Let’s face it, as a small business owner, you wear many hats – one being that of Chief Financial Officer (CFO). And as the CFO of your business, you are focused on strategy, planning and operating your business in a way that optimizes your profits and cash flow, and ultimately your financial value. As CEO (Chief Executive/Operating Officer), you have the big picture vision, the dream. But as CFO, you are the gate-keeper, the one that ensures the investment in the big picture vision is sound.
This is why I am sharing with you 8 key things that top CFO’s are concerned with to help you make better business decisions and avoid the top small business money mistakes.
Revenue / Sales
The key to any business success is SALES! No sales, no cash, no business. So as CFO, you need to understand your sales numbers, as well as your products and target customers, so that you can recommend and take courses of action to ensure that you are going to hit/exceed your sales targets…things like return on marketing, cost of client acquisition and retention, pricing strategies and policies. The key here is knowing your market and having a good sales and marketing system, as well as having good customer service…after all, it’s easier to get repeat business and referrals than it is new business from strangers.
Vision For The Future
So many entrepreneurs operate by the seat of their pants, looking at short term gains with no real vision for the future. While this might work in the short run, it is not a sustainable model for the long term. The cornerstone of what I coach my clients is always to start with the end in mind, and have that end in mind when making your business decisions. This includes having a written business plan (operational, financial and marketing/sales)…it doesn’t have to be elaborate (unless it’s required by investors/lenders), but it does need to be written down somewhere, vetted and shared with your team, and re-visited regularly.
Talent Acquisition And Management
I recently attended a Journey 2 Success conference…the common message I heard from all the women entrepreneurs who shared their success stories is that the key to their success was building good relationships and having a good team. This is consistent with my research and with what big business CFO’s have shared with me personally. You need to have the right people doing the right things with the right tools…and you need to have a system for evaluating their performance, rewarding them and retaining them. You want a team that will challenge your ideas and strategies, to ensure that you are making the best choices for your business and your clients (and you’ll want to encourage them to do so).
Risk management has been one of my main focus areas for over 10 years. It is an area that is top of mind for big business CFO’s, but it is one of the most neglected areas in small and micro business. Yet, risk is an area that can sink a small business in a heartbeat if not managed properly. Do you know what your risks are? They could be legal, operational, reputational, financial and credit, compliance, technology, privacy, economic or market risk. What if something went wrong in providing a service to your client and they sued you? What if you made a big order with a supplier and they didn’t deliver? What if an employee was committing fraud? Or someone was stealing your intellectual property? Or if you didn’t pay your taxes? Or if your technology failed, or someone hacked in and stole your data? Some effective ways to manage these risks include first identifying your risks, then ensuring you have adequate and appropriate insurance, legal contracts, effective policies and procedures, and internal controls. How does your business measure up to its risks?
Along with risk management, comes governance. Corporate governance is the system by which companies are directed and controlled. It provides the structure through which businesses set and pursue their objectives, while reflecting the context of the social, regulatory and market environments they play in. For many small business owners, corporate governance and reporting is an afterthought…the reason being may be that many small business are not held accountable by any particular governing body, so governance and reporting takes a back seat to everything else in the business. Why does this matter? For one, good corporate governance strengthens a company’s reputation and risk management practices. Not having good governance structure and practices could lead to things such as the following practices that could cause harm to others and ultimately cripple a business:
- Taking risks which have serious consequences, neglect of duty of care.
- Dishonesty, withholding information, distortion of facts.
- Misleading communications or advertising.
- Avoiding blame or penalty or payment of compensation for wrong-doing.
- Secrecy and lack of transparency and resistance to reasonable investigation.
- Harming the environment or planet, people or animals.
- Unnecessary waste or consumption.
- Invasion of privacy or anything causing privacy to be compromised.
- Conflict of interest, betrayal of trust or breaking confidentiality.
As CFO of your business, the gate-keeper, you need to ensure you have good governance and reporting practices.
Often, cost control is a function of operational productivity. This includes measuring how well you, your team and your assets are working for you. What is your return on time and investments? You can look at revenues and costs as a function of time, or people (by function of sales, marketing, operations, technology, admin), or assets (particularly if you’re a capital intensive business).
Profits And Cash Flow
No entrepreneur gets into business with a view of incurring losses…and it sucks when that happens. Profits are often the driving force for creating financial value and obtaining financing. But it’s not just revenue minus expenses…you have to also take into account depreciation and other costs indirect costs that you might not be thinking of on a regular basis, such as interest, taxes, and what you pay yourself (and YES – you should be paying yourself, just as you would for any other employee).
Even more important than profits, I think, is cash flow…you need to know what cash is coming in (receivables and collections) and going out (payables, payroll and taxes), and when, so that you can manage it effectively and ensure that you are still paying yourself, your employees AND all the other bills. That’s why it’s important to track, reconcile your accounts and review your cash flow at least on a monthly basis (or weekly is better) so you can make quick decisions to bring in more cash, especially if you’re facing a shortfall. Doing so can also help identify problem areas in your business that need further investigation.
Tax Planning And Optimization
As a small business owner, you have options as to how you structure your business, and what makes the most sense for you from a tax perspective…you don’t want to be paying too much tax, but also need to ensure you’re not under-reporting your income or over-deducting expenses. Unexpected tax audit adjustments can be costly, and come with significant interest and penalties. I’ve seen businesses go out of business because of unforeseen tax assessments. This not only goes for income taxes, but for sales taxes and payroll taxes as well.
How do you track and report all this? Where do you start? Start by working with your professional advisors… Ask your accountant questions so they can help you understand what your numbers are telling you. Hire a business consultant – they’re trained to see and understand the big picture, analyze the situation and identify areas for improvement, as well as the solutions to implement for greater success. If your concern is sales, hire a sales coach. Talk to your lawyer about hedging your legal risks, and to your business insurance agent to ensure you’re adequately covered.
Still not sure? Give me a call or send me an email…I’d be happy to discuss your situation to see how I can help directly or refer you to someone in my vast network of business experts of accountants, lawyers, marketing strategists, sales coaches, social media experts, web and graphic designers, content writers, technology solutions, insurance specialists, financial analysts and advisors, HR specialists, recruiters, and more!
Contact Linda@visionspire.ca or call (416) 434-2322.
Disclaimer: The information provided in this article has been written in general terms and is provided as broad guidance only. It is neither a definitive analysis of the law nor intended to replace or serve as a substitute for any accounting, advisory, tax or other professional advice, consultation or service . The application of laws and regulations may vary depending on specific facts or circumstances. Readers should discuss their specific situations with their professional advisors. Linda Spencer, CPA/CA does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.