Dave Casebere, B2B CFO®

I just had the pleasure of spending some time with a business broker and in the course of our conversation discovered that we share many of the same observations about business owners who want to sell their companies. As a B2B CFO® partner I work closely with owners to help them achieve their goals and, in general, a much higher level of success. In doing so, I perform a wide variety of things for them depending on the situation. Typically a lot of my time is spent helping them get their books and financial statements in order so that they can present an accurate picture of their business to bankers, brokers, the IRS, etc. when and as needed. I also spend a lot of time helping owners define and implement strategic business plans and even exit strategy plans for the longer term. And, of course, a big reason they seek my help is to help them find the cash they need to grow their businesses.

A business broker on the other hand works on behalf of a business owner when the owner’s goal is to sell the business. In many cases brokers find that the price a business can bring on the open market is considerably lower than what the owner thinks a business is worth. Some of that is caused by unrealistic expectations on the part of the sellers. But often it is because an owner has not engaged me or someone like me to help them get their business ready to sell. It’s kind of like selling a house. A fresh coat of paint might cost $2,000 but the value of the house suddenly goes up a multiple of that cost – great investment! The same goes for getting a business ready to sell. Buyers are generally looking for a turn-key operation where the accounting is accurate and there are good financial controls and, where operating processes are well defined and documented. Buyers want to buy companies whose operations and profits can and will continue on in a strong predictable fashion even when the seller is out of the picture.

So, the moral of this short story is this. Invest in your business to make it financially and operationally solid. Remember the coat of paint on a house. Whatever you spend to do this will payoff many times over when you get ready to sell the business. Actually, once that is done, an owner might discover that the business is far more profitable than originally thought. The second moral of the story is to build the business so that it does not revolve around a seller. Businesses that are built around one person have very little value, if any, to a potential buyer. Sellers – remember that you want to sell a business, not you!

The original of the article below was published in CFO.com on October 27, 2011.  The author is Chuck Benjamin, President of Benjamin Capital Advisors.  I have made some changes to fit it more closely to my writing style.  it is good advice for all business owners.

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Companies today are trying to navigate in turbulent, troubled times and many can’t stay on course.  Between 2006 and 2010, more than 208,000 companies filed for bankruptcy, according to the American Bankruptcy Institute.  The annual rate of bankruptcies nearly tripled during this period, with no end in sight.  And, the total number, staggering in itself, doesn’t include enterprises that have ceased to exist through non bankruptcy proceedings or that continue to limp along in some degree of financial crisis.

A detailed analysis of distressed middle-market companies would demonstrate that many could have avoided severe losses and often the loss of the business itself by following some seemingly simple and elementary business principles.

It is surprising how many experienced and qualified business owners, executives, and CFOs do not aggressively follow these seven principles. By ignoring them, management puts at risk the very survival of the business.

1. Always maintain an updated business plan and be totally committed to its achievement. A business plan is critical to the governance and success of any company.   A proper plan includes these elements: a sales & marketing plan, an operating plan, a capital expense budget and, a cash-flow projection.  This is the roadmap that should guide every aspect of budgeting, sales, operations, and finance.  It is the primary tool that aids in executive decision making to keep revenues and expenses in equilibrium.  As markets change, for better or worse, it is critical that your plan be adjusted to reflect current circumstances.  View it as a living, breathing part of your business and keep it up to date!
2. Strive to maintain cash-flow equilibrium.  Planning and executing the balanced inflow and outflow of cash is critical to the success of a company.  When financial conditions begin to deteriorate you must maintain constant vigilance over your cash flow.
3. Be meticulously accurate, proactive, and timely in reporting and reviewing financial results.
4. Ignore ”sacred cows”, i.e. aspects of your company you think can’t be changed.  ”We’ve always done it that way” is unacceptable when you must improve performance.  Maximizing corporate efficiencies; managing expenses, inventory levels, and capital expenditures; and, making the hard day-to-day decisions often determine the difference between success and failure.  Resolve to avoid judgments that follow historical, business-as-usual allegiances to people, processes, products, and methods.
5. Always be transparent, timely, and precise in reporting to creditors of all types.  The presentation of reports to    creditors should be treated with extreme care.  Too often, reports are delayed or purged of negatives to avoid disseminating “bad news”.  This is actually counterproductive because once the real results become known, the trust of the creditor may be permanently impaired and the debtor company irreparably harmed.
6. Be honest with yourself and others at all times!  The sooner you face the reality of a challenging situation, the quicker and better the solution.  If you fool yourself and those around you, the odds of failure are dramatically higher.  While painful, recognizing and dealing head-on with issues at hand invariably leads to a better result.
7. Always be open to the counsel of independent professionals when facing difficult or challenging circumstances.  During this rapidly moving era of economic change, executives at all levels are attempting to track and      understand an increasing array of complex factors that affect corporate finances, markets, personnel, and virtually every other aspect of management.  It is difficult, if not impossible, to keep up with it all.  Merely focusing on the normal day to day operations of your business is often a challenging task in itself.  When in trouble, look for help.  Seeking the advice and counsel of knowledgeable, experienced outside specialists who can help you get back on track..

These principles essentially form the foundation of sound business practice.  They will help you maintain adapt and thrive more quickly.  In a downturn, companies have to step up the speed of response.  But, whatever your company’s circumstances, you should always act with a sense of urgency.

It is no secret that the over-arching goal of planning is to improve your odds of success. I know you’ve heard it a thousand times but as we begin a brand new year, now is a great time to take stock of where you stand with regard to your plans. Plans fall into these two broad categories each of which can be further broken down into short and long term plans.

• Business
• Personal

Both are related but, the most important by a long shot is one’s personal plans and goals. For business owners, building a successful company is truly just a strategy for achieving his/her long term personal plans. But, for many owners the business itself becomes everything. It occupies almost every waking moment of thought to the exclusion of personal goal setting and planning which, if you stop to think about it, is really odd since the reason business owners work so hard in (and on) their businesses is to achieve personal goals. But, if personal goals aren’t quantified with a plan for attaining them then all that hard work on the business may not create the wealth that was intended. Unfortunately, many business owners fall into the trap of thinking there is always tomorrow to create a personal plan and they don’t realize that part of the planning process is creating strategies for protecting wealth that is created in the business. Tomorrow never comes. Do it today.

I’m sure you also know that it is simply not enough to have a general concept in mind of what you want from your business or in life. Goals need to be defined in clear specific terms, in black and white, on paper using language that is quantifiable and measurable. And, they need to be worked constantly. If that isn’t done then how will you ever know if you are making progress towards your goals? If an owner is to be successful in life, he/she must know what that means in concrete terms. So, here we are at the beginning of 2012. What are your personal and business goals for: next month, the 1st quarter, this year, the next 5 years???

The risk of not planning and working your plans is failure, pure and simple. Things might look rosy today but do you have a plan for the unexpected that could occur at any moment (good or bad)? Do you have a plan for who would run your business should you become incapacitated? It is wonderful to say something like this – my plan is to build my business and sell it to my competitors when I turn 40, 50, 60, etc. But, that assumes you will be around and healthy at those milestones, that your business will be viable without you and, that your competitor will even want your business then. It also assumes the business will actually be worth what you think it will be worth which very often (yes, very often) is not realistic.
So, how can you significantly increase your chances of being successful? Well, here are three ideas:

1. Build your business around a well-defined set of goals and a well-conceived business plan. Create and manage to a budget. Make these items an integral part of your daily management process. And, ensure that your internal processes are sound, efficient and well controlled.
2. Plan for the day you will leave (or exit) your business; keeping in mind that for many that day is not a matter of choice. Things happen that are beyond our control. Will you be financially and emotionally ready for that day whenever it comes? That’s the $64,000 question (oh, if it were only $64,000!).
3. Surround yourself with people who are smarter than you. Find a good CFO who can help you create and implement your business and personal plans. Other key advisors you will need include, but aren’t necessarily limited to: a strong management team, a CPA for tax reporting, an attorney and, a wealth advisor. Then recognize that what they do for you is an investment in your future and not an arbitrary expense.

I just got off a call with a friend who is a retired executive of a Fortune 500 company where he ended his career on their Board of Directors.  He just told me that despite the tough economy that his company just declared a 10% stock dividend along with some other nice little perks that are affordable from a very good year.  He asked me what I thought of that and after a few moments told him that I thought it was indicative of several smart things his company has done and that will continue to pay dividends well into the future.  What are those things?  Well, here is my quick & dirty list and, by the way, they are as applicable to very small companies as to the giants:

a)      They have defined their corporate goals clearly and communicated them effectively to everyone in, or related to, the organization   

b)      The performance goals of every manager in the company support and complement the corporate goals.  Everyone is on the same page

c)       They obsessively monitor and measure the metrics that enable them to drive their business forward and are quick to make course corrections when and as necessary 

d)      Management at all levels gets regular (meaning monthly) reviews of financial performance along with forecasts and cash flow projections.  As a result managers know what they have to do now in order to meet their goals

e)      The culture in the business surely must include the overall tenor that today is everything, there is no tomorrow.  In other words there is no latitude for putting off till tomorrow something that needs to be done today to meet objectives.  There is no excuse for not being relentless in achieving goals; slackards are not welcome

f)       Of course, all the necessary financial and management controls are in place to minimize risk of preventable loss but that is the cost of business.  The important thing is that the company has well defined goals and everyone, and I mean EVERYONE, in the company knows what they are and are constantly striving to achieve them.

Obviously I don’t really know how the company operates but I have seen enough excellent organizations in my career to know that the traits listed above are common to all of them.  Small businesses should adopt these principles as well.  Every day that goes by without these ideas in place is a day full of lost opportunity.  Don’t let that happen to your company.

December is typically the month in which cash collections from receivables are the lowest.  This puts added stress on business owners as they try to meet the cash needs of their company, survive the holidays and try to collect bills without being branded with the “Scrooge” image.  According to Jerry L. Mills, founder and CEO of B2B CFO®, the USA’s largest Chief Financial Officer (CFO) firm serving mid-market companies, the top and most common reasons that cash collections decrease each December are:

• Accrual-based companies like to show more cash on their balance sheet on December 31st and are sometimes reluctant to pay their bills in December.
• The person who cuts the checks takes holiday vacations and is not available to cut checks.
• Illnesses, such as the common cold, cause payables people to be out on sick-leave.
• Your company’s staff may be more interested in the holidays and vacations than in collecting cash from your customers.
• Your customers may have their own cash collection problems that they pass on to your company.
• The check signer may be on holiday vacation.

But business owners can still take measures to improve their cash flow outlook this month.  ”As a business owner, you can still sit down with the staff and create plans for cash collections,” says Mills.  “The staff may need to be reminded that they need to focus on the company’s needs and be proactive in cash collections.”
Some suggested strategies to collect cash might include:

1. Collection Goal – Tell the staff the dollar goal in cash collections that you expect to achieve for December. Be positive, but firm about the collection goal.
2. Specific Identification – Have the staff give you a detailed report of the cash they expect to collect from specific customers by December 31st in order to achieve the collection goal. Communicate your concerns to the staff about customers. Help them understand the importance of collecting the cash without hurting the relationship with the customers.
3. Daily Reporting – Ask the staff to report to you (or a key employee) the results of the collections each day of the month in December. Any concerns about the collection goal should be communicated daily.
4. Internal Scheduling – Request your staff to give you a calendar of when they will be gone from the company during the month of December. Make sure someone is available to collect cash each day the company is open during the month. Make sure the receptionist knows who is available to take calls from customers who have questions or concerns about their invoice.
5. Additionally, have the staff call the customers to find out if there are any calendaring problems with your customer’s during December. There is no sense in calling to collect money if your customer’s staff is on a scheduled vacation – know the vacation schedules and plan for collections accordingly.
6. Performance Bonus – Give some consideration to giving a bonus to your staff if they meet or exceed the cash collection goal. This is a win-win situation for both your company and the staff as your employees earn some extra Christmas money while your company has sufficient cash in the bank to operate.

Sure, December can be a challenging month for business owners and the lack of cash flow only contributes to  the situation. Cash collections are an integral part the business cycle and strategic planning can help to keep businesses on track even during the holidays.

On October 26, the New York Times published an article titled, “When Should a Small Business Hire a Finance Chief?” This piece deals primarily with growing businesses and some of the major issues they confront. I recommend this article as a good summary of the complex range of issues that all small businesses face.

The article defines a number of tipping points that confront companies as they grow. But the primary issue was summarized by one business owner, who said: “I needed to hire someone who could function as my business partner and allow me to step away from the books so I could manage other aspects of my business.”

Among the challenges that organizations face, the Times identified the following:

• Financial Analysis, Accounting, and Budgets, Forecasts
• Insurance
• Banking
• Lending and Securing Financing
• Real Estate
• Health Insurance
• Accounts Receivables
• Legal
• Dealing with Investors
• Due Diligence in preparing for an acquisition or preparing to be acquired.

I would add cash flow, credit risk management, accounts payable, and working capital management, as well as human resources and IT management, to the list. And the CFO is critical for exit planning.

Can’t Afford or Don’t Need a Full Time CFO? Hire One Part Time.

As the Times points out, “No matter how small, any company can benefit from having a finance chief to help organize its finances and track its performance.” But a full time CFO usually commands a six figure salary plus benefits. The solution, say the Times, is to hire a part-time CFO. It is sort of like a time-share condo: you get the high quality seasoned finance leader you need for a fraction of the cost of a full time CFO.

 Read the New York Times article

 At B2B CFO® we work with business owners and CEOs to free up their time to realize their vision of success. For additional information about B2B CFO® visit our website

This is the third and final segment in my three part series on fraud.  My first post on 7/19/2011 discussed the fraud triangle and the three elements that must be present for fraud to occur in any organization.  My second post on 8/22/2011 discussed a few ways in which employees steal from their employers.   This post focuses on external fraud which is perpetrated by people within a company with the intent to deceive an outside party or, that is perpetrated by outsiders who are hoping to deceive you.  It’s a huge topic so I have  only touched on some of the types of external fraud that every business owner should be aware of.  The purpose of this article is to give you some tips on what to look for.

According to the Credit Research Foundation (CRF) and the Association for Certified Fraud Examiners (ACFE), small businesses are more vulnerable to fraud than large businesses.  This is simply because small businesses usually do not have the policies, procedures and financial controls in place that most big companies do to prevent, or at least mitigate the risk of, fraud.  Nor do they typically have  the inclination to invest in fraud prevention because of the perceived cost.  This is really false economy because whatever costs would be incurred would pale in comparison to even a modest fraud against a company

The essential  characteristic of fraud is the intent to deceive.  In my last article on fraud I discussed how  employees may attempt to deceive their employers.  But, some business people may also attempt to  deceive others outside the company or, conversely, others outside the company  may attempt to deceive you – count on it.   Here is a partial list of categories of external fraud.  Below the list is a description of a few of  them.

• Corporate  espionage
• Investment  schemes
• Pyramid  or Ponzi schemes
• Securities  fraud
• Insurance  fraud
• Bankruptcy  fraud
• Bribes and kickbacks
• Financial  statement fraud
• Money  laundering

Corporate espionage involves the theft of a company’s  intellectual property or secret information.   Such information may include; client lists, strategic  plans, pricing plans, marketing data, confidential financial information, software  code, personnel data, etc. that is critical to the success of a company.

Kickbacks are a common corruption scheme. The scheme  requires someone on the inside to participate in the fraud along with a vendor.   The kickback occurs when a company  overpays for goods and services and the vendor gives part or all of that  overpayment to the perpetrator.  It is  often not difficult for a purchasing agent of a company to engage in a kickback  scheme which is why it is so important for a company to put good controls in  place.  Anyone who has the authority to  award contracts or purchase products or services on behalf of the company is a  risk for engaging in a kickback scheme. Even those who have the power to  influence purchasing decisions represent a risk

Financial statement fraud may be the most  prevalent crime.  The most common way  that financial statement fraud is carried out is through revenue overstatement.   Here are few ways this can be done:

• Book  fictitious sales
• Recognize  legitimate sales early
• Ship  items not ordered by customers and book the “sales”
• Book  revenue before it has been earned on projects in progress
• Record  sales for items produced but not yet shipped or only partially shipped
• Book  sales but delay shipment to customers
• Don’t  properly record allowances for returned goods

Other fraudulent ways  to make the books look better than they really are include, but are not limited  to:

• Overstating  assets
• Understating  liabilities and expenses
• Manipulating  reserves
• Misrepresenting  or omitting information
• Improperly  recording information related to acquisitions or mergers
• Falsifying  earnings and cash flow

Keep in mind that all  the above are really just a sample of fraudulent activities.

Here are a few ‘real life’ examples of how frauds are perpetrated. . .

1. A  business owner seeking to get money from an outside party may alter financial  records to make past performance look better than it really was
2. Phony  trade and bank references may be used to obtain a loan or line of credit that is  not intended to be repaid
3. Financial  records may be altered to reduce tax payments
4. Merchandise  is intentionally ordered on a credit basis from a company that has lax (or no)  controls for validating the credit worthiness of a new client and/or has lax  (or no) procedures for monitoring and controlling previously approved credit terms and limits
5. A  good customer with a good credit relationship with a seller or bank suddenly  finds himself in a desperate situation or sees an opportunity to take advantage  of the seller’s (or bank’s) loose financial controls.  A bank I am familiar with was the victim of a
   multi-million dollar mortgage fraud that was possible because they grew  complacent with a long-time “good” client
6. Orders  may be received from someone claiming to be an affiliate of an existing  customer to get special pricing, payment terms or other consideration when, in  fact, there is no relationship
7. Merchandise  is ordered on COD.  The buyer pays with a  phony certified or cashier’s check.  By  the time the check bounces the thief is gone.

Fraud can be found in  every industry and every type of business.   It is all too easy for un-suspecting business people to be duped by  outsiders or even by trusted employees within their own organization.    As a  perpetrator, the legal and financial penalties are severe.  For those who have been cheated, the losses  can be catastrophic.  Worse, in almost  every case, losses from fraud could have been  prevented if the right policies,  procedures and financial controls had been in place.  As an experienced CFO and partner at B2B CFO®
I can help you make that happen.

Just another quick baseball story that I think you will agree is inspirational.  My wife and I are baseball fans.  She grew up in a baseball family in Baltimore and loves the Orioles.  I come from Ohio and Michigan and used to be a fan of the Reds and the Tigers.   So, now we have been in Arizona for 15 years and have become avid Diamondbacks fans.  This year has been a great one and lives up to the name of the city in which they play, Phoenix, in that they have truly risen from the ashes of last year’s team to become one of the most suprising come back teams in all of major league baseball.   Anyway, the thing I want to share with you is that I just learned a day or so ago that this year, the D’backs have come from behind to win 43 times and the regular season isn’t over yet.  That is somewhere around 30% of its games have been won in this manner.  We have personally seen it happen time and time again and often late in the game (8th or 9th innning).   This behavior is a reflection of the values and attitudes of the coaches and everyone on the team.  But, it should be a value and a way of life that every one of us endorses and practices – never, ever say die.  Don’t ever give up until the game is really over.   Here’s wishing you a winning year!

I’m writing this message while at a U.S. Navy conference in San Diego focused on how small businesses can work with the Federal government.  During the first day of the conference I had the very good fortune to talk with the founders and leaders of three companies  that have been hugely successful, not just as government contactors but as good business people.  All have realized significant growth the past few years and they shared with me their secrets to success.   Here they are:

1)  Create a plan, your business plan, and make sure it is a dynamic, living, breathing document that doesn’t just sit on the shelf collecting dust.  Make it as simple as possible but with specific, measurable goals that are achievable.  For example, if your company’s annual revenue today is, say, $2M then setting a goal of $100M next year or even in five years is probably not achievable.   Then share it with your managers so that everyone in the company knows what you are working towards.  Get everybody onboard.

2)  Focus on revenue.  Without revenue you won’t have money to invest in the systems, processes and people you need to grow.  Listen to your customers and provide the products and services they want and need, NOT what you think they should want or need.  Be relentless in uncovering clues as to what your customers and/or the market will need in the future.  The more lead time you can give yourself, the more opportunity you will have to get there first.  Keep in mind that the best source of this kind of info often comes from the people who actually use your product or service.  Listen to them.  Don’t be afraid to consider new markets, customers, services & products.   And keep in mind that revenue is a measure of growth, not a measure of success.

3)  Hire good employees then learn to delegate.  This is very difficult for entrepreneurs but, if you don’t delegate you will reach a limit to your growth.  Hiring good people is a continuous process.  Once they are on-board your next challenge is to keep them.  I can help you with that.

4)  Be willing to take risks with employees, teams, developing new products, markets or customers.

5)  Be patient.  Stick to you plan and keep it up to date.  It takes time for plans to gain traction and it takes time to develop achievable revenue targets.  Employees need time to settle into their roles and a company’s tolerance to risk needs to evolve.

6)  Finally, continually develop your relationships with your employees, customers, vendors, banks, lenders and factors, etc.   Building solid relationships may be the most critical key to success.

I was anxious to share these tips with you.  Hope you like them.

Many of us are excited that the football season is upon us. In football, blocking and tackling are fundamentals and if not executed correctly will cost you the game.

In business, especially in lean times, it’s easy to get distracted and forget basic business fundamentals. So, it may be a good time to be reminded of three of the most important fundamentals to keep in the forefront of your mind.

(1) Cash Is King. Manage it with the attention it deserves.

Cash is what keeps your business alive. Without cash, you have no business. Make sure you have a current statement of cash flows. This is perhaps the most important report a business owner needs to run the company.

(2) Never run out of cash. Make the commitment to do what it takes so that it does not happen to you.

Knowing your bank balance is interesting. Having a current and accurate “book” balance from the accounting system is imperative. Relying on the up to date accounting system cash balance, which must be periodically reconciled to the bank balance, will allow you to avoid serious and expensive mistakes.

(3) You absolutely, positively must have cash flow projections.

Cash flow projections are the key to making wise and profitable business decisions. It’s impossible to run your business properly without them. The finance or accounting staff must establish a process to create realistic cash flow forecasts in order to understand where the cash will be during the next 13 to 26 weeks. The cash forecast must be reviewed at least weekly. Establishing cash flow projections is rather easily accomplished using a few basic principles coupled with your intuition and knowledge of the business. Adjust for any significant changes you expect to happen that are different from the past period and never project revenues that you cannot be fairly certain will occur.

Understanding the company’s cash flow will give you peace of mind and help you take control of the financial side of your business. In addition, it will provide your team with the information needed to run the business effectively.

As a business owner, you need to free yourself to focus your unique talents and abilities on growing your business rather than fighting the constant cash crunch fires. Eliminate your cash flow worries so you are free to do what you do best – be the visionary, lead, take care of customers and make more money.