7 Tips to Build and Maintain Your Business Budget: Part 2

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If you have reviewed the first few important steps when it comes to creating and maintaining a business budget in our first article, then you are ready for some more steps in the process in Part 2 of 7 Tips to Build and Maintain Your Business Budget

Using a budget is a key component in driving your company’s financial future, but many businesses wonder: Where to start or how to make their current budget even better.  My last post <link> shared tips on where to start by knowing which financial numbers to monitor and track daily, weekly and monthly. How do you ensure that you’re making sound business decisions based on ROI and your sales cycle? The rest of these tips will ensure you’ve created a budget that is realistic and is prepared for the challenges and opportunities that lie ahead.

4. Overestimate expenses. By overestimating monthly expenses, businesses can account for the possibility of variable unexpected expenses. A suggestion: take your total expenses, then add at least 5% to cover the unexpected financial surprise.  Most businesses can categorize their expenses in three areas (see below).   By analyzing spending history, you can estimate your monthly expenses in each category.

  • Fixed expected expenses: Expenses that come at regular intervals (weekly, monthly, annually, etc.) and don’t vary are called “fixed.” Examples can include building rent, insurance premiums, equipment leases and payroll.
  • Variable expected expenses: Expenses that come at regular intervals but can vary are called “variable.” Examples can include utilities, phone bills, employee training, bonuses, donations.
  • Variable unexpected expenses: Otherwise known as “emergency expenses,” this category is the most likely to trip up even the best budget plans. For example, no one plans for a major piece of equipment to fail or their biggest client to jump ship.

5. Plan for an emergency fund. In business, rainy day funds or retained earnings are cash supplies that are kept on hand to enable your business to continue operating in lean times or in an emergency. These funds allow your business to keep providing services while making payroll, paying bills, and purchasing supplies, and they allow the Owner to sustain the family’s income. The emergency fund provides immediate access to funds during critical times.  Insurance may cover loss, property damage and other repairs, but processing claims can take weeks or months, putting a sledgehammer through your profitability and productivity. Budgeting for the emergency fund while keep you afloat.

6. Use Your Budget.  By Making and following a budget, you can better control costs, avoid overspending, and plan to meet financial goals.

It is important that you compare actual results vs. the budget and investigate any significant differences and the causes.

Failure to properly use your budget can seriously impact your bottom line, and even jeopardize the success of your business. Tracking your expenses is one of the key factors in making your budget work for you. Over time your budget will allow you to track revenue, expenses, and cash flow, cut unnecessary spending, allocate revenue to other areas of the business, prepare for busy seasons and slowdowns, plan for required purchases, gauge the positive impact of budget changes, and secure funding from financial institutions.

7. Seek professional advice and guidance. Building a realistic budget is an effective way to help keep your business profitable.  It might be difficult at first but creating a good budget and tracking the actual results against the budget will help your business stay healthy and successful in the long run. 

If you need help building your company’s budget or want to ensure you’ve built a budget that fits your goals and your unique situation, contact AETucker Consulting for help.

As a CFO consultant, I help owners, management and board members solve financial and operational challenges by providing unique and customized guidance.

To learn more about how I can help your business, please contact Andrew@aetuckerconsulting.com www.aetuckerconsulting.com

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7 Tips to Build and Maintain Your Business Budget: Part 1

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This is the time of year when many companies dedicate time and energy devoted to their Annual Budget.  

So, exactly what is a Budget?  A budget is an estimate of income and expenditure for a set period of time.  In other words, it is your plan for how you think the business will perform over the chosen period of time, typically a year.

Budgeting should be the central nervous system of your business. A well-planned and executed budget can help ensure your business is ready to take on new opportunities and has financial safeguards in place should unwanted surprises strike.

Starting the budgeting process can feel overwhelming. Many clients come to me with the same concerns: where do I start and how do I stick to a budget?  

Following these steps will ensure operational wellness:

  1. Know your current numbers. It’s important to keep a close eye on the critical numbers that can help you predict a lag or success of your business. These key numbers include:
  • Cash Flow
  • Profit and Loss
  • Sales
  • Price/Selling Point(s)
  • Gross Margin
  • Net income
  • Total Inventory

    2. Focus on Return on Investment (ROI).  Business owners can use return on investment as a measuring stick for their company’s profitability. The amount of money spent vs. the expected financial return should be a focus of performance management. The data helps measure success over time and takes the guesswork out of making future business decisions.

Simply divide the gains from your investment by your investment’s cost and you have your answer as a percentage or ratio. From hiring a new employee to investing in a new software tool to expanding your advertising, ROI determines whether your efforts are yielding results and how can you properly optimize profitability.

3. Track the sales cycle: There are a number of factors to consider:

  1. How many days does it take for prospects to move through your pipeline? The answer depends on how many steps are in your sales cycle, how complex your product is, and the cost of your offering.
  2. What are the projected sales for the budget period? If you overestimate, it will cause you problems in the future.
  3. What are the direct costs of sales (i.e. costs of materials, components or subcontractors to make the product/provide the service)?
  4. What are the fixed costs?
  5. What are the overhead costs? 

The length of time it takes to convert leads to sales needs to be factored into your budget. Using your sales and expenditure forecasts, you can prepare projected profits for the next 12 months and beyond. This will enable you to analyze your margins and other key ratios such as your return on investment.

Stay tuned, my next post will share the rest of these budgeting tips to keep your business healthy and on track.  

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Why Mentorship Matters?

I recently had the great opportunity to share my experiences as a mentor with Innovate Charlotte.

“As part of the program, I’m getting to see all these people with all these different ideas and getting to understand what’s really happening in Charlotte, other than the humongous companies out there,” Tucker said. “At the end of the day, they’re not the ones who create jobs. It’s the small to midsized, privately held companies that create jobs.”  Read the full article Here–>

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Ready for your Mid-year Review?

Well, it’s that time of year for business owners to consider doing a Mid-Year review.

What is a Mid-year review? It’s stopping to catch your breath long enough and taking an objective look at your business – how the first half of the year was and how you expect the second of the year to be. A mini Strategic Planning session, if you will.

A Mid-year review involves looking at all aspects of your business including:

  • Financial results – How did they compare against budget? How are your ratios and KPI’s vs. expected results? Most importantly, how is you Cash Flow?
  • HR – When was the last employee survey taken? Are your employees working well together? Is turnover at an acceptable level?
  • Sales & marketing – Has revenue met your expectations? Have you identified why variances exist? Is your revenue mix in line with your goals or should you make some modifications to your marketing efforts to focus on higher ROI products/services?
  • Operations – Are your products/services being delivered timely? Have your margins changed/costs increased (i.e. service & installation costs)? Have quality or customer satisfaction changed?

Lisa Wood from New Sprout Media asked the quintessential question in her blog – Are you on track?

You have goals, right? How well are you doing relative to your goals? I can’t think of a better way to frame the reason to do a Mid-year review.

According to John McAdam in his article on this subject, a Mid-year review includes the following:

  • Evaluate performance
  • Reallocate resources to better achieve goals.
  • Make more money than you would have otherwise.
  • Take stronger corrective actions than you would have without a mid-year review.
  • Provide leadership for your team—too much silence taxes milestone goals.
  • Offer focus for your team.

John points out that taking time to do this is essential and, I would add, one of the most rewarding and enlightening strategic exercises you can do for your company.

Daniel Dreher points out in his article that you can achieve better focus and reap the following benefits:

  • Reviewing now provides more time to implement changes.
  • You can act while other businesses are procrastinating.
  • You probably have a good idea of how the year is going.
  • A review offers an opportunity to re-grip the reins.
  • Nothing good comes from waiting for more numbers.
  • Opportunities may exist now that will disappear later.
  • There’s no better time to re-energize employees.

Daniel adds that this exercise will help you focus and put your company in a better position going forward.

One critical item I’ll add is don’t forget the What, Who, Where, When, Why and How questions.

As with any exercise in planning, make sure you plan the discussion/meeting upfront and allow sufficient time and input to have a great result. Contact me, Andrew Tucker, for help with this process or other aspects of your business. I can be reached by e-mail at andrew@aetuckerconsulting.com or by phone at 704-651-2216.

Tags: CFO, business tips, Chief Financial Officer

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Where’s my Cash?

“The income statement that my accountant gave me says that I am making a nice profit, but I never seem to be able to have enough cash.”  Does this sound familiar?

If this concerns you in your business, you are not alone. Here are some common issues that may affect the cash flow of a business:

  1. Invoices are not billed timely and promptly because supporting information has not been processed timely.
  2. Customers pay invoices short or delay payment because of product quality issues or invoice errors.
  3. Inventory is increasing faster than sales because of poor purchasing practices (which could be driven by poor inventory practices).
  4. Staffing is increased to meet short-term demand without considering whether the demand is short-term or if it will continue.
  5. In a project based operation, you are not properly reconciling progress billings with the actual expenses incurred.
  6. Failing to plan for income tax payments and other large payments (i.e. insurance).
  7. Not adequately planning for or financing long-term assets.
  8. Taking distributions without leaving enough cash in the business for operations.
  9. Theft, waste or not managing expenses & inventory.
  10. Past due receivables are increasing because customers are also experiencing cash flow issues.

You should become disciplined to look to the accounting software for the daily cash balance and not the online bank balance.  Your accounting software will show all transactions including checks that have not been presented to the bank for payment nor will they show receipts that have not been deposited at the bank.  Relying on your software’s cash balance, which must be reconciled to the bank statement on a regular basis (monthly), will allow you to avoid serious and expensive mistakes.

Establish a process to create cash flow forecasts, that are continually modified and updated as new information becomes available.  A forecast for the next 4 to 6 weeks will help you keep it realistic, keeping one for the next 13 weeks/next quarter is even better.  Establishing cash flow projections is simply using a few basic principles combined with your intuition and knowledge of the business.  Adjust for any anticipated changes and never project revenues that you cannot be fairly certain will occur.  If cash is particularly tight, have your staff provide a daily balance first thing in the morning, every day, with an updated forecast.  This will seem like a daunting task at first, but it will become much easier as it becomes a habit.

Understanding your cash flow will give you peace of mind and help you start to take control of the financial side of your business.

If you would like to discuss the ideas here in this blog or other aspects of your business, please contact me by e-mail at andrew@aetuckerconsulting.com or by phone at 704-651-2216.

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Does Your Business Need A CFO?

Entrepreneurs and small business owners can have excellent skills at managing their companies, including financial matters, but as the company grows and becomes more complex, most will reach a point when they realize it is time to step back and allow the financial matters to be handled by an experienced and qualified CFO. That important addition can make a tremendous difference in company operations and profitability.

When a business owner is feeling the pressures of too much to do or is overloaded and overwhelmed by the demands of financial planning, record keeping, financial reporting and managing financial operations, it is time to bring in an experienced and highly qualified CFO to share the load. Every company, regardless of its size, can benefit from the services of a CFO.

Common questions a small business owner might ask when considering hiring a CFO include the following:

1. How will I know I need a CFO? Here are some indications:

• Your company’s finances take more of your attention than ever.
• You are distracted from critical revenue generating activities to handle finance issues.
• Your business is spiraling down and you cannot determine why
• You are expanding and you need help to manage it.
• You are not getting financial reports on a timely basis that you trust and understand.
• You don’t understand some of the finance related correspondence you receive.

2. What can a CFO do for my business? 

A dedicated CFO will manage the financial aspects of your business, so you can concentrate on other administrative and revenue producing tasks to support company growth. The CFO can help create accurate and reliable financial reports for better management decision making, control company costs, assess new business opportunities, and help your business move forward. In brief, a CFO will help manage financial risk, planning, record keeping and reporting for your business.

3. What services does a CFO provide? 

A CFO provides leadership and expertise in a variety of financial areas including cash flow, budgeting & forecasting, strategic planning, banking, borrowing, insurance, accounting, financial reporting and exit planning.

4. How expensive is it to hire a CFO? 

It is costly to not hire a CFO. They can be a great addition to your company in terms of allowing growth in a fiscally responsible manner. They become part of your team and can truly enhance your company’s movement toward growth.

I provide complete CFO consulting to small and mid-sized privately held companies on a part-time (also called an outsourced or fractional CFO) and affordable basis.  If you think your company has reached a point where you need a part-time CFO, let’s talk.  Please contact me by e-mail at andrew@aetuckerconsulting.com or by phone at 704-651-2216 for a complimentary assessment of your company’s financial needs.

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What financial statements should you monitor?

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As business owners, you are tasked with acquiring new customers, managing your team, launching new products and countless other tasks. Let’s face it – most of us simply don’t have time to focus on our financial statements daily – or even weekly.  However, businesses need an effective system for conducting operations, complying with tax laws and providing essential financial information – especially to lenders and outside investors.

Think of monitoring your financial statements like monitoring your vital signs. Understanding the health of your company by utilizing timely and accurate reporting is a key tool that allows you to measure how the business is performing in terms of cash flow, sales growth, profit margin, and expense management.

So, what statements should you monitor? The Balance Sheet and Profit & Loss statements should be well known to every business owner, but many owners do not pay attention to the Cash Flow Statement which may be the most important statement. Close attention should also be paid to Accounts Receivable and Accounts Payable reports, and, of course, to your bank statement.

Steps to Ensure Your Financial Books Are in Order

Whatever size your business is, this Financial Checklist can help you get into the discipline of monitoring the above statements to ensure consistent financial health—and even spotting warning signs before cash flow emergencies strike.

Financial Records Checklist

  • Reconcile your bank accounts on a monthly basis; ensure deposits and cash receipts have been posted accurately and in a timely manner.
  • Cross-check daily sales log and cash receipts.
  • Review accounts payable each week – take advantage of discounts, if possible, and pay your  bills on time.
  • Monitor the status of accounts receivable weekly to check on past due invoices.
  • Inquire about unpaid invoices that are past due and address the issue in a timely manner.
  • Review your payroll and administrative expenses weekly.
  • Monitor any taxes due (federal, state, sales and property tax) to avoid fines and penalties.
  • Track the results of your marketing efforts – how much income is generated by marketing.
  • Review all account balances to ensure that transactions are properly posted and adjusted as needed.
  • At year end, prepare for 1099’s due in January. Begin to organize your W-9’s in December to avoid being rushed come January.

One of the ways I can help business owners is by taking tasks off the business owner’s to-do list. This helps them be more productive in the quest for new customers, opportunities and products. All business owners want more time to focus on the business and future goal-setting. Yet, too often business owners get stuck doing what we call administrative tasks instead of higher level tasks.

Business owners should be leading the business with ideas, plans and developing the culture to make the business successful. Administrative tasks are necessary (accounting, cash management, financial statements, internal procedures and controls, etc.), but if too much time is spent on these by the business owner, the business may suffer. What affects could this have on you and your business?

Is it time to use your financial statements to operate your business better? Please contact me by phone at 704-651-2216 or e-mail at andrew@aetuckerconsulting.com and see how I can help.

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What does a CFO do?

Financial professionals working in companies may have different job titles depending on the firm and the industry.  Regardless of what the position is called, proper management of the financial area is critical for any organization.

Anyone with access to the internet can look up a definition of what a Chief Financial Officer (CFO) is.  According to Investopedia.com, a CFO is:

The senior executive responsible for managing the financial actions of a company.  The CFO’s duties include tracking cash flow and financial planning as well as analyzing the company’s financial strengths and weaknesses and proposing corrective actions.  The CFO is similar to a treasurer or controller because he is responsible for managing the finance and accounting divisions and for ensuring that the company’s financial reports are accurate and completed in a timely manner.

According to Marina, Guzik in her book CFO Techniques, the mission of the CFO is to:

Utilize their best abilities and partner with other senior managers in facilitation of the company’s commercial survival, stability, and growth.

There is a long list of essential tasks and responsibilities that can and should be accomplished by a CFO to help make the company successful.  The list includes:

  • Strategic Planning – are plans in place to guide the company towards its mission? Are the plans reviewed and modified when and if necessary?
  • Cash Management – does the business generate enough cash to continue operations and make a reasonable profit (if a for profit business, of course)? Is the available cash used wisely?
  • Policies, Procedures & Controls – are tasks being done in a consistent fashion from day to day?  Are adequate controls in place to protect company assets both tangible (i.e. cash, inventory) and intangible (i.e. patents, company secrets)?
  • Capital Resources and Banking – does the company have adequate funding to satisfy its mission and for the owner to meet his/her goals?
  • Information Analysis and Reporting – what do the financial results tell you? How do you report the results in a way that others can understand and use the information to make quality decisions?
  • Accounting Management, Financial Statements and Audits – are procedures in place to process information (sales, inventory, collection of cash, etc.) quickly and accurately? Do the financial statements adequately reflect what the operations have done?
  • Risk Management and Compliance – are processes in place to help the company mitigate and maneuver through the potential pitfalls of being in business?
  • Administration & HR – is there a proper level of “back office support” to handle the administrative functions of the organization?

Having a CFO (or any other position) in place will not assure success.  It takes a team effort to make a company successful.

Without properly managed growth, companies can and will lose vision and focus on the company’s mission.  Little mistakes turn into big mistakes, customers and employees leave, internal fiefdoms develop, and teamwork stops which diminishes the energy, innovation and creative talents of key employees.  Without vision, foresight and proper planning, the company can perish.

So, what kind of company needs a CFO?  Just the ones that want to be successful.  You may likely need a full-time CFO if your company has more than $50 million in sales or more than 100 employees.  However, even small and medium sized businesses can team up with an affordable CFO on an as needed basis.  Whether full-time, part-time, permanent or temporary, the key is for the CFO to fully understand and support the role of unleashing the creativity and leadership of the business owner.

I provide complete CFO consulting to small and mid-sized privately held companies on a part-time (also called an outsourced or fractional CFO) and affordable basis.  If you think your company has reached a point where you need a part-time CFO, let’s talk.  Please contact me by e-mail at andrew@aetuckerconsulting.com or by phone at 704-651-2216 for a complimentary assessment of your company’s financial needs.

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