Recently I was a guest on the Aspiring Entrepreneurs’ Guild Podcast hosted by Thom Stimpel. Our guest today is Hugh Glazer from WinterView Group. Hugh delivers specialized services to private companies and non-profits, as a consultant/advisor and part-time CFO. He … Continue reading
While cash and profits are closely related, one is not always a reflection of the other. Developing an understanding of how cash and profit relates to building a healthy business is often a painful learning experience for entrepreneurs.
One of the first questions new companies DO NOT ASK is what do we need for financial management and accounting reports to manage my business profitably and put proper internal controls in place. (Internal controls are the basis steps and procedures that a company uses to reduce error and mistakes as well as to prevent fraud or theft from going undetected.).
All too often start-up companies go with a “quick” solution because it appears to be easy and inexpensive.
At this early starting point, investing a few hours to consult with a part-time CFO, who has business operations experience, can pay big dividends later. The PT-CFO can help you select the accounting software that best fits the early stage as well near terms needs of your company. Even if you opt for a quick solution, getting the accounts and reports set-up correctly at the start will give you the management data you need on day one and save hours of work later making changes that could have been avoided with an hour or two of conversation with a CFO resource.
Below are basic goals, objectives and types of reports you should be thinking about for your business.
- Financial reports should be issued on a regular schedule
- Cash should be recorded and reported every day.
- Today the majority of companies should have the month closed by the 10th to the 15th of the next month at the latest.
- Make getting sales invoices/billing out as fast as possible should be part of the company culture. Depending on the business daily/weekly/monthly.
- Use simple financial closing practices that reduce the need for big end of quarter/end of year adjustments.
- Data is out of date before you see it. Set up your procedures to insure that data is accurate the first time.
- All transactions should be recorded within the business day or first thing the next day for late end of day items.
- Budgets and Estimates need to be updated periodically and be available real time.
- Waiting for month end or the end of a project to end to learn if you made a profit is bad risk management.
- You need to have these reports, understand what they mean and know where data comes from:
- How much cash did I payout last month?
- How much cash did I collect last month?
- How much cash do I need to cover expenses for the next 13 weeks?
- Who are my most profitable customers/clients?
- What are my most profitable products or services?
- Who are your most profitable employees? (critical for service companies)
- How does my business development forecast compare to my budget plan and actual financial results?
- Top line Revenue Growth with no bottom line improvement is a common problem with young companies
- Sales are increasing, but the bottom line is not.
- Delays in completing reports and inaccuracies make it difficult to understand the relationship between Sales and Net Income.
- Real time data is needed to take action in a timely manner.
With a bit of planning setting up your systems and procedures to supporting your company’s growth puts you in the driver’s seat with the information you need and avoids headaches later, when is more time consuming and costly to make changes.
Know when you need a belt and suspenders.
Even well run companies can run into snags with checks and balances.
Recently a 500 person company that is very well run found itself in the unusual position of potentially being in default on provisions of its 401(k) plan.
Here’s what happened. Several current employees had not made payments on loans they had taken from the 401(k) plan for several years. As is the norm, the repayment was set up as a payroll deduction. Somewhere along the way the payroll deduction stopped. There is no documentation of why or who authorized it. Once the facts came to light the plan was in violation of several plan and legal provisions that could have jeopardized the plan’s exempt status.
When the employees made an inquiry of people in the accounting department (not HR or payroll) the person they spoke with said, “Well if it stopped, the loan must be paid in full.”
For two fiscal years the plan administration service provider never flagged this as an issue.
The situation came to light when the company decided ( for unrelated reasons) to put the plan’s admin services contract out to bid, and one of the new vendors noticed this discrepancy in their review.
So the moral of the story is check and re-check.
- Know the Importance of checks and balances for your critical processes, especially when fiduciary responsibilities are involved.
- Staff should be trained to be helpful, but must know that they should not answer questions outside of their expertise. Employee training should include keeping an eye and ear out for when a co-worker asks an unusual question and knowing when to pass this along to your manager.
“ I Know Everything” Syndrome is one of the Traits the Kill Entrepreneur’s and their Businesses.
The smart entrepreneur has a cadre of advisers to challenge her/him by asking the right questions. It’s impossible to have expertise on every facet of running a business today. Surround yourself with people who are smarter than you are who want to help you succeed. Don’t procrastinate on making hard decisions. Gather the facts, bounce it off an adviser/coach, sleep on it one night and do it. Your team can sense it if you are dragging your feet when a tough call need to be made.
Published on the TPE Blog “Traits that Kill Entrepreneurs”