Surveys show that greater than 75% of companies have done nothing or very little in regards to succession planning. Business leaders who want to stand apart realize that successful companies have continuous value beyond the current leadership. Having a mindset that you are preparing a company for an eventual sale gets leadership to focus on improving the overall business.
Progressive financial management enables business leaders to view business finance and operations through a set of strong binoculars versus a rear-view mirror. In addition to the static annual budget, it is becoming imperative for companies to integrate rolling forecasts as a critical tool for managing business operations.
Business owners rank access to capital as the most important issue facing privately held companies. A highly-skilled CFO Consultant can significantly increase your company’s chances of obtaining the needed financing. According to a poll of 1,221 entrepreneurs released this month by Pepperdine University, in the past six months, only 17% of loan-seeking businesses with less than $5 million in annual revenue landed bank financing, and 37% of respondents from privately held companies with revenue greater than $25 million have successfully secured bank loans during this same period.
Many entrepreneurs spend their entire lives creating a company and then watch their life’s work slip away in a downturn. Few realize it at the time, but the single most important decision of their career may be whether to engage a CFO Consultant as a “turn around advisor” to help when their company falls on hard times. The traits the CFO Consultant must bring to the table include significant financial and operational expertise as well as experience in handling restructuring or crisis situations.
CEOs, owners and management of small to medium-sized businesses know their business and their customer needs very well. However, most businesses in this category have financial management needs that are beyond the knowledge, expertise or the experience of the in-house accounting staff. Most businesses in this category do not need either the large cost or the full time commitment of a permanent CFO. Turning to your CPA firm may help with limited scope matters, however, CPAs lack both the skills and experience that a talented and experienced CFO brings to the company. Companies in this category in general do not understand the benefits of engaging a CFO Consultant. CFO Consultants with the right skills and industry experience bring financial expertise to these companies at a fraction of the cost of a full time CFO. The ROI to companies that engage a CFO Consultant can be huge.
One of the most important issues companies face is how much to charge for their products and/or services. Pricing strategies impact every aspect of potential growth and financial success. Pricing strategies should be examined on an ongoing basis to determine if overall objectives are being achieved. Having the proper financial benchmarks and well defined growth and profitability goals are critical to sound pricing policies and practices.
Once found mainly in federal contracts, bonding requirements have become more widespread and require significant financial discipline. Unlike a lender, which is concerned about a borrower’s overall financial stability, a bonding company focuses a company’s ability to perform on a specific job(s). The surety wants assurance that a job is on course with project estimates as to time, costs and estimated gross margin. In the short term, a surety will view a contractor’s job status schedule more importantly than the company’s overall financial statement.
The main aim of financial management is to successfully achieve the various goals a company establishes at any given point of time as to growth, debt levels, profitability, cash flow, investments, etc. From an organizational point of view, the process of financial management is associated with financial planning and financial control. Financial planning seeks to quantify various financial resources available and plan the size and timing of expenditures. Financial control refers to monitoring cash flow. Managing the sources and movement of funds in relation to a budget or forecast is essential for a business.
Working Capital Management
Cash is the lifeline of your company. If this lifeline deteriorates, so does your company’s ability to fund ongoing operations, reinvest and meet capital requirements and payments. Understanding your company’s cash flow health is essential to making ongoing as well as critical business decisions. A good way to judge your company’s cash flow prospects is to understand your working capital management (WCM).
What Is Working Capital?
Working capital refers to the cash your business requires for day-to-day operations, or, more specifically, for financing the conversion of a service company’s direct costs into billable services, or inventory into finished goods, which the company sells for payment. Among the most important items of working capital are levels of inventory, accounts receivable and accounts payable.
Cash management is ultimately about cash flow — and very few small and medium-sized businesses are awash in cash. Even successful, growing companies are vulnerable to cash flow problems as they deal with the working capital issues of an increasing employee base, growing accounts receivables and capital expenditures. Without best practices of cash management, including a clear picture as to prospective cash flow, companies run the risk of depleting the company coffers that lead to cash shortages.
