Don Welker's Financial Minute

Much more than “just” a “numbers person,” a CFO is a business person with many skills – including the ability to analyze your numbers and help you make informed decisions based on this data. If your business is growing, you don’t have to wait until you need a full-time CFO to start reaping the benefits of a CFO’s expertise. You can bring in a part-time CFO like me right now!

Even working on just a part-time basis, there’s a lot that a CFO can do that will have a significant impact on your business’ success, including:

1. Develop a strategic plan to achieve your goals – What are your goals for the next 12 months? Does your management team have a workable plan to make them happen, or is everyone just showing up and hoping for the best?

2. Understand if you’re adding value to your company – Are your financial ratios improving? If so, you may be able to get better interest rates, larger credit limits on your trade payables, and more money when you sell the company.

3. Analyze and strengthen your customer base – As I discussed in a previous article , some customers bring a lot more to your bottom line than others. Take a close look at your margins by customer, especially your largest volume customers. Take steps to up-sell higher-margin products to your lower-margin customers. Reduce customer-caused fire drills overall. And consider firing your least profitable customers.

4. Ensure you’re getting the best prices – Are you getting the best prices from all of your vendors? When was the last time you got competitive quotes on your top 10 spending line items aside from labor? And speaking of labor, do you participate in industry wage studies, such as those done by your trade association? Are you paying a competitive wage? Are you paying too much for your brother-in-law, or about to lose a great employee because you’re paying less than the going rate?

5. Identify and eliminate wasteful spending – This often involves looking at the “miscellaneous” expense category, which is usually either money that should not have been spent, or things that only benefit the executives. Sometimes it’s the owner’s “slush fund” – but the owner has no idea where the money is going.

The bottom Line is, an experienced CFO can make a significant difference for your bottom Line.

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.

One of the biggest accounting challenges faced by small businesses is caused by the fact that these organizations are small. When you’re running a big corporation with a large accounting department, it’s relatively easy to follow accounting best practices regarding separation of duties. But when very few people are involved with processing transactions, the business owner or a member of senior management needs to get involved with key aspects of the accounting process. This includes ensuring that a broad range of financial controls are in place.

Here are the financial controls that I believe are most important for small businesses to have:

• Cash Management – Bank reconciliations should be prepared on a monthly basis by someone other than the person who handles the banking, and then reviewed and approved by senior management. Companies that are victims of embezzlement schemes typically do not do monthly bank reconciliations at all, or do not have these documents properly reviewed.



For money coming in to the company, deposits should be made daily. For money going out, checks should be signed by owners or senior managers; the use of signature stamps should be eliminated or greatly minimized.

• Purchasing – Purchase Orders should be issued for all purchases. In addition, all new accounts with vendors or suppliers should be approved by the owner or a member of senior management. The person approving this account formation should also be responsible for informing the vendor that your company requires Purchases Orders for all orders, and providing the vendor with a list of personnel who are authorized to pick up purchases from Will Call.

• Inventory – When shipments arrive, the person who signs for the delivery should also note this receipt in the Receiving Log. While this is a very low-tech, “old school” tool, it is an excellent way to force the warehouse personnel to turn in the receiving paperwork. Of course, incoming shipments should only be accepted when they come with the proper paperwork. Similarly, outbound shipments should only be processed when they are accompanied by a delivery ticket or delivery receipt (which will become the customer’s receiving documentation).



Periodically completing a physical inventory is extremely important. Whether you do this once a month or once a year, you need to reconcile the physical inventory counts back to the balance in the account ledger to see if the variance is higher than what you’d expect with normal inventory shrinkage.

• Accounts Payable – When the accounts payable clerk goes to process an invoice for payment, he or she should match up the invoice with the purchase order and receiving document. Item descriptions, number, quantity and price should all be compared. The accounts payable clerk should indicate somewhere on the invoice that they have performed these steps and that they have approved the invoice for payment. Many organizations use a rubber stamp that has a spot for the person to initial to ensure this step takes place. If the invoice is for a service that does not create a receiving document, the invoice should be given to the department head responsible for ordering the service and they should indicate their approval on the invoice as well.



Once the checks have been printed, a list of all checks with the payees and amounts, along with the stack of approved invoices, should be given to the check signer. The check signer should be either the company owner or a member of senior management who is not involved with the rest of the accounts payable process.

• Payroll – Every time you hire a new employee you should have a profile sheet that shows who the person is, their rate of pay, assigned department, etc. Then someone other than the payroll clerk – preferably the owner or a member of senior management – should be the one to get the employee set up in the payroll system. 

When the payroll is being processed, the owner or a member of senior management should review an input sheet or edit report to ensure accuracy. Take your time with this step, because it’s a lot harder to fix the payroll after you push the “accept” or “send” button than before!

These are the most important financial controls for small businesses to have in place. If you take care of every item on this list, you should be in pretty good shape.

Want to bring in an outside expert to review your financial controls and recommend areas for improvement? Give me a call. As a part-time CFO, this is one of the many services that I provide.

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.

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.

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.