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Improving Productivity and Cash Flow in Field Service Businesses

In the service businesses which require technicians to travel to customer locations to respond to customer calls and generate revenue there are unique requirements and challenges to be met in order to be successful. At a high level there must be good processes in place to:

• Take customer service calls and dispatch technicians
• Dispatch a technician with the right skills to the job
• Capture the actual service work done
• Invoice customer for service work done
• Collect payment
• Schedule (Sell) new work or preventative maintenance work onsite
• Capture accurate job time to accurately pay technicians

When there are not good systems and processes in place to support these activities the results are:

• Reduced Cash availability due to slow cash flow
• Lost revenue, wasted administrative time, poor quality of service
• Unbilled revenue due to paperwork loss
• Fewer customers served each week – unrealized revenue
• Inaccurate time records – payroll errors . . . . often overpaying technicians
• Lost sales opportunities – more unrealized revenue
• Technicians driving too much – more lost opportunity

Although there are many tools and technologies available to address these problems many of these solutions were outside the means of most SMBs. That is no longer the case! Intuit , one of the worlds’ most trusted companies to small/mid-size businesses, has added Intuit® Field Service Management ES powered by Corrigo to its family of products and services.

Field Service Management ES offers these 3 promises:

• Get More Work Done
• Get Paid Faster
• Get Payroll right
• Get More Business

Here’s how!

Get More Work Done

Replace paper work orders and clipboards with web-based and wireless services. Work orders are dispatched wirelessly and managed by workers using handheld devices. Real-time data flows from the field into your Intuit system, eliminating unnecessary travel, double data entry and endless stacks of paperwork.

1.      Schedule and assign work in real time with GPS to maximize tech productivity and increase customer satisfaction

2.      Automation maximizes office and field productivity so your technicians get more jobs done

3.      Wireless work orders and back office integration eliminate double data entry, reducing errors

Get Paid Faster

Let your field service teams create invoices at the job site, take or process payments immediately—then sync with Intuit QuickBooks Enterprise Solutions 9.0. Save days or even weeks off your time-to-invoice, so you get paid faster.

1.      Create invoices on site at the time of service

2.      Accept and process credit card payments on site to speed-up cash flow, reduce fees and eliminate bad debt

3.      Synchronize with Enterprise Solutions 9.0 to reconcile payments

Get Payroll Right

Capture workers’ time in the field automatically and get your technicians focused on billable work instead of paperwork.

1.      Record time in the field with GPS verification for accurate payroll

2.      Review consolidated timesheets and approve with less effort

3.      Inputs data into your payroll system, so you don’t have to

Get More Business

Service agreements can be sold or renewed in the field at time of service. Preventative maintenance work orders (PMs) are auto-created, then assigned based on technician location and skills. Prepare and schedule PM visits proactively—so even slower times can be profitable.

1.      Sell more service agreements

2.      PM work orders are auto-created and easy to schedule

3.      Proactively prepare for PMs for efficient dispatch and prompt  completion

The answer to who’s doing what and where!

Intuit Field Service Management ES is built to help service businesses spend less time on paperwork and more time making money.

B2B CFO^®  is an Intuit Solution Provider and can offer all Intuit solutions to our clients at great discounts.

If you want to know more about Field Service Management you can contact Rick Daigle at rdaigle@b2bcfo.com or 404-787-5835. Rick is a QuickBooks Advanced Certified ProAdvisor and is also certified in Field Service Management ES.

Well managed companies employ many tools to optimize financial performance, some of which can be very sophisticated.  However, most of these techniques these fall within three key areas: accurate financials, adequate internal control and proactive management.

Invariably, companies that under perform their peers or experience fraud or some other catastrophe will have failed in at least 2 of these categories.   And the price of failure can be harsh.  Many companies that experience a negative event - such as a fraud perpetrated by an employee or a significant misstatement of their financial statements - may be forced into bankruptcy or may be forced to merge or restructure against their wishes.

So it is wise to review your business operations and determine if you are lacking in these areas.  If so, you should take quick, calculated action to supplement the areas of internal control, financial reporting and financial monitoring.  

Accurate, detailed financial statements produced in a timely fashion

• Management should ensure that financial statements and management reports are produced in a relatively timely fashion.  If your accounting staff cannot produce meaningful reports in a timely fashion or if the information is inconsistent or contains many errors, you could have a serious problem.  If erroneous data is being sent to bankers, auditors or joint venture partners, you may lose credibility or may incur financial losses directly attributable to the loss of confidence of your stakeholders – such as the closure of a debt facility.  You should ask yourself these questions:
• Is the financial data contained with reports consistent?  Does it dovetail with what you know is happening with the business?  Does it allow you to exploit new opportunities and control exposures?
• Are you able to answer relatively simple questions such as what has led to an improvement or deterioration  in your business over time or what is the biggest contributor to operating profit?

Adequate internal controls including adequate segregation of duties

• Most business fraud is quite simple in nature.  Making checks to fictitious vendors or altering such checks are very common.  Most fraud results from opportunity and lax supervision.

• Does your business have adequate controls and procedures in place to prevent errors and irregularities?

• Do the proper checks and balances exist so that one employee does not have an undue level of access or control ?  What controls and procedures are in place to prevent an employee from making an unauthorized disbursement by check or wire transfer?  What prevents an employee from setting up a phony vendor or phony employee in your computer system?

Proactive, well informed, inquisitive management

• The most valuable asset to a small business is astute management that asks the right questions, has a strong vision and is able to capitalize on opportunities quickly and efficiently.   This type of management will use the solid financial data at their disposal to determine where their business is headed, to change course and/or speed and use all their resources to get to their destination.
• Management will need to be able to “mine” data to determine how the business is doing and why?  Which clients are profitable and which are less so?  Which products generate the highest gross margin and which contribute little?  How are the trends in your business versus competitors of a similar size and make up?  How do you position your business for a trade sale and how do you modify your business to give rise to a higher purchase price from an acquirer?

• Management will need timely, reliable financial data produced in a strong control environment to be really successful.  Otherwise, you will be making decision and determining a course that might not be the best one.

If your management is not able to be really proactive, to gain the knowledge that they require from management data and to be truly inquisitive, you may be incurring serious exposure due to poor performance in financial management.

The inclusion of a B2B CFO® partner onto your senior team can give you the financial expertise and strategic insight that you need to maximize the performance of your operation.   Our partners, who have over 4000 years of cumulative experience, (including significant merger and acquisition related experience), are part of the largest US firm providing services on a part-time basis to closely-held companies with annual revenues of as much as US$75 million.

Call David Kirkup, Partner at B2B CFO® on 404 348 0326 for a timely and accurate "Executive Company Analysis" and let's start moving forward.

I was listening to our CEO, Jerry Mills, at our annual partners’ meeting and I was impressed by the clear vision he had laid out for our firm. As he provided some history, achievements and future goals, it occurred to me that the leadership qualities he demonstrated were consistent with that of other successful leaders. Jerry motivated the audience, not just with his vision, but with the same declaration that he made a year ago – that he “refuses to participate in the recession.” Those words were part of his strategy to change our thinking about our circumstances - that we have the ability to change our thoughts and therefore our experiences. In that way, we can continue to pave the road to further success and not be prone to the same negative thinking that so many people subject themselves to, particularly in today’s tough economic times. So, reflecting on Jerry’s comments, I wanted to take this opportunity to talk about the key aspects of effective leadership.

Over the years, I have observed the successes and failures of many organizations. As an athlete and sports nut, I am always reminded when I watch a ballgame of the similarities between leadership and success in both sports and in business. In sports, there have been some amazing success stories: teams that defied the odds, such as the Amazing Mets in ’69, Jim Valvano’s NC State basketball team winning the NCAA tournament when they were clearly underdogs, and who could forget the US Olympic Hockey team’s famous victory in the 1980 Olympics. In business, there are companies that clearly defied the odds also, such as Microsoft, founded by a college dropout named Bill Gates, IBM, once a typewriter company that transformed into a global computer company, to such household names as Xerox and Google.

I have often asked myself, “Why do some organizations or teams thrive with apparently better talent than other organizations?” If it is not talent alone, then what differentiates the winning team from the others?  

I have found that all of the successful organizations and teams have one very important trait in common. That is LEADERSHIP. From a business perspective, leadership has been the key factor for many organizations that have navigated through one of the worst recessions our economy has ever experienced. It is the reason some companies have not just survived, but thrived for over 100 years and transformed themselves through changing business environments and technological advances. In sports, great leaders have taken what appeared to have been average teams to the championship, while teams that were better “on paper” were not able to achieve the same levels of success.

While many books have been written on the subject of leadership, I wanted to briefly touch on what I believe are the most common traits of leadership because to me they are so important. By implementing these ideas, I believe you can quickly implement behavioral changes in your organization or team to raise your organization’s level of performance, and not just achieve your goals and objectives, but exceed management’s and customers’ expectations.

The following are some of the most common characteristics and actions of leaders.

Vision

Leaders have the ability to see where they need to take the organization. They set the broad goals and objectives for the team. Leaders often set the bar higher than many believe is possible and then “do what cannot be done.”  Leaders are often criticized for their new ideas and are often considered crazy. They do not listen to the nay-sayers. They are totally committed in their beliefs and to their vision of what is possible. They have a “do whatever it takes” attitude. They will not stop until they achieve their goals and objectives. Then they raise the bar and set even higher goals.

The book, “Built to Last,” by James C. Collins and Jerry I. Porras provides a number of true and inspiring stories about the successful habits of visionary companies. Every example in the book highlights how leaders transformed some of the most well-known companies, including IBM and 3M, and in some cases bet the entire company’s future based upon their vision for the company. These leaders had the insight to know that they needed to take their companies in a different direction. And, they had the courage to take the actions necessary to change their organizations’ cultures and attitudes in order to adapt to changing times.

Develop the Plan

Leaders develop and implement plans that will achieve the organization’s goals and objectives. They understand, however, that actions against those plans need to be monitored regularly, and plans must be modified for changes in circumstances, be it changing market conditions, the quality and composition of team members, or other factors that are beyond a leader’s control. For example, in many businesses, like sports, the weather is an uncontrollable factor that impacts performance and results. Leaders anticipate these situations and have contingency plans in place in order to be ready for changing circumstances. Football coaches exemplify this type of leadership. They watch films of their team and the opposing team, and develop a game plan that is practiced every day in anticipation of next week’s game. But on game day, as circumstances change with every play, the successful coaches (leaders) adjust their game plan “on the run” and make the necessary adjustments while advancing their team to its ultimate objectives.

Build the Team

Every organization strives to obtain the best talent; that’s a given. But, successful leaders understand the importance of training, developing and motivating their people and are able to get the best out of their team. They understand the importance of having “bench strength.”  In sports, this means having good players on the bench or in the farm system ready to step in if a key player is injured. In business, it’s the development of succession planning, so that if key staff leaves, other personnel are ready to step into those positions and deliver quality service without much downtime.

Leaders understand the importance of training and development. Training comes in many forms, from mentoring programs, in-house or outside training, to studying the competition and marketplace to see what works and what needs improvement. It requires an attitude of constant and continuous improvement.

Leaders motivate their people. I believe that the best leaders are no longer following the old school methods of catching someone doing something right, or worse, berating them for making mistakes. Rather, the best leaders lead by example. Leaders:

• Demonstrate what needs to be done and help their team members in establishing their goals and objectives.
• Give team members the resources and support to achieve their goals. 
• Show how the achievement of individual goals fits within the overall goals of the organization. 
• Encourage and foster risk-taking by team members so that they can bring out the best ideas.
• Give their people a stake in the outcome.
• Develop people who are loyal to the team, and dedicated to the goals and overall best interests of the organization.

Communicate

Leaders communicate their vision, goals, objectives and plans and are effective at getting the buy-in of key people, including owners, lenders, investors, team participants, and other stakeholders. They typically communicate in a way that excites people and that keeps motivation and morale high. The best leaders “walk their talk” and are able to sell their message because they truly believe what they are saying; they are completely congruent.

Preparation

The best leaders understand that results are all about preparation. Basketball fans used to marvel at Michael Jordan’s skills on the basketball court. Kids wanted “to be like Mike.” Many didn’t realize that he used to spend 8-10 hours every day in the gym working hard to build and refine his skills. What he made look easy was the result of hard work and long, grueling practice sessions. In the 1980s, Larry Bird was hired to do a commercial in which he had to shoot the ball and miss the basket. The story goes that they had to do 25 takes until he missed. Larry Bird used to practice his shots every day over and over to a point at which the shot became automatic and his body was programmed to make the basket. He actually had to work hard to miss the shot during the commercial!

When we were kids, many of us heard our parents and coaches say, “practice makes perfect.”  In fact, that is actually not true. If you consistently do the same thing, the same way, time and time again, you will likely get the same result. So the key is to practice with a result in mind – in business terms, the goals and objectives. If you do not get the desired results, then make adjustments. Keep practicing and keep making adjustments and changes, many of which are minor, fine-tuning adjustments, until you can consistently achieve the desired results. So the saying should be, “practice, with adjustments, makes perfect.”

The point is that 95 percent of results come from preparation. All professional coaches have their players run the drills repeatedly. Even when the player finally gets it, you will hear the coach say, “run it again.”  Coaches watch films tirelessly, studying their teams in an effort to find ways to improve, and they study their opponent (the competition), to find weaknesses that they can exploit. Successful business leaders are no different.

The best leaders, and the most successful people, be it in sports or in business, model their preparation, practice and performance after successful people. Ninety-five percent of the work is done in preparing to meet the competition; five percent is in the actual performance. Leadership is about making sure your team knows the plan and is ready, really ready, to execute the plan, and most importantly to adjust for changes during the game. An airline pilot flies a plane from one city to the next and his responsibility is to execute the flight plan. In fact, the plane moves off course about ninety percent of the time. The pilot’s job is to make adjustments throughout the flight and ensure that he reaches the destination, his goal. The best leaders, both in sports and business, do the same thing.

These are my thought on leadership. Many of the books on leadership say this in different ways but I believe it really comes down to these points. Be mindful of these aspects of leadership and you will take yourself, your team and your organization to higher levels of achievement and success. And remember that a great leader is a person who shares the credit. The leader wants his team members to experience the great feelings that success brings. And in so doing, success will breed more success. It has often been said that it would be amazing to see what would be accomplished if it didn’t matter who got the credit.

I have many years experience in the health insurance industry.  Now that we have Obamacare, I thought I should share what I recommend to my clients:  GET OUT OF THE HEALTH INSURANCE BUSINESS!

The new health insurance reform bill mandates that employers offer coverage to all employees beginning in 3 years, if they employ more than 50 employees.  That’s a straw man.  Most employers over 50 employees already offer health insurance.

Health insurance reforms passed in 1996 mandated that insurers guarantee issuance coverage to any employee of groups with less than 50 employees, no matter the employee’s or dependent’s health conditions.  That is what has caused the massive increase in premiums for small employers.  It is technically called a “death spiral” by the actuaries.  But, the practical impact is that 15 years ago, group health insurance cost 30% less than individual health insurance. Today, small group health insurance costs 30% to 50% more than individual policies, for the same coverage, because the insurance carriers must  cover prior medical conditions.

Obamacare mandates that individuals purchase health insurance beginning in 2014.  The same death spiral will occur in individual policies.  But, between now and then, individual coverage will remain substantially cheaper than group.  Example:  I have one client that is planning to drop its health insurance coverage for their 13 employees and provide an agent to assist the employees in buying individual policies from any insurance company they choose.  My client will contribute $100 per month for single employees, and $300 per month for employees with family coverage.  The employees will need to pay the rest.  In this case, and not atypical, the employee contribution for individual coverage will be lower than their current 30% share of their group premium.  And my client will save between $40,000 and $50,000 per year on their cost of the insurance.

The employees will turn in their health insurance premium invoice, and my client will reimburse up to $300 per month. The reimbursements are tax exempt to the employee, just like the group coverage, and they are deductible by my client, just like the group coverage.  The only caveat is that the employee does not have the option of taking cash, they must show an insurance bill.  By the way, reimbursements done in this fashion are FICA exempt as well, just like group health.

The one problem is employees or dependents with medical conditions might not qualify for individual health insurance coverage, since pre existing conditions will still be excluded, at least until Obamacare takes full effect.  Most states already have high risk pools for the purpose of providing coverage to those who do not qualify in the private market (Indiana, where I live has such a pool).  Obamacare is implementing a federal/state high risk pool right away for those states that do not.  The premiums in these plans can be higher than the private market, even though they are subsidized, but the employer can increase wages to compensate.

The rate spiral that has tripled the cost of small employer health insurance will simply continue, probably  accelerate.  Individual policies are dramatically less expensive, at least for now.  We will see how it plays out after 2014.  But for now, small employers that stop offering group health insurance can save thousands (per employee!), the employee can save on their own portion of the premiums, and the employer is forever out of the health insurance business, at least until they have 50 employees (which is a good problem to solve another day).

GET OUT OF THE HEALTH INSURANCE BUSINESS!

"Cash... we help you get it."  It's the B2B CFO slogan and we like to think it's a "twofer" slogan.  We help you understand cash flow and why it's important, and by improving every aspect of your company's financial performance we make you a better candidate for investment and loan financing.

So how do you understand cash flow? Let's take a look at seven main drivers of cash flow:

1. Accounts Payable and Cash Flow. Every business relies on suppliers and trading partners to provide goods and services, without which we could not serve our customers. When we purchase goods and services we typically buy on credit with a pre-determined set of payment terms. When payment is due, we use cash to settle our debts. The faster we can receive and transform purchases into our own products, the faster we will have finished product to sell to our customers, which ultimately means cash in our door. We need to focus on : 1) reducing supplier order-to-consumption lead time, 2) reducing work-in-process inventories and 3) optimizing use of credit terms with suppliers.
2. Accounts Receivable and Cash Flow. Accounts receivable is a significant driver of cash flow. In fact, your outstanding day’s receivables can often be the differentiating factor of the company’s fiscal viability. Remember, cash is the life force of your business. In fact, it is wise to make all salespeople responsible for collections in addition to selling products - or at least commissioned on collected sales.  Our ultimate goal is to receive payment as quickly as possible after we make a sale. Key to this outcome is delivering the perfect order. The perfect order will provide the customer with the right product at the right place at the right time and in the right quantity and condition, thereby encouraging the customer’s prompt payment. Areas of focus should be: 1) deliver the perfect order every time and 2) reduce days sales outstanding by aggressive management and follow up.
3. Revenue Growth and Cash Flow. Many management gurus have argued that the only purpose of a business is to develop a customer. The logic here is that without a customer there is no business proposition. However, some customers are better than others. Therefore, it is important to understand that cash is generated from good customers. Increased revenue from good customers will result in increased cash flow. Try to: 1) identify “good” and “bad” customers based on the profitability of individual accounts, 2) retain current customers and develop new, profitable customers to generate increased cash flow, 3) reduce inventories to become more cost competitive and 4) credit qualify new customers and existing customers periodically.  And growth can sometimes be bad.  Unless you know your sustainable growth rate, you run the risk of out-running yoiur cash capacity.
4. Gross Margin and Cash Flow. Gross margin is generally defined as net revenues less cost of goods sold. Gross margin is the first line of profit contribution that the firm will see from operations. The larger the gross margin, the more gross income we will have to contribute to corporate overhead and profitability. This will result in cash generation (after dealing with collection). To increase gross margins, we need to ensure that our variable cost curves do not grow proportionately with our revenue curves. That is, we need to be able to generate increased revenues without a one-to-one increase in cost of goods sold i.e. doing more with less. To reach this goal, we need to focus on the activity drivers of cost of goods sold. Action items would be to: 1) reduce overall supply chain and manufacturing lead times and 2) reduce work-in-process and raw material inventories in order to reduce inventory carrying costs and therefore reduce overall cost of goods sold, 3)Analyze profit contribution by product, territory or other classification to eliminate areas that do not contribute fully.
5. Selling and Administrative (SG&A) Expense. Although not all companies call it the same thing, Selling, General and Administrative (SG&A) expense is the most common term used for corporate overheads. Reducing the corporate overhead burden will result in increased cash to the bottom line. Substantial operations activities and costs are often rolled into SG&A. Unfortunately, many of these activities and their costs are regarded as necessary evils—merely costs of doing business. In today’s business climate, where 1 percent of sales can mean the difference between viability and bankruptcy, these supply chain operations represent a key area of concentration and, perhaps, means of competitive differentiation. To achieve advantage, the company must: 1) improve internal processes and reduce SG&A expenses ultimately to increase cash flow, 2) bid out expense categories frequently 3) reduce finished goods inventory.
   
6. Capital Expenditure and Cash Flow. Capital expenditures are a good example of how cash flow and accounting income diverge. For example, if you purchase equipment for a $100,000, you may decide to outlay $100,000 in cash to close the purchase, or finance the costs with a loan. But, the cost of the building will appear on the income statement as depreciation expense over the useful life of the equipment. The first month’s accounting might show just $1,500 in depreciation expense, but a $100K has exited the cash drawer. Capital expenditures can be an immense drain on cash and have to be part of a long term plan. How do we know if we are making the right decision?  Capital expenditures can drain our companies of cash that can be better used in revenue-generating activities. Buy vs lease or outsource become critical cash flow decisions.  Can we: 1) reduce reliance on fixed assets and allow cash to be used on revenue-generating activities and 2) focus on reducing inventories as opposed to building more warehouses for inventory, 3) Share or outsource capital needs 4) Lease finance equipment to synchronize cash flows.
7. Inventory and Cash Flow. Inventory can be the most perplexing of all the cash drains because everything about inventory is counterproductive. For example, inventory on the balance sheet is a current asset. But inventory sitting in a warehouse consumes cash, detoriates and "shrinks" and can be difficult to liquidate (while ease of liquidation is a pre-requisite to being a current asset). So, we could argue that inventory is, in fact, a liability. Further, to store and move surplus inventory drains cash from the business. The third and arguably most significant point about inventory is that inventory itself is visible, but its costs and cash impact are not. Although we can walk the floors of our facilities and see inventory, we cannot easily go to our financial statements and determine how much cash is being consumed by this inventory.  In addition, there is an implicit opportunity cost when money is tied up in inventory and the space used to store that inventory. Any way you slice it, inventory consumes cash. Consistent, high-performing processes call for less inventory to back them up. We should, therefore, try to: 1) eliminate inventories and conserve cash and 2) gather the data required to calculate and articulate the cost of carrying inventories 3) enact controls to minimize holdings and 4) work with suppliers to reduce lead times.

Cash Flow in Your Company

So...do YOU get it?  Cash is king! To be competitive in today’s market, we need to manage cash like the life force of the business that it is. Alone, each of these seven cash drivers acts independently. Together, they form the organization’s cash cycle. This cycle must be measured and managed in order for a business to reach its potential. Sophisticated financial management is the first step to building value in your business.  Ask yourself these questions:

1. Do you forecast cash out 4 to 6 weeks on a weekly basis?
2. Does your accountant produce a UCA Cash Flow Statement (the only meaningful cash flow presentation, and heavily favored by banks)?
3. Do you regualrly discuss your cash flows with your banker?
4.  Do you monitor key metrics on a financial dashboard?

Most companies will answer NO, and that's why you should hire a B2B CFO.  David Kirkup, B2B CFO partner, 404 348 0326 - dkirkup@b2bcfo.com

Many business owners are good at contingency planning in their business. They plan for disasters hitting their physical facilities, computer networks, and perhaps the departure of key people. Surprisingly, few business owners plan for the departure of the most important person in the business and the one thing that is certain– their own eventual death or disability. Generally speaking, owners have more pleasant endings in mind when they think of exiting their businesses.

 Without continuity of leadership, a business will likely fail. If ownership transition for a business is uncertain, business continuity is seriously threatened. The business owner’s death can have a significant effect upon the company’s ability to maintain its financing, relationship with its customers and vendors, its bonding status, and other key business partners.

The balance of power, particularly in a closely held business, can be very fragile. The loss of a company leader can leave a void that results in power struggles, employee turnover, managerial mistakes, lost customers, and lost profits. Even a vital and profitable company can unravel quickly when its leader is unexpectedly removed from the mix.

To minimize the chance of panic or power struggle in the business, emergency plans should be created to account for the sudden absence of leadership. Responsible individuals, such as corporate officers and board members, should be made aware of and empowered to implement the plans should the unthinkable happen.

The contingency plan should include the following:

Management – who should be responsible for day to day management of the organization as well as the oversight of management (typically the board of directors)

Compensation – develop a stay bonus plan for key managers for the transition period

Disposition of the business – should the business continue to be run by management, and if so, for how long?  Should the business be sold to the management team, employees or third parties?

Advisors – list the key advisors to assist in the disposition of the business including exit planning professionals, investment banker or business broker, attorney, and accountant

Possible buyers – maintain a list of people of who may have contacted you over the past few years that have expressed an interest in the business

Goals – list the primary and secondary goals of the disposition, such as your financial legacy, keeping the business in town, preference regarding the business name, employment of key people.

While no one likes to think about their own death or disability, a well crafted contingency plan can help provide stability and success for the business as well as peace of mind for the owner’s family. I am a Certified Exit Planning Advisor and a member of the Exit Planning Institute. Contact your B2B CFO^® partner for assistance in preparing for the future.

The theme of my Blogs for this year is what I would include in a book about small business finance and accounting. This month is the second of several articles on raising funds for the Small Business.

Remember, Never! Ever! Run Out of Cash, NO MATTER WHAT! But that is often easier said than done, so this month we will continue our discussion on why a good business plan is required to source funds as we look at sourcing debt financing from outside the company and its owners.

Outside Debt Financing

Family and Friends can be used for more than cell phone discounts! They can be a great source of financing, particularly in the early days of the company, when other lenders are less that sold on the future of your organization. They believe and trust in you, when no one else does or will.  They know your passion and desire and they know where you live too! In short they are investing in you, not the company.

 Outside lenders and investors do not have that luxury. A good business plan goes a long way in letting them know that you have given significant thought on what you are doing and the expected outcomes of that effort financially.        

Your banker is also interested in how you view your company, its competitors and your SWOT analysis. It helps them in their risk assessment and creates the benchmarks they need to assist in the approval process. This along with the borrowing base associated with larger loan transactions, can be garnered in part from the forecasts. Further, in today’s market, the owner’s personal credit is part of the evaluation by the lender. Being able to clearly communicate with a lender is the first step in a successful loan application.

I had lender set up a significant ($500K) financing facility, including a Letter of Credit backed by the facility, based on a succinct executive summary of the business plan and financial projections. They also acknowledged they knew we would need more capital, but that they wanted us to meet the initial projections prior to funding the next tranche of capital. Finally, what I like to hear, it was one of the best applications the underwriter had ever seen! And this was a money center bank!!!!!

Finally, remember the lender does not want to be your business partner and as part of this philosophy, they do not want to fund consistent operating losses. This is not their role. Rather, lenders are used to provide working capital and long term asset financing to fuel the company’s growth. Today banks expect your company to rest the line of credit for at least 30 days annually. A good banker will see of a part of that facility should be “termed out”, i.e. converting part of the line to a term loan for a base level of funds that are used to fund inventory and receivables to a level that make it impractical to pay off (rest) the line of credit each year.

Next Month in Part 3 of this subject of sourcing capital, we will discuss equity considerations including angel investors, venture capital and private equity groups.

Many small and mid-sized companies have basic accounting systems. They have a book-keeper, maybe a Controller. They have an accounting system - probably QuickBooks, or possibly a more advanced product. What they usually don’t have  - and what for many is a major weakness - is a coordinated Financial Process.  Jim Collins, entrepreneurial author and guru, says there are plenty of great mousetraps but not very many great processes and that's where entrepreneurs should focus. The better process will enable others to build better mousetraps.

A B2B CFO can help you build such a process for financial excellence.  Here are the ten key steps to taking financial control of your company.

• Key Metrics - Select some key performance indicators and report daily, weekly and monthly
• Cash Flow Forecast - A weekly forecast of cash will create a strong control discipline and enable you to look forward at least a month.
•  Timely Financial Statements - Accurate and timely financial statements are essential for managing results
•  Financial Analysis - Carry out a monthly comparative review of financial and other indicators
•  Commentary - Prepare a monthly operations overview with suggestion for improvement and strategic development
•  Monthly Ops Meeting - Chair a monthly meeting on the financial performance, impact on strategy and implications for change
•  Financial Planning - Develop budgets, plans and rolling forecast to manage desired activities
•  Cash Management - Build relationships with banks and investors to ensure company cash flow plan materializes Financial Control - Implement process and procedures to deter fraud, improve efficiency and maintain confidence in results
• Financial Systems - Implement and tune best current systems and staff to improve and maintain information flow

To get started on Financial Insight, call David Kirkup, Partner at B2B CFO on 404 348 0326 or dkirkup@b2bcfo.com.

On Monday we will observe Memorial Day.  Note that I said observe and not celebrate.  The point of Memorial Day is to recognize those who served this country and paid the ultimate price to protect our freedoms. 

While our economy may not be in the best of shape at the present, we do have the most robust economy on the globe.  Why?  We have a generally capitalist economy that is made possible by the freedoms we enjoy.   The more freedoms in an economy, the more free enterprise flourishes.  

Freedom fosters entrepreneurship. Entrepreneurship is what enables an economy to adapt, change and be resilient.  Much like those who made our freedoms possible.  Honor them.

It is pretty common knowledge that SMBs are the victims of workplace fraud 9 times more frequently that larger  businesses.  The main reason is that there is no separation of duties because the lone accountant/bookkeeper handles all accounting transactions. Often the only control in place is that the business owner signs all outgoing checks. Clearly this is inadequate.

I recently completed a thorough review of the financial accounting operations for a client. What follows is the detailed recommendations I presented.  These recommendations can easliy be implemented anywhere. The accounting system in use is QuickBooks.

The main elements of Internal Accounting Controls are:

1. Competent and trustworthy personnel with clearly defined lines of authority and responsibility.
2. Adequate separation of duties. In a small/midsized businesses this is exceedingly difficult, if not impossible, to achieve. This makes it critically important to set and communicate the “tone from the top” and implement a system of controls which allow proper oversight into the financial aspects of the business.
3. Proper procedures for the authorization of transactions. Again, this is difficult to implement in a small/midsized business. Two things that are in place which mitigate this risk are you sign all checks and customers never pay in cash. Additionally you should review the reconciliation of checking and credit card statements each month.
4. Adequate records and documents. You should require:
   1. A bill for every vendor payment
   2. A receipt for every credit card transaction
   3. A signed expense report for Reimbursements, with receipts
   4. An approval for any Invoice amount changes
5. Proper physical control over both assets and records. The main assets to protect are the company physical documents and computer records. You should have adequate fire protection and regular backup of your computerized records. These backups should reside offsite in a secure location.
6. Proper procedures for adequate recordkeeping. This is an area which needs improvement. You might consider hiring a temporary “Professional Organizer” to organize the paper documents. I can refer a couple who would do a good job.
7. A resource to provide independent verifications. That could be a B2B CFO or another trusted professional resource with the appropriate skills.

In practice I recommend we implement these elements of accounting controls in the following manner:

• Set up a unique QB user account for ALL users and start using that immediately for entering accounting transactions.
• Change the QB admin account password. Do not tell the password to any staff. Do not use the admin account for entering accounting transactions.
• Set closing dates. When reviewing the past months reports close the date 2 months prior. For example, when reviewing May set the closing date to 3/31/2010.
• Review the previous weeks’ activities by looking at the memorized “Weekly” reports with your bookkeeper:
  • Bill Credits for all Vendors – ask why we received this credit
  • Checks & Bill Payments – so you know what cash left the business last week
  • Credit Memos for All Customers – ask why these were issued
  • Deposit Detail – so you know what cash came into the business last week
  • Missing Checks from Last Week – numerical sequence is a great control. Ask why checks are missing.
  • Refunds for All Customers – ask why these were issued
• Review the previous months’ activities by looking at the memorized “Monthly” reports with your bookkeeper:
  • Profit & Loss Last 5 Months – look at the trends in Income and major expense areas. Investigate unusual trends.
  • Balance Sheet Last 5 Months – look at the balance trends in Bank accounts (including Undeposited funds), A/R, A/P. Credit Cards, and current liabilities. Investigate unusual trends.
  • A/P Aging Summary – discuss those over 60 days.
  • A/R Aging Summary – discuss those over 60 days
  • Audit Trail Invoice Modifications – review for amount changes and ask why
  • Expenses not assigned to Jobs -  job profitability is a critical success factor so you want to make sure all job related costs are properly assigned.
  • Uncleared Bank Transactions – you should not see transactions past the last reconciliations. If you do ask why.
  • Voided/Deleted Transactions Detail – you should know why transactions are being voided.
  • Journal Entries – I’m always curious why journal entries are used rather than normal QB transactions.

Finally, a monthly review of your financial statements by your B2B CFO is recommended.

To learn more about mitigating the risk of workplace fraud in an SMB contact Rick Daigle, rdaigle@b2bcfo.com, or 404-787-5835