Benchmarking can be as simple as selecting a few key operating ratios by which the company wants to measure its results and management of assets. For example, a company sets P&L % of sales benchmarks for gross margin, SGA, and pre-tax profit. Actual results are then compared to these benchmarks with deviations explained. This type of “high-level” benchmarking focuses management on achieving targets, and also highlights areas of potential operating weakness.

Benchmarks should be established for the balance sheet as well. For example, days sales outstanding (DSO), days payable outstanding (DPO) and days in inventory (DII), as well as days in working capital (DWC) and the current ratio are good measures to benchmark. Internal benchmarks can be established based on industry ratios as published in sources such as RMA Annual Statements Studies, or based on published results of some of the top performing public companies in a company’s industry.

Benchmarks should be established based on achievable goals that make sense in your business and your industry. Unattainable benchmarks will be dismissed as useless. Benchmarks that are easily achievable lack purpose.  I always try to set benchmarks to be on the aggressive side so that they function as a way to align the company’s management to focus on efficiency of the entire operation in generating revenue, servicing customers and managing working capital. The result is costs or processes that are not generating good returns are easily targeted. Also, with benchmarking, a company may find it is necessary to convert more of its fixed cost structure (including wages and salaries) into a more variable cost structure to reduce risks and allow for achievement of financial goals.

After benchmarks have been agreed to, then budgets should be established that present a more detailed road map as to how operating goals will be achieved. Budgets should always be compared to actual operations and deviations explained. Budgets and benchmarks will also act as an internal audit function to highlight accounting problems, such as timing issues for revenues and costs, or problems with collecting AR.

The annual budget should present both forecasted operating results and also expected cash flows. These tools provide management with the binoculars needed to see upcoming periods of deficient and surplus cash far enough in the distance to allow for planning to avoid working capital surprises. The cash flow budget should also be a component of the overall capital budget process, which determines funds available to invest in growth, pay debt and make distributions to investors.

Harvest CFO Consulting provides to companies highly-skilled CFOs who can assist your company in establishing or reviewing your benchmarking and budgeting processes.

Capital budgeting deals with the allocation of financial resources by companies to make investments that are expected to generate long-term returns. This encompasses investments for new or replacement of obsolete equipment or technology, expansion of existing products or markets, expansion into new products or markets, or investments in research and development. The goal of preparing a capital budget is to select those investments the company believes have the best chance of generating returns that exceed the opportunity costs of capital. 

Capital budgets compile the expected cash outflows and inflows of project alternatives over a period of years.  These cash flows are then discounted back to their “present values” using discount rates equal to the opportunity costs of capital. If a proposed project has a net positive net present value (NPV), then this indicates that the expected cash flow from the project will earn more for the company than the cost of capital to finance it. If there are multiple projects with positive NPVs, then management should select those projects with the highest NPVs.  

Other measures used for capital budgeting include payback period and internal rate of return (IRR). The payback period measures the amount of time until the invested capital is recovered.  Projects with shorter payback periods would generally be selected, as estimates of longer-term cash flows will be viewed as being more risky. However, a drawback with using payback period to select capital projects is that this method does not focus on cash flows beyond the cost recovery period. The IRR is a measure of the % of financial return on a capital investment. IRR is compared to the company’s opportunity cost of capital and projects with the highest IRR are selected. As IRR is a focus on solely the % return, it is not as useful as a measure of NPV, which focuses on the net present value in dollars.  

The single most appealing argument for the use of NPV in capital budgeting is that it gives an explicit measure of the effect the investment will have on the company’s value.  If NPV for a project is positive, this project will increase the company’s value.   

The cost of capital used to discount cash flows to present value is the company’s “opportunity cost of capital”, or the required rate of return or “hurdle rate”.  This rate of return is based on what investors could get elsewhere. There are financial formulas that compute the cost of debt, preferred stock and common stock. Retaining earnings also have a cost associated with them. To simplify this concept, after a company generates earnings, who theoretically owns that money? The shareholders, right? But when earnings are retained, management is investing these funds on behalf of the shareholders back into the company. As such, shareholders will expect some return on the money retained in the company. Their return should be at least the same amount as if they had received the retained earnings in the form of dividends, and then reinvested these funds to purchase more stock in the company. 

This is where it gets more complicated.  At this point you will need to compute the expected return on the company’s equity capital. One common finance formula computes cost of equity capital based on adding a risk premium to a “risk-free” rate of return (such as a medium to long-term government bond). The risk premium is computed as the excess expected return for the overall equity market over the “risk-free” return multiplied by the volatility (beta) for that specific investment. As beta is not published for privately held firms, utilize beta that is published for a publicly traded stock in a similar industry. With this information you will compute the expected return for a publicly-traded stock. As an investment in a privately-held company is inherently more risky as it is in most cases illiquid, you will then add additional risk premiums to your calculated cost of equity.  

For example, your company is a middle market company focused on total water and wastewater solutions for Marcellus and Utica shale unconventional oil and gas exploration and production and you are exploring investments to grow market share. A similar publicly traded company such as Heckmann (HEK) may show a current beta (volatility) of .84. Risk-free intermediate term U.S. debt returns currently return 2.0%. Assume the public equity market is averaging returns of 5%. Additionally Heckmann believes that its specific risk factors given size of company, earnings history and, more importantly, industry risks require an additional 8% expected return. As such, Heckmann’s cost of equity capital is computed as (2.0% + (.84 x (5.0% – 2.0%) +8%) = 12.5%. As a privately held firm, you would add additional risk premiums to this calculated cost of equity that may increase the expected return another 5% or more. As such, your firm’s cost of equity is 18%. This means shareholders of your company expect an 18% return on the money being reinvested for them.  

Capital budgeting is a powerful tool that can increase the firm’s probability for successful returns on its use of capital. Capital budgeting will also help a company prevent making mistakes in allocating funds to the wrong projects, such as investing in developing a new service or product that has very few entry barriers, is susceptible to obsolescence, and has increasing price pressures on current suppliers. 

For capital budgeting to be an effective tool, cash flow forecasts have to be realistic, which means conservative. The axiom that it is better to error on the side of conservatism is gospel for forecasting longer-term cash flows. This is especially true in today’s business world in which competitors and markets react very quickly. When forecasting cash flows, it is best to develop a “decision tree” in which you analyze what you consider to be potential future results. Assign probabilities to these different scenarios, and through this process management should come to agreement on the projection they feel is most likely.  

Harvest CFO Consulting will provide your company with a highly-skilled CFO to assist your company in establishing proper capital budgeting and forecasting techniques to enable your company to increase the probability of long-term success.

The CFO is the one who has to be able to translate operations into the financial numbers. The CFO needs to explain why capital is sitting in the balance sheet, or why the income statement or the cash flow statement is the way it is. He needs to be able to intelligently communicate what the statements and results mean and also about the success or failure of the organization as it tries to achieve its goals. The ability to consistently perform these tasks well, regardless of circumstances, is what makes a great CFO.

The other thing a great CFO should do is to drive the understanding of the financial metrics through the organization and also its investors including private equity backers and commercial bankers. It’s not enough to sit there and tabulate the numbers and say, “This is what we did.” How is the company improving profitability?  What drives decision-making within the organization?  The CFO is the one who can determine, even more than the CEO or in conjunction with a good CEO, what kind of metrics they want the entire organization to pay attention to – such as improving rates of return on invested capital, increased contract gross margins or revenue growth. That’s where the CFO has a tremendous amount of influence.

Good CFOs also have a strong command of the financials – or the numbers; that goes without saying. Great CFOs also convey a strong understanding of the operations and the strategic direction of the business, and are able to tie it all together. Great CFOs are much more integrated into operations and strategies.  Anybody can make a budget, and anybody can say operations didn’t come in the way they said they were going to; but the CFO who has his finger on the pulse of the operations and has a hand in the strategic direction of the company should, theoretically, have a better budget and a better idea of where things are going.  These are the CFOs who deliver value and drive financial control and add a lot more credibility, and confidence in the organization for the CEO, investors, private equity investors, commercial bankers, etc. Great CFOs give others confidence by their actions that show a deep understanding of how to not only manage the company’s balance sheet and cash flows, but also invest for the future.

One of the most important aspects of a successful CFO is that he or she has the full trust of the CEO, investors, private equity backers, commercial bankers, etc.  A great CFO has to be relatively outspoken.  CEOs and investors have to know what positions the CFO is taking on behalf of the company and where he or she stands.  Understanding the CFO’s positions today will be helpful in predicting how the CFO will behave in the future.  It can’t be a black box.

It is also critically important that a CFO has to also have the mindset and perspective of an investor and have excellent communication skills. This includes an ability to understand and construct equity valuation models for the company and communicate the impact on value that arises from decisions as to how to allocate capital, as well as the value drivers and detractors in the business. A great CFO understands how his company makes money, where to invest capital and also has deep expertise as to measuring the business and is able to impart that knowledge to investors, private equity backers, commercial bankers, etc.

Extremely important personal characteristics that make a great CFO are honesty, integrity and transparency as well as a sense that the individual is looking out for the best interest of the company, including all its constituencies, clients, employees, shareholders, etc.  Just as the value of gold has increased dramatically over the past number of years, the value of having a great CFO has also increased as the business climate becomes more competitive and demanding. Harvest CFO Consulting can help your company achieve its desired long-term results by providing your company quickly with the skill sets of a great CFO.

 Emergency Stage

 The main responsibilities of the CFO in the emergency stage are as follows:

•   Provide the bridge financing that is necessary for company survival,
•   Evaluate the company’s operating units, and
•   Restore financial discipline.

Bridge financing responsibility involves actions to assure that external and internal sources of cash are available to “bridge” the company until operational bleeding can be stopped. Cash is the lifeblood of any business, and you must treat negative cash flow like you would treat a human body that is bleeding. First, you have to control the bleeding by applying a tourniquet; then you analyze the nature of the wound, and perform the necessary surgical procedure to stop the bleeding permanently. In larger companies, this is more than an operational problem. It involves winning support of external lenders in the initial stage before the operational bleeding can be stopped. Debt re-financings involve complex negotiations, often with many banks.

The CFO must also quickly develop internal sources of cash by managing working capital more efficiently, gaining tight control over the cash flow pipeline and, if necessary, spinning off operations. The finance function is principally responsible for evaluating the viability of the company’s operating units. In a truly severe emergency, viability is predicated on cash flow as opposed to earnings or market growth. In some severe cases, even profitable units are sold off to protect the perceived “core” business of the company.

A viable core operation is needed to provide a large enough sales umbrella at decent margins to sustain a firm while its troubles are defined and corrected. The core must achieve positive cash flow or be in a position to quickly sustain positive cash flow. The CFO serves a pivotal role in forcing reality to overcome wishful thinking in troubled situations. An objective assessment is absolutely essential to avoid the kind of wishful thinking that precedes bankruptcy.

Of utmost importance in the emergency stage is for the CFO to restore financial discipline. Control of the cash flow pipeline involves controlling what goes out and stopping anything from coming in, if necessary. Accounts payable should be frozen until you have analyzed where you stand. There is no need to pay for things you’ve already received when critical items you need are being put on C.O.D.

Stabilization Stage

A CFO’s responsibility changes in terms of degree and urgency after the emergency stage is completed. Rather than cash objectives at the expense of profits, profitability takes on a stronger role; rather than debt liquidation, the emphasis is on balance sheet enhancement; rather than cost reduction, the emphasis is on profit improvement. In addition, the company in this stage has the time and resources to develop better control and managerial accounting systems. The main financial activities are as follows:

•   Liquidity improvement,
•   Balance sheet restructuring,
•   Control systems development, and
•   Managerial accounting development.

Liquidity improvementin the stabilization stage is achieved by the institution of solid management practices. Tasks include aggressively weeding out unprofitable businesses and products and selectively increasing prices on high value lines, thereby improving margins and improving earnings and cash flow dramatically.

Balance sheet restructuringcenters on obtaining additional lender debt service concessions and restoring the balance between short- and long-term borrowings. Many troubled companies develop a severe short-term debt problem by funding long-term assets with short-term debt. A turnaround company must be careful to shrink its debt service load more than it shrinks its business.

Control systems developmentmust go beyond the cash flow pipeline controls of the emergency state and concentrate on operational control systems.

Good managerial accounting does not exist in many corporations. The managerial accounting system must profile the company’s business performance by product lines, plants, customer segments, and distribution channels. At a summary level, it should be linked to the financial accounting system.

The Return to Growth

Financial management in this stage of the turnaround more nearly resembles that of a normal company. The main financial management activities are as follows:

•   Maintenance of tight financial discipline throughout the company,
•   Financial evaluation of strategic growth decisions using simple financial models.

Creative financing through workout arrangements can usually enable you to stretch beyond your apparent financial strength. Successful turnaround companies focus on using capital efficiently, and they fight margin deterioration in the face of growth pressures. What sets the outstanding performance apart is the discipline they exercise in this regard. This discipline includes constant attention to prices and costs. It also includes rededication to the balance sheet and return on capital criteria abandoned earlier in the turnaround for cash flow consideration.

Conclusion

The CFO has a most important role to play in turning around a troubled corporation. There is probably no other time when the role of the CFO is more critical, more demanding, and more professionally rewarding than in a turnaround situation. Harvest CFO Consulting provides the financial leadership that is critical for a successful turnaround.

Mezzanine finance has long been a component in creating the optimal capital structure for companies, but its importance has increased dramatically within recent years. Inflexible bank criteria have significantly increased the demand for mezzanine finance. In fact, mezzanine finance is now often the difference between successfully bridging the gap between equity and senior loan funding or losing a transaction.

Mezzanine financing, also known as subordinated debt, ranks below senior debt (typically bank debt), but above equity in priority of payment. When a company determines that it’s not capable of financing its growth plans with senior debt, the first step is to partner with a financial institution to locate an investor willing to provide capital in the form of long-term subordinated debt, usually carrying a fixed interest rate. Generally, these loans do not involve ownership or management participation; however they typically include success fees or warrants for the lender/investor to purchase equity at a later date. Most buy-back provisions for success fees or warrants are structured to give the investor more than just one type of payoff. In most deals, the value of the warrants is determined based on a multiple of earnings, or as a percentage of the company’s book value or enterprise value.

Companies in one or more of the following situations should consider mezzanine financing as an attractive supplement or alternative to senior debt or straight equity financing:

• Due to recent losses, or heavy indebtedness, the company has good growth prospects but cannot raise new senior debt without first getting additional subordinated/mezzanine financing;
• The company has adequate cash flow to service a certain debt load, but has a lack of lendable collateral that prohibits its bank from providing financing on a senior debt basis only;
• Management can obtain senior debt but only by agreeing to pay an unacceptably high rate of interest, accept covenants that are too restrictive, provide personal guarantees, or put up more collateral than the company owns or chooses to put at risk;
• Management can raise capital by selling equity but investors either are unwilling to pay what the owners consider a fair price or are asking for too much equity;
• The company’s expected growth and prospects for going public are insufficient to attract venture capital.

The benefits of mezzanine capital include:

• Non-amortizing, resulting in improved cash flows;
• Source of flexible long-term capital as mezzanine investors are more equity-oriented than senior lenders, they tend to be more amenable to customizing their investment to meet the borrower’s financial, operating, and cash flow needs;
• A less expensive, tax-advantageous alternative to equity.

Mezzanine financing offers other benefits to companies focused on optimizing their capital structures and expanding access to funding. Since mezzanine capital providers take a long-term view of a company, banks may look at firms with institutional investors in a more positive way, extending credit with more attractive terms and relinquishing the need for personal guarantees. Additionally, mezzanine investors help diversify a company’s funding relationships, reducing dependence on any one investor or lender. Harvest CFO Consulting can assist your company to determine if mezzanine financing is appropriate for your situation and also beneficially structure the financing with investors.

1.  Ability to maintain margins
2.  Cost of healthcare
3.  Ability to forecast results
4.   Attracting and retaining qualified employees and maintaining morale/productivity
5.  Working capital management
6.  Balance sheet weakness
7.  Supply chain risk

When asked about their concerns in the regulatory arena, healthcare again topped the list, with 62% of executives indicating they believe recently passed healthcare reforms will have the greatest impact on their organizations. Executives seem most concerned about the unknown variables still attached to healthcare, such as the extent of government intervention, implementation issues and the broad nature of reforms. In addition, unlike other pending regulations, healthcare reform has more of a direct impact on every business, regardless of size or industry. As a result of increased healthcare costs, a recent survey of more than 300 CFOs in large organizations found that:

• 38% percent said their companies are assuming the higher costs – not changing their plan;
• 34% said their companies are responding by increasing employees’ contributions to their premiums;
• 20% percent said they’re reducing healthcare benefits in the face of higher costs; and 
• 8 % said their companies are eliminating healthcare benefits altogether.

Companies that implemented pay cuts or freezes during the recession may be reluctant to pass the cost of higher premiums on to their employees. One private company CFO interviewed said his firm felt that it could – and should – bear the cost increase because employees had already been dealt across-the-board salary cuts and the elimination of bonuses and overtime pay. A different solution was voiced by the CFO of a publicly held consumer goods company who said his firm might have no choice but to pass costs through to the marketplace. Employees may not be able to shoulder the added expense and the company has to maintain profitability, but “somebody’s got to pay for it at the end of the day,” he said.

With healthcare costs continuing to climb at double-digit rates and with well over 50% of health care costs attributed to individual, modifiable behaviors, each employee’s engagement in their health and wellness can no longer be ignored. The health of a company’s workforce is now seen as playing a vital role in the profitability of their companies. A recent survey of executives conducted by the Integrated Benefits Institute (IBI) indicated the following as to the extent that they believe the health of their employees contributed to the financial performance of their companies:

• 45% consider the health of employees to be one of the most important factors determining the financial performance of their company;
• 30% consider health to be very important; and
• 62% consider it to be moderately important.

Furthermore, many survey respondents agreed that offering employee wellness benefits is an important way to minimize turnover and increase the return on investment associated with their workforce. In fact investing in health may be one of the best ways for employers to increase the productivity of their workforce. Numerous studies have proven that employee wellness programs provide a significant return on investment. The group U.S. Corporate Wellness estimates that businesses can expect a return of $3 to $5 for every $1 invested in the health of its workforce.

When it comes to managing rising healthcare costs, there’s no easy answer. Harvest CFO Consulting can help your organization to determine the financial and organizational impact of different approaches to cost management/containment and enable you to make the decisions that will be value-added to your company.

In its simplest meaning, asset-based lending is any kind of lending that is secured by an asset. As such, if the ABL loan is not repaid, the asset is taken. A mortgage is an example of an asset-backed loan. More commonly however, the phrase is used to describe lending to companies using assets not normally used to secure other loans. Typically, ABL loans are secured by inventory, accounts receivable, machinery and equipment and real estate. Asset-based loans are an alternative to traditional bank lending because they serve companies that have risk characteristics that are typically outside a bank’s comfort level.

Secured assets typically have an easily-determined fair market value. The financing can take the form of term loans, revolving credit lines and equipment leases. Asset-based lenders are known for taking out tombstone ads to advertise their financing in much the same way as investment banks.

Asset-based lending is usually done when the normal routes of raising funds, such as the capital markets or normal unsecured or mortgage secured bank lending is not available or cost-effective. This is usually because the company was unable to raise capital in the normal marketplace at a reasonable cost or needs more immediate capital for project financing needs. ABL is usually accompanied by higher interest rates as compared to traditional bank financing. Asset-based lending can be an effective source of liquidity and capital for funding ongoing operations as well as special financing needs including:

Acquisition - Asset-based financing is often an efficient means to obtain funding for business acquisitions.

Turnaround Financing – Asset-based lenders are typically accustomed to the bankruptcy process and asset-based financing can be ideal for turnarounds because of its flexibility.

Capital Expenditures – Capital expenditure to acquire and/or upgrade physical assets such as buildings and machinery.

Growth – An experienced and creative asset-based lender can assemble a credit facility that can scale to grow with a company.

Recapitalization – A leveraged recapitalization can be a tool to enable a company to pay its shareholders a special dividend.

Refinancing/Restructuring – There may be situations in which capitalrefinancing or restructured financing may be necessary to create a capital structure that better meets the company’s current and forecasted needs.

Buyout – In a leveraged buyout (LBO), the acquiring company uses the minimum amount of equity to purchase the target company. ABL can provide the leverage to complete the transaction at a relatively lower cost of capital.

Advantages of asset-based lending include:

• ·         Tends to feature fewer covenants with more flexibility than other types of financing.

• ·         In growth situations, the company’s collateral base (AR, inventory) typically grows, enabling additional funds to fuel ongoing growth.

• ·         ABL can instill increased financial discipline as the company is motivated to increase efficiency of secured AR and inventory via improved collections and inventory turnover.

• ·         Increased security to the lenders, which can result in more time granted to borrowers to turn a company around in difficult times.

Disadvantages of asset-based lending include:

• ·         Primarily asset-rich companies would likely benefit, while many service companies would not.

• ·         Asset-based lending tends to be more expensive than other types of financing, often three to five percentage points above traditional bank financing.

Asset based lending can be an effective financing tool in the right circumstances. CFOs need to explore all means to provide cost-effective liquidity and financing for the company’s specific needs.  A Harvest CFO Consultant can assist your company to determine if asset-based lending is a viable option given the state of the company’s capital structure, asset structure, current debt load and current and forecasted operating results.

Strong technical and operational skills are not enough to be successful as a CFO in a portfolio company. Equally important are a CFO’s leadership skills. As a key partner to the CEO, a portfolio company CFO must be a passionate advocate for the business and help keep the organization focused on executing key priorities. He or she must be a proactive leader, willing to drive the business

The CFO is typically the key player in driving value creation and improving cash flow and operational performance in a private equity portfolio company. 

Because of their intense focus on value creation, portfolio company CFOs are usually in the best position to identify opportunities to improve profit margins, cash flow and EBITDA, alert the CEO and private equity sponsors to potential problems meeting debt covenants and challenge the organization to improve business performance. Working capital and EBITDA are critical in private equity situations; therefore the CFO has to be very attuned to watching cash and guarding spending.agenda with the CEO and own the numbers — challenging the assumptions and identifying weaknesses in forecasts coming from the business units.

Private equity firms want a CFO who really understands how the day-to-day operations work and is willing to get involved in operations. They may be less concerned about having a strategic CFO or one experienced in M&A or the debt market because the firm can provide those skills. This discipline around operational or performance management is a skill set that highly-skilled CFOs bring to companies regardless if leveraged by private equity funding. Highly-skilled CFOs understand the cash business and the way cash flows through the business and creates value.

Skill sets needed to be a successful CFO include:

• Strong technical expertise, including P&L management, cash flow forecasting and debt restructuring experience
• Entrepreneurial and self-starting orientation
• Ability to develop, execute and focus team on value creation
• Risk orientation and sense of urgency
• Thrive on change and solving problems
• The leadership capabilities to translate the vision into flawless execution to deliver results
• Excellent communication and consensus-building skills to keep multiple constituencies happy
• Ability to manage the company toward the exit that creates the most value for the private equity firm
• Fortitude: the confidence and resolve to be an advocate for the management point of view

The chief financial officer plays a critical role in the success of any private equity portfolio company. A CFO with the right technical skills, entrepreneurial mindset and leadership capabilities can translate into significant additional value for the sponsors; conversely, a CFO without the operational discipline or sense of urgency can be a significant impediment to the company’s ability to reach financial targets and achieve desired returns. Harvest CFO Consulting reduces this risk by providing private equity firms highly-skilled CFOs with the skill sets to deliver high ROI to portfolio company investors.

The sole objective of the CFO is to enable CEOs to deliver to their companies continuous improved financial returns, increased cash flow, improved financial position and increased overall business value. The successful CFO is an enabler for entrepreneurial companies to increase profits, cash flow, working capital and financing sources to fund growth.  

Successful CFOs deliver value and high ROI to CEOs by:

• establishing the right financial processes, tools and practices to enable efficient day-to-day financial management and enhance controls;
• establishing the right benchmarks and ROI targets to measure operational and capital investment efficiencies;
• providing CEOs with the right historical and prospective financial and operational data needed to make critical business decisions;
• increasing confidence as to relationships with bankers, investors and other outside parties with financial stakes in the company;
• determining the best means in which to bring financial resources into the company to support growth;
• analyzing the best means to allocate resources, fund capital investments and manage working capital;
• recognizing value drivers as well as value detractors within the business and take steps to mitigate detractors and facilitate value drivers;
• providing the skilled “special ops” talent for successful execution on non-recurring significant business transactions;
• reducing management stress and burn out;
• helping CEOs and business leaders to gain a sense of financial control thereby creating a better overall working environment;
• being a partner with CEOs in reducing risk in forming strategy.

Harvest CFO Consulting brings to entrepreneurial companies the “mindset” of making good CEOs great CEOs and delivering value and high ROI to CEOs and their companies.  Just as there is expected ROI from any business investment there should be an expectation of high ROI delivered by the CFO. From an initial financial assessment through harvesting returns, Harvest CFO Consulting provides entrepreneurial CEOs with ongoing measure as to the ROI that is being delivered.  Contact us today to determine how Harvest CFO Consulting can enable you, the CEO, to fulfill your vision of building a great company and harvest success.

In general, high return companies generate increased value through growing revenues, whereas low return companies increase value by increasing their ROIC, which means increasing profitability. Growth strategies based on organic new product or new service development typically have the highest returns as these investments usually require the relatively lowest amount of capital investment. Companies can add new products to existing manufacturing lines and new services can be offered to existing customers.

The companies that create the most value over time are those that grew revenues while maintaining their high ROIC. Low return companies sometimes pursue growth strategies based on the assumption that revenue growth will increase their profit margins and returns reasoning that their growth will increase profits by spreading fixed costs across more revenues. Except for small start-up companies or companies with low capacity utilization, faster growth rarely fixes a company’s ROIC problem. Low returns usually indicate a poor industry structure, a flawed business model or weak execution. Until a company fixes its ROIC problem it should not attempt to grow. Over time, companies that had low growth but increased their ROIC outperformed companies that grew faster and did not improve their ROIC.

Harvest CFO Consulting works with companies to increase their ROIC by increasing earnings and related cash flows. We do this by implementing the financial discipline and the processes and tools to determine where a company’s capital should be deployed to maximize returns, improve sales processes and gross margins on sales, squeeze out costs that do not add value, provide the financial roadmap and ongoing measurements to ensure value is being created and put into place the financial structure necessary to finance growth profitably.