Concerning a rapidly growing business, Peter Drucker once stated, "the lack of adequate financial focus around the right financial policies is the greatest threat to the new venture in the next stage of its growth.  It is, above all, a threat to the rapidly growing new venture" (Drucker, 2004, emp.added).

Why did Drucker issue this warning?  After all, a rapidly growing business is generally a sign of success and results from efficiency in a number of areas such as:

• Enthusiastic, visionary,  leadership
• Recognition of and successful action plans implemented to penetrate the target market
• A well trained, energetic, and motivated sales force
• A product or service that meets and exceeds customer expectations

Although these are all signs of success, Drucker knew that a lack of attention to key financial policies would result in a collapse.  Drucker stated, "the causes are always the same: lack of cash, inability to raise the capital needed for expansion; and loss of control; with expenses, inventories, and receivables in disarray" (Drucker, 2004).  Jerry Mills put it this way; "most business owners assume that as sales increase, cash will increase accordingly.  This is an illusion.  The opposite is usually the case-as sales increases, cash decreases.  The competition for your cash will be fierce and extreme.  The attack on your cash will become frequent and constant" (Mills, 2007, emp.added).

If you have, or are on the verge of having a rapidly growing business, begin now to build the infrastructure that will support your growth projections, particularly as it relates to cash.  Make the following controls and measurements a priority in your company and take corrective action when necessary.

• Timely and accurate internal financial statements reviewed monthly
• Monthly measurements of key financial indicators
• Twelve month rolling cash flow projections
• A well thought out and planned annual budget that results from the strategic plan
• Solid internal controls and processes in place particularly in the areas of accounts receivable, inventories, and accounts payable to maximize cash efficiency.

The rapidly growing business is a time of excitement and great anticipation for the future.  Keep the business safe and secure by building a solid infrastructure early in the growth stage.  

________________________________________________________________________

Drucker, Peter F. (2004), The Daily Drucker (New York: NY: HarperCollins Publishers).

Mills, Jerry L. (2007), Avoiding The Danger Zone, Business Illusions.

 "The Price is Right" television show has survived for years by giving people a chance to guess the right price for merchandise and services. Many business owners still play this game, but with much higher stakes. How do you set the prices for the products or services you sell? Do you rely on a fixed-price markup from your cost or on a gut feel? If your pricing strategy is based on either of these tactics, you may be losing money or losing customers.

The three most popular approaches -- in order of their use by entrepreneurs -- are cost-based, market-related and competition-driven pricing. Frankly, any wise entrepreneur should take into account all three techniques before publishing prices.

Cost-based Pricing

•  Costs plus a reasonable profit
•  Clear understanding of all your costs
•  Labor, materials, direct overhead and indirect costs
•  Estimated volume of sales to allocate costs
•  Fixed and variable costs
•  Product "break-even point"

Market-based Pricing

•  Markets tolerance for your price
•  Price sensitivity - wholesale vs. retail
•  Value of "sizzle"
•  Supply and demand

Competition-driven Pricing

•  One-of-a-kind products
•  Understanding your distinct advantage
•  Consider "introductory" low-price offer

"Right pricing" is the art of choosing the best price for your inventory. It requires information, facts, analysis and a tailored strategy before you establish your pricing policy. At a minimum, your pricing policy should take into consideration the following:

•  Your true product costs
•  Market supply and demand
•  Anticipated sales volume
•  Competitors' prices
•  Economic conditions
•  Business location (retail)
•  Seasonal fluctuations
•  Customer psychological factors
•  Credit terms and purchase discounts
•  Customer price sensitivity
•  Desired business image
•  Market share

The biggest mistake small businesses make concerning pricing is not reassessing pricing on a regular basis. The marketplace is constantly changing making it mandatory you keep a close watch on your pricing. Raise or lower prices as necessary keeping the above suggestions in mind.

In order to ease the pain of your customer when increasing prices, you may want to consider the following:

•  Notify your existing customers of the increase and, if possible, give themthe opportunity to purchase at the existing prices
•  Try and advertise the increase along with "new and improved" products or services
•  Give the customer something in return for the increased costs. For example, free shipping with orders above a certain value
•  If possible, delay the increase for existing customers

Successful businesses develop pricing strategies along with written policies and procedures to insure they meet their projected sales revenue and margins. Are you a winner at "The Price is Right"?

For successful companies, timely and accurate financial statements are the cornerstone of sound financial management. While the information is historical it provides information critical to the management of any business. The meaning of the numbers comes alive through meaningful comparisons and analysis. Yet there are many business owners and operators that miss the opportunity to manage their business because of their belief in certain myths. Here are a few truths behind the misconceptions.

Myth #1: Financial statements are just history; I mange my business forward. The banks and tax man can use the financials but they aren't much use to me.

Any business owner who thinks like this doesn't understand the constant loop between financials and the budgeting process. Budgets need to be dynamic, adjusting to changes in goals or results. Planning means understanding how your business will reach these goals.

Your historical financial statements must be the bedrock on which your budget/plan is built. While you can prepare your budget independently from the prior year's financials, it's important to bridge the information back, define differences and consistencies and plan accordingly.

It's also important to understand that budgets are worthless without results to compare them to. Comparing actual result to budgets will tell you where you over-performed or under-performed, where you have opportunities or unexpected superior results. Analyzing this information will help you incorporate the appropriate standard procedures into your business and show you where you need to make repairs.

If you don't take the time to compare budget plans to monthly financials, you are letting opportunity pass you by.

Myth #2: I don't really understand my financials, but they seem to keep the bank happy, so I'm okay with them.

Believe it or not, this statement is too common. Obviously, the banking relationship is a critical one, maybe one on which the life of the business is underpinned. But, why hand financial statements to the banks without understanding how the bank is going to use them? You need to be able to look at your financial statements like a banker.

This is a tall order, so let your B2B CFO® help you. Ask "How will the bank view these financials? What are the points that are critical to the bank? What parts of these statements worry the bank (i.e., losses, excessive leveraging, poor current ratio, inappropriate asset investment)?"

Better yet, address these questions monthly or quarterly so that you can make necessary changes before it's too late. For example, your financial statements may indicate that you should reclassify officer loans, pay some payables, and run the cash balance up or refinance some debt. Having this information monthly or quarterly can enhance your banking relationship.

Myth #3: My financials indicate I made (or lost) money, but I don't believe it.

Not many people say this out loud, but we wish they would, so we can help them better understand their situation. It is not responsible to allow disconnect between your perception of your business performance and the reality because there is wonderful knowledge in understanding the difference.

First, your financials are based upon certain assumptions or accounting policies, which may be minor in some businesses and huge in others. These may include depreciation calculations, amortization, bad debt recognition, revenue recognition and tax provision computations, etc. You need to understand those policies and be okay with them. We cannot productively discuss your financials without basic agreement on the appropriateness of these policies, or at least framing our conversation in the realities of how these policies are applied.

Second, it's important to understand that profits don't always feel like profits. Profitable businesses can and often do have negative cash flow. A vendor screaming for payments or wondering if you can make next week's payroll doesn't feel like profit. Similarly, cash flow issues can mask losses. Many businesses are awash in cash even as they fail. Receivables are collected and become cash; inventory is reduced and becomes cash all while the business is literally cannibalizing itself. So, you also need to learn to understand your cash flow statement, not just your profit, and build appropriate plans.

In any case, it's important for you to ask questions about your financial statements and how they impact your business. And, if you don't understand the answer, ask again, persist again until you sort out where your perception of the financials collides. This knowledge gives you a true realization of issues so that you can fix them before you have consumed years of hard-earned equity.

 

Business owners need to think about cash flow in terms of water. We can't survive without water, but too much or too little can have devastating consequences.

A heavy rainstorm starts with dark clouds, followed by a light shower, strong winds, then sheets of rain that fill the streets and overwhelm the storm drains. Creeks and rivers overflow their banks, damaging property and limiting movement, bringing the risk of death unless emergency crews fill enough sandbags to keep the ever-rising water away from homes and businesses.

The effects of drought take longer to become visible, but they're just as deadly as flood damage. First the fields and forests are merely thirsty; then leaves and plants begin to wither. Below the surface, roots die off and the water table recedes. Unless alternative sources of water are found, the land dies, and so do the animals and people who depend on it.

Managing your cash flow is like managing water resources because too great of a demand on cash flow-or too little-at the wrong time can kill your company.

I know of a company that has an outstanding receivable of $1.5M. The Company's cash was tied up in direct and indirect labor and materials to produce products and provide services to one of the Company's main clients. The situation worsened by changes to work orders that resulted in the greater cash consumption. The terms of the agreement were for payment at the completion of the work, but both parties had overlooked the impact of this arrangement on cash flow. The Company experienced a prolonged lack of the life-giving element (cash). Meanwhile, the Company's client was unprepared for the storm. When the invoice arrived, the client felt swamped by the deluge. "We don't have that kind of cash, and our LOC is limited," the client protested. "The payment terms are clear," the Company replied, facing the pain and effects of drought.

The whole awkward situation could have been avoided If both parties had been taken their cash flow needs into account when they were negotiating the contract. The storm of the century could have been just another summer shower if they had built periodic payments into the contract.

Cash management properly using a Cash Flow report is like a weather forecast. It focuses on regular inflows and outflows of cash. Businesses use these forecasts to best advantage by making regular bi-weekly payments and issuing invoices on a regular bi-weekly or weekly cycle. Holding payables back too long is similar to building a dam; the accumulating pressure finds any structural weakness and a hairline crack turns into a disaster. At the provider end, neglecting to invoice in a consistent manner means the well can run dry.

Businesses experience other storms that directly affect cash flow: new product line expansion, hyper-growth, overly aggressive hiring practices, material cost increases, lender rate changes, unplanned tax implications. The list can be long.

       

Cedar Rapids Gazette Newspaper - Business Card:  

Glenn Wiltgen, B2B CFO

Written by George Ford, August 25, 2008

Name:  Glenn Wiltgen

Employer: Partner in the firm B2B CFO, a nationwide CFO firm

Duties:  With over 25 year of diversified experience as a financial professional for small to midsize companies, provides part-time chief financial officer services to businesses that do not have a need for a full-time CFO

Family:   Married, two adult children

Leisure Activities:   Long-distance bicycling, fishing, canoeing, exercise of any kind

Professional Activities:

Rotarian for 10 years; member of the Iowa Society of CPA's and the American Institute of CPA's

 

Q:  What was your first job?

A:  My first job was delivery newspapers in third grade and working for farmers in the summer.

Q:  How did it prepare you for your career?

A:  It gave me a strong work ethic, an understanding of the value of money, becoming self-reliant and how to satisfy customers needs.

Q:  What are guiding principles and how have they influenced your career?

A:  My guiding principles include honesty, integrity and objectivity.  The has been the foundation that I built my career on as a practicing certified public accountant, auditor, controller, chief financial officer and business advisor.

Q:  What is not open to compromise?

A:  I will not compromise my honesty, integrity and my belief in God.

Q:  Outside of work, how you spend your spare time?

A:  I enjoy any physical activity, indoors or outdoors, that involves people who also take pleasure in exercise and fitness.

Q: Where do you expect to be five years from now?

A:  In five years I will be a senior partner in my firm and planning my bicycle ride across the United States.    

Most business owners want to increase sales. Our goal is to assist in that area.

Business owners can usually increase sales significantly if they are allowed to spend time in what we at B2B CFO^® call "Finding Activities." Finding activities are those events that allow an owner to be a visionary, idea generator and a catalyst for change. These activities usually allow an owner to spend time building relationships and ideas to bring future sales into the company.

We are seasoned at assisting a company improve its infrastructure to allow an owner to escape from many of the administrative and operating activities to be able to spend more time in finding activities. Typically, a significant increase in sales results from this effort.

As a seasoned executive, B2B CFO^®s can help business owners and CEO's increase sales in a multitude of ways.

First, we work with Business Owners or CEO's to gain an understanding of their business and how increasing sales aligns with the overall strategic objectives of their company. Once we have a clear picture of where the company has been and where it is heading, then we are better suited to help the Business Owner or CEO identify sales-increasing sales ideas or sales opportunities. Also, different industries face different challenges when increasing sales.

Naturally when a Business Owner or CEO is looking for increased sales, the first question from a seasoned CFO will be, "do we understand the benefits and costs" of increasing sales on the company's infrastructure and working capital? Second, will increasing sales result in better margins and increase the Company's profitability? Third, what are the "barriers to entry" when looking at increasing sales in a different product or sales channel? Fourth, how much of the Business Owner's or CEO's time will be devoted to increasing sales? Fifth, does the company have adequate production capabilities or service personnel to absorb increased sales?.

In addition to the above strategic and tactical questions, the Business Owner or CEO should understand how the increased sales will impact the company and what additional time and resources will be required. The company should perform a thorough product or resource cost matrix to determine how prices or rates will be set in order to ensure there is an appropriate margin and profitability for increasing sales.

The bottom line is that any Business Owner or CEO should carefully evaluate the organizational and business risks of increasing sales. Engaging a seasoned executive such as a B2B CFO^® will greatly enhance your success of increasing sales and allowing you to engage more time in "Finding Activities" and less time in "Minding Activities".

Small Business Finance I & II
Indiana University
Division of Extended Studies 1982
Course by Randal E Suttles, CPA

An extract from Lesson One:

To summarize the key points of cash management:

1 - Short-term solvency (liquidity) can only be maintained through a good cash flow tracking system. You can borrow for the short term if a liquidity crisis arises. But to know how much you need, you must keep good records.

2 -Long-term solvency is only possible if net cash flow from operations, excluding borrowings or money invested by the owners, exceeds loan payments. To avoid bankruptcy, the owner must survive in the short term to reach the long term.

An extract from Lesson Three:

Cash Flow eventually equals income or loss. As I said in Lessons 1 and 2, although profits and losses are not equal to actual cash flow right away, they do eventually generate cash (profit) or require cash (loss). But, from a financial management standpoint, you need to know both.

September 14, 2008 note from Randal E Suttles, CPA: I wrote this course for Indiana University more than 25 years ago. I put what I wrote then in bold typeface now. The principles of financial management don't change.

From the Indianapolis Business Journal
First in a Six Part Series published August 24, 1981
by:  Randal E Suttles, CPA

Starting Your Own Business

...One of the common complaints that I receive from businessmen who are successful is "if I'm making so much money, why don't I have any cash?"

 

September 14, 2008 note from Randal E Suttles, CPA, Partner:

"Even after my writing more than 25 years ago, the principles remain the same.  To be successful, the company must generate adequate cash."

Executive for hire on as-needed basis

By Susan Tompor

Detroit Free Press

DETROIT - Sheri Pawlik is officially a chief financial officer for hire.

After spending 18 years crunching numbers in the auto industry, Pawlik took a buyout from Chrysler at the end of December. Most recently, she was a senior manager for financial controls for the Mopar parts division world headquarters in Center Line, Mich. Her duties included working with her team to figure out things such as the gross profit margin by item, say motor oil.

Like a lot of folks in the auto industry, she spent more than a few lunch hours chatting with co-workers about a second career. What could they do next?

Like a lot of folks wondering about the next step, she started hitting the Internet, plugging in simple searches like "financial officer."

And then "B2B CFO" popped up.

"It was a direct fit to the skills I have," said Pawlik, 40, of Beverly Hills, Mich. "I look at the numbers, and I translate it in a way that the executive can make decisions."

It's one of those quirky ideas that has been around for 21 years: outsource the chief financial officer. But it's another idea that's gaining more traction as more people are bought out or lose their white-collar jobs.

B2B CFO is a network based in Phoenix that offers senior-level executive services nationwide on an as-needed basis to small and mid-size businesses.

The network has 85 partners nationwide, serving about 375 companies.

Michael A. Campian was downsized from a job at a small automotive company three years ago. He now offers CFO services to six smaller companies in Michigan, including Northfield Trucking Co. in Taylor.

"They don't need to hire a full-time CFO if they don't need it or can't afford it," said Campian, 50.

His job is to help the business manage its cash. He's assisted one client find a new line of credit. He's been with B2B CFO three years.

"It's good to have an outside ear," said Leigh Ann Vallimont, owner of Northfield Trucking.

Vallimont, who has worked with Campian about a year, said he has helped her figure out what to bid for certain jobs and how to control costs.

B2B CFO partners set their own hourly rates and can work as little as four or five hours a month for one company. Partners nationwide charge on average $175 to $225 an hour. The first visit is free.

Pawlik, who just started with B2B CFO this year, has one client, a nonprofit group based out of state. Her goal is to have about eight clients.

Jerry L. Mills, 55, who founded B2B CFO, said he expects to have about 300 partners nationwide five years from now. Partners buy into the network and negotiate terms.

Mills said small to medium-size companies need to get a better handle on their cash - and get more up-to-date and accurate information than most bookkeepers can provide.

"Cash is the lifeblood of the company," Mills said.

"It's hard to run a business when you don't have timely or accurate information."

"Think and Grow Rich" by Napolean Hill

 "As a Man Thinketh" by James Allen

"Success through a Positive Mental Attitude" by Napolean Hill and W. Clement Stone

"Secrets of the Millionaire Mind" by T. Harv Eker

"Integrity Selling for the 21st Century" by Ron Willingham

"The Danger Zone" by Jerry Mills

"Managing by the Numbers" by Chuck Kremer and Ron Rizzuto with John Case