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Is your accounting department helping you spot the iceberg?

Sunday, March 18th, 2012

Are you beginning to view your accounting department as a cost center full of overhead expense?

Are you not sure what they do all day but know that they seem very busy and often overwhelmed?

If one critical person in the accounting department left, would business continue on without missing a beat?

If these questions make you uneasy– you aren’t alone.

When we talk to many CEOs we hear the same thing: “When it comes to the financials, we don’t know what we don’t know.” That includes what their accounting department does on a day-to-day basis—and what information they should be getting from them.

For many companies the amount of information that the leadership team gets from their accounting departments is minimal, dated and not easy to understand. Not wanting to know the intricacies of the accounting function, many owners blindly trust their accounting staffs, and figure if the tax accountant isn’t complaining too much at year-end, their accounting department is getting by just fine.

But are they? Could they be delivering more, more efficiently and with greater accuracy?

Here are some signs that your accounting department may need an overhaul:

Timing is everything. What would have happened to the Titanic if they knew about the size of the iceberg before they hit it? If you aren’t getting financials from your accounting department within 10 days after month-end, you are in the same situation. By the time you discover an issue 20, 30 or 60 days after the month ends you may find that a small issue last month has snowballed into a serious problem (“iceberg”) and you didn’t see it until it was too late.

Flat financials. So you are getting information from your accounting department, but can you use it? You should be getting real information from your staff– details such as which customers are driving your profits, what product lines are doing well, what is the productivity of your staff and your assets, as well as projections of where you are headed. If you aren’t, you may not see—or be headed directly for– that “iceberg.”

Business growth outpaced the skill set of the staff. Most companies have them—the bookkeeper or staff accountant who has been with the company from inception—who knows every nut and bolt of the business. But now that person is the “CFO.” Sometimes that person can grow into the role—sometimes not. It might be time to take a hard look at the skill set of your staff and get the right help in place to continue the business’s growth.

Busy-ness doesn’t equal good business. When was the last time your accounting department stopped and asked why they do things the way they do? Often times we find manual entry of accounting transactions when they could be automated, re-entry of the same data in multiple systems, and a LOT of unnecessary paper shuffling.

Old technology. Face it, when it comes to investment in IT, the accounting department gets the short end of the stick. There is nothing sexy about an accounting package (unless you are an accountant!) and it certainly doesn’t hold a candle to the fancy CRM systems that often are upgraded before the accounting systems. However, when used wisely, an investment in accounting system upgrades may just improve the efficiency of the staff, give you better information in less time and cost you less over all.

Your accounting department’s main function, beyond just record-keeping for the IRS is to provide you, the owner, with the best springboard for growth—information.

We often get called in to companies when the owner/CEO isn’t getting the information they need, when they need it and in the format that makes the most sense to them. Either the business has hit an “iceberg” or they are trying to avoid one.

How does your accounting department help you “spot the icebergs” in your business and how do they help you course-correct?

Posted in Accounting/Bookkeeping, Cost Cutting, Financial Policies & Procedures, Forecasting, Labor, layoffs, Planning | No Comments »

The empty spot on your bench

Wednesday, May 25th, 2011

Ask any business owner if they ever have enough money or enough people to get the job done and their answer is probably a guffaw and a resounding “NO!”

When you ask them who they need (in a perfect world) you’ll hear they need sales people, operations people and line workers. Rarely do they say they need a Chief Financial Officer (CFO.)

Ask any business owner that has left their accountants’ office during tax time still puzzled on why they owe so much to Uncle Sam or how they could have made so much on paper but don’t see it in the bank. Many accountants can’t answer these questions. A CFO can.

If you are worried about looking foolish in front of a CFO, or are embarrassed that you don’t have a grasp on your numbers, don’t be. You aren’t alone.

If you have a handle on your financials but still find yourself with questions about product line or customer profitability, whether you should pay back your loan or take the money and use it to grow, or why you never seem to have enough cash, you should consult your CFO.

If you believe your CFO is strictly a glorified bean counter, you have found the wrong person for the job. If you think that a CFO is really short for CF-”no”, that is, someone who will shoot down all your plans or ideas, you’ve found the wrong person.

If you are looking for someone to help you map out your growth, “run the numbers” and provide you options backed by analysis, and you naturally turn to your CFO, you know you have the right member on the team.

But most businesses don’t have that team member in place. There is an empty, yet critical, spot on their bench. It comes down to one change in mindset on the part of the business owner:

Hiring a CFO isn’t an expense, it’s a growth strategy.

A CFO can provide you with the best springboard for growth: information.

Information can be in the form of financial analysis and trends or forward-looking projections. It can be a scenario analysis (“if I do X, then my profit could be Y”) or a post-mortem (“why did this job run over budget?”) A CFO with good business sense can take your operational and financial data to give you a picture of the effectiveness of your daily operations. That’s pretty powerful stuff.

So, you can muddle along and find out what works through gut instincts or trial and error. You can hire another sales person or line worker and you can grow in increments. Or you can fill that empty spot on your bench with a CFO, even on a part-time or consulting basis, and grow exponentially. You just need to change your mindset.

Posted in Accounting/Bookkeeping, Business Model, Cash Flow, Cost Cutting, Financial Policies & Procedures, Forecasting, Increase revenue, Labor, Planning, Pricing, Recession Busters | 1 Comment »

Brain drain- when a critical employee leaves

Thursday, May 12th, 2011

There is a lot to be said about a star employee—one that holds the company together—the go-to guy or gal that helps run your company smoothly. They may have a big role in your company or they may just be the billing clerk who gets the invoices out on time and accurately. You take them for granted—until they are gone.

By “gone” I mean any number of ways: They leave your company completely, they get sick and are unable to work or they just “check out.”

Most businesses have some backup plans for data—redundant systems, servers, backups to the cloud. But I am surprised that most companies don’t have a backup for their most critical information—the information that resides in the heads of its employees.

Think about how much knowledge walks out your door every day. How would your business be affected if a few key people didn’t come back?

What if that employee is you?

In small businesses there is little room in the budget for redundant employees but there is NO room for the disruption that ensues when a critical employee is absent.

You as the owner need to come up with a backup plan—otherwise you will find yourself constantly distracted and firefighting while at the same time finding someone to replace him or her. It doesn’t have to be a massive undertaking—you probably already do it for when employees go on vacation.

Think of it as extended vacation planning. Here’s how:

Make upkeep of standard operating procedures part of everyone’s job. These don’t have to be long, formal documents but they should entail critical pieces of information about standard policies and procedures– from how much material you order to where all the passwords are for the bank accounts, to the way that certain customers like their invoices processed.

Develop a pipeline of talent. I’ve worked in organizations that get this right—so when there is a vacancy it’s no sweat, they just move up the next person they were grooming for the position. By grooming, that means ensuring the understudy has had the experiences and some of the training the critical employee has while allowing him or her to pinch-hit during vacations or business trips. This will ensure a smoother transition when the time comes.

Cross-train. This may be the easiest to do but the hardest to find the time to do too. The best way to do this is by allowing people to work on projects together, paired with people with different skills or responsibilities to allow each other to see what the other is doing .

Shuffle the deck. Have one person who is doing all of your critical activities? Maybe you need to shuffle the deck and allocate different critical responsibilities to a few different people. This way if one person leaves business doesn’t come to a halt. Spend some time and develop your A-list of critical tasks and make sure you don’t have all your eggs in one basket—with only one person doing them.

It’s time you had a backup plan for the rest of your data—the data that walks out your door every evening. Develop your backup plans now and avoid the brain drain when a critical employee leaves.

Posted in Labor, Planning | No Comments »

Let’s talk about money—YOUR money

Monday, February 28th, 2011

OK, I’ll be frank. Sometimes business owners can be the greatest downfall of their own companies. You’ve probably heard the hundred ways this is possible from management and HR issues to lack of “business” skills. I’m in the business of finance, so I’ll talk about only one—handling money.

There are two scenarios where a business can be jeopardized by the way the owner handles money:

When the owner takes too much cash out or depends on the business to sustain their lifestyle.
When the business owner lends too much to the business and seriously jeopardizes their personal financial wellbeing.

I’ve seen both and it is pretty ugly.

In the first case, a business is doing well and kicks off a ton of cash. After a year more or less of great returns the owner begins to lose the “bootstrappy-ness” of their beginnings and feel things have been going well enough to buy a bigger house or upgrade their car.

They start to grow into their business’ cash flow.

Some start taking more out in draws—a lot more. And if they aren’t careful, some take out more than what the business is generating. I’ve seen business owners run up hundreds of thousands of dollars on the business line of credit to purchase personal items.

The biggest problem with this: the business is starting to starve.

That cash that gets sucked out to buy the car or the house should have been left in the business for the “rainy-day” fund—or the “hire a new employee” fund—or “upgrade our systems” fund—or the “new product development” fund. But as soon as it hits the business bank account it is whisked away.

Growth in the business stops or slows significantly.

What is more devastating is what happens when the market turns south. The credit line is almost maxed—and those steady cash withdrawals—well, they aren’t there for the taking anymore. So what happens to the owner?

They still have the mortgage to pay on the large house and on the fancy car. Their kids are enrolled in private school. They have bills to pay—but the cash isn’t coming in. They head into the death-spiral of cutting costs in the business, and suffocating it even more before they decide to start calling the bankruptcy attorneys—for their business and for themselves.

On the other end of the spectrum are the other business owners—those that put all of their life savings and then some into the business. They become maxed out.

They have a payroll– and they’re not on it.

Or if they are, they take a measly pittance for the work they do. They have tapped all their resources and have no other source of funds—the banks won’t lend to them because they have no collateral (it’s all in the business) they aren’t generating the returns or aren’t in a sexy-enough business to win the attention of private money or all other sources have proven to be dead ends.

The American dream of owning a business turns into a nightmare, exhausting them and exhausting their families who bear the burden.

The problem with these companies is that, in most cases, there is something broken within the business.

The business owner is too busy fighting fires to step back and see the real problems. A colleague of mine has a great question he poses to entrepreneurs. “If your waste basket caught fire every day, and you had to put the fire out, how long would it take you until you got fed up enough to figure out what’s making it burst into flames?”

These business owners they feel they have to work harder to get to the “Mecca” where the business is kicking off great returns. Meanwhile, they have, in essence, lent their personal money to their clients by extending terms to them, have issues with late payers and have costs that are out of line with their pricing. They don’t see this—they just are reaching for the next sale.

What they don’t realize is that that next sale starts the cycle again.

These two situations may seem like opposite ends of the spectrum but they are really the same issue–the line between business money and personal money is blurred.

When we have these conversations with business owners, we’re seen as naysayers and meddlers. In either case our message isn’t one the owner wants to hear.

The message is simple—it’s about balance.

It is about balancing the need to leave enough money in the business—or not contributing more—and giving the owner enough compensation to enjoy the lifestyle they want to live.

There is no magic formula on calculating the balance, unfortunately. It’s a give-and-take– an imperfect science. Because the flow of cash between business and personal are so intertwined, when one or the other is way out of balance the end result could be disastrous. It’s an important part of planning, and one that should be considered with as much importance as buying a piece of equipment or buying a new house.

Posted in Cash Flow, Planning | No Comments »

Budgeting is sooo 2010

Wednesday, January 19th, 2011

GPS and map

If you’re like me, you’ve gotten dozens of emails about why you should set up a budget for 2011.

The word “budget” often spurs a collective groan. It sounds so restrictive. Not to mention the effort that needs to go in to putting one together and the tediousness of all that number crunching. No thanks.

We agree. Coming from the Fortune 100 world, where the budgeting process could last 3 months or longer we are disenchanted with budgets too, especially because the numbers were often obsolete before the ink dried on the fancy presentation binders!

For nimble small and mid-sized businesses we believe in dynamic planning. Set a course and then adjust it to account for what happens throughout the year. Like a GPS.

Here are our tips for painless planning in 2011:

Think it through. A budget doesn’t have to be restrictive, but it does have to be thought out well. It should account for the 4Ms of your business, Money, Manpower, Marketing and Making it Happen. For more on the 4Ms see our blog post.

Keep it simple. Really, when you think about it, only a few major things change from month to month. Maybe it is payroll costs or marketing dollars, or adding in new sales from the client you just got. Changing a few line items makes updating a plan less cumbersome—and makes you more likely to keep it current.

Keep it current and use it to course-correct. Putting together a budget isn’t a once-and-done exercise. You need to keep it updated with developments throughout the year—monthly at a minimum. You’d expect your GPS to tell you when you’ve gone off course immediately, so too, a timely and updated plan will help you identify divergence from your expectations early so you can do something about it.

Ignore “Turn around when possible.” There are times that we know shortcuts that our GPS doesn’t. Despite the GPS’s protests to go back on the designated highway we might take some back roads instead. Do you throw your GPS away when this happens? Is it useless for the rest of the trip? No! Your GPS adjusts to your new course and eventually gets you to your destination. Maybe your plan you developed in January is off-base. Even if you’ve updated your plan monthly, your business may take a whole different course during the year. It’s ok to build the “short-cuts” into your plan, just make sure that you have laid out how you plan to get to your final destination.

Stodgy, restrictive budgets are so 2010. Start the new year off on the right foot with a flexible and plan that will guide you to success throughout the year.

Posted in Forecasting, Planning, Uncategorized | No Comments »

How well have you figured out the 4Ms of business?

Sunday, January 9th, 2011

For any business to be successful, they need to have a good plan looking at the 4Ms of business:

Money. Do you have enough money so that your business is paying its own bills? Or does the owner or investors need to sink their funds into the business to keep it afloat? If you are a startup this is OK and expected—there is a lot of investment required before you make your first sale and beyond. However, for established businesses this may be a warning sign of that one of the other “Ms” isn’t working.
Manpower. Do you have the right number of people doing the right amount of work? Payroll is typically one of the largest expenses for businesses, but we are often amazed how often businesses get this wrong. Too many high-paid people doing low-level work. Inefficiencies and dead wood. Star employees with untapped talent. As Jim Collins says in his book Good to Great, “get the right people on the bus, the wrong people off the bus, and the right people in the right seats.” Get the Manpower equation right and watch your business grow.
Marketing. Fancy brochures? Great. Website with Flash? Wonderful. Nobody buying what you are selling? That’s a problem. Beyond the fancy collateral, how often have you stopped to find out why customers buy from you? What is the value you bring to your customers and how much are they willing to pay for it? Have you defined who is your ideal client and how will you reach them?
Making it Happen. This is your operating plan. Can you deliver what you said you can and how much will it cost to do so? Will there be enough cash to pay the bills? If not, go back to #1 and repeat. Unfulfilled customer orders, bad customer service, poor quality all can drive a customer away. Great customer service is wonderful, but if it costs you more to deliver your product or service than the price you charge that can lead to serious problems.

The rule for the 4Ms is review, revise and repeat. As you kick off the new year, how are you planning for the 4Ms?

Posted in Business Model, Cash Flow, Labor, Planning, Pricing | 2 Comments »

Your most important information may not be in QuickBooks

Wednesday, November 10th, 2010

If you are puzzled by your profitability, looking at your P&L will give you only part of your answer. If you are trying to figure out why you are not making any more money even though your sales are increasing, or if your bottom line hasn’t moved from the last few years, here are some tips to think outside of the QuickBooks “box.”

Financial Statements are a look in the rearview mirror: They are a print-out of what happened in a given time period—expressed in dollars and cents. If you hired someone, you will see an increase in salary and a reduction in profits. Likewise, an equipment purchase will show up on your balance sheet along with the way you paid for it, a reduction in cash or an increase in loans. This information is useful, but it may not tell you the whole story.

Look beyond the dollar signs: Data from your day-to-day operations (not normally in QuickBooks) gives you equally useful information. Things like measuring output for a given employee, reduced production time gained with the new piece of equipment, or even something like customer turnover. If you were just looking at these measures, however, you might be missing the other half of the story—the translation into revenues, profitability or improved cash flow.

So if you marry up the financial and operational data what do you get? Real information.

Like peanut butter and chocolate, they were meant to go together.

In technical terms, these measurements are often called Key Performance Indicators (or KPIs). They give you insight as to how well your business is being run, not just how profitable it is. Each industry and business has a few KPIs that are leading indicators—they help business owner’s spot trouble before it begins. Maybe a decline in revenues means you should reduce headcount, maybe a higher customer turnover rate means that profits will begin to decline because it costs more to acquire new customers. You probably know what yours are but just haven’t done the math.

KPIs will tell you more than any simple P&L or Cash Flow Statement or Balance Sheet will. So spend the time and do the math for your company—and more importantly track it. You’ll find what you thought was a good predictor of your company may not be as good as a KPI. You might also find that the KPI you use change over time. Today you measure output by employee but 6 months from now customer turnover is a better predictor. Whatever your KPI– think outside the QuickBooks box when you are determining where you want your business to go.

Posted in Planning, Recession Busters | No Comments »

Finding Funds in the Credit Crunch

Thursday, July 2nd, 2009

Will you have enough funds to take advantage of the economic upturn? Despite “green shoots” of economic recovery, one problem still persists for many small businesses: access to credit. For those businesses battered by the recession, cash can be hard to come by to fund day-to-day operations, let alone expansion. We’ve come up with a list of organizations who are lending, even in the downturn.

Banks & Credit Unions

Best for: businesses and individuals with excellent credit and collateral.
Rates: 5%-9%
Summary: You may be surprised that banks still do have money to lend, and they are eager to do so for people who qualify. The key is in having good credit and some collateral. Banks will lend owners up to 10% of sales before they look for collateral. If you want more than that, be prepared to put up your house or other asset as collateral. Before you waste your time filling out the long application only to find out you don’t qualify, put together an executive summary about your business, detailing your loan request. Be specific. Outline how much you need, what you need the money for, and what you are offering as collateral. If you are a majority owner of the business, you should include a personal financial statement that lays out what you own and what you owe since ultimately you will be guaranteeing the loan. Then go to the banks and pre-screen them to see if you would meet their standards.

SBA Loans

Best for: Businesses and individuals who are borderline qualifiers for traditional lines/loans
Rates: 5%-9%
Summary: If your bank isn’t comfortable underwriting your loan on its own, you may qualify for any one of the SBA programs. You still apply through your bank, and the SBA will back up to 90% of your loan. Don’t be wooed into thinking this is easy money. Most banks look at the SBA as an insurance policy, and the application process can be complicated. If there is a mistake made in the application process, and the loan goes south, the SBA could back out of its obligation. There are different loans and line of credit programs, including a new program to lend up to $35K to meet current debt obligations.

On Deck Capital

Best for: Retail shops with strong cash flow, in business for more than 1 year
Rates: 18%-36%
Summary: Unlike other lenders we feature here, On Deck Capital does not rely on the owner’s credit to make its decision. Instead, they look at the strength of the company’s cash flow. provides a quick infusion of cash into retail businesses that have strong cash flow. They extend loans up to $100,000 to retailers and arrange repayment by weekly draws from your checking account. This alternative may prove to be better than a credit card, but not by much given the steep rates. When you can’t qualify for traditional credit, OnDeck’s quick loan decisions and 7 day fund transfers may just be the cash boost you need to avoid a major crisis.

NJ Economic Development Authority

Best for: Businesses who have been established for at least 1-2 years, good credit
Rates: As low as 5% + application, closing, and commitment fees which can equal >2%
Summary: The NJ Economic Development Authority, like the SBA, has a number of programs available for small to mid-sized businesses. Some are direct loans from the EDA while others are guarantees to the banks to encourage lending. Loans can range from $25,000 to $2.5MM depending on what the money will be used for. There are special programs for job creation, capital investment, and urban development. Although the interest rates are low, the fees for these programs can make this an expensive option, depending on the size of the loan.

Peer-to-Peer Lending

Best for: Established businesses who need up to $25,000 and a quick decision
Rates: 7.5%-18%
Summary: Companies like Lending Club and Pertuity Direct offer unsecured loans for borrowers with a good credit history. Minimum credit scores that are required are about 660 and up. P2P might be an alternative if you are a credit-worthy borrower who needs a small amount of money and you don’t qualify for traditional loans. The loans are 3-year term loans, which makes monthly payment a bit easier to digest from a cash flow perspective.

Factoring:

Best for: Businesses with receivables from large companies.
Rates:2%- 30% (depending on length of time it takes for them to collect on invoice)
Summary: Factoring is when you sell your accounts receivables to another company called a factor in exchange for cash. The factor will pay you a portion of the invoice upfront and will take a percentage based on when the customer pays the invoice. Many factoring companies require that you sign a 6 month to 1 year contract and factor all invoices through them. This could mean that you can give 3% or more up on each invoice that gets processed through the factor. are not interests in one-off invoice factoring and some require that they receive a minimum percentage annually. This can be an unpredictable and costly way to get cash, however it could be a last resort. Beware, however, that factors take some time to set up because in essence, you are having all invoices sent to the factor and they become the payee and then forward you the cash. Factors will look at your customer’s creditworthiness in order to determine your fee structure. The longer the invoice is outstanding with the factor the less you collect in the end.

Non-profits:

Best for: Businesses who do not qualify for traditional loans
Rates: 2%-10%+
Summary: There are a number of non-profits that are lending to small businesses who do not qualify for traditional bank loans. Loans or lines of credit issued by these institutions range from $500- $50,000 and carry an interest rate up to 10%. The Greater Newark Business Development Consortium’s (GNBDC) focus is on financing small business growth and development, specifically those owned by minority, women and low-income entrepreneurs possessing the capability to operate successful business concerns. The Union County Economic Development Corporation (UCEDC) offers microloans up to $35K for startup financing and gap financing for existing businesses throughout New Jersey. Both organizations also offer valuable training classes for continued professional development of their leaders. Be prepared to provide a complete and compelling loan package to these organizations, including financial projections and a well-thought-out executive summary.

Tags: Cash Flow, loans
Posted in Cash Flow, Planning | No Comments »

Webinar: “Three #s That Drive Your Business”

Tuesday, June 23rd, 2009

If you want to use your numbers to help you manage your business but don’t have the time to pour over pages of reports to figure it which ones to use– this seminar is for you. We’ve come up with three simple numbers that drive every business’ money-making engine. These numbers are easy to find and will help you diagnose nearly all business trouble spots and head off problems before they start. The best part is you don’t have to be an accounting whiz to figure it all out. Click on our flyer for more information, and our money-back guarantee.

“The Three Numbers That Drive Your Business”

Thursday, July 9, 2009

12noon-1:30PM (Eastern)

Cost: $49.00

Location: Webinar

Click here to register

Posted in Business Model, Cash Flow, Cost Cutting, Planning, Pricing, Recession Busters | No Comments »

What’s your Plan B?

Monday, May 11th, 2009

Inc. Magazine had a great interview with Jack Stack, CEO of SRC Holdings and author of the book The Great Game of Business. SRC Holdings is managing well even in this environment—chalk it up to Stack’s constant paranoia and always having a Plan B.

Here’s how to develop a Plan B:

Be paranoid. Stack is constantly worrying about having too many eggs in one basket. Whether that is too many sales coming from one customer or planning for another 9/11 he and his team are constantly playing out worse case scenarios and developing contingency plans to deal with it.
Keep reinvesting in the future: 15% of SRC’s sales are dedicated to research and development. This allows them to rush new products to market and beat the competition because the product development was already well under way.
It’s all about creating jobs. Despite this downturn, SRC has only had to reduce a workweek for some of its employees but managed to place many of them in other divisions that needed the help. They take layoffs extremely seriously. According to Stack, “A layoff is a failure of management. But the people who usually pay for that failure are not the ones responsible for it.”
Focus on the 4 Ps: people, profits, positive cash flow, and positioning. If you are not using your people to help you reposition your company in this downturn, when everyone is just “standing around,” you are crazy.
Prepare for your contingent liabilities: Ensure that you have enough assets to sell or cash available for the future. In SRC’s case it was having the money to pay its employees when they wanted to cash out their stock, in private companies it could be buying out a partner, or settling a pending lawsuit. Beyond a rainy-day fund or emergency fund, having access to the cash is an important part of your plan B.

SRC’s success is a result of balancing his risk by diversifying his company into markets that are inversely related, and constantly educating and communicating the business’ numbers to his employees. When asked if his paranoia could be limiting growth because they could get “whacked” at any moment, Stack succinctly states: “I’d say you’re a fool if you know you’re going to get whacked and don’t do something about it.”

What is your Plan B in this economy?

Posted in Business Model, Forecasting, Planning, Recession Busters | No Comments »

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