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Topic Archives: Financial Growth

Nov 13, 2017, 6:36 PM


As a seasoned CFO with over 30 years of experience as a financial executive working with a wide range of businesses, I’ve seen that cash flow problems often stem from poor Accounts Receivables (A/R) processes. If you’re making any of these common A/R mistakes, I recommend you fix the situation ASAP!

Having incorrect information in your system – As they say: garbage in, garbage out! Make sure that part numbers, prices and other details are entered correctly in the first place. And don’t forget to input price changes when they occur.

Taking your time getting bills out – If you want to be paid on time you need to make billing a priority. Ideally, what you sell today gets billed tomorrow, so your customers have an invoice in front of them immediately. This way if your terms are X days from delivery of the goods, your customer has plenty of time to process their payment before it’s due.

Sending out error-filled invoices – Your customers will reject incorrect bills. Some of the most common invoice errors that I see are:

• Wrong part numbers – Either the wrong part altogether, or the wrong variety or container size of the correct item.

• Wrong quantity – Billing for more or less than what was delivered, or misestimating how far along a job is for a progress-based bill.

• Wrong prices – Especially when the customer has been promised something other than your standard prices.

• Wrong sales tax amount – Taxing a non-taxable item (or vice-versa), or applying the sales tax rate from the wrong city or county.

Ignoring customer balances – Are they paying their bills on time? Have they exceeded their credit limit?

Avoiding collections – What often happens is that a company gets into their “busy season,” and the Accounting department struggles to keep up. Instead of reviewing the aging reports and making timely collection calls, they put statements in the mail and hope for the best.

Failing to build relationships – Few bookkeeping professionals understand the value of building positive relationships with the Accounts Payable people at their customers’ sites. But the reality is, these relationships can get your bill in the first pile of bills to pay after the “must pay” items (such as electricity)—not in pile number six.

Need help getting your A/R processes in order? Give me a call. As your part-time CFO, this is one of the many services I provide.

Oct 17, 2017, 8:20 PM


Wish you could get a loan for your business without providing a personal guarantee? Join the club! Most business owners prefer not to put their personal assets on the line in this way. Banks, on the other hand, only want to lend when they’re 100% comfortable that they will be able to get their money back—and a personal guarantee helps provide that reassurance.

Although it can be next to impossible for new companies to get loans without personal guarantees, established companies sometimes can. From what I’ve seen, here’s what it takes:

• Longevity – Minimum of five years in business, but probably more than 10.

• Profitability – A track record of profitability and a demonstrated commitment to using these profits to grow the financial strength of your company.

• Strong balance sheet – Including:

• Quick Ratio (cash plus accounts receivables, divided by current liabilities) of 2:1 or better
• Debt to Equity Ratio of less than 1.0:1

• Collateral – This must be in excess of what you wish to borrow, with the bulk being liquid, such as cash or receivables. Lenders might also be interested in the real tangible value of inventory, machinery and equipment in a liquidation scenario.

• Ability to repay – Lenders want to see a realistic business forecast for the term of the loan showing that your business can easily meet the loan’s debt service requirements.

• Past loans – A history of satisfying past loan obligations in a timely manner, and remaining in full compliance with the loan covenants until the loans are repaid.

• Prompt accounts payables – Demonstrated history of paying your bills in a timely manner, as supported by consistent accounts payable aging with no past due balances.

• Strong management – A solid and consistent management team that doesn’t change from year to year.

• Long-term relationships – Banks want to see that you cultivate and value long-term business relationships, that you’re not changing banks, insurance brokers, CPAs or other professional service providers every year.

Finally, lenders want to know why you don’t want to provide the personal guarantee. After all, if you’re not comfortable providing this, why should they be comfortable putting their money into your business? A good first step might be to seek a reduced personal guarantee based upon mutually-agreed-upon metrics between you and the bank.

Need help getting your loan package ready?
Give me a call! As your part-time CFO, this is one of the many services I can provide.

Feb 21, 2017, 5:13 PM


Considering selling your business? The time to start building value is long before you put the company on the market. To position your company so it will sell at the highest price, here are some of the things you should do: Create a 3-to 5-year business plan with projected financials. Include a narrative of what you expect to happen and the resources that will be needed to get there. Be sure your projected cash flow statement ties to your projected income statement and balance sheet.

• Assemble a strong management team. What I often see in small businesses is that the owner or CEO is the “face” of the company and, in effect, its only intangible asset. To sell the company you need to have a strong management team in place that customers and vendors are comfortable doing business with.

Give your managers authority to make decisions, and ensure that customers, vendors and other outsiders have a chance to get to know them. Help your managers develop strong reputations within your industry, such as by joining and participating in your trade association.

• Acquire strong vendor contracts. This is especially important if you’re a reseller. Can you get advantageous pricing and/or terms? Would they be willing to grant territorial exclusivity?

• Create 5 years of adjusted historical financial records. Start by identifying any unusual or non-recurring expenses that can be added back in. The goal is to show what the trues results of operation would have been if the company had been run “by the books” and didn’t have these unusual transactions.

For example, if you own both the company and the facility in which it operates, and you have a sweetheart rental agreement that gives you above-market rents, you should adjust the records as though only market rate was paid. Or if you’ve been paying high salaries to family members who aren’t really providing services, adjust the records to remove them from the payroll.

One thing to keep in mind here is that a business’ selling price is often determined by a multiple of expected cash flow. Pay close attention to this, and look at steps you can take now to increase your cash position .

Don’t wait until you have an interested potential buyer to start getting your ducks in a row. And if you need help with any of this, give me a call. As your part-time CFO, I’m here for you.

Feb 7, 2017, 11:49 PM


Running into cash flow problems? Here are six steps you can take to increase your cash position:

1. Speed up collections. Take a close look at your accounts receivable aging report. Identify the slow pay customers and come up with a plan to address them. Perhaps you haven’t been speaking to the right person, or your senior management needs to get involved by called their senior management.

If you can afford it, consider offering customers discounts for early pay. While I don’t generally recommend this, sometimes it’s warranted if your margins are high enough.

Of course, the fastest but most expensive way to speed up collections is to factor your invoices. If you can afford it, this is always an option.

2. Increase inventory turns. Review your product line by item to get a good understanding of your sales by month, quarter and year. Take a look at your vendor’s minimum order sizes and the delivery lead time for each item. Based on all this data, take steps to ensure you don’t carry excess inventory.

In addition, have a plan to get rid of slow moving or soon-to-be-obsolete items, and insist on having firm order commitments before granting sales people’s requests to bring new products into your inventory.

3. Reduce your investment in fixed assets. Review your utilization of existing fixed assets. Are there things that you’re not really using that you could sell to generate some cash? For example, say you’re a grading contractor. You have heavy equipment and a fleet of pickup trucks. Business has dropped 30%. You’ve already reduced your staff. Do you hang onto all that idle equipment for when business turns back around, or bite the bullet and liquidate it?

4. Negotiate payment terms that match your cash flow cycle. If it typically takes 120 days from the time you purchase raw materials or inventory items to the time you collect payment from your customers, but your vendor expects payments in 30 days, your cash flow will quickly get out of whack. Talk to your vendor, and see what kind of terms they can provide.

5. Obtain a working capital line of credit. While there’s a cost associated with this, a line of credit provides an immediate improvement in your cash position.

6. Develop and adhere to an honest operating budget. Resist the urge to splurge on ego-related items such as an expensive company car, or to run personal expenses through the company account.

In addition, I recommend that you avoid having an “always buy” mindset when investing in fixed assets. Sometimes leasing is best.

Need help with any of this? Give me a call! As your on-call CFO, I’m here for you.

Dec 13, 2016, 4:02 PM


I was recently reading a list of famous quotes from Ben Franklin when I was struck by how timeless much of his advice is. While the business world has changed tremendously, these truths about business success have not.

“If you would know the value of money, go and try to borrow some.”

Borrowing money for your business is not easy. For example, according to Biz2Credit’s October 2016 Small Business Lending Index, in October 2016 big banks approved just 23.5% of small business’ loan requests, small banks approved 48.7%, alternative lenders approved 59.5% and institutional lenders approved 63.1%. In other words, 37 to 76% of applicants got turned down.

As I’ve written about before in “Is Your Loan Package Ready for the Spotlight ,” lenders are quite picky about what loans they’ll approve. Managing your cash flow is therefore vital. Making the most of the cash you have minimizes your dependency on lenders.

“Remember that credit is money.”

Maintaining a strong credit rating is like having cash in the bank. Businesses extend credit to those who pay their bills on time. If you can prove your creditworthiness, vendors will be more likely to give you favorable terms, and lenders will be more likely to approve your loan requests.

Of course, you also need to be aware of the flip side of this issue. Do something to wreck your credit worthiness, and you can quickly find yourself unable to access the money you need to run your business.

“Beware of little expenses; A small leak will sink a great ship.”

On one level, this advice gets back to the need to have a budget and financial controls in place. But on another level, this is about managing the mentality and culture.

For example, one area that’s often out of control is office supplies. There’s a storeroom stocked with a nine-month supply of paper and pens. Employees are allowed to “redecorate” their desks with designer in-baskets, and soon everyone wants to personalize their workspace in this way. You get the picture.

While excess spending on office supplies probably won’t sink the ship, this “no limits” attitude will quickly spread to much bigger expenses...and before you know it, your bottom line really is affected.


Want to augment Ben Franklin’s advice with the advice and counsel of an experienced CFO? Give me a call! As a part-time CFO, I’m here for you.

May 16, 2016, 7:27 PM


As an experienced CFO, I know that some customers bring a lot more to your bottom line than others – and your biggest customers are often the least profitable. Which is why one of the things I do for my clients is to take a hard look at their customer base, analyze it and recommend ways to make it stronger. Here’s how:

1. Analyze margins by customer. How labor intensive is it to fill this customer’s orders? How long does this customer typically take to pay? What is the average mark-up per order? 

Say you’re in the fuel industry, and your truck can carry 8,000 gallons of fuel. Each delivery to the customer site incurs time and travel expenses. Your delivery cost per gallon will be much lower for the gas station that typically takes the full 8,000 gallons of fuel with each delivery than for the trucking company in the same neighborhood that takes only 2,000 gallons of fuel with each delivery. If the gas station usually pays their bill within seven days while the trucking company takes longer to pay, your margins will go down that much more.

2. Up-sell customers with higher-margin products. For customers that want to buy a particular product as cheaply as possible, see if you can also add your higher-margin products to their orders, too. 

3. Consider firing your largest volume customer. Quite often your largest volume customer can be the one with the lowest margins. They can be the most labor-intensive to serve and the slowest to pay you. Plus, they often create the most stress in your office, because they have the most “fire drills.” Take a hard look at whether or not this customer’s business is worth it. Maybe it is. But maybe it’s not.

4. Reduce customer-caused fire drills. Before you fire a customer, though, look at ways that you can be more successful with them. 

For example, what if your major customer often calls demanding that you drop everything to send a truck out because they just noticed they can’t wait for their regularly-scheduled fuel delivery? Could you put an electronic monitor on their tank so that you can proactively serve their needs? Could you have the sales person win over the person who’s supposed to check the tanks? Could your CFO explain to their management that in exchange for great pricing, they need to reduce these “emergencies”?

Need help strengthening your customer base? Give me a call! I’m here for you.

Apr 19, 2016, 9:00 AM


When it’s time to begin your annual budgeting process, do most of your team members want to run for the hills? If so, I’ve got good news for you – the budgeting process, including budgeting for growth, does not need to be a painful experience. In fact, if everyone arrives prepared, the process I’m going to describe here can usually be completed in two two-hour meetings.

Here’s what you need to do:

• Analyze your current level of business. Before you can budget for growth you need to have a basic understanding of what’s driving your current level of business, so that you can evaluate whether or not you can reasonably count on this level continuing.

• Take a close look at your goals. Your goals will drive your budgeting priorities. What changes need to happen in order for you to reach these goals? What additional resources (people, cash flow, machinery, etc.) will you need?

Before you get too far, take a close look at whether achieving your desired growth goals would actually strengthen your company’s financial position. As I discussed in a previous article, it’s possible to grow yourself right out of business!

For example, say your goal is to increase sales by 10% through a new contract with a big box store. In this case your sales volume would go up, but if the big box store squeezed you on price then your gross profit margin would go down. If they demand longer credit terms, you may have to borrow money to finance these new receivables. Add in the cost of any additional people you need to hire to service the business, and you might actually lose money on the deal.

• Develop a plan of action and get 100% buy-in. How will you obtain the necessary resources to reach your goals? What do you need to budget for, and who will be responsible for performing what? 

As part of this step, be sure to assign some metrics to your goals so you’ll be able to measure and report on performance.

• Crank out the numbers. Going through the above steps will give you a good foundation for a business plan. All that’s left in the budget process is to decide how detailed you want your budget to be and calculate the numbers for each line item.

Budgeting does not need to take months…and even a minimalist approach can result in the solid plan you need.

Apr 5, 2016, 9:00 AM


As I discussed in my last article, “Don’t Grow Yourself Out of Business,” a lot of businesses make big plans for growing sales without making corresponding plans for growing capacity. You can push your people to work longer hours. You can bring in a part-time CFO such as me to handle your increased reporting needs and create a financial dashboard that will let you track things to ensure you’re actually making money. But unless you’ve got a lot of cash, without adequate credit to finance your business expansion, you’re business is not going to expand.

For example, say your construction company is planning to grow by 30% over the next 12 months. You typically get 90% of the progress payment within 60 days and the remaining 10% remains as retention to be paid when the job has been completed by all trades. To accommodate your sales increase your payroll will go up. But until the retention payments start to roll in, where is that money going to come from?

Or perhaps you have a manufacturing company with a 90 day production cycle. How will you pay for 30% more raw materials if you won’t receive payment until 30 to 60 days after the product ships?

You need a strategic plan
To address this issue, start by determining exactly how much credit you’re going to need. Your strategic business plan should address this by looking at how your sales increase will impact your anticipated cash flow and each of your expenses.

Look at your financed and unfinanced credit
Do you have unused credit that you can tap now? Are your suppliers willing to work with you to fill the gap? After all, if your suppliers are comfortable increasing your credit and continuing with your current terms, you’re set. But if this is not the case, you’ll need to work on expanding your financed lines of credit.

Give your lender the information they need
Before a bank or other lender will increase your line of credit, they’ll want to see believable projections showing what your company will do in the next 12 to 36 months. Getting loan approval often depends on getting this aspect of your loan package right. If your internal finance people are not experienced with this, you’ll want to bring in outside talent that is.

Need help with any aspect of this process? Give me a call. As your part-time CFO, I’m here for you.

Mar 14, 2016, 6:17 PM


Quite often I talk to businesses that have big plans for growing sales, which is great. But what many business owners don’t realize is that if you don’t have adequate resources, that phenomenal sales growth can put you out of business. Before you embark on a big new sales campaign, you first need to determine if you have the capacity to handle a significant increase in sales. For example:

  • Do you have the people in place to handle the anticipated increase? A big increase in sales can impact every department of your company, from manufacturing, warehousing and shipping to accounting, marketing and administrative support. If your current staff is already operating at capacity, how will you handle the increased work load?

  • Do you have any idea how the increased sales will impact your expenses? As you increase sales you’ll also increase your costs for raw materials, products purchased for resale, etc. But the increases don’t stop there. Will you require more insurance coverage? Will you need to purchase equipment or hire more people? Will increasing head count mean that there are now more government regulations that you must meet? And so forth.

  • Do you have the credit in place to pay for this sales growth? Most businesses have two types of credit: “financed credit,” through banks or other lenders, and “unfinanced credit,” meaning credit limits with suppliers. While I’ll delve into this further in my next article, suffice it to say that as your sales and expenses grow, you’ll have to expand your credit somehow in order to meet your increased cash flow needs.

  • Do you have the ability to meet increased reporting demands? What I often see is that prior to a big increase in sales, the amount of credit that a company requires might keep them in one “rules category” with their lenders. Then they need more credit, and suddenly the bank wants to restructure the loan covenants and start seeing projections and monthly reporting on receivables. Creditors want to see the hard numbers that will make them feel comfortable that you’re going to be able to repay them. Many organizations, especially those that do not have a CFO, do not have the capacity to produce these reports.

Growth is good – provided it’s strategic growth for which you have planned. Skip the planning phase, though, and you run the risk of growing yourself out of business.

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