B2B CFO^®    (877) 4-B2B CFO

Host Ron Comacho speaks with George Bergmark III of B2B CFO, which connects small to mid-sized businesses with CFO resources that can provide the expertise and insight of a CFO without having to retain the resource on a full-time basis.

About six weeks ago I found myself in a position of looking for the best way to put the skills I've been working on through out my career to work for small to mid-sized organizations.  A very good friend suggested I check out B2B CFO.  I did and I liked what I saw.  I continued checking and I couldn't find any real negatives to joining the organization.

I did my due diligence.  Talked to a number of partners, searched the organization out on the internet, looked at similar organizations, talked to friends and associates.  Everything I looked at led me back to the same point.  I submitted my application for partnership and, what do you know, it was accepted!  

This week I've been laying the groundwork to get off to a running start and am excited to say I look forward to the experience.

I plan to use this blog to impart knowledge on topics that have led me to this point to help to add value to organizations in general. This would include those that are my clients and those that aren't.  I'll cover topics ranging from financial planning to ERP systems and system selection and anything in between.

Check back from time to time, you may find something that you wanted to know or is useful in your day to day operations or long term goals.

Until next time....

Jim

I would like to thank  Ken Brice of CFO Resources for writing this article and allowing me to showcase his work by contributing it to my blog.  Ken can be reached at KenBrice@CFOResources.com.

Did you know there are programs that the government has set up to incentivized companies to hire?  Of course there’s the highly visible HIRE program which was signed into law on March 18, 2010 by President Obama.  Even though it received a lot of press, many companies are not taking advantage of this free money. 

 There’s a program that’s been around since Bill Clinton’s administration where companies located in Federal Empowerment Zones or Enterprise communities are entitled to federal income tax credits if they hire anyone who lives in the same zone.  There’s an easy way to see if your company is in the zone – go to http://egis.hud.gov/egis/cpd/rcezec/ezec_open.htm , type in your company’s addresses and if you are located in a zone, you could be sitting on a goldmine.

 There’s another federal income tax credit program that’s been around for a long time – the Work Opportunity Tax Credits (WOTC) where hiring someone from a targeted group will generate up to $9,000 in tax credits over a two year window.  Typically people need to be on public assistance to qualify but President Obama included young people who haven’t been working for the 60 days prior to starting work and unemployed veterans.

 In addition, a certain number of people a company hires could be eligible for the Ticket to Work program where the Social Security Administration will pay the employer a subsidy of up to $23,000 in that individual makes at least $1,000 a month and works for 5 years.

 There are also training grants that are available to employers through the Workforce Investment Act which pay for up to 75% of an approved training program.  If you’ve always wanted to put a training program together but couldn’t afford it, this is a way to get it done.

 At the state level and local level there are a number of programs that either reduce your tax bill or generate checks to you, as the employer.  New York City, for example has a program where they’ll pay you, via check, 40% of a qualified person’s gross salary (up to a maximum of $400.00 a month) for 6 months – a total of $2,400.  What’s really amazing is that there are only 70 companies in the city that take advantage of that program.

 Texas has a Texas Back to Work Program where if you hire an eligible person, they’ll pay you, in cash, $800 if that person works between 30 and 60 days, and $2,000 if that person works over 120 days.

 Philadelphia has a unique program where the City will give you credit of $10,000 per year for 3 years if you hire an ex-felon.  That’s $30,000 in Business Franchise Tax credits for each ex-felon.

 California has their version of the Empowerment Zone credits called Enterprise Zones where if you hire a qualified individual, you can recoup a significant portion of their salary over 5 years.

 New York has Empire Zones credits, Pennsylvania has Job Creation Tax Credits,  all states have Renewal Counties, etc.

 There truly is a plethora of credits and subsidies available to employers and I encourage you to research what’s available in your state/city/locale.  Federal Programs are available for every for-profit company and a couple of them are also available for non-profits.  If you are the financial head of a company, these opportunities should be at the top of the list to implement as they truly take very little time to set up and, in most cases, do not cost anything to pick up this free money that’s truly lying around the office.

As discussed in the first of the 4 articles (The ABC's of Understanding Financial Statements-Part 1 of 4), there are always three main components to every financial statement.  They are:

1. Balance Sheet
2. Statement of Income
3. Statement of Cash Flows

This article will focus on the Statement of Cash Flows.  For further information related to the Balance Sheet or Statement of Income, please refer to my blog page.

Similar to the Statement of Income (aka Profit & Loss Statement and P & L), The Statement of Cash Flows will reflect activity over a period of time (weeks/months/years) as opposed to an exact date.  Many business owners understand the Profit and Loss Statement, can maneuver their way through a Balance Sheet, but rarely comprehend the workings of the Cash Flow Statement.  Conceptually, it is difficult to explain to a novice.  Fundamentally, every business owner MUST know their cash flow requirements ~ past, present and especially the future.  Not understanding the components of the company’s Balance Sheet won’t severely impact the future of the company, and not having an accurate and timely P & L won't have a significant short-term impact on the growth of the business, but the lack of an accurate and timely Cash Flow Statement can put a company out of business in the blink of an eye.

Every business owner is familiar with the phrase “cash is king.”  So wouldn’t it be wise to know your “KING”?  Trying to steer your business without a "cash road map" is like driving across country without a map or GPS system.  You can only hope that you are going in the right direction and the road does not come to an end!

So what does this financial report tell the reader?

• It records the company’s cash inflows and outflows over a defined period of time.

• Where cash came from, how it is used and if the company has enough cash to pay debts and continue to operate.

• It does not follow the accrual basis of accounting (see Article 1 of 4 for an explanation of the cash versus accrual methods), but only actual cash transactions.

• Converts the accrual based P & L into cash sources and uses.  The P & L does not equal Cash Flow!

The typical Cash Flow Statement looks similar to the exhibit below.

As you see, the statement has 3 main sections. 

1. Operations

• Includes cash generated by and required for the daily operations of the business.
• Inflows include cash received from the sale of products or services.
• Outflows include payments to suppliers, salaries to employees, rents and taxes.

       2.  Investing

• Includes cash used for investing in long-term assets and cash received from the sale of such investments.

             Examples:

• Purchase or sale of property
• Sale of debt
• Sale of equity of or loans to other entities
• Purchase of equipment

      3.  Financing

• Cash paid to or received from external sources:
  • Lenders
  • Investors
  • Shareholders

              Examples:

• Issuance of bonds
• Issuance of stock
• Payment of dividends
• Bank loans

Q & A:

• Q:  Why do I need to look at both the Income Statement and Cash Flow Statement?
  A:  A complete picture of the company’s profitability and cash flow can only be achieved by examining both statements (accrual accounting distorts the true picture).  Each statement tells a different story about the business.
• Q:  Which section(s) of the cash Flow Statement are most important?
  A:  ALL are important. Only taken together can you get a complete picture of a company’s cash flow.
• Q:  Of all the three financial statements, which is most important?
  A:  The Cash Flow Statement. In business, cash is truly king. Without adequate cash and cash flow, a business will not survive.

While this article just touches on the Statement of Cash Flows, I hope the reader now has a new appreciation for the importance of developing and understanding the components.  If you have any questions, or would like to have further information about developing this report for your company, please feel free to contact me @ slipkin@b2bcfo.com.

When I meet with potential clients, among the first things I try to understand is whether or not they are ready for a little help.  As a start up business, the owner typically takes on a lot of responsibility, managing multiple disciplines simultaneously.  They put long hours, energy and resources into the launch and early growth of their new business.

The business will (hopefully) grow beyond the owner’s capacity to manage everything by themselves, though, eventually.  As business owners start to feel worn out, burned out, and stretched to capacity, they begin to seek solutions.

Often, it’s more economical to bring on outsourced support at this stage.  It may also extend the business owner’s reach from an experience and efficiency standpoint.  The business may not be large enough to support full time experts, but delegation of some of the day to day tasks could free up the owner to focus more clearly on the customers, pipeline, and long term strategy for their business.  By the same token, a part time resource will generally cost less and offer more experience, knowledge, and clarity to your business than their full time counterpart.

Consider the tasks that take you the longest, or that you enjoy the least.  If you feel social media is a key component of your overall growth plan, but dread setting aside the time to manage your on-line presence, this may be a good area in which to seek help.  Perhaps it’s the financial statement management or internal control environment that gives you a headache.  Or maybe you know that you need to improve your data security and back up, but you simply don’t have time to think about it (until your network crashes).

The recession and resulting downsizing measures have combined to create an incredible pool of consultants and entrepreneurs.  These individuals have years of experience, on the job knowledge, and talent that you could engage and apply to your business.

Take the time to consider where you need help, and if it makes sense to outsource a portion of your to do list.  Maybe you’ll find the time for that late summer vacation after all. 

I’m often asked by prospective clients, bankers, CPA’s, attorneys and other referral sources about the differences between a B2B CFO® and other temporary or interim solutions such as Tatum or similar type firms.

Usually I start out by simply stating that we (B2B CFO®) are a “long-term, part-time” solution where as Tatum or other interim solutions are a “short-term, full time solution”.  After that statement, I then start articulating how we differ in our service and client relations approach.   And believe me folks, there is a huge difference between a B2B CFO® Partner and other solution providers.  Below is a list of the primary differentiators between B2B CFO® and others.

1.    Part time (long term) at B2B CFO® vs. Interim/Temporary (short term) at Tatum and others.

2.    Handshake agreement with B2B CFO® vs. Signed Contracts with others.

3.    No hidden fees at B2B CFO® vs. several termination fees or transition fees with other firms such as Tatum

4.    Small to Middle market focus at B2B CFO® vs. Big game hunters at other firms such as Tatum

5.    Cash Approach at B2B CFO® vs. some obscure terms such as Financial and Technology Services at other firms.

6.    Partner Collaboration Support at B2B CFO® vs. Employee Based at Tatum and other firms.

Finally, I like to convey to my prospective clients and referral sources that our Partners at B2B CFO® are building long-term practices similar to CPA firms and it is our goal to have a roster of satisfied clients as opposed to being a temporary solution or project based consultants.

At B2B CFO® we genuinely care about our client's success and we want each and every one of our clients to realize their dreams.

Cash. We Help You Get It.

Reprint of Article Appearing in CFO.com on August 11, 2010

New Bank Wanted

By VINCENT RYAN

Thinking about leaving your current bank for another one? Join the club. According to Greenwich Associates, a historically high number of companies have put their banking business — almost all of it — out for bid.

In the last six months, according to a Greenwich Associates survey of banking decision makers in late June and early July, 20% of midsize firms and more than 15% of small businesses issued requests for proposals (RFPs) for a new bank. What's more, another 19% of midsize companies and 16% of small businesses are planning to do the same in the coming 12 months.

And the changes corporate clients are seeking are not of the add-on or complementary variety: 39% of small businesses and 37% of midsize ones have put out RFPs for a new, comprehensive banking provider, says Greenwich, a financial services research firm.

Greenwich called the numbers "truly striking," given that typically only about 10% of companies switch banks in a given year. The number of companies putting out RFPs for new banks has also accelerated in the past 18 months. In the first half of 2009, only 4% of small and midsize firms were seeking a new bank, says Greenwich.

The primary driver of the new fluidity in banking relationships: companies' desire to reduce hefty banking fees. About half of both midsize and small companies cited fees as one of their top three concerns. The other top reasons were unhappiness with the current level of customer service and increased capital needs. For small businesses, dissatisfaction with banking service trumped access to new sources of capital, 33% to 27%. But among midsize businesses, 37% attributed the RFP to increased capital needs, while 23% cited unhappiness with the current level of customer service.

Greenwich Associates was cautious to say that more than poor customer service might be at work in the increased willingness of small businesses to switch banks. "Since credit is such an important part of business banking relationships, it can be difficult to separate companies' satisfaction with the customer service they experience from their ability to secure credit from these providers," Greenwich says.

Reuben Daniels, managing partner at EA Markets, a capital markets advisory firm, says many of the firm's clients are "just not getting covered by the banks with the focus and creativity the companies are accustomed to receiving. Banks generally don't view lending as profitable business, so many don't invest the time, effort, and resources to help clients get great results."

During the boom in credit, as spreads compressed toward zero, this lack of interest from the banks had less impact on outcomes, Daniels says. "Companies were getting great results without trying very hard; but in challenging markets, everyone needs to work harder," he says. 

The second factor behind the willingness of CFOs to switch banks is the historical changes in the banking landscape that took place following the credit crisis. Companies' banking needs, in many cases, are no longer aligned with the capabilities of their banking providers. "Many bank groups have changed materially over the last 18 months — the consolidation, the capital constraints, the change in the banks that are lending versus those that aren't — without any actions on the clients' parts," says Daniels.

The survey results echo in part those of a poll that CFO recently conducted on the state of banking relationships. Among other findings, the poll showed that almost half of the more than 600 financial executives who responded are more likely to actively explore switching banks now than they were two years ago. It also found that almost one-quarter of financial executives think their relationship with their primary bank is "strictly transactional."

At B2B CFO^® we concern ourselves with the client’s success and aspire for them to attain their goals and dreams.

Please contact a B2B CFO^® partner to arrange for a meeting to discuss your banking and overall business matters.

I am often asked this question by business owners who use Quickbooks and are not sure which is better the cash or accrual method for reporting their business results.  The general rule is that cash basis accounting is simpler to understand and consistent with most taxpayers income tax filings.  As businesses grow and their operations become more complex with customer accounts receivable and vendor payables the accrual method is preferable because this method more accurately reflects the businesses revenues and expenses as incurred rather than when paid or received in cash.

I recommend that my clients use the accrual method for the simple fact that it more completely shows the amounts owed to vendors and the expected revenues earned in the business.  If you are using Quickbooks, it is simple enough to maintain the ledger in the accrual basis with the accounts receivable and payable recorded and, if needed, you can report on the cash basis by selecting the cash option when displaying a report. 

In most situations, the cash reporting method is of value only to the tax accountant and the IRS so this approach of using the accrual method in Quickbooks will satisfy all of the business needs but still allows the flexibility required to satisfy the tax return at year end.  The challenge to the accrual method is that at the end of an accounting period all economic transactions are to be recorded regardless of whether any cash has been involved.  Thus, an accountant may need to make journal entries for obligations entered into by contract or agreement where the cash has not yet been paid.

For assistance with accrual accounting, contact your CFO, CPA or accounting professional.

As we approach the end of summer, my mind turns to the annual plan.  I have begun to formulate strategies and consider the best approach for this year’s budget; there are a few things that really jump to mind:

1.       Revenue Growth: A few years ago, we used to think that estimating customer behavior was challenging.  Today, we are dealing with economic issues that can swing perception and behavior in a much more material way.  Customers are starting to open their wallets again, but in fits and starts, and unpredictably.  Business customers are delaying spend decisions where possible and negotiating tougher deals.  Consumers, too, are seeking the best, smartest use of their available funds.  Nearly everyone is seeking to set something aside for a rainy day.  These shifts make determining reasonable revenue growth (or decline) projections challenging.  Strategies to address this in planning:

a.       Scenario Plans – consider developing a business as usual, best, and worst case plan.  Once developed, evaluate your current infrastructure against the worst case plan and consider whether adjustments are necessary.

b.      Pipeline – evaluate options to reduce churn and/or turn more of your leads into paying customers.  How specifically has your sales strategy been communicated to your team?  Do your reps have a script or a set of bullet points to convey to potential customers?

c.       New sales & marketing strategies – look at the way you spend your advertising dollars and calculate the return on each item.  If you can’t calculate it, consider an alternative form of marketing that you CAN track.

2.       Update, Review, and Reforecast: I typically prepare an updated forecast for the remainder of the year (or the next 12-18 months) at least quarterly.  Preparing an annual plan and leaving that document to stagnate will result in challenges later in the year.  It’s a good idea to keep a close eye on how current conditions are impacting your strategic plan.  Resist the urge to take an entirely short term focus, though.  It’s important to keep one eye down the road a bit so that you aren’t making short term decisions which will result in long term problems.

3.       Assess your agreements: If you haven’t gotten a bid recently on your insurance, merchant processing, cell phone plans, or any other negotiated cost, consider requesting vendor quotes.  You may be surprised.  Sometimes simply asking the question will result in material, immediate savings.

Starting out, the new business was stressful, but fun. There was not enough money or time, but things seemed to get done. Most of the time was spent taking care of the customers. There was a lot of satisfaction knowing that we could not only find customers but we could also do a better job than our competition. Looking back, words such as “excitement,” “fun,” and “surpassing the competitors,” were words that we used to use with the few employees we had.

Our company grew
Sales increased more than we ever imagined. Our sales tripled, then doubled, and then doubled again. We actually had cash in the bank! Our customers were pleased with us. We would stay at the office late at night and dream of how we would continue to beat the competition. The ideas were creative and exciting. We saw a clear vision of the future and felt that we had unlimited energy to continue to grow the company. As the owner, I dreamed about finally buying that car that I had wanted for such a long time. That long vacation with the family seemed within reach.

Our company grew some more, and things got worse
Sales grew even more, but things seemed to change. I did not understand how we could have so little cash when our sales were almost ten times higher than the second year after we started our business. My instincts were to continue doing the things that got me to where I was at this level of sales. I found it harder, however, to interview all the new prospective employees, to manage cash, to sign all the checks, and to fire unproductive people.

I dreaded the endless meetings with lenders, accountants, attorneys, pension administrators, insurance agents, vendors, complaining employees, complaining customers, government auditors, etc. I used to spend most of my time creating ideas and spending time with my key customers. Somehow, these endless meetings drained my energy to remain creative. I feared meeting with customers because our quality somehow was not the same as when our sales were smaller.

We had no idea
We had no idea how difficult it was to deal with the Family Medical Leave Act, OSHA, workers compensation audits, sales tax audits, IRS audits, bank examiner audits, etc. The endless questions, the time, and the money we had to spend were frustrating beyond my ability to describe.

The employees who were so willing and eager to work long hours for a reasonable salary began to get a little greedy. They assumed our company was floating in cash because of the high sales volume. They always wanted more. More wages. More vacations. More profit-sharing money. More paid holidays. More health care. More dental benefits. More, more, more!

Even more frustrating, some of my people began to leave to work for the competition. One "loyal" employee left my company because he could get paid $500.00 a year more from someone else! I thought we should have a little more loyalty from some of the employees who left. We then not only had to replace these people but had to spend time trying to train them, all of which took more time and money than we ever expected.

Besides, where did all the cash go? I'm not getting paid that much more than I was a few years ago. In fact, I recently had to put money into the company to meet a payroll. My bookkeeper and other employees have never given me an adequate explanation where all the cash has gone. Is it possible that someone is stealing from the company? What do I have to do to help the bank understand that they should lend me more money?

Who is spending time with our customers?
Our sales started to decrease. Customer complaints were at an all-time high. It suddenly dawned on me that I had not spent any quality time with my customers in months. I had been trying to ignore some of them because I did not have the energy to listen to their complaints. Deep down inside my gut, I knew that our company did not have the resources to solve the complaints even if I was able to spend time listening.

I started to lose sleep at night when I realized that my competitors were spending more time with my customers than we were. I then began to feel significant stress when I realized that there was no time, money or energy to focus on new markets, new customers, and new ideas to help grow the company.

Does any of this seem familiar to you?
The above concerns are all too common with owners of closely-held companies. You are not alone if you have some of these concerns. In his book, "The Danger Zone, Lost in the Growth Transition," Jerry Mills, Founder & CEO of B2B CFO^®, chronicles these and other issues growing companies encounter.

I can help you escape the "Danger Zone!"
The only reason I am in business as a B2B CFO^® partner is to help business owners with their concerns. I have the experience to help you with all of the above issues, and more. You can read my bio and contact me at www.b2bcfo.com/partners/fgnisci/

Let’s work together to make a plan where you can again enjoy your business and sleep well at night.