The 13-Week Cash Flow Forecast

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I’ve been harping on using the 13-week cash flow forecast (13WCFF) process for years.  It is one of the basic tools for the turnaround professional to quickly get a handle on the short-term cash needs.   It forces the business owner to run their business based on cash the typical income statement lens.

The typical monthly balance sheet and income statement are not enough to effectively run your business.  I’ve seen many profitable businesses run out of cash – and conversely, I’ve worked with struggling companies that have stayed alive for months allowing them to the runway needed to return to profitability.

Whatever stage your business is in, I highly recommend implementing a 13wcff process now to help in these extremely uncertain times.

The concept is the 13WCF forecasts cash receipts and cash disbursements by week for a 3-month period.   In a turnaround, the 13WCF is updated constantly, but for a typical business, I like to update it weekly so it’s always a rolling 3-month look forward.

With all the current uncertainty it’s more important than ever to use the 13wcf process to better predict your cash position, see any bumps in the road, and help you sleep better at night.

The 13wcf forces businesses to think in terms of cash vs typical GAAP accounting.

I created this short demonstration video on how to use the 13-Week Cash Flow template in my resource section.  It takes some work to get started and discipline stay with it update it weekly, but I guarantee this process with help your business.

I hope this helps.

As always, if you need help, reach out to me.

Our Changing World – Strange Days Indeed

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The world has changed.  Your world and the economy as you know it has totally changed – and not for the better in the short-term.  We must face facts. The next two quarters will be brutal.  But this is the time to stay focused because we will all get through this.  When you’re in hell, you keep going.

But sometimes, in a crisis, we decide to be honest about our situation (even if it’s not fun), consider the worst-case scenarios (which may not become the case for our business), determine the actual facts of the situation in relation to our unique business (without panic), consider all resources (we may have more than we realize), cut out spending (which isn’t a bad idea even in healthy times) and take appropriate action (that’s what you are in leadership for.)

For many, part of this process will be to take advantage of the Federal Coronavirus Relief Bill.  Work with your CPA, lawyer, and banker now!  See some summary pieces and the simple applications here.

Thoughts On Remote Work

All my clients are now working remotely.  Some companies were progressive and pushed for being ready; others were in denial until the state governors issued stay at home orders.

I’ve been working remotely for the last 15 years as a trusted business advisor and virtual CFO to businesses around the country.  Now everyone is working remotely (or WFH – work from home).  I am lucky to have a great office space above my detached garage.  It’s interesting, with such an increase in video calls, to see how else is using their remote/home space.  Interacting with and leading remote teams is much different for some, where it’s business as usual for those who have been working virtually for years.

Many of my clients are using (and loving) Microsoft Team. I like it too (though I prefer NOZBE Teams.)  Many other tools are now becoming well-known such as Zoom, Asana, Basecamp, and more.

The tool you pick is important, but what’s more important is how you use it.  Try to mirror some of the same standards, schedules, and communication guidelines that would be in place in the on-location office. These virtual tools help you be able to carry on in a similar way … yet do understand that your team is going through a major change that is likely affecting (sometimes deeply) their personal lives, level of distraction, and emotions. Show some grace for a while, while keeping some standards and routines that will provide structure and even, respite, from the onslaught of information and fear.

Let me know if I can be of help to your team during this scary but also potentially beneficial (in some ways) time.  Contact me here.

Back to Cash

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It’s ironic when a business is surprised that they need $80K to pay sales tax.

I am just starting to work with a new client, and one the first practices that I start for most companies is to create a simple cash flow forecast and process, to help avoid surprises like this.

It’s amazing to me how few business owners forecast actual cash needs.  They shoot from the hip and are surprised when that sales tax deadline looms.  How did they not know that sales tax is due on the 20th?  Bad or sloppy planning, that’s how.  Sometimes we need to focus on the fundamentals.  In business, predicting cash needs is a basic fundamental.

For this client, we did a very simple estimate of cash receipts and cash disbursements for the next three months.  We looked at accounts receivable and estimated weekly internet sales.  We forecasted payroll, due dates for medical and insurance premiums, all deadlines for debt payments, vendor payments, telephone, utilities, etc. (See a basic template in my resource section.)  The first pass of the worksheet took about an hour.   This was a fundamental first step.

This client was tracking cash transactions daily with an involved spreadsheet noting activity in three cash accounts and their working capital lines.  The spreadsheet was prepared daily and the controller and owner would pontificate on it constantly.  It was mostly historical though, with very little accuracy for the forward-looking three months.

This was the main problem. They weren’t predicting future cash needs very effectively at all.  I see this a lot—the need to look further down the road.  Things get hazier as we look out, but the first few weeks and months should be much clearer.

We simplified their spreadsheet by changing the perspective to a horizontal look (vs. vertical).  We changed their daily tracking to tracking by week.  (By day was too granular for this company – they got too caught up in the detail.)

We created a weekly update process that will take some time to prepare, but it’s done once and formally reviewed in a structured way.

Over time, accuracy will improve, but in a couple of days of work, the owner already has a much better view of the future now.

If you’re not using a basic cash flow forecast process for your business, and you’re constantly stressed about cash, start today! Not sure how? Contact me for help!

 

Image by Deedster from Pixabay

The Art of the Turnaround

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A business turnaround is part art and part science.  The art portion can be timing, external factors, luck, ability to get people to change, etc.  The science part is the numbers, the forecasting tools, communication, fixing internal factors, and negotiation techniques.  I focus on the science part.

The fact is most businesses are not performing the way we expect them to.  We have high expectations for our businesses.  Why shouldn’t we?  Why be in business with all the challenges and headaches unless you’re going to make money, create value, and fulfill your mission.  If the business isn’t profitable, the business isn’t viable in its current state – something needs to change.  Profit and cash flow certainly makes things more fun and allow different opportunities for growth and excitement.

If the business isn’t performing the way we expect it to, we need to turn it around.  We need to go the other way.

So for me, the basic principle for turnarounds is: take decisive action to improve productivity with improved processes or systems and hold the team accountable.

I have lots of experience with turnarounds some good, some not so good.  Did I mention, I was recently awarded 2017 Turnaround of the Year!  The team did an excellent job addressing the issues with this company, and we had fantastic results.

The turnaround process is certainly challenging, it can be fun or it can be ugly.  As leaders, we are managing time, money, and people.  We need to focus on each.  In my observations over the years, I find there are several key leadership principles for turnaround success:

  • The CEO needs to be ready and confident. This is an opportunity for change.  The key is overall leadership with the need for immediate direction.  Leaders need the courage to make changes and call the shots.  It is time for quick decisive decision making
  • Pick your team. Remember, the people who got you where you are now may not be the people to get you where you need to go.  The core team needs to recognize whatever you’ve been doing is wrong and needs to change – you likely need to bring in professionals and assistance.  Redevelop your relationship on the floor – these people know what’s going on and what needs to be changed and improved.
  • Develop a written plan with short-term action and accountability. Need planning and accountability with solid dates – The plan should be 3-week/3-month viewpoints.  See my resources for a Turnaround Checklist.   If you don’t know where you’re going, any road will take you there – from George Harrison’s song “Any Road”.  Develop an operating plan with forecasted P&L, Balance Sheet and document assumptions and KPI’s.
  • Get the facts and face the facts – get the numbers and determine exactly where you are.  You need to know where you are and figure out where you want to go.  Be skeptical of the data. The fact is most underperforming companies generally have bad, inconsistent data.  Ensure you have accurate, timely data.
  • Know your numbers:
    • Understand your cash flow. Use a 13-Week Cash Flow Forecast Model.  See my resources for a template.  Make the weekly cash flow update meeting with your key team part of your process.  Keep a short-term approach focused on liquidity and cash.
    • Understand your profit – 80/20 customers and products – best if we can allocate all the operating expense to get true cost with activity based costing
  • Have regular key communication with vendors, banks, and employees
  • Be prepared for Chapter 11.  Liquidating assets is very bad for the bank and can be a powerful negotiating tool, but it can become a slippery slope.  If necessary, understand the process.

I would love to help you through your turnaround process.

Think profit and go long,

/jon

Business Owner Mistakes: Not Keeping Company Books and Records Up-to-Date

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It’s an all too common problem.

Despite the importance of up-to-date bookkeeping, I often see small and mid-market companies, startup companies, and medical and dental practices that don’t keep their books 100% up to-date and 100% accurate.

They have no ‘formal’ month-end financial close processes in place and do not review their financial metrics.

This is a bookkeeping fundamental, so important to all businesses.  The discipline of staying up-to-date and doing regular reviews creates a sense of team accountability and almost always improves results. Then why don’t companies do this?

Sometimes, it’s lack of interest in numbers. Sometimes there is fear of what they will discover. And sometimes, it’s simply that no one has established consistent, simple procedures to streamline all processes, including the important month-end close.

Sometimes we as business owners avoid the simple truths of seeing our actual results.  I was a 25% owner of a small $1.5mm mechanical services company several years ago.  We make this mistake with our books for about a year.  We were relying on the controller, and we believed the financials up to date and accurate.  Wrong on both.

There was no closing practice, and we didn’t formally review the monthly numbers as a team.  As it turned out, the balance sheet was a mess.  We significantly underestimated our liabilities and overestimated our assets.   We were so engaged in top line growth that we were blind to the basics of a financial footing with a formal month-end close and review process.

In hindsight, we would have been able to make much better decisions and know of upcoming pitfalls and cash needs if we’d had a process for closing and review every month.  As it was, we had to really hustle to save the company and ended up selling it for a sizable loss.

Your company needs a basic month-closing process that includes

  • Reconciling the cash accounts, and all balance sheet accounts to the subsidiary ledgers.
  • Ensuring journal entries are recorded and all transactions are in the correct period.
  • Finalizing monthly financial statements with the actual results summarized and the vital few measures are compared to the operating plan.
  • Discussing the differences between anticipated and actual, and developing action plans to get on, or stay on, the right path.

With today’s bank feeds into most integrated accounting systems, the month end process is much easier, but it still certainly takes some care and the human touch.  Depending of the revenue model and overall cutoffs, the close can take several days, but make it a practice to finalize as soon as possible after the end of each month.

I like a simple checklist approach with all balance sheet support schedules and P&L analyses on one Excel file on the network drive. (See my resource page for a free downloadable checklist.) Have a consistent month-end review scheduled on your calendar every month and sit down with your team to go through the numbers. This can keep those doing the books focused on finishing so they can be ready for the meeting.

With the experience with the HVAC company rooted in my mind, I make sure all of my clients have a monthly schedule to go through a simple month-end checklist.  The financials are produced consistently on a timely basis each month.  We have a recurring monthly calendar appointment go through the numbers with the respective teams.  That is the only way to know where each organization stands, and position us to make the best decisions to keep it as healthy as possible.

Need help developing a closing procedure for your company? Contact me!  Subscribe to receive my free paper on 10 Common Mistakes Business Owners Make.

The Dashboard May Be the Most Important Part of Your Company Vehicle

Five Keys to Make it a Great Part of Your Business

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I believe Seth Godin said that all organizations are slow to change, but organizations that don’t measure the results are even slower to change.  He is one smart guy, and I 100% believe that – with organizations and people too.  We need to measure progress continually to make headway with everything we do.

I am a big believer in measurements and tracking key performance indicators.  I have logged my workouts every day (what I did, how long, in what intensity, how I felt, etc.) by day, every day for the last 20+ years.  I guarantee that if I hadn’t logged, I wouldn’t have been as consistent as I have been and I wouldn’t be in the physical shape I now enjoy.

With measures for your business or medical practice, I believe it’s the same thing.  Logging performance consistently over time improves results.  And small improvement steps over time have huge effects.

I track and review my client’s dashboards every week.  Some of my companies are always making dashboard tweaks and are quite advanced using automated dashboards with Tableau and Cognos, and others are quite simple using a whiteboard or Excel graphs manually prepared. I think of business measures like a car’s dashboard. Tracking a few meaningful key measurements is important.  The car’s dashboard doesn’t measure the 100’s of things going on with your vehicle, but it does track important things like speed and the amount of fuel left. Experts agree that business dashboards should illustrate financial health, operational efficiency, and quality (quality product in business or quality patient care in a health care environment, for example.)

I think of business measures like a car’s dashboard. Tracking a few meaningful key measurements is important.  The car’s dashboard doesn’t measure the 100’s of things going on with your vehicle, but it does track important things like speed and the amount of fuel left. Experts agree that business dashboards should illustrate financial health, operational efficiency, and quality (quality product in business or quality patient care in a health care environment, for example.)

Here are a few things I’ve learned over the years by implementing key performance indicators and dashboards:

Key 1: Keep it simple.  Keep the measures limited. I like one-page dashboards.  Ensure all measures focus on your vital few objectives (ref post from early 2016).  Data needs to be easy to obtain and completely objective.  Ideas: sales growth, customer/patient acquisition/retention/loyalty, operational productivity measures, gross profit, debt ratios, asset velocity metrics, etc.

Key 2: Measure the right things.  Just because you can measure it, doesn’t mean you should measure it.  Again, think of your car’s dashboard.  The higher up the food chain the dashboard user is, the less information is needed.  The board of directors, for example, generally aren’t interested in the number of mistakes made by the fabrication shop—only in the big picture.  Always align measures with your company’s or practice’s goals, vision, and direction.  It’s not a very good idea to regularly change specific measurements, but don’t be afraid to make changes to ensure your measuring the most meaningful metrics to track over time.

Key 3: Be consistent. Dashboards need to be produced and reviewed consistently to get buy-in and provide useful results.  The measures you track generally have positive results and trends go in the right direction over time.  I like dashboards to be produced and reviewed on Monday for the previous week.

Key 4: Keep results visible.  This is so important. I’ve made this mistake several times. I developed great tracking graphs, but inconsistently (or never) brought them out for review or discussion.  Visibility helps everyone understand results and where the company is headed.

Key 5: Set realistic targets.  Dashboards are easy to get started, but take diligence and discipline to maintain their accuracy and value. I use reminders, tasks, and calendar appointments to keep consistent, but it helps a lot when a company is results-oriented.

Which of the above do you need the most help with? Contact me!

 

Rabbit Rabbit Hare Hare

60 Days Left

My grandmother used to say the phrase “Rabbit, rabbit, hare, hare” every month when she flipped her Travelers Insurance calendar from one month to the next. She would say it was for good luck. Apparently, this was adopted from an old English superstition from the 1200’s for good luck.  I’m sure others chant this expression at the beginning of a new month for good luck as well.

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I still follow the superstition to this day. My family says “Rabbit, rabbit, hare, hare” 10 times in a row, first thing in the morning, for good luck.  My 84 year old mother (who lives in Chicago) and I have a contest every month: who can send the first “RRHH” email.  You would think since I get up at 5 AM every day and live in the east, I would win every time, but not even close.

I took a few minutes on Sunday morning and thought about “Rabbit, rabbit, hare, hare.”  I thought about how fast the last month went!  We had an outstanding October weatherwise in the Northeast; I just finished a four day juice cleanse;  and I purged my garage, filling a dumpster and donating several loads of household items.  I thought about the good things that happened all month and how grateful I am for it.

Now I turn to November. The beginning of a new month is always a great time to make sure you’re moving the ball down the field in the right direction.

This November 1st after my “RRHH” rituals, I was thinking about the runners at the start of the NYC marathon.  I was very happy I didn’t run it this year though it truly was one of the most remarkable experiences in my life (circa 1997).  But while watching my friends run it this year it became clear to me.  In 2016 I’m definitely signing up for one competitive event.  We need specific goals and aligned goals to take things to the next level.   For me, I want to get my fitness to the next level so I’m signing up for a race.  Simple. Aligned goal.

It’s the same way with our other goals. We need to set specific aligned goals to take things to the next level.

As a business owner there is a lot to do with only 60 days to finish 2015 strong: hammer on your Q4 goals, solidify your 2016 business plan assumptions and game plan, do your consisting weekly 13-week cash flow forecast, etc.  This week, take a look at where you are with your 100 day plan we talked about here and determine exactly where you are with your initiatives.  For me, I’m way ahead in a couple goals and behind in others.

Let’s prepare to finish strong!

Bonus: Also, this week I put together a very quick screen cast of how to use the SUMIF formula in Excel.  I use it all the time to summarize Excel data.   It’s super easy and if you use Excel you need to know how to use it.  Watch Video

Need help with your company finances? Contact me. Let’s talk!

 

Q3 is in the Books: A Checklist for Closing

The 3rd quarter ended this week.  Us finance guys are hustling to get the month and the quarter financial statements closed, and get the financial reports issued.  Business owners are chomping at the bit to see their results.  Bankers want to see the numbers to see how things are going and hoping for no surprises.  The sales guys are already into the 4th Quarter, digging to make their annual targets.

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How is your business doing so far?  I see a lot of companies that don’t know the answer to that questions.  I hope you do.

We need to focus on getting the Q3 results in the books ASAP, and we need to start thinking about 2016 budgets and operating plans.

We need to start with a solid benchmark and a quarter is a great time to do that. Q3 especially.

So here’s your list:

  • Ensure all balance sheet accounts are reconciled and clean.
  • Know where your collectability issues are.
  • Know that all A/P invoices are entered, the fixed asset register is up to date and reconciled to the GL, the debt schedules all tie out to the amortization schedules and bank statements, and the accrued liabilities are adequate.
  • Scrub the income statement to make sure it’s as clean as possible.  It’s paramount to have solid quarterly numbers.
  • Update your historical graphs for all cash flow and key result drivers – receivable days, inventory turnover, accounts payable turns, average invoice value, number of new customers, etc.
  • Document where you are with respect to your vital few objectives and your goals through 9/30.

A quick and solid Q3 close is essential for many reasons:

  • You need to know exactly where you are vs. where you thought you’d be.
  • Strategic planning and budgeting season is coming soon.
  • There is still plenty of time to make some big goals with a Q4 push.
  • Bankers, investors and supporters: all want to know.

Two things can really make a difference making the close process better:

  • Solid numbers all the time
  • A closing process and checklist

Sounds simple, but I see it all the time.  The numbers are not updated daily and/or there is no closing checklist or documented close process.  These are simple steps, but they make  a huge difference for accurate financial reporting.

Push your Q3 close process now to get accurate numbers fast.  Use a closing checklist and focus on getting each item done accurately and quickly.  This will help you immensely with the overall results for your business.

Contact me!

2nd Half is Underway

Well, how has the 2nd half started for you and your business?

Hopefully, you had a good summer and took some time for ‘half-time’.  Half-time is now over, and the second half is already moving fast.  I hope you took some advice from the previous posts and you have solid data and a revised second half-year business plan in hand.  If you don’t – spend this next week getting these elements wrapped up.  Did you have your Q2 Team Meeting as discussed previously?  If not, get it on the calendar!

I’ve been spending time with my clients doing much of the same – wrapping up the quarter and half year results, getting July financials wrapped, getting cash flow and business drivers actual results, updating my client’s 13-week cash flow forecasts, and talking with their lenders and shareholders about the results and targets.

We always need to be looking at the instrument panel and make adjustments as we go.

For one of my newer clients for example, we measured accounts receivable and inventory days and graphed the last 18 months.  We notices some turnover creep and developed strategies and goals to improve turnover.

For these two measures, I first see which data points I’ll use:  Monthly data or a 3 month rolling average.  Choose one and stick with it.

Here’s a simple worksheet to calculate your turnover days.

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The interesting thing is the power of reducing the days.  For example in fictitious land, say your company does $5,000,000 in annual revenue and has steady sales of $400,000 per month with 32% gross margins.  Your accounts receivable has averaged 42 days and inventory has averaged 52 days for the last year.  If you develop strategies and measures to bring down the turnover days by 4 days, you will put $90,000 of cash on your balance sheet.  If you’re a $10mm business with the same improvement, that’s $180,000!

Generally, I use the 3 month average for my calculations.  The calculations show how many days, based on history, does it take for accounts receivable or inventory to turnover.  Graph the last 18 months to get your base line.  I do this monthly – measure actual to plan.

Now that we only have 4 months of the year left, it’s time to refocus on the year’s intentional goals and continue pushing and developing tactics to hit those targets.

Ensure you have good data and all projects are focused and moving forward – if they’re behind schedule, get them back on track.

I’ve got to get going now and get some of mine back on track.

Think Profit!

 

Back to Cash

I’ve been using a cash flow process for all of my clients for years.  It helps business owners get a handle on their cash situation – be prepared and get in control.  We meet on a weekly basis and go through the 13-Week Cash Flow worksheet.  We review results for the prior week and recast the next 13-Weeks.  Simple, but very effective.

When you first start using the process – it’s awkward – scary – and most likely inaccurate.

I first started using a 13-Week Cash Flow process with a company I owned  – primarily out of fear.  We were a small company with 12 employees.  Every week, we’d freak out about how to make payroll and pay our bills.  The insurance bill in August almost put us out of business.  We made the typical mistake of reducing our salaries to reduce payroll.  Several times had come out of pocket to cover payroll and vendor bills.  We were growing our sales revenue, and we were profitable – but it was very very stressful and not very much fun.

We started using a 13-Week Cash Flow process.  A very simple concept tracking inbound and outbound cash on a weekly basis.  We started monitoring/tracking/predicting cash ins and outs on a daily basis for the first 4 weeks, then weekly for the other 12 weeks.  We’d predict cash receipts and accounts receivable turnover.  We’d schedule out all cash disbursement – payroll, rent, telephone, vendors, health insurance, worker’s comp, etc.  Again, daily for the 1st 4 weeks, then weekly thereafter.  We met every Wednesday – review the previous week’s predictions vs. actual and recast the next 13 Weeks.

First, we were petrified.  Cash out was (generally) predictable.  Cash in was not.  We had big negative cash weeks, but we could see the light at the end.  We started focus on profitable and steady sales growth and accounts receivable process and collection.

After time – we were more confident.  We focused and improved on our A/R collection  – developing a much better and accountable credit process.  We smoothed out the sales cycle and production and became much more profit and cash oriented.  A better, less stressful, and more valuable business.

I do this now with most of my clients – it not only get business owners focused on their cash flow, but more importantly takes some serious stress out of the business owner’s life.

No matter the size of your business, cash is king.  I love George Cloutier’s book ‘Profits Aren’t Everything, They’re the Only Thing’ – but profit isn’t usable until it become cash.  Also, when profits take a hit, intelligently using cash let’s you survive and keeps you in business.

If you have a cash flow process, I’d love to hear about it.  If you don’t have a process in place – download my template and get started.  It takes a month to get in the swing, but this straightforward process will make your life better and less stressful.

Think Cash!

/jon