The Cost of the Cash Gap

This is an Article I help create that was recently posted on The Business Finance Store Newsletter.

Posted on  by Samantha Hadley

In a recent post about the cash gap, we provided an example of a company with an 80-day cash gap.

Example:

Example: ABC Company LTD
Inventory = 60 Days
Payables = 30 Days
Receivables = 50 days
Cash Gap (60+50) – 30 = 80 Days

Now, look at the financial cost this cash gap has on the company.

Cash Gap = 80 Days

Annual Sales: $1,000,000
Daily Sales: $1 million/365 = $2740 in daily sales
Gross Profit Margin: 35%
Cost Of Sales: 100% – 35% = 65%
Daily Finance Required: $2740 x 65% = $1781 cost for daily sales
Working Capital Required: ($1781 x 80 = $142,480)
Plus interest if borrowed:  (10% x $142,480= $14,248)
Total Capital to fund operations: ($142,480 + $14,248 = 156,728)

This business requires an additional $14,248 annually to cover the interest alone on the $142,480 of working capital they require. However, lets look at the same business, if their cash gap were reduced to 50 days, rather than 80 days.

Annual Sales: $1,000,000
Daily Sales: $1 million/365 = $2740 in daily sales
Gross Profit Margin: 35%
Cost Of Sales: 100% – 35% = 65%
Daily Finance Required:  $2740 x 65% = $1781 cost for daily sales
Working Capital Required: ($1781 x 50 = $89,050)
Plus interest if borrowed: (10% x $89,050 = $8,905)
Total Capital to fund operations: ($89,050 + $8,905 = $97,955)

This company has now saved $5,343 annually in interest and $58,773 in operating costs, simply by reducing the cash gap. So how do you reduce the cash gap in your business?

Increase Payables Period

What does this mean? It means the time you receive from your suppliers before you have to pay them. The most common trade-term offered is 30-days. Do not be afraid to negotiate and ask your suppliers for this time. You are their customer and they need your business as much as you need theirs.

Another way to increase your payables period is to utilize credit or charge cards in your business. Using a credit card to pay for goods from your supplier will provide you with a 25-day interest free period. Research the different options on the market today as some business charge cards offer up to 55 interest free days. Nate Thorne of CFO OnCall LLC also advised that paying credit cards off each month eliminates interest payments as well.

Decrease Receivables Period

What does this mean? The time your customers take to pay you. There are several ways to entice customers to pay earlier. If you have some room in your profit margin you can offer customers a discount such as 1% to pay at the time of purchase. As well, accepting credit cards from your customers allows you to receive your money quicker, while offering payment terms.

Nate Thorn also suggested being proactive in your receivables. If you have customers that usually pay in 30-days, call them ten to 15 days early to remind them of the payment coming up. This will help reduce the amount of customers paying you late.

Increase Inventory Turnover

Out with the old and in with the new. Do you have specialty product that has been sitting on your shelves forever? Sell it at a discounted prize and purchase inventory that sells faster.

These are simply three ways to reduce the cash gap in your business. The cash gap can be costly and a growing business with a growing cash gap is deadly. Factor this gap into your business plans, pay attention to it and ways it can be reduced. Create a cash flow budget, keep it up to date, plan for gaps and be prepared, so the cash gap doesn’t take over your business.

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The Cash Gap: Identifying and Eliminating It

By Samantha Hadley

The cash gap exists in all small businesses. It is the time between you paying for your product or materials and the customers’ payment clearing into your bank account. For many small businesses this cash gap could extend from 30 to even 90 days. During that time, businesses are financing the money through lines of credit, credit cards and business loans.

A cash cap can costs a business a portion of their profit. In small business, profit is the only thing fueling you and the businesses growth. This is especially true for businesses that do not factor the cost of money into their profit margins.

“Most companies figure the price of their product like this: (material cost + Labor + selling cost + overhead + profit = Price)” said Nate Thorne of CFO On Call, LLC. Unfortunately this figure does not factor in the cost of financing over time. Although this cost is small on a monthly or daily basis, it adds up over the year.

Over time this cash gap can bleed a business dry. Thorne created his business to offer this kind of advice to small business owners. So far he has found many businesses that are having trouble can begin there, internally in fixing their finances for the future.

How to Calculate Your Cash Gap

Day one will be the day your cash goes out, this is when you pay your supplier for the product. Add the amount of days for the product to reach the customer. Then add the amount of days you provide for your customer to pay you. Your total is your cash gap. (Also illustrated in the picture.)

If your cash gap is 30-days and you are paying 2 per cent per month on your line of credit, over the course of one year, your cash gap is costing you up to 24 per cent of your yearly profit margin.

Eliminating the Cash Gap

As a small business owner there are various ways you can reduce or eliminate your cash gap.

  • Set-up credit terms with your suppliers.
  • Offer cash discounts for customers that pay immediately upon receiving the goods or service.
  • Be proactive in your receivables, if your customer has a 30-day term, contact them at the 15-day mark.
  • Use financing programs that offer you more time, such as charge cards with longer payment terms that are interest free.
  • Take deposits on goods and services to limit the amount of funds you are financing over the period of your cash gap.
  • When pricing products or services, factor in the cost of financing money over time.
  • Develop a partnership with a 3rd-party financier so you get your money sooner and the financier worries about the customers payments.

The cash gap can be detrimental to a small business.

‘When the cash gap is properly managed, a business will make a profit,” Thorne reiterated. Look internally, as well as externally and be proactive in tracking, managing and reducing your cash gap.

Via: Business Finance Store

Beyond the Dollar: Bitcoin and Your Small Business, Part I

By Clay Wyatt

If you have read a newspaper in the past few weeks, chances are you have heard of Bitcoin. But, beyond all the hoopla and scoffing of ivory-tower economists, is this something you should be interested in as a small business owner?

Never fear, we’re here to break Bitcoin down and see what all the fuss is about!

Origin of Bitcoin

Bitcoin

In 2009, an anonymous programmer created Bitcoin in the wake of the global financial crisis. (S)he wanted to create a currency independent of any central bank or financial institution.

Independence and anonymity appear to be the key drivers for Bitcoin. On the independence front, the likely motive was to weaken the grip various central banks have on the global economy, which many view as self-serving at the expense of the people. Take our own Federal Reserve which, as it admits on one of its own sites, is “an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government.” Basically, it is a collection of private bankers with a major conflict of interest (which, some suspect, resulted in the massive bailouts of recent years), and is partially foreign-owned (another conflict of interest in the eyes of many).

On the anonymity side of the equation, the original person (or perhaps group) who created Bitcoin is not known to this day. In limited communications, (s)he revealed Libertarian leanings, which typically goes hand-in-hand with mistrust of authority. And, as many Libertarians suspect a connection between the deaths of several historical leaders and their efforts to alter the existing financial order, chances are slim this person or group will ever self-reveal.

Value of Bitcoin

Bitcoin has shot up in value in recent weeks. How much so?

Originally, one dollar was worth nearly 1,310 Bitcoins. As of this writing, the value has surged exponentially and a single Bitcoin is worth over $218.

To illustrate, suppose you were feeling lucky on the first day Bitcoin became available. You had a great month and pumped a spare $200 into Bitcoins in case the currency every took off. Your investment would have taken off, indeed, and you’d now have over $57 million!

Why the Sudden Surge?

Most recently, the events in Cyprus have sparked increasing interest in Bitcoin. As Fox News reported on April 8, the government in that country is contemplating confiscating a percentage of its citizens’ bank accounts to solve its financial woes. With this in mind, citizens in Cyprus and other worried Europeans have begun taking their money out of banks and entrusting their wealth in the Bitcoin system, sending the value of this digital currency skyward.

Is Bitcoin Legal?

All of the above information is little more than entertainment if you cannot legally use Bitcoin. Fortunately, you can.

According to Fox News, the US Government has issued its first guidelines for private digital currencies. Effectively, this means it recognizes Bitcoin and other similar currencies and has decided not to prohibit their use at this time.

Still, the future is not certain and it is hard to imagine those with an interest in keeping the dollar on top won’t begin to fight Bitcoin. Then again, as a stateless currency, it remains to be seen whether any government-imposed limitations would be effective. So, if you decide to use this digital currency in your small business, pay close attention to developments as time goes on.

Do Any Businesses Use Bitcoin?

Until recently, Bitcoin was typically used mostly by businesses you’ve never heard of and the underground economy. However, several major companies are now on board.

According to PC World, Etsy, Expensify, Mega, Reddit, WordPress and other well-know companies now accept Bitcoin. If a heavy hitter like Shell or Wal-Mart joins the ranks, all bets are off.

Pros and Cons of Bitcoin for Your Small Business

Let’s take a look at the pros and cons of using this digital currency.

Pro: Increased Payment Options

Adding Bitcoin to your list of accepted payment methods will provide increased flexibility to your customers.

Think of this along the lines of the relatively new trend of “tap-and-go” smart phone payments, given that Bitcoin is another payment option for smart phone users. As use of this currency becomes more widespread, lack of acceptance could place your small business at a competitive disadvantage.

Pro/Con: Fluctuating Value

The ever-changing value of Bitcoin in relation to the dollar can be a benefit or drawback.

At the present time, it is a major benefit. In less than 24 hours (as of this writing), the price has surged nearly 17 percent. So, for example, if you sold two Bitcoins (~$380) worth of goods yesterday, you’d have effectively earned over $60 in interest on your sales in a day. Not bad!

On the other hand, some speculate we’re nearing a bubble. So, if the dollar value of Bitcoin were to drop, your revenue would effectively fall with it.

Con: Pricing

If you permit customers to pay in Bitcoins, you’ll have to come up with a separate pricing list.

Con: Accounting

Accounting, particularly from a taxation standpoint, is a major gray area for Bitcoin and there is no clear set of best practices on the matter. As such, speak with an accountant to determine your best course of action if you choose to accept this currency.

The Bottom Line

In just a few years, Bitcoin has risen from the depths of the Internet to a widely-used alternative to the dollar. And, with recent events in Europe facilitating a rapid growth in demand along with recognition from the US Government, it appears it may be here to stay.

It would be foolish to go all-in and accept only this currency. Yet, if your accountant is on board, consider implementing it as one of your payment options. After all, most people will still pay in dollars, so your risk will be fairly minimal.

Stay tuned for part II of this piece, which will discuss how to accept and use Bitcoin.

Via: Business Finance Store

Gain Trust With Your Customer and Grow Your Business Simultaneously

By Antonio Javier

Trust is the foundation for any company. When customers do not trust the company, its mission, products and services, clients will walk away and customers will shop elsewhere. Gain the trust of customers and your company is on the right path for success and growth. Adopting security features and effective methods of protecting client information are essential for gaining trust. Identifying companies that excel in data and privacy protection will help you emulate those strategies.

Most & Least Trusted Companies

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Companies that are the most authentic with the greatest amount of trust are often the most successful and profitable. According to Ponemon Institute, protection against ID theft plays a key role in combating privacy concerns and building trust. When a company has excellent identity theft protection, confidence in security not only increases, but confidence in products and services increase as well. Companies need to take measures that gain trust by reducing the risks of exposed sensitive client information.

According to Lance Whitney on CNet.com, companies in the Internet and social media industries are the least trusted companies for privacy. Reasons for distrust stem from geo-tracking tools, data breach notifications and data shared without consent.

Mozilla, however, is the most trusted Internet company because of the extensive measures taken to reduce security risks and enhance privacy protection. The non-profit takes a trusting online environment seriously and strives to always provide products and services that users can rely on.

Trust, Protection & Credibility

Although many Internet companies have struggled with consumer trust online, re-establishing client confidence is possible. According to Alice Hansen, a contributor for INC.com, providing real information when dealing with online clients enhances trust and provides credibility. Offering real data, including contact information and names, can reduce distrust and skepticism. Use a real name and offer details about top management officials on the company website, for example. Companies that are open and communicative with clients and customers will be recognized as trustworthy and worth doing business with.

Beyond providing detailed information, Alice Hansen suggests that companies also provide a clear and comprehensive privacy policy. Provide a short statement about how personal information is used when customers shop and make purchases online, for example. Clearly listing the privacy policy and providing a contact page for inquiries will also ease user concerns. Feel free to link to a more comprehensive private policy that gives customers details about how information is treated by the company and how it is protected.

As a company that values customer confidence, offer premium online security features. Optimal safeguarding practices make it easier to avoid the risk of security breaches. Online companies should install anti-virus and anti-spyware protection. A superior business will always protect the interests of the client. Provide clear details about privacy policies, adopt safeguarding customer data as your top priority and communicate your dedication to that responsibility to your users.

This guest article is courtesy of Matthew Bryant, a freelance writer from Kansas.

Via: Business Finance Store

Small Business and Real Estate Loans

Get a Commercial Real Estate Loan for Your Small Business -- stock.xchange

Get a Commercial Real Estate Loan for Your Small Business — stock.xchang

Article written by Deborah S. Hildebrand Harris

Las Vegas dentist Chris Cozine wanted to cut costs after the Great Recession. He found an unlikely way: He ditched the office he was renting and bought 6,600 square feet of his own. 

Besides improving his surroundings – he left the gray walls of the old place in favor of an open layout with modern glass tiles and a mix of colors – Cozine is paying $1,800 a month less on the mortgage than he was paying in rent. 

“I save money, but the icing on the cake is that the office decor is of my choice,” Cozine says.

This story appeared in the Huffington Post in July 2012. However, Cozine is just one of many small business owners who have opted to buy instead of rent their office or business space. Just like renters who become homeowners, buying property is often a better, wiser, choice.

Find the Right Real Estate Loan for Your Needs

Recent news reports indicate that small business lending is on an upward climb. This includes commercial real estate loans under $1 million. That means now is a good time to get the loan you need. Here are some of the loans you might consider depending on your individual situation.

Type of Loan

Description

Purpose

Lender

Purchase money loan A private loan between the buyer and seller. Generally used when you can’t qualify for a traditional bank loan. Seller
Refinance loan Paying off an existing loan with the proceeds from a new, updated loan for the same amount. May include a “cash out” portion. To obtain better terms and rates when the market changes. Banks and other financial institutions
Bridge loan A temporary, short-term loan, typically with larger upfront fees and higher interest rates. Used until you secure permanent financing or remove an existing obligation. Private money and sub-prime lenders
Mini-perm loan To buy property or build on it. Used to establish an operating history to obtain a term loan. Banks
Second mortgage A second loan on the same property. Used for debt consolidation or to obtain cash equity. Banks and other financial institutions
Hard money loan The value of the property backs it, not your creditworthiness. Usually offers lower loan-to-value (LTV) ratios, but higher interest rates. Considered by some to be a loan of last resort. Private lender

The type of commercial property you purchase – retail, multi-family apartments, industrial, office, or something else – will have a big impact on your loan terms and conditions.

Lenders are not in the real estate business. If they have to take ownership of the property, they’ll want to liquidate it quickly to reduce their loss. Therefore, office buildings and strip malls are easier to turnaround than churches and auto dealerships.

SBA Loans for Commercial Real Estate

One of the best choices for entrepreneurs and small business owners when it comes to commercial real estate loans is the Small Business Administration (SBA). They offer these commercial-property financing options.

Description

7(a) Loan

504 Loan

Purpose Owner-occupied commercial real estate purchase, refinance, or construction Owner-occupied commercial real estate purchase or construction
Loan amount Up to $5 million Up to $11.5 million; higher for qualified manufacturing firms
Interest rate Typically, prime + a margin not to exceed 2.75% Generally 3% to 6%
Term Up to 25 years Up to 25 years for real estate; 10 years for equipment
Prepayment penalty Yes Yes
LTV (lesser of appraised value or the selling price divided by mortgage amount) Up to 90% Up to 90%


Keep in mind that the SBA is not a lender. Their purpose is to guarantee the loan. Lenders — banks, credit unions, private lenders — are responsible for setting the interest rates. 

Factors Influencing Your Real Estate Loan

As you look for a commercial real estate loan, consider these factors:

Buyer. Determine if the buyer is you or your business entity.

Cash flow. Cash generated by your business is the number one criteria used to determine the amount of your commercial real estate loan.

Collateral. In addition to a down payment (see below), you may need collateral such as business machines and equipment, accounts receivable, or even personal assets. 

Documentation. Be prepared to provide income statements, balance sheets, statements of cash flow, and tax returns for the last three to five years. Additionally, you may be required to supply this information on a regular basis over the course of the loan.

Down payment. As with any real estate loan, the larger the down payment the better the terms, conditions, and amount of the loan.

Lender size. Some experts suggest matching the size of the loan with the size of the lender. Small loan means small lender, and vice versa.

Loan amount. Clearly identify your property needs and then thoroughly research real estate in your area.

Repayment plan. Know how you will repay the loan before you get it. Otherwise, lenders will likely hesitate.

Terms. Be sure you understand all the loan terms, conditions, and covenants before you accept the loan.

Steps to Ensure You Get the Best Commercial Real Estate Loan

When it’s time for you to secure a commercial real estate loan for your small business, you may want to follow the advice from this All Business post:

  • Thoroughly research your loan options by starting with your own banker and the SBA
  • Hire a commercial real estate lawyer to help you understand and negotiate the best deal
  • Have a business plan and the proper documentation
  • Be prepared to invest your own money
  • Analyze your cash flow

Taking the time to get the help of a commercial real estate expert before you decide can get you the best property and loan for you. As Cozine says in the Huffington Post article, “I look at my office as a retirement nest egg.”

Source: The Business Finance Store

The Advantages and Disadvantages of Equity Financing

By Clay Wyatt

Equity financing involves exchanging ownership of your business for funding. In other words, you must sacrifice a percentage of your business (including profits) to a third party to raise funds in this manner. Typically, you can get this type of funding from angel investors, employees, family and friends, industry colleagues and venture capitalists.

This form of financing comes with numerous advantages and disadvantages. These are as follows.

Advantages

No Debt

For business owners who wish to avoid debt, equity financing does just that. By taking on investors instead of loans, you won’t have any debt obligations.

Outside Assistance

Anyone who invests in your business will want it to succeed. Thus, an angel investor, industry colleague or venture capitalist with related experience may offer valuable tips to help your business grow.

Improved Employee Performance

If employees invest in your business, they’ll have an extra incentive to perform well. This is why many businesses offer employee stock plans.

Disadvantages

Regulatory Burden

There are complex legal and regulatory issues involved in the process of equity financing. Complicated reporting is needed for investors at the end of each fiscal year, meaning that you’ll have to hire an accountant to deal with it!

Decreased Control

By enlisting investors, you’ll decrease the amount of control you have over your business. An investor will generally want some control over the outcome of his or her investment.

Note that a professional investor and even Uncle Joe may become very demanding. For example, if you want to close down for 2 weeks for a vacation, will an investor with 20 percent equity be comfortable with the foregone revenues?

Additionally, there are times when investors force out the original owner, which means you could have to send out resumes again if things start to go downhill!

Conclusion

Equity financing has numerous advantages. With it, you’ll avoid debt. Also, you’ll potentially gain expert advice from investors, which could increase the success of your business. Additionally, if employees invest in your company (now or in the future), they’ll have an extra incentive to perform well.

On the downside, Uncle Sam will put up some red tape via the mentioned regulatory burden. Also, most importantly, you’ll lose some control of your company. This is the largest risk you’ll face, as it could result in you being kicked out of the company you built!

Carefully consider the advantages and disadvantages of equity financing before deciding whether or not to use it. In a nutshell, if you can live with others having a say in your business and can deal with some extra regulations, then you can avoid debt and possibly get some expert advice.

Via: Business Finance Store  

When Should Business Owners Outsource CFO Services?

August is here and it is time for another blog. Many business owners are very good at what they do and are very busy doing it. Accounting and financial analysis is the last thing they have time to do. When is it time to bring in a CFO that can provide the expertise to give them that financial competitive advantage? I found this great article that answers that question. Give it  read.

When Should Entrepreneurs Outsource CFO Services? by Ravi Patel
 

   

Entrepreneurs start businesses with a new product or service idea and often have skills related to engineering, manufacturing/delivering, or marketing that product or service. Rarely do entrepreneurs commence businesses because of their financial expertise, unless they provide a financial service or product.

As the business idea is crystallized and the company starts growing, entrepreneurs definitely require financial and accounting services that are either developed in-house or outsourced. These functions in the young company are sometimes paid very little attention and are treated as a “bookkeeping” necessity. As the company grows, the operations portion (billing, collections, payables, payroll, etc.) of the accounting function becomes more defined and structured. A Controller is hired to supervise the accounting staff and prepare the monthly financial statements and handle compliance issues. The “CFO” functions are often performed by the CEO (used synonymously with entrepreneur in this article) as a full-time CFO is not deemed necessary or financially justified.      

In fact, CFO services are needed, though not necessarily full time, during the initial stages when a company is started. The need continues to increase with the growth of a company and ultimately a full time CFO is required. Outsourcing CFO Services until a full time CFO is hired is often the prudent course of action.     

As the entrepreneur explores the idea of starting a company, he/she has the product or service expertise but needs guidance on the financial strategy and modeling the business aspects of the potential opportunity. A CFO type advisor can guide the entrepreneur on setting up the proper business and financial structure initially so significant, expensive changes do not have to be made later on. The consultant can also assist the entrepreneur in formulating the appropriate financial organization and internal controls from the beginning. This should provide a template for building the finance function as the company grows.   

Once the entrepreneur starts generating revenues and decent cash flows, he/she starts thinking about raising funds to grow the business. A solid business plan is essential for such efforts, whether for equity or loan sourcing. Utilizing outsourced CFO services is ideal for assistance in preparing business plans and making professional presentations to funding sources. A CFO advisor can also provide useful funding contacts to the entrepreneur and help the CEO in building the finance and accounting organization, including hiring a Controller, to satisfy equity infusers or lenders.       With a stable company and years of acceptable growth, an outsourced CFO can supplement the Controller in an organization by providing the entrepreneur with independent reviews and assessments; special projects in areas of new product/service investments; business/financial analyses; or even help in troubleshooting areas of financial concern, such as business downturns. The entrepreneur benefits from the services of a CFO without having to invest in one and often expediting the performance of necessary tasks, without the need for the CEO or Controller detracting from their day to day responsibilities.     

Until such time that an entrepreneur hires a full-time CFO, an outsource CFO provides an independent, objective advisory relationship and sounding board to the CEO. Such a relationship is valuable to the entrepreneur as it allows him/her to utilize the experience and skills of the consultant for positive change and avoid making significant mistakes made by other growing companies. Even with a full-time CFO position in the organization, the outsourced CFO fulfills a need during transitions or vacancies. 

     The consultant who provides CFO outsource services becomes a useful ally and a stakeholder in improving the profitability, enhancing the value, and financial growth of the entrepreneur’s business■  

New Blog – Outsourced CFO’s are Smart for Business

Happy 4th of July!

I was looking for some ideas to post on my blog and came across this great article

from Mark Ferguson on Ezinearticles.com. It is a great article about why outsourcing

is good for business and the benefit of Outsourcing a Chief Financial Officer.

Give it a read.

Running a business takes many skills sets, and business owners, eager to keep costs in check, try to do it all. From hiring decisions to compiling financial statements, owners spread themselves thin running from task to task. The upside? There’s no large salary tied to people holding specialized positions. The downside? Each task gets but a fraction of the time it deserves – and requires.

According to the Harvard Business Review, outsourcing is one of the most important management ideas and practices of the last 75 years. Companies using outsourcing cite innovation as their number one reason for bringing in a fresh perspective to key company functions. Business owners and executives say they derive these four benefits from outsourcing:

1. Outsourcing allows companies to focus on what they do best – their own core competencies.

2. Companies achieve greater efficiencies without adding people or technological resources.

3. Outside expertise helps companies become more profitable, thereby increasing company or shareholder value.

4. Outsourcing offers increased service levels within company functions.

One of the most critical functions in a company – especially one transitioning through one of the growth phases – is that of the financial officer. A Chief Financial Officer (CFO) typically focuses on how efficiently a business is operating. While some business owners view this function as a reporting function – one where the CFO merely is a score keeper of how well the business already has performed, that’s just where CFO duties begin.

A CFO takes the historical financial data (also known as financial statements and other typical recording reports), combines that information with operating practices, and analyzes areas where the company could – and should – make changes that affect profitability, productivity and efficiency. The CFO with top-notch business sense can dramatically impact a company’s bottom line.

Companies nearing the half million up to the $5 million revenue mark often find they can benefit from the services of a seasoned CFO, but can’t – or don’t want to – afford the $125,000+ these professionals typically demand for a salary. Some business owners, realizing that they do not have the resources to hire a full-time CFO, simply accept this and vow to grow their businesses so they can hire a CFO in the future. Smart business owners recognize that if they want to reap the benefits of an experienced, results-producing CFO, they must look for a more creative way to do it.

These smart entrepreneurs regularly make outsourcing work for them. They understand the importance of leveraging their money while obtaining critical tools for success. Many times, the cost savings accompanying qualified CFOs makes the decision that much easier.

Outsourced CFOs sell their time by the hour or on a monthly basis -four to eight hours a month, for example, at an agreed-upon fee. CFOs can isolate areas of concern that the business’s accountant wouldn’t (and possibly couldn’t) detect until tax time. Even the closest accounting advisor isn’t privy to day-to-day business practices.

CFOs can have a positive affect on the outcome of major business decisions. For instance, companies facing reorganizations or mergers need to have access to real numbers associated with these events. They also need to know how to leverage available resources with company debt. Skilled CFOs handle these issues regularly and can bring much-needed expertise to company owners and executives as they make short- and long-term decisions.

Other areas offer opportunities as well. Purchasing agreements sometimes can hurt the well-intentioned company manager. If a company makes larger purchases because of negotiated lower prices on products and the trade off is a shorter pay schedule, CFOs can isolate this scenario as the key reason why a company could constantly be in a cash crunch.

Finding a qualified CFO may be as far away as a phone call to your CPA or accountant who offers outsourcing as a credible service component for companies like yours. Today, some firms offer the services of experienced CFOs who have retired and now work as temporary workers – much like you would hire a secretary on an as needed basis. Whichever route you take, financial matters aren’t the only areas where an outsourced CFO can lend advice. CFOs can help your business in several critical areas including:

· choosing appropriate accounting software,

· deciding whether leasing or buying equipment is best,

· how to compensate company officers,

· how to handle company collections,

· how to handle cash flow and how to balance company debt with receivables, and

· how systems can be improved to improve productivity.

While hiring a CFO for a short amount of time may get you past a cash flow crunch, help secure a much-needed loan or initiate systems that increase productivity, experts agree that to get the most out of your investment, you should commit to your outsourced CFO arrangement for at least a year. An experienced CFO often can impact your business in less time than an average work day or approximately eight hours.

If you are a business owner currently functioning as CFO, think of all the things you can do with your leveraged time.

· Spend time with valued customers to ensure their continued business.

· Attract and win new business.

· Develop new products or services.

· Work on operational or financial projects to make your business more profitable or accelerate its progress toward your growth goals

Bottom line: the choice to outsource comes down to dollars and sense. When companies add a CFO’s salary to a benefits package complete with annual bonuses, the price tag is high. And, not all CFOs are equal- navigating the maze of available CFOs can leave you dazed and confused. Keep in mind that CFOs possessing business performance management knowledge add an extra dimension that positively affects other areas of your company, including productivity, operating efficiencies and internal systems.

It takes time to make the decision to outsource a critical management position. Aligning company growth goals with the operating budget, and comparing that to the benefits an outsourced CFO can bring to the picture, enables you to determine if outsourcing is right for your company. If you still aren’t sure, call your accounting business advisor to discuss the pros and cons of this type of arrangement.

4 Signs You Need a CFO

I found this articale by Ken Kaufman of CFO Wise.  I couldn’t agree more with what

Ken is saying.  I have reposted it in my blog.

Many business owners and entrepreneurs struggle to find the right time, both financially and operationally, to hire key executives and managers in their organizations. Hiring too early wastes company resources and often either leaves the new hire bored or stuck doing mundane and low-level tasks. Hiring too late usually results in undue pressure on the other members of your team and could cost the company money in terms of hard costs and missed opportunities.

In addition to trying to find the right time to create these new positions in your company, the accounting and finance tasks are sometimes the most confusing and least understood by business owners. Why? Because business owners have never worked in those types of jobs and they are usually focused on making and then keeping promises made to their customers.

Hiring a Chief Financial Officer, or CFO, is one of the most important decisions a CEO or business owner can make. The CFO usually becomes one of their most trusted advisors and plays a critical role in the success of the firm. Knowing when to hire a CFO can be a challenge, but here are a few signs that you need to bring a finance executive on board, even if it is on a part-time or contract basis.

1. You can’t sleep at night.

I know a lot of entrepreneurs and business owners, and I have found one common theme for them losing sleep: the anxiety that comes from not knowing. One of these business owners saw his bank account declining, but he did not understand why. He experienced great anxiety over not knowing what the real problem was so that he could fix it. When he learned that several of his customers were delinquent with payment, he started making phone calls and turned the cash situation around within a few short days.

Even if entrepreneurs have problems, they can usually still sleep. They always lose sleep when they experience anxiety over the unknown in their business. A CFO will become the champion for measuring every critical element of a business, and they will work with the CEO or business owner to solve problems as they arise.

2. You are confused by mixed signals about performance.

Have you ever thought your accountant, who just told you that you lost $20,000 last month, was crazy? After all, you checked your bank account this morning and it had balance of $50,000. If these or other indicators of your business performance conflict, it may be time to hire a finance executive to put all of this information into context, analyze it, and summarize the financial position of the company in terms of the past, present, and future. A CFO will understand all aspects of your business — not just the numbers. The CFO is usually one of the leaders in any company that breaks-down organizational silos and operates from a holistic and results-based perspective.

3. You realize the accounting and finance functions needs to be a competitive advantage, not a necessary evil, of your business.

Accounting and finance are an overhead expense that does not add revenue or profit to the company, right? After all, the only reason you bother to track this information is so that you don’t get in trouble with the IRS, right? Business owners and entrepreneurs frequently feel this way, but nothing could be further from the truth. When structured and functioning correctly this area of the business can be one of the firm’s greatest competitive advantages.

For example, empowered with the right data, an entrepreneur recently made a very wise business move that went against the grain of accepted management practices for his industry. The result — he saved his company a lot of time, resources, and, most importantly, cash flow because he used the information from his accounting and finance department to make the right strategic decision. Many of his competitors, however, did not know their numbers and they have suffered significantly from their poor decisions.

4. You struggle to understand and plan for the future.

In his article, Difference Between CFO and Controller, Ben Paramore explains that CFOs are focused on planning, modeling, forecasting, and preparing for the future. Sure, a good CFO understands the past and the present, but those are only tools to steer the company in the best direction moving forward. If you ever plan to ask a bank or an investor for money, these parties will expect you to project your profit and loss, balance sheet, and statement of cash flows into the future to determine how much cash you will need from them, what it will be used for, and when they might anticipate getting their money (and hopefully a nice return) back. Your CFO should anticipate this and help you guide your business in the best direction possible.

With the option for start-up and emerging businesses to hire a part-time CFO, having a CFO has become more realistic for most businesses. Bringing the right CFO into your business will likely be one of the best decisions you make.

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