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What's the trick?

In a recent article published by the New York Times, Doug Tatum, president of Tatum, suggested that business owners stop trying to get loans for their small to mid-sized businesses. B2B CFO® completely disagrees and in an effort to set the record straight, we took a quick survey of the B2B CFO® partners and asked for the amounts of all loans placed with small to mid-sized businesses since October, 2008 in which a B2B CFO® partner participated in helping place that loan. That number came to up over $111 million with the possibility of a total of $250 million to close by year end! That's a lot of money considering that there are approximately 120 partners. You do the math; that's a lot of loans per partner.

So, what is our secret? Why can we place this level of loans in such a tight credit market? There are several reasons. Below I have touched on the most important of those reasons.

• Have good numbers. A commercial lender will want to see your financial statements. They must be in good shape to be presented to the lender. They need to be maintained according to Generally Accepted Accounting Standards (GAAP). This assures the lender that the numbers can be relied on to fairly reflect the financial condition of the company. All of my clients have financial statements that are prepared in accordance with GAAP.

 

• Have timely financial statements. If a lender knows that a business owner does not look at his financial statements on a timely basis, he will not have confidence in that business owner. Every business owner must have a complete set of financial statements by the 10^th, no later than the 15^th, of each month. Each client of mine has their financial statements completed on a timely basis.

 

• Understand your numbers. Lenders want to know that you understand your numbers and that you use them to manage your company. When they question a small to midsized business owner regarding what a number represents, they expect an explanation that makes sense. Each client of mine receives a "dashboard" report on their financial statements monthly and we review those statements in depth.

 

• Relationships with lenders. Lenders are looking for good clients. They do, however, receive lots of unqualified requests for loans. A relationship with a lender will carry weight when a loan package is presented. I have relationships with lenders that trust me to guide them to qualified clients. When I present a lender with a potential lending opportunity, the lender will take extra consideration knowing this company works with an experienced and well qualified CFO.

To read the complete article regarding the loans placed by B2B CFO® partners, please visit

http://www.b2bcfo.com/partner/jmills/2009_06_11_B2BCFOLendingFinal.pdf

If you are ready to seek a loan, make sure you have the advantage in your corner!

 

Do you ever wonder why you don't accomplish the goals you have for yourself? Over the years I have had many, many goals, but only a few of them were actually accomplished. Then I read an article about a study done about accomplishing goals.

In his book, "What They Don't Teach You in the Harvard Business School," Mark McCormack shares a study of students in the 1979 Harvard MBA class, in which the students were asked, "Have you set clear, written goals for your future and made plans to accomplish them?" Amazingly, only three percent of the graduates had written goals and plans; 13 percent had goals, but they were not in writing; and a whopping 84 percent had no specific goals at all.

Ten years later, the members of the class were interviewed again, and the findings, while somewhat predictable, were nonetheless astonishing. The 13 percent of the class who had goals were earning, on average, twice as much as the 84 percent who had no goals at all. And, what about the three percent who had clear, written goals? They were earning, on average, ten times as much as the other 97 percent put together.

So, obviously, the first step is to write down your goals. I am talking about long-term goals. How do you want to retire? How much money do you want to have? Do you want to have a 2^nd vacation home? I then break down the long-term goal into yearly goals. This is a big eye opener! Suddenly time becomes very relevant when looking at how long you have to accomplish a specific goal.

I then break up my long-term goals into what I need to accomplish in one year and three years. I then focus on the one-year goal. I break this down into three categories. The first category is what I need to do for my practice, revenue levels, number of clients, etc. The second is what I need to accomplish as a partner at B2B CFO®. The third is for my personal goals. I then break them down into what I need to do month by month to get to the final year goal. I then take that and break it down into weekly goals. I actually have a spreadsheet with the categories across the top and the date of each Monday, throughout  the year, down the side. I have weekly actions that must be accomplished to meet the yearly goal. As I get these tasks done, I check them off.

You can use this methodology in business also. What are your business goals for one, three and five years? Do you have a revenue goal you are aiming for? Do you have plans to reach that? Do you have a goal to exit your business, sell it, pass it on to children? What about expenses? All this can be planned. Just like the students at Harvard, the one with the goals will accomplish more. Start simply. Start with something that you can really accomplish and build a plan. You will be amazed where you will go when you have a plan to get there.

As the saying goes, plan your work, work your plan!

 On my last blog we examined three of the six actions to be taken now to help your cash flow. In this blog we will examine the final three actions. Times are tough right now; cash is king.  As I said in the last blog, no cash, no business. It really is just that simple. Think of your business cash flow as you do your personal financial cash flow. When you are grocery shopping, would you pay more for a product if you could walk across the street and get it on sale at a reduced price. Of course you wouldn't. Same goes for business.

1. Put together a quick budget. So many business owners do not anticipate their Profit and Loss. I believe there is an old saying that says, "if you don't know where you are going, any path will do." This applies to business also. If a business does not have a budget it does not know where it will end up. And don't say, "oh, I've been at this so long I know exactly where I am and what will happen." To that I say, "bull"! No one is that good. Without anticipating what will happen (in other words "what if scenarios") "stuff happens" and you can't project how it will affect you. Try budgeting at a high level. Just budget major expenses. Sales, COS, Payroll, Occupancy expense, Office expense, Insurances, etc.; this will give you a good start.

A client never budgeted anything in their business. We put in a high level budget to monitor major revenue and expenses such as Payroll, Occupancy, Office, etc. After the first month, we did a budget to actual comparison. His eyes popped when he saw Payroll expense was way above what we had projected. With a little investigation we found that the employees were working overtime on jobs that did not need overtime. The situation was addressed immediately and cash flow improved.

Don't think for a second that you know what is going on in every corner of your business. A budget can help you monitor that.

2. Monitor employee theft. I am so sorry to say that 92% of small to mid-market businesses will experience employee theft. It can be as small as stealing a pencil or as large as thousands or hundreds of thousands of dollars. Also it is a sad testament that usually the employee you least suspect will be the one stealing. Small businesses are more susceptible to theft because there are "more hands in the till" so to speak. Be careful, double check, make surprise visits, and require reviewing the reconciliations.

A client swore that no one was stealing from her. I suspected that one employee (who was the owner's "best friend") had too much access to financial software and all the passwords. After looking closely at areas that were vulnerable, I discovered that the employee was buying items at the client's store and putting them on her charge card. Two days after the charge, the employee would access the register system (in the privacy of her office) and reverse the charges. Naturally she did not return the items. When confronted with the evidence the owner was devastated.

When it comes to money, especially in hard economic times, people will change. Keep a close watch over your assets, and make sure more than one pair of eyes is checking everything.

3. Visit or contact old customers. Ever heard the phrase "picking the low hanging fruit?" Old customers that have done business with you before, and were happy with their product/service can be low hanging fruit for you. During this time you need sales fast. Although the sweetest fruit may be at the top of the tree, there is no need to ignore the most accessible customers. Review your prior customer/client list and identify the ones you have not heard from is a while. Call them, ask how they are doing, tell them you would love to see them and ask how you can help them.

A client was frustrated because sales were stagnant and during the economic downturn she was having a hard time finding new customers. She identified clients she had not done business with in a while, physically went to visit them and took them donuts and coffee. She was amazed how many placed orders and she had her best month ever.

Your customers are very busy also. Maybe they just need to be reminded that you are there and give good service. Even if they don't place an order immediately, they will remember you took the time to contact them and you will hear from them soon.

I hope these six suggestions give you some thought and provide some solid actions you can take NOW to help cash flow. Get moving!!

 

In the last few months, I have had several conversations with clients regarding what they can do NOW (as in "immediately") to help their business. There is a sense of panic in their voice. Let's face it, some long-term solutions and strategies for helping a business through rough times will not work now. Who has the time to wait for financing to be finalized (that is assuming you can find it)? That exercise alone could take months in today's environment. Who has the time to identify and target a new market? Who has the time to develop a new marketing campaign and measure its results? Businesses need a strategy they can implement in the next few weeks, not the next few months. Below are three of the six scenarios I have actually handled with current clients and the solutions that helped them better manage their business in these uncertain economic times.

1. Know your numbers. Every business owner better know the numbers. They need to know what their profitability is, where it is coming from, what their current debt levels are, what their expenses are, and how they change with revenue levels. They must know their cash flow every month.

A new client has 22 stores. They have been in business for 29 years and have never had monthly financial statements. When asked how they know what the profit or loss is, they told me they see it on the tax return once a year. Not only did they not see their numbers monthly, they had no idea which store was contributing and which store was not contributing to the bottom line. Once P&L Statements were available by store, the owners made some immediate strategic decisions regarding several of the stores. These decisions are saving them money each month.

Don't underestimate the value of having accurate and timely financial statements. Learn how to read them. If you don't "get" the financials, find someone to interpret them for you.

2. Project your cash flow. Cash keeps you in business. Face it, no cash, no business. It is truly that simple. Cash is the grease that keeps the wheels turning. Project what you will need for the next six weeks. Start with projected sales, subtract the cost of those sales, and any overhead expense you have. Then make sure you add debt payments and any withdrawals the owner will make.

I was sitting in a client's office the other day and a new order came in. They were very excited about getting this order from this customer, a customer they had been pursuing for months. Then the reality hit. "How are we going to pay for this product? We have to order it before we can bill the customer!" Thus started the "cash dance." They went to their credit cards, moved some money around, crossed their fingers, and called the vendor.

Projecting cash flow will allow you to plan ahead of potential cash shortages. If you see a truck coming, you can get out of the way!!

3.Look at your expenses. Every business owner should look at his/her expenses monthly. Take a hard look at where your money is going. I know sometimes you don't want to give up the nice car, lunches out, dinner and drinks with "customers," the assistant who answers your phone for you, etc., etc., etc. However every one of these things adds up to cash OUTFLOW. Give them up until things turn around. Use common sense. After all, it is the owner's money, and that's you!! Also take a hard look at every expense you have. Is your phone bill correct? Are employees using the phone for personal calls? Are you spending too much in office supplies? Closely monitor what is being bought. What about overtime? Can you do without it?

A client needed to cut costs NOW! The ship was sinking and without cost cuts it wouldn't survive. When we looked internally we found that several of their over 200 employees were getting paid piece work rates that were far outside the industry parameters. A quick calculation figured that bringing those employees into line would save close to $4,000 per month. If the employee quit because of this pay reduction, a replacement could be up and ready to start in a matter of days. Each employee was brought into the office, explained what the issue was, and none had a problem with it. They knew they  were getting overpaid and that they could not go anywhere else and make the inflated rate. Not one employee left.

Expenses have a habit of sneaking into the business. During good times they are not detected because no one is looking. I bet if you really reviewed each of your monthly expenses, you could find some to cut and save some cash flow.

These are three actions you can take immediately to help your cash flow. On my next blog we will examine the final three actions. Get started!

  I was sitting in a seminar this morning and the presenter mentioned, "reaching for the full potential of the business." I quickly thought to myself, What is the definition of full business potential?

A quick search on Google proceeded to muddy the waters even more. Some of the search results listed on the first two pages were:

• Are You Marketing to Your Business Potential?
• Tapping Business Potential in Africa
• Tapping Business Potential in India
• Increase your Business Potential with a Web Site
• The Next Billions: Unleashing Business Potential in Untapped Markets
• Maximize Your Business Potential through your Employees!
• Aging in Place: A Business Potential
• American Express: Unlock Your Business Potential

It appears everyone talks and talks and talks about business potential, but apparently it means something different depending on the message you are trying to convey. Is business potential measured in growth? Gross revenue or Net Revenue? Number of employees? Gross margin percentage? Or is it something more intangible like the satisfaction of the business owner? Happiness of the employees? Service to the community? Or maybe it is the reward of providing a valuable service/product to clients and customers?

I believe business potential is all of these. All business owners need to figure out for themselves what business potential is for their business. They need to set goals based on this potential and start moving in that direction.

But why is it so few actually reach their goal? Why is it that with all the available books and websites telling us how we can achieve more, that most people give up or don't achieve their potential?

I think it has to do with the will to achieve the goal and also understanding how to move toward that goal. Will is an essential component in reaching potential. Many people have wishes they think are goals. They wish their business made more money; they wish their employees were happier; they wish they could make a valuable contribution to the community. Turning wishes into reality is where the word potential comes in. Making those wishes come true takes hard work and a plan and, most of all, will. Yes, a day by day plan that moves ever closer to the potential.

Are your goals written down? Do you have a plan of what you will do day by day, week by week, month by month to make those wishes become reality? If not, keep wishing!!

Linda has brought organization and processes to our organization which allow us to make "educated" business decisions.

Linda implementing our budget has helped my partner & I to make better decisions & capitalize on missed opportunities.

Linda has been an incredible addition to our office.  As a business owner with no business sense (they don't teach that in dental school) Linda has restructured my office and is giving me invaluable financial support.  When we first met to discuss her working with me, I explained my frustration at working longer and harder with little more profit to show for all the hours.  I explained how I thought about taking back control of several duties in my office, like ordering, staffing, etc...   Then she handed me your brochure and it was like you had read my mind for all my needs..eerie.  I cannot recommend Linda more highly! 

 

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.