Posts by Dave Cain, CPA:
- Analyzing your accounts receivable to determine ways to quickly turn them in to cash.
- Reviewing your current inventory levels to determine what is old or obsolete and what can be used to generate more revenue.
- Going over your accounts payable to optimize your own financial obligations.
- Looking at your non-core assets to determine how much money is being spent and whether or not a more lucrative avenue is available.
- How much money do we have in the bank?
- What is our accounts receivable balance?
- Who do we owe and how much we owe them?
- The bank is more willing to give you a loan.
Banks don’t loan money to business owners they can’t trust. When you develop a relationship with your banker, not only do they get the chance to know you better, they get broader insight into your company and the objectives that drive your business. Yes, your cash flow, collateral and financial statements are important, but so is your character. If your banker knows you, likes you and trusts you – and knows, understands and believes in your business – you could be more likely to secure the financing you need when you need it.
- You and your business are often top-of mind.When you have a strategic banking relationship, you’re more likely to get a call when a great opportunity arises. Your banker has greater insight into your short- and long-term strategies and will be able to alert you when a low interest loan program lands on their desk. Additionally, they are in a great position to recommend your business to other clients and professional acquaintances.
A 13-week rolling cash flow budget lets you harness the past, present and future of your company to arrive at a comprehensive analysis of its overall financial well-being – making you a more effective leader and decision-maker.
An effective cash flow is rooted in your company’s historical trends and considers current initiatives and any internal and external factors that may impact the financial security of your business – including past, present and future billing and payment patterns. In order to dig a little further to gain a little more insight into your company, I recommend:
Finally, don’t forget to update your cash flow regularly. Setting up a cash flow dashboard will take a little extra effort at first, but maintaining it is simple. Then, if done correctly, you will have the ability to accurately estimate your business’s variable costs and expected sales at a moment’s notice – and that is a very powerful tool to have.
This article was published in the January 2016 issue of Columbus Business First – Ask The Expert.
Financial statements and tax returns are a rearview glance in the mirror at what has already happened at your organization. Instead of always looking back at your financial data, it’s important to develop a forward-looking forecast.
Smart Business recently interviewed Dave Cain about ways to develop a forecast for your business and the benefits of it.
“It might sound simple, but it can be difficult for business owners because they are working at 100 miles an hour to run and grow their business. They feel like they don’t have an opportunity to step back and do some forward thinking,” says Dave.
To read online, check out the article on Smart Business’s website.
Want to read more articles about forecasting advice for your business? Check these out:
Many business owners find difficulty coming to terms with their financial obligations. They will dedicate long hours combing through their company’s expenses, invoices and payroll to arrive at an annual budget, only to let the report sit until it’s time to repeat the exercise again a year later. A 13-week rolling cash flow helps take the stress off business owners when it comes time to make important strategic decisions throughout the year. But in order to get your company back on the right track, you must be ready to change the way you look at your company’s finances. These five financial secrets of successful business owners will get you on the right track.
1) Know how much cash you have on hand.
We’re talking about tangible cash here; and to know how much you actually have on hand you will have to look beyond the ending balance on your business’s bank statement while not letting yourself get caught up in a sea of technical information, graphs and presentations. The three most important questions you should be asking every week are:
The other information and reports are still important, they just aren’t as critical when you have to make big decisions without a lot of time to ponder your company’s short- and long-term financial state.
2) Understand your billing practices.
To get an accurate picture of your company’s cash flow, you will need to take a closer look at your current billing practices to find out if you are getting your bills out on a timely basis. Don’t be tempted to gloss over this step. It may surprise you to learn that a lot of decision-makers and business owners think they are on top of their billing activity, only to learn that they’re not. A 13-week cash flow budget will expose this weakness and will get you back on track.
3) Delegate ownership of your cash flow.
We are all busy and it’s easy to be enthusiastic about implementing a 13-week cash flow strategy — in theory. But when it’s time to actually put your strategy into action it’s easy to blame “lack of time” for why you put it off. The good news is that you can delegate the work to someone who has the time. You really can’t afford to ignore your cash flow. When you understand where your money is coming in from and where it’s going, you will begin to see positive results.
4) Review your cash flow projection often.
While it’s great to write out an annual budget or a three-year-projection, most owners will push the document to the side … where it will begin to gather dust. Then, when the day comes when you need to know the financial state of your company for decision-making purposes, you are left with inaccurate, outdated information. When this happens, your effectiveness and accuracy as a leader is challenged. It doesn’t have to be though. When you review your cash flow regularly, you arm yourself with the tools need to make financially strategic decisions. For example, after following through with a 13-week cash flow for nearly a year, you will gain greater insight into how to spend your business profits to help generate the additional cash and sales needed to facilitate sustained growth.
5) Put your accrual basis profit in its place.
While you may still need to have an accrual statement or generally accepted accounting principle statement to appease regulatory agencies, you would do well to remember that when it comes to the lifeblood of your business, cash flow is king. In all likelihood, businesses of all sizes should consider keeping two sets of records — an accrual and a cash basis statement — to maintain your company’s compliance among all stakeholders.
You can’t spend accrual basis profit. You can, however, spend cash basis profit. Which is why, at the end of the day, you’ll find that your banker, your lender, your shareholders, etc. … will take more interest in your cash flow strategy and your cash flow budget than your other reports.
Want to learn more? Click here to listen to Unsuitable on Rea Radio and find out “Why $1 Million Doesn’t Matter.”
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Why You Need A Banker On Your Team
A lot has changed since the first time I sat behind my desk at Rea & Associates in 1979. Technology has advanced in ways that no one could have imagined or predicted. Our nation endured – and survived – The Great Recession. And someone somewhere decided that Pluto isn’t a planet anymore (and I just became a grandpa!).
But with all these changes going on, one thing has remained the same: to be successful in business, you can’t go it alone.
You never know when you will need a sounding board, some insightful guidance or even someone to go to bat for you, but if you are looking to hit a home run, you need to make sure your team is stacked with advisors you trust – and be sure to make room on your roster for a banker.
As a business owner, it’s easy to get caught up in the daily responsibilities of managing operations, customer needs and stakeholder interests. If your banker is just watching from the bleachers, you are missing out on a great opportunity to improve your business. Get a banker on your team, and if it’s the right one, you’ll see results.
Is Your Business Batting A Thousand? – Created with Haiku Deck, presentation software that inspires
A Key Player
Maybe you’re already making payments on a business loan, or perhaps you’re in the market to refinance or secure a new loan. Either way, you’ll have better results if you see your banker as a teammate.
When your banker is a key player in your business, you will find:
If you talk to your cousin’s neighbor’s dog-walker more often than you talk to your banker, it’s time to make a change. Try setting a recurring reminder on your calendar to meet for coffee, visit the batting cages or hit a few golf balls. Before long, you’ll start to see a return on your efforts.
By Dave Cain, CPA (Dublin office)
Spring is the season of renewal. It’s the time of year when we emerge from our dens to enjoy warmer weather, the melting of snow and an abundance of greenery as nature appears to come alive. Spring is also an opportune time in the business world. And before we lose ourselves in the hustle and bustle of increased production and revamped initiatives, take this time to review and solidify your company’s cash flow projection.
Managing your cash flow now will help minimize mistakes later – when business and economic trends become more favorable. Still not convinced? Here are five more reasons to consider maintaining your company’s cash flow projection.
5 Reasons Why Managing A Solid Cash Flow Is Just Good Business Sense
- A cash flow projection will provide you with the information you need to make better, more lucrative decisions. For example, if you had insight into which of your company’s non-core assets are viable would you make changes to support future growth or would you simply maintain the status quo? With a well-maintained cash flow projection at your fingertips you can make decisions that will help secure a more lucrative future for your company.
- If you’re looking for a way to hold you and your team accountable for the company’s success and failures, look no further than your cash flow model. This tool can help you fine-tune your management strategy, which can help you and your team achieve better quality standards, increased production, enhanced efficiency and an improved reaction time.
- Your cash flow strategies can empower your team to take further ownership of their work and pride in the company. When they have a chance to see that their actions influence how well the business does as a whole they will be more likely to seek out opportunities for improvement.
- When you have a cash flow projection then you have the tool needed to develop timely and attainable goals. When you have a better idea as to how much money is going out and coming in (and why), you and your management team can put plans in place to better manage the company’s cash flow in a more favorable way.
- Are you managing cash that you acquired from an external source? Will you manage acquired cash in the future? Stakeholders love cash flow projections because they provide them with the information they need to monitor their investment. Oftentimes banks require you to provide quarterly financial information to prove that you’re complying with the terms of the loan package.
Cash flow is arguably more important to your company’s success than your bottom line because it takes your past, present and future projections into consideration to arrive at a compressive analysis of your financial wellness. Email Rea & Associates to learn more about the importance of cash flow projections and how you can use yours as a valuable management tool.
By Dave Cain, CPA (Dublin office)
Did you ever notice that little sticker in the upper left-hand corner of your windshield? The one that informs you your next service date for changing the oil and tire rotation. As you fire up the ignition, the fuel gauge is activated and the miles per gallon information is displayed. The on-board computer lets you know that the headlights are in the automatic position and the tires are properly inflated. The navigation system may even provide a weather update or a construction delay on the interstate. Within a matter of seconds of entering your vehicle, you have virtually all of the important metrics for your upcoming road trip.
Your business metrics and performance indicators should be as easy as locating your vehicle’s metrics. The metrics need to be meaningful to you and your team and used as a decision making tool in the day-to-day operations of the business. Many business owners and managers use daily and quarterly metrics more frequently than the monthly financial statements to run the day to day operations.
Business Metrics To Consider
Your business’s on-board computer can churn metric after metric and ratio after ratio. However, the quality of the metrics is far more important than the quantity. One recommendation is to identify four to six ratios that are unique to your business and industry and continue to study the trends on a daily or weekly basis. As a general rule, every business should consider metrics in the following areas:
- Customer Metrics: How many new customers have you acquired over the last six months? How many customers have you lost? What is the average profit margin for each customer?
- Cash Flow Metrics: These metrics should be designed to measure the company’s ability to meet obligations as they come due. For example: Is your inventory turning? How old are your accounts receivable?
- Sales Metrics: A company should have sales metrics to measure sales and whether the sales are satisfactory for the company.
- Employee Metrics: These metrics could be designed to measure how effectively the company is hiring and managing its employees.
- Borrowing Metrics: This metric will measure how the company is effectively managing its debt.
Once the metrics have been determined than a “windshield sticker” or dashboard can be affixed to your technology devices and reviewed by the management team on a regular basis. In addition, an industry scorecard can be developed to measure how the business compares to the industry.
Just like the oil in a car, the business metrics will need to be changed or enhanced on a regular basis to reflect changes in the economy and the business cycle.
Safe travels and be on the look-out for orange construction barrels and detours. Check your metrics!
Business Metrics Help
If you need help determine which business metrics are right for your business, contact Rea & Associates. Our team of Ohio business consultants can help you determine which business metrics are needed for the success and growth of your business.
Author: Dave Cain, CPA (Dublin office)
Are you out of breath from the impact the economy had on your business during the last several years? Is it time to develop some New Year’s resolutions that will make a difference in your business? Adopting a new diet, jumping on the treadmill or committing to run a half marathon are common items on the “personal” resolution menu. However, is it time to add energy and resources to your resolutions in order to improve the health of your business? Read the rest of this entry “
As a small business owner, you may have started your business because you have a passion for your particular business/industry or you may have had the desire to “take the plunge” and be your own boss. Income taxes, payroll or financial reporting were probably not anywhere on your list of top reasons to own your own business. However, these three items along with many others fall under the umbrella of accounting services, and require the training and expertise of a CPA. So, since your business needs these services, what should you expect from a CPA? Read the rest of this entry “
During the recession, the fiscal cliff and the so-called recovery, did your business develop cracks in its foundation? If you answered “yes,” you are not alone. Many businesses of all shapes, sizes and industries are still trying to rebuild cash flow strategies and bottom line results. Read the rest of this entry “
Outsourced CFO Services Support Small Businesses
Do you ever feel like you can’t seem to get your arms around costs? If so, you could probably benefit from the skills of a CFO. The following are other signs that you may need a CFO:
- You regularly bounce checks.
- You don’t have immediate access to financial information when your banker asks for it.
- Your budget and forecasting is lacking.
- As an owner, you have your hands in too many things to focus properly on your finances.
- You can’t answer the question, “How much money did you make yesterday?”
Most small business owners face at least one of these issues; however, they don’t have the need or resources for a full-time CFO. These owners often rely on a controller, bookkeeper or office manager to manage the internal accounting function.
Sound familiar? If so, you need to recognize that even though these people can do an excellent job for you, a CFO can bring additional skills to the table. You’ll probably wonder how you ever got by without this kind of person. Read the rest of this entry “