Does Knowing Where You’ve Been Tell You Where You’re Going?

Whatever business you may be in, you’re probably an expert.  You know what you offer and how to deliver it in ways your clients value.  You know what it takes to make your clients happy.  But when it comes to managing dollars and cents, does your expertise fall short?  Many business leaders understand “doing” business much better than financing a business.  You probably ask questions like:  Am I ready to expand?  How long will the money last?  And what will I have to do to get more?

I reached out to my friend Michele Demark of Decision Smart, Inc. to discuss her views on these and other finance-related questions that small and mid-sized businesses like the clients I serve in my practice face.  Michele’s company offers “fractional” Chief Financial Officer services, which means that Michele’s firm can deliver expertise in a serving size that most businesses will appreciate.

Michele’s firm typically begins a new engagement functioning more like a chief of staff than as CFO.  She says that most business owners try to divide their attention among lots of important demands.  It probably seems like everyone wants something from you.  Michele believes that it’s important to know what YOU want.  This conversation helps you know what’s already working well and figure out what really needs your attention.

Michele described how many of her clients were too deeply involved in keeping the machines running to see the bigger picture of where the business was at the time and where it might be going.  Michele offers an outsider’s view that helps the owner decide where to best devote their attention and energy.  When they’ve answered the question about what they want, Michele helps the owner figure out how to get there and when to bring in other experts. “I bring a roster with me instead of bringing the whole squad,” she says, “because every client’s needs are different.”

The kick-off conversation shouldn’t focus on only the short-term.  Michele points out that “At some point, you’ll transition away from or out of your company.  Given that all roads lead to this destination, you need to ask yourself if you were buying this business five or twenty-five years from now, what would you want to see?”  With the end-game in mind, Michele helps clients define want they want their business to look like and then helps them structure the business to arrive at the goal.

The next step almost always includes a review and evaluation of financial statements and data-collection and reporting systems.  Michele described her company’s experience helping clients who were collecting information but not using it well or who had good reporting systems but weren’t using them correctly or fully.  Some clients didn’t have systems that were right for their business, and some clients didn’t have any systems at all.  Lots of clients had systems that were too advanced for the skill levels of the people using them.  Some clients collected data and created reports manually – and expensively.  Others used systems that gobbled up staff time, taking more money and effort than they were designed to save.  By helping optimize systems, Michele’s company got these businesses on the right track for growth.

Michele asks a series of questions when looking at a company’s reporting systems to figure out the best course of action:

• What do you need to have the system do?
• Are you fully utilizing the systems you already have in place and is the staff using them?
• Have you outgrown your systems, and what should you consider before replacing them?

With answers to these questions, Michele helps her clients put in place data collection and reporting systems that generate meaningful reports, and with useful, meaningful information Michele helps her clients make good decisions.

OK, you’re gathering data, reviewing reports, and making good decisions.  Time for a break, right?  Probably not a bad idea, provided that you’re not bouncing checks while you’re enjoying a tall one.  A CFO should be forecasting your cash flow and preventing these unwanted surprises.  The forecasts should look ahead to the next six months to three years, and a good forecast will take into account the owner’s view of the future.

Forecasts like these will make your life less stressful and more enjoyable.  For example, Michele knows that banks like to loan money to be used for buying hard assets but are not so excited to lend for brand expansion.  Her client had enough cash on-hand to buy the equipment needed to produce a new product line but using the cash for the equipment would make getting a loan to pay for the product launch campaign uncertain.  Needless to say, this dilemma was creating stress.  With Michele’s help, the client borrowed the funds to buy the equipment instead of using the cash on-hand, leaving the cash for the launch campaign and making both the bank and the client happy.

Michele finds that most businesses, including businesses with limited cash, overspend what’s been budgeted for a project and generate less revenue than what they’d planned.  Her focus, therefore, is on results.  She uses tools like key performance indicators and stage-gate processes to ensure that clients get results.

In the first step of a stage gate process, Michele helps set milestones that must be reached before the project moves forward.  For example, she might help the client set a goal for the sales team to identify a certain number of prospects.  The sales team must complete this stage before the client allows the project to proceed to the next step, which might be contacting the prospects and getting a minimum number of committed customers.  Because it’s based on results, the stage gate process helps the client know that the project is on track to achieve the goal.

Michele offered a few suggestions that business owners should be factoring into their forecasts:

• Interest expense should be on your radar.
• Employee pay and benefits continue to be an issue because of the talent shortage.
• Even with the new lower tax rates, continue to optimize tax expense.

Michele says that, more than anything, her goal is to help her clients succeed.  Her excitement describing how she helped her clients shows that she finds her clients fascinating, and she says that she loves what her clients create.  “These folks all have something that they believe in,” she says of her clients.

If you’d like to learn more about Michele and her services, please reach out to me.  I’d be honored to connect you.