Financial Management and Visibility - Jun 3, 2010

Posted by: David Kirkup in Articles

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.

(877) 4-B2BCFO

info@b2bcfo.com

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