Tags: 2009 goals, angel funding, budgeting, Cash Flow, small business, vc

A recent edition of the Wall Street Journal contained the following article, “Credit Scare Spreads in U.S., Abroad, Loan Terms Tighten for Smaller Businesses; Recipe for Slower Growth.” I am not an economist but perhaps like you, I have noticed that “recession” has become an incessant beat. If most of the weathermen are predicting rain it might not be a bad idea to bring along an umbrella. Likewise, warnings of bad financial weather should encourage all businesses to closely examine their controls over cash flow (spending, collecting and borrowing).
What is cash flow?
Simply put, cash flow is the result of netting all sources of cash coming into the business against all sources of cash going out of the business. It is not uncommon for businesses to experience peaks and valleys of cash activity, as the alignment of cash coming into the business is not aligned with cash leaving the business. Much as cars need to have the tires checked and be realigned at certain intervals, so too does a business’s cash flow require watching and occasional realignment. For a quick financial history of your own company’s cash patterns, try tracking the deposits (cash sources) and paid checks (cash uses) from your corporate bank account/accounts over the last year.
What you need is a barometer.
There are useful financial ratios like the acid-test ratio, day’s sales outstanding, receivables turnover, to name a few, that help identify the need for cash management action. However, these ratios are largely based on historical information. What is needed is forward looking information. A cash flow projection highlights potential cash leaks, peaks and valleys and surpluses allowing the business owner to make proactive decisions.
So how is a cash flow projection done?
The most important thing is to do it monthly even if by hand. There are many financial programs that contain excellent cash flow budgeting modules. Even Excel spreadsheets work just fine. The basic structure of the projection worksheet is fairly common. It begins with the actual cash on hand and then adds the cash receipts of the business whether from cash sales, collections of receivables or cash supplied by lenders, owners or other investors. These two amounts then provide the total amount of cash available to the business to operate the business (pay operating expenses), make investments (buy new equipment or make acquisitions) and pay lenders, pay dividends or withdrawals for the owners or partners. When the above amounts are deducted from the total amount of cash available, the remainder is the projected cash on hand for each month. Once done, this analysis can be easily updated.
Your updated Cash Flow GPS
With new highway construction, it is not long before GPS software is out of date. Many commercial systems include continual updating. The completed cash flow projection provides the business owner with a continually updated 12-month map of his cash needs. Months that produce excess cash (positive cash flow) can be used to “fund” those months when there is a shortfall. Sometimes cash shortfalls are larger than expected or occur for a period of time (like the start-up of the construction season for contractors). When this happens, some form of financing is required whether from the owner or a lender. The projection allows the owner to plan for any required cash infusion. This can save interest costs and transaction fees. A solid cash projection also helps ensure that the business owner has the necessary financial resources to take on new work and replace equipment. The projection is a useful tool to demonstrate to a prospective lender the amount and timing of cash requirements as well as the prospects for future cash flow to make loan payments.

Need Help?
I am skilled at helping business owners manage their cash flow. Our consultants are trusted business advisors who are seasoned at assisting a company create cash flow projections. We can train your staff to use proven methods to project future sources and uses of cash. Cash excesses or shortages are usually somewhat predictable.

Tags: Banking, CASH, Cash Flow, financial reports

THE ROLE OF CEO is be a lonely one. It is too easy to be surrounded by good people but still feel there is no one with whom to share your fears and concerns, or brainstorm new ideas and strategies.

People from outside a firm can often ask seemingly simple questions that illuminate an issue or prompt change. Initiatives from other industries can help spark ideas and generate new business models. Often friends and family give all kinds of advice, byt most have very little experience that can help you. For any new and growing company, securing the right external advice and support is fundamental to success.

Too often, senior personnel keep problems close to their chest so as to avoid worrying staff. However, this approach can cause additional stress and make a small problem seem larger than it really is. It is also easy to become entrenched in a situation where it is not possible to see the wood for the trees and it becomes difficult to think of solutions or innovative ideas. Getting the right advice. There are five simple steps that can influence the quality of the advice you receive:

Find the right accountant – The mere fact that someone is completing your tax returns does not mean you are getting the best out of your accountant. A fast-growing enterprise needs a financial advisor who can plan ahead and proactively suggest ways to make strategies financially possible. Not to mention, I have plenty of contacts and can help my clients find a great bookkeer quickly.

Select the most appropriate professional for individual tasks – A common mistake is to appoint a lawyer or accountant to handle all legal or financial matters. It is wiser to pick and choose specialists for different functions. For example, payroll differs from corporate finance, while drawing up employee contracts does not require the same skills as protecting intellectual property.

Assess your banking needs – A conventional retail bank can provide an excellent business service but if your growth plans are more aggressive, then it would be beneficial to enlist the skills of a corporate banking advisor. The key to success is in finding a service that supports the company you want to become, rather than the one you are now.

Work with people you like – In business, it is often necessary to cooperate with individuals whom you may not like or respect. However, when seeking advice on the future of your firm it needs to come from someone you trust. It is worth spending time to find professionals you ‘click’ with and who complement your company. Ask yourself whether they understand and have an affinity for what you are trying to achieve.

Don’t be too proud to ask for help – Never see it as a failure to ask for guidance. No one is infallible, and having people to support you can make the journey to success so much smoother. Nowadays, there is a proliferation of mentoring schemes, where experienced specialists are on hand to offer guidance and information on a range of topics. It is important to remember though that a mentor is not the same as an advisor; their role is to question and motivate rather than to offer instant solutions. Even if suggestions are never acted upon, their value is in helping to shape an alternative strategy.

Summary – The Need For Experience – The discussion above only touches on the need for professional advice that can turn your business into a success.  We are real-world experts in managing working capital, building the infrastructure to scale your business and working with companies at the highest levels of America’s fastest growing companies.  It is what we do with hundreds of clients every day.

Marty Koenig
Your Colorado CFO

Tags: Business coach, CASH, Cash Flow, CEO, colorado cfo, FUNDING

Operating a business entails maintaining control over your operation in every step of the way – particularly in tough times. Here are seven strategies to help your business survive the tough times.
Operating a business is both a challenge and a struggle. To ensure that your business will prevail after the crucial first year, it is important that you maintain control over your operation in every step of the way. Whether your business is online or traditional, you must be able to assess your personnel needs, manage costs, and attract and hire good people. To do otherwise spells doom for your business.
Look at the crunch in the dot-com world in the late 90s. From high-flyers wallowing in abundant venture capital, many dot-coms (including prominent ones) failed. Dot-coms were then challenged to show results: higher revenues, more customers, and profits! Companies can no longer ignore profits and continue spending lavishly on excessive marketing and branding goals. Survival strategies take many forms. However, for any business to survive, whether a dot-com or a traditional brick-and-mortar, entrepreneurs must focus on their most important resource: customers.
Here are some smart strategies to help you ride out the difficult times.

Your Customers Shape Your Business
The rationale for every business is to attract customers for its products and services. Without customers, there is simply no reason for a business to continue operating. To attract more customers, your mission should be to go beyond merely satisfying your customer – but delighting them – with your products or services. When you’re selling, your focus should be on your customer and your customer’s needs. Think of the selling process in terms of helping customers find solutions that will help them achieve their objectives. But first, you need to find out what the customer wants, what the customer cares about, and what objectives the customer is trying to achieve. A happy customer assures a steady stream of revenues for you, plus that powerful marketing strategy: positive word-of-mouth.

Take Advantage of Tough Times
Tough times are good times to get noticed. At the first hint of a bad economy, many small businesses panic and run for cover. They slash their advertising and sales budgets and try to sit out the downturn. At times like these, you can practically have the field to yourself as your competitors make themselves invisible. Grab the chance to stand out and be noticed. Businesses that advertise during tough times usually take market share away from businesses that don’t. Tough times may be the best time to launch an advertising blitz to gain market share. Advertising agencies are eager to get whatever business they can, so you may be able to negotiate better rates and terms. At the same time, explore less expensive and perhaps more cost-effective advertising alternatives.

Introduce New Offerings
As such, always look for opportunities to expand your area of operation. Even without the benefit of expensive market surveys, regular communication with customers and the use of feedback mechanisms will provide you with valuable information about what they need and what remains unfulfilled in the market. You need to have a deep understanding of your market and their needs. Proceed with caution and obtain some marketing intelligence before you proceed. Check out the most likely prospects in the expansion areas that interest you, and find out if you can compete with existing suppliers.
A smart marketer knows that a product or service has greater consumer appeal if it is perceived as new. You can add newness to already existing products and services by adding such features as extended warranties, free installation, and consultations. Always be thinking of ways to differentiate your products and services from those of your competitors. Start by experimenting with several variations on a small scale until you hit upon the right combination. Test the new derivative on a sample set of your customers to see if they like it. If they do, introduce the new product or service to increase your sales. Increasing productivity does not mean working harder. Chances are you’re already doing that. Increasing productivity means working smarter. Analyze your business on a product and service basis to see which elements contribute most to your costs. Identify and eliminate excess costs. For example, you might sell idle equipment, inventory, or property or sublease empty warehouse space. Follow the time-honored strategy of taking a sharp red pencil to all your costs, including entertainment and travel costs.

Accelerate Collections
If you are extending credit to your customers, you must be prepared to take on a different role: that of a bill collector. While everyone knows that bad debts cost money, some small business entrepreneurs are reluctant to go after their slow paying and deadbeat customers. While large corporations can afford the luxury of having collection departments, small businesses often have to few resources that can be dedicated to running after collectibles. To minimize receivables, the first step is to streamline your billing process. The ideal billing approach is to collect payments when goods and services are delivered. If you have to bill your customers, send invoices out the day the product or service is delivered. Follow up with a reminder bill two weeks later. If you don’t receive payment in thirty days, get on the phone and make a collection call. Talking to customers may be far more effective than sending letters.
To encourage early payments, offer customers a discount (1 to 3 percent) for payments made within fifteen days. The key to collecting money from customers is to do it without damaging the business relationship. In order to know the best course of action to take, you need to know the reason why the customer is late with the payment: is the person or company falling on hard times temporarily, or is it is going under, or do they have no intention to pay up? If the customer is feeling a temporary financial pinch, talk to your customer (if a company, talk to the president or owner). While indicating that you are willing to be patient, inform the customer that you expect to get paid as soon as possible. Ask for partial payment as proof of good faith. If your customer plans to file for personal bankruptcy or if the business is folding up, move swiftly to try to collect something before all assets vanish.
If you do not have the time or patience to deal with deadbeat customers, assign someone to do the job for you. If do not have any staff, it might be better to turn matters to a commercial collection company to manage your past due accounts. Collection agencies usually work on a contingency basis, usually keeping about 35 percent of what they collect. Then again, 65 percent of the receivable is better than nothing!

Spread the Word About Your Business
The best way to expand your marketing opportunities is through advertising. One of the biggest mistakes small businesses make is not aggressively pursuing new markets. You can have the best product or service in your industry and still go out of business if people don’t know you’re there. Keep your company in the public eye by developing an effective advertising campaign. Talk to other business owners to find out what works for them. Talk to your customers to learn what types of advertising appeal to them. Evaluate the features of your company and its products and services to determine which offer advantages over your competition. Implement a coordinated advertising program that exploits the best features of your business. The cost will vary widely depending on the market you’re in, the medium you choose, and how often your ads run. Consider advertising jointly with other businesses to reduce cost.

Get Back to the Early Times: Barter and Swap
Bartering, or trading goods and services directly with other businesses for something those companies have that you need rather than for money, is a bane for businesses with tight marketing budgets. Barters can be a valuable way to pay cash for advertising, printing materials, client and customer leads, media exposure, and advice. This process can preserve precious cash. Most barter deals are worked out informally between businesses. For example, if you own a clothes shop and need to advertise your business, you can offer to supply a local theater group with costumes in exchange for full-page, back cover ads.

Don’t Waste Time
Time is money. Study after study shows that most businesses waste 25 to 50 percent of the time it takes to produce a product or a unit of service. Even the best companies spend a significant amount of time performing tasks that add no value to their end products or services. Lost and wasted time can prevent your company from becoming a major competitor. Time management is a relatively easy concept to grasp and exploit. Start by separating all your activities into two categories: Those that add value to your business and those that don’t. Tasks like assembling product parts or shopping for a more competitive insurance policy clearly add value. Tasks like writing a sales report or carrying a part from one end of the factory to another may not add any value. These tasks should become the target of your efficiency analysis. If you don’t need them, get rid of them.
Another timesaving technique is called process flow mapping. To map your business processes, start with a big sheet of paper and some Post-it notes. Tape the paper to the wall. Write every step involved in your business, from making a sales call to filling orders, on a Post-it note (one step per note). Stick the notes on the paper and draw lines connecting the steps in the order you perform them. Find wasted time by looking for steps that add no value, that are duplicated, or that can be combined. Can you speed up the process by having two activities go on concurrently rather than sequentially?
Opportunities to save time are painfully obvious once you start looking for them. Many operations are in such deplorable condition that there’s plenty of low-hanging fruit to pick. No matter how many hours your business may have wasted today, the most critical time wasted is the time between now and when you start looking for ways to save time. A time management strategy will enable you to fuel new product development and new technology. I have helped many business owners with all these strategies for success.

Tags: Cash Flow, colorado cfo, downturn, recession