial tools here are similar, but in this case, I would also suggest a pro forma P&L.
  • Advertise your product, rebuild your website, or add the ability for customers to purchase from your website to stimulate new sales. Similar financial tools can help bring facts to this decision.

Let’s not allow what we’re hearing in the media and from the government cause us to stifle our businesses. There remains a tremendous number of opportunities in every marketplace. Taking advantage of these opportunities now requires a more analytical approach followed by a good plan of execution. A plan is only that, a plan. However, a well thought out plan with good financial projections can lead to a more certain and acceptable outcome.

For more information increasing your business’s financial performance, visit B2BCFO.com.

Increase Cash Flow, Reduct Debt

Increasing Cash Flow, Becoming A Debt-Free Company

How much debt financing is right for a business? In today’s low-cost money environment, the “easy” answer might be “as much as you need” because it is inexpensive (depending on a company’s financial situation). However, the credit environment has tightened significantly during the past two years because of the stress that has been placed on the financial markets. Low-cost money really isn’t that easy to come by.

Possibly the more important question may be, what would it take to run the business without any debt? As the B2B CFO for a number of small- and mid-sized businesses, I can attest to the fact that operating a business on the cash flow generated from operations is easier and less stressful than being saddled with a lot of debt. It also increases control over the company.

With a good focus on cash flow and a deliberate plan to reduce debt, it is possible to achieve the objective of becoming a debt-free company. The elements of a robust cash flow plan will likely include a sound understanding of the classic elements of the sources and uses of cash. In simple terms, you want to increase the sources of cash and reduce the uses of cash to the extent possible.

Sources of cash:
·         Improve the efficiency of revenue generating processes
·         Collect customer receivables faster
·         Turn inventory faster and reduce the inventory balance
·         Lengthen supplier payment terms, request early pay discounts, or take full use of existing terms
·         Reduce operating expenses
·         Increase gross margin of products or services

Uses of cash:
·         Increase working capital in all its forms — A/R, inventory, etc.
·         Increase interest expense as a result of increasing debt or rates
·         Increase operating expenses – payroll, benefits, rent, travel and entertainment
·         Capital expenditures
·         Add employees or contractors
·         Decrease gross margin

Successfully implementing these actions so that the sources outweigh the uses will increase cash flow in the business. The CFO is then able to turn this into a comprehensive financial plan to determine when the business can be debt-free. Without debt in the business, owners are no longer reliant on other entities for success.

Debt isn’t always a detriment. In fact, by the end of the year, my firm will have helped clients obtain more than $200 million in debt financing. These clients have largely been growing businesses in which a loan can be very helpful to support capital expenditures and increased working capital to support additional revenue. When used properly, growth-supporting loans are paid off when revenue growth and increased profitability are achieved.

Unfortunately in a difficult economy, too much reliance on debt has become a way of life for many businesses versus a vehicle for growth. As we enter a year when the economy has at least stabilized, eliminating or reducing debt is one beneficial goal to achieve for companies.

For more information about increasing cash flow and becoming debt-free, visit B2BCFO.com.

5 Common Small Business Challenges

5 Common Small Business Challenges

In working with small, growing entrepreneurial businesses, I have discovered several common financial-related issues with which they struggle. When I first start working with these businesses, most if not all of these issues exist. All of them are critical to their success in managing and growing their businesses. The good news is that with time and focus they can be rectified.

In no particular order, here are five small business challenges that I see most:

1. Lack of Timely and Accurate Financial Statements

In today’s business environment, decisions are made at a fast pace. Information is readily available via the Internet, yet internal financial information to improve the decision-making process is sadly deficient. Most business decisions have financial implications, and without this basic financial information, it may be a shot in the dark. Many times the financial statements are put in a drawer and never reviewed because the information is too old (not timely); the business owner doesn’t believe the information is correct (not accurate); or the financial statements support the preparation of the income tax return, not running the business (not operational). They usually only become important when the business owner needs to meet with the bank.

2. No Cash Management

As we all know from operating a business, cash is king! It is the common denominator for all businesses: NO CASH = NO BUSINESS. Other than the current cash balance (most of the time determined by looking at the bank’s balance), most small businesses don’t manage their cash.

Cash management includes understanding your business’ “operating cycle” (i.e. cash-to-cash cycle). To improve your “operating cycle,” it is imperative you understand what it means, how to calculate it, and what influences it before you can improve it. Many times I will ask, “What do you expect your cash balance to be in six months?” Most of the time, they are fighting cash flow problems today and can’t think about the future past this week. Managing cash flow will provide a real sense of control over the business.

3. Poor Pricing Management

Setting the price of our products or services will drive revenues and, just as importantly, the “gross margin” for the business. Unfortunately, not enough time and attention is provided to this aspect of business. In working with small business owners, I find many have not revised their “pricing formulas” for some time, while others don’t really know their underlying costs to derive a sales price that provides profit. Many products are market-driven because of competition, so it is imperative to know not only the direct costs but also all costs necessary to produce a profit. Gross margin analysis by product line, products or customer is critical for small businesses.

4. Lack of Systems and Processes

Processes, whether documented or not, exist in all businesses. It is the way we perform the work necessary to produce our products or services. In most small businesses, the underlying processes to accomplish the work are rarely documented or reviewed as a whole (i.e. system). Developing efficient and effective systems and processes generally reduce costs and/or improve productivity. In businesses where there is a high turnover of people, documented processes are critical for training to ensure employees achieve higher productivity quicker.

5. Minding and Grinding Not Finding

I have developed a simplistic organizational model for small businesses. I have identified the three roles in small business as Finders, Minders and Grinders. Grinders represent the employees whose focus is about today. They generally work in the production side of the business. Most Finders start as Grinders. The Minders live in the past; their work is in the administrative, accounting, customer service or warranty departments. Minders are just as critical as Grinders to the success of the company and must be led. All Finders live in the future. They are the visionaries, innovators and relationship builders. They are the passion and the drive for the business to grow and succeed.

The entrepreneur is the Finder and must stay in the Finding role. Unfortunately, as businesses grow the Finder gets pulled into the company and works in Minding and Grinding activities. Without a change back to the Finding role, the entrepreneur/small business owner severely limits the business’ ability to grow. In working with small business clients, they almost always identify with this organizational model.

As I mentioned at the beginning of this piece, these challenges for the small business owner can be corrected. Most of them are fundamental changes. As with most challenges and the related changes, awareness is the first step.

For more information about the small business challenges discussed, visit B2BCFO.com.

selling your business

6 Steps To Selling Your Business

Don’t ignore one of the most vital elements of your business plan, the exit strategy. Here are key business practices for selling your business.


If you’re a typical small business owner, you spend more of your time working on today’s issues than tomorrow’s potential. That may keep the doors open for now, but what about when you’re ready to retire, or no longer have the will or energy to run your business?

As mid to large businesses grow, owners typically realize they’ll need to find a way out, but most small business owners do not have an exit strategy. Rather than simply selling inventory and closing the doors, the suggestion is that small business owners can increase their wealth by capitalizing on the goodwill or customer base they’ve built up.

Here are some basic business practices that many entrepreneurs overlook, but can help keep the company buffed up and ready for the marketplace.

Key business practices for selling your business:

1. Write down the business processes

You can’t sell a business that is in your head. So, you need to write it down. Entrepreneurs don’t typically like dealing with details and the fine points, but you must document how everything works in your organization.

For example, spell out the roles of management and employees, not titles, but their actual responsibilities. Or, describe a typical customer visit. Franchise companies list these types of details; a small business owner can use the same tactics to show the value of their company to a potential buyer.

2. Set financial goals

You cannot sell a business that is not making money. And, how do you know if you’re growing if you don’t know where you started and where you’re going? Once you’ve set some target goals, measure them on a regular basis. Look at the internal processes of your business and make sure they are still working for your customers and your company alike. You may be pleasing customers, but are you making money? Know what your return on investment is, so you can explain it to those interested in buying your company.

3. Have a marketing budget and plan

Many small business owners don’t allocate money for marketing. A marketing plan, with a corresponding budget, is key to attracting and keeping customers. One rule of thumb is to spend the equivalent of one staff salary on your marketing and advertising. Think of it as your “silent” employee working 24/7. Market awareness of your brand and demonstrated customer loyalty can dramatically increase the value to potential purchasers. Marketing is the last thing you cut even if times are bad.

4. Keep track of customer information

Often, the most valuable aspect of a business to a potential buyer is your customer list, especially if your potential buyer is a competitor. Keeping track of customer contact information, including name, address, phone number and email (along with permission to contact them electronically), is a must. Being able to deliver customer profiles and buying habits to a new owner demonstrates how well your business is run and makes your customer list invaluable. If business owners don’t have customer data, they’ll be in trouble.

5. Keep employees in the loop

Your staff represents your company to customers and buyers alike. Make sure they know your goals. Communicate with your employees and ask for ideas. They can help you dress the business up for sale. If you’ve decided to sell because the business is in trouble, let them know. It is unlikely to be a surprise and few things demoralize a staff more than having to rely on water cooler rumors. Try to avoid staff salary cuts if possible. Your people are the face of your business and a salary cut may backfire. Try looking at your business processes and finding ways to save money instead.

6. Get professional advice

Identify the areas of your operation that need improvement and look for specialized help to simplify your processes. Make sure to test them before the potential buyer does. There are consulting professionals on a part-time basis who have knowledge implementing transition strategies for businesses and can help you, for a reduced fee.

So, don’t ignore one of the most vital elements of your business plan, the exit strategy. With careful planning and monitoring from day one, your last days of business can bring rich rewards.

For more information about selling your business and/or B2B CFO, visit b2bcfo.com.

5 C's of Credit

The 5 C’s of Credit: 
What Do They Mean To Your Small Business Loan?

One of the most common questions among small business owners seeking financing is: “What will the bank look for from me and my business?” While every bank has its own unique criteria, many use some variation of the five C’s of credit when making credit decisions. Broadly speaking, they are:

  • Character
  • Cash flow
  • Collateral
  • Capitalization
  • Conditions

Let’s take a look at each of these ingredients and review how they may impact your funding request. Review each category, and see how you stack up.

Character ― Your willingness to pay back your loan

What is the character of the management of the company? What is your payment history and patterns in other loans you have taken? What is management’s reputation in the industry and the community?

Bankers want to lend their money to those who have impeccable credentials and references. The way you treat your employees and customers, the way you take responsibility, your timeliness in fulfilling your obligations are all parts of the character question.

This is really about you and your personal leadership. How you conduct both your business and personal life gives the lender a clue about how you are likely to handle leadership as a CEO. It’s a banker’s responsibility to look at the downside of making a loan. Your character immediately comes into play if there is a business crisis, for example. As small business owners, our personal stamp on everything that affects our companies is essential. Because the bank may not know you, your credit score tells the lender how you will pay your business loan. Many times, banks do not even differentiate between us and our businesses. A poor personal credit score is enough information for a lender to outright decline a business loan. In a commercial lender’s eyes, there is no differentiation between handling personal obligations and business obligations. They are one and the same.

Cash Flow ― Your capacity to pay back your loan

What is your company’s borrowing history and track record of repayment? How much debt can your company handle? Will you be able to honor the obligation and repay the debt? There are numerous financial benchmarks, such as debt and liquidity ratios, that investors evaluate before advancing funds. Become familiar with the expected pattern in your industry. Some industries can take a higher debt load; others may operate with less liquidity. As a conservative guideline, you should have $2 of income (business and personal) for every $1 of debt.

Collateral ― How lenders get paid if the business fails

While cash flow will nearly always be the primary source of repayment of a loan, bankers look at what they call the secondary source of repayment. Collateral represents assets that the company pledges as an alternate repayment source for the loan. Most collateral is in the form of hard assets, such as real estate and office or manufacturing equipment. Alternatively, your accounts receivable and inventory can be pledged as collateral. Generally, lenders will want a 1:1 ratio, or $1 of collateral for every $1 you borrow. Bankers typically discount an asset and lend on that basis. So for every $1 of collateral, the bank will lend anywhere from 70 percent to 85 percent of the value depending on whether it is fair market value or liquidation value.

The collateral issue is a bigger challenge for service businesses, as they have fewer hard assets to pledge. Until your business is proven, you’re nearly always going to pledge collateral. If it doesn’t come from your business, the bank will look to your personal assets. This clearly has its risks; you don’t want to be in a situation in which you can lose your house because a business loan has turned sour. If you want to be borrowing from banks or other lenders, you need to think long and hard about how you’ll handle this collateral question.

Capitalization ― How much money have you put into the business?

How well-capitalized is your company? How much money have you invested in the business? Has your business grown? Have you reinvested the profits, or paid yourself a bigger salary? Investors often want to see that you have a financial commitment and that you have put yourself at risk in the company. Both your company’s financial statements and your personal credit are keys to the capital question. If the company is operating with a negative net worth, for example, will you be prepared to add more of your own money? How far will your personal resources support both you and the business as it is growing?

Conditions ― SWOT: What are the Strengths, Weaknesses, Opportunities and Threats that affect your business?

What are the current economic conditions and how is your company affected? If your business is sensitive to economic downturns, for example, the bank wants a comfort level that you’re managing productivity and expenses. What are the trends for your industry, and how does your company fit within them? Are there any economic or political hot potatoes that could negatively impact the growth of your business? (I wrote at length on SWOT analysis in my January blog.)

Keep in mind that in evaluating the five C’s of credit, investors don’t give equal weight to each area. Lenders are cautious. One weak area could offset all the other strengths you show. For example, if your industry is sensitive to economic swings, your company may have difficulty getting a loan during an economic downturn ― even if all other factors are strong. And if you’re not perceived as a person of character and integrity, there’s little likelihood you’ll receive a loan, no matter how good your financial statements may be. As you can see, lenders evaluate your company as a total package, which is often more than the sum of the parts. The biggest element, however, will always be you.

For more information about the five C’s of credit and/or B2B CFO, visit b2bcfo.com.

Cash flow

Common Issues That May Affect The Cash Flow Of The Business

Do you know where your cash is? Common issues that may affect the cash flow of the business.


Have you ever asked yourself the question, “I am making a profit, but I don’t know where the cash is?” Many business owners tend to manage their business strictly from the income statement.

An income statement is very important to a business as it provides a historical view of what transpired in the company over a period of time and gives the business owner, banks and other investors a better perspective of what contributed to the net profit or loss reported. However, the income statement does not necessarily translate into an increase or decrease in cash.

Understanding how the income statement results will impact the cash flow of the company is equally important, yet often ignored.

Anyone running a business needs a clear vision of how his/her business decisions affect the finances of the company to achieve the desired success desire. Cash is king. Every business owner should have a clear understanding of the financial implications of his/her business decisions to increase the chance of success.  If you don’t take control of your cash, it will most certainly take control of you.

Here are some common issues that may affect the cash flow of the business:

1. Invoices issued upon the shipment of product or the delivery of services are delayed because the supporting information has not been processed in the accounting system on a timely basis.

2. Past due receivables are increasing because customers are experiencing cash flow issues themselves.

3. Customers are paying their invoices short because of product quality issues or invoicing errors.

4. Inventory is increasing faster than sales because of over-purchasing inventory components in comparison to current production needs.

5. Staffing is increased to meet short-term demand without any confidence that the demand will continue to support the additional cost.

Monitoring these issues is not a difficult thing to do. A simple report incorporating income statement and balance sheet information every month will focus management in the right areas and help to improve the cash flow of your business. This report should identify the customers who management must contact to resolve quality and past-due collection issues. It should also identify excessive inventory issues and other cost drivers that may impact the financial results of the business.

Next, management must become disciplined to obtain its cash balance from the accounting system and not the bank. Your bank statements will not show checks that have been written and not presented to the bank for payment, nor will they show receipts that have not been deposited at the bank. These unreported bank transactions should represent the difference between the bank balance and the cash balance reported in the accounting system. Relying on your accounting system cash balance, which is periodically reconciled to the bank balance, will allow you to avoid serious and expensive mistakes.

Finally, management must establish a process to create cash flow forecasts to understand where the cash will be during the next 13 to 26 weeks. Establishing cash flow projections is simply using a few basic principles with your intuition and knowledge of the business.  Adjust for any significant changes you expect to happen that are different from the past, and never project revenues that you cannot be fairly certain will occur as this will create a false sense of security.

Finally, review the projected cash balance weekly to determine any unexpected shortfalls.  Further analysis will identify priorities that management must focus on to resolve the issue identified in the forecast and avoid real problems in the future.

Understanding your cash flow will give you peace of mind and help you start to take control of the financial side of your business. In addition, it will provide the management team with a course of action to grow the business profitably while knowing where the cash is.

For more information about understanding your cash flow, visit b2bcfo.com.

Financial Statements

How’s Your Business Doing? Check Your Financial Statements

Curious to know how your business is doing, financially? Look at your financial statements; here’s how.


You’re the owner of your business. You know how to sell; you know how to make your product; a you know how to find opportunities that will make your business grow.

But do you know how to determine if you’re doing well from a financial standpoint?

It’s Time to Be Honest With Yourself

Be honest. Do you really know how to look at your financial statements and determine if you are doing well? Do you really know what is most important when you look at those statements?

“What statements?” you may ask. The P&L (profit & loss statement), the balance sheet and the cash flow statement – those are the statements you need to look at each month. And they need to be prepared and given to you as soon as possible after the close of each month.

Now, I’m being a little facetious here, but it is not that unusual for me to speak with owners of businesses and get some interesting answers to questions like:

  • Are your financial statements prepared on a timely basis?
  • Are they free from error?
  • Does your controller tell you, when reviewing the October P&L, “Well, I had to make some adjustments to the September results, so September was a little better than we thought, but October isn’t so good”?

If you have heard this before, join the crowd. You are not alone. It’s not terribly unusual if you either don’t get routine, timely financial statements or if you don’t trust them. But you need to receive regular, reliable financial information each month that you can use to help you make decisions.

Think How Your Banker Thinks

And, while we’re on the topic, ask yourself another question:  “If I don’t trust my own financial statements, what must my banker think about them?”

You may remember when bankers didn’t always insist on seeing your financial statements or waited until you gave them the annual statements. Well, those days are over. All good bankers expect quarterly statements, at a minimum, and many also want to see how you are doing on a monthly basis, as well.

They want to see the statements so that they can determine if there are any causes for concern. You can understand that. But you need to know what areas would give rise to such concerns long before your banker identifies them. The only way you can do that is to have reliable financial statements and to analyze them as your banker (or a CFO) would:  What are the trends that offer opportunity, or are they cause for concern? How am I doing with respect to the covenants in the loan agreement? You need to be able to understand what is important to your banker and be able to explain how you are doing in concrete financial terms, using the statements as the basis for your conversation.

And You Need Even More Information

In addition to the basic financial statements, you also need to have a few reports that provide you with the important information you need. You know what’s critical to your business. It may be a little different for each company, but I’ll bet you want to know a few things every month:

  • Who’s my biggest customer, and how profitable is that customer?
  • Which customers are 10 percent ahead (or behind) last year?
  • What sales are in my pipeline?
  • What’s my cash position?
  • Where will my cash be at the end of the month, and will I have enough cash when my taxes are due?
  • What’s my gross margin this month, compared with where I thought it should be?
  • How am I doing compared with budget? (You DO have a budget, right?)

You may have started your company knowing what you needed to know. But if you’ve grown — or if you’re struggling to make a profit or improve it — chances are that the information you’re getting is not really helping you now.

If you need help with getting this information, stop kidding yourself. As the owner, you are probably not the best-equipped person to create this information — and you certainly have better things to do as the owner than to create financial statements. You need to find someone who can help you determine what information you need and who knows how to get it; you need someone who has developed such information in the past. This is not a place to skimp.

So the question — “How’s my business doing?”— is simple to answer. But the answer can be quite difficult, because you need to understand what you don’t know — and to find a way to get that information.

For more information about the topics discussed, including financial statements, visit B2BCFO.com.

Get more cash

Five Ways To Get More Cash From Your Business

As CEO of B2B CFO®, I regularly talk about our motto which is, “Cash. We help you get it®”. When talking about how we help our clients get more cash, I find that there is generally a misconception. Most people think that there are only two ways to get more cash: the first one being taking a traditional route of talking to banks about loans, and the second trying to get an investor to infuse more cash into your business.

I am going to present to you five ways to get more cash from your business. These five steps do not involve taking on more debt nor do they involve diluting your equity:

 
1. Try to cut back on costs

Yes, this is a pretty obvious way to get more cash into your business, but it does take a concerted effort. One of the easiest ways to cut cost is to ask your service providers to re-bid for your business. Just because they are working with you now doesn’t mean that they are the best fit for your business in terms of cost or relationship. This can be particularly true in the following areas: insurance, benefits, telephone, credit card services and office supplies. These are all examples that can be negotiated and significant cost savings realized. Saving even three or four percent of operating expenses can be the difference between breaking even and generating significant cash.

2. Sell more or charge more

This may seem obvious, but you might find there is less opposition than you may think. Look at what your competition is charging, and show where your product/service is providing better value.

3. Monitor your inventory

No matter your business, if you have inventory then you need to manage it very closely. Create a system where you can monitor your inventory down to the SKU. Find out how long it takes to use up all of your products and consider eliminating products that move slowly. If that isn’t feasible, just don’t buy as many units and keep a small number of that product on hand.

4. Improved productivity

You may be starting to see the common theme. All of these steps are fairly obvious but overlooked. Take the time to review any productivity issues in your company. Work with your employees to see where improvements can be made. Find ways to monitor your employees’ productivity, and reward those that are the most productive.

5. Collect your money

Before giving new customers credit, check out their credit history, and only work with those that you feel comfortable. Set your invoice terms to be paid as fast as possible for your industry. Most importantly, enforce the terms you have set. This is one of the most basic, yet important mistakes that businesses make. If you have any customers that are regularly late with payments then consider firing them.

Finding cash inside your own business can be easier than trying to obtain a loan.

Employee Theft

Employee Theft: Is It Happening To You?

Employee theft is rampant in small to mid-sized businesses. It never ceases to astound people that a trusted employee could steal from you. It angers you and makes you sad, but it is happening every day. Large amounts are being stolen from businesses both small and large.

After the Enron debacle, Congress passed the Sarbanes-Oxley Act (SOX) to tighten the responsibility of the accountant to detect fraud. Talk to someone in the accounting community about SOX and they will roll their eyes and heave a large sigh. In all levels of the attest function performed by accountants (compilation, review and audit), SOX has had an effect. The result of this increased testing is that more employee theft than ever before is being uncovered.

In fact, the American Institute of Certified Public Accountants (AICPA) released a recent study that has some astounding statistics. According to their survey of members, up to 82 percent of small- to mid-market businesses have or will experience employee theft. Of the incidences of theft uncovered, the average theft amount equals $125,000. And believe it or not, most of these thieves are not prosecuted.

Are you a victim? Most of us would immediately say, “No, all my employees are completely trustworthy.” But, what about the next employee you hire? What about the employee who has had an unexpected life change (divorce, death or other experience) that has affected his/her financial stability? What about that employee’s spouse who you might not quite trust? Could that person have undue influence to convince your employee to do something?

Employee theft can come in many forms. Look at the following ways employees can steal from you:

Cash

Does the employee who collects the cash also make the deposit and reconcile the bank statements?

Payables

Does the employee who makes the vendor payments reconcile the bank statement? Does this employee have access to online accounts or a signature stamp?

Time

Do your employees steal time by running personnel errands or spending excess time on the phone as you are paying them for doing the company work?

Company credit cards

Do your employees have company credit cards? Are the expenses charged to these cards reviewed by someone other than that employee?

Computer access

You would be amazed at how many employees run a small business on your computer and on your company time.

How can you stop this? First of all, have a policy that strictly forbids the above activities (and other similar activities). Second, look at your business functions and determine where you are vulnerable. Third, make sure there is a separation of duties between employees who handle areas where theft could occur. Fourth, consider monitoring where employees spend their computer time.

There are many ways an employee can steal from their employer; it isn’t always financial theft. There are also many ways an employer can prevent this activity. Being aware is the first step.

Interested in learning more about employee theft? Download B2B CFO’s free, 27-page book “Top 10 Ways Your Employees are Stealing From You” at B2BCFO.com.