Posted on Thursday,

From Surviving to Scaling: Profit Levers for Growing SMBs

At Verbeck Associates, we work with small and mid-sized businesses all the time—most with lean finance teams and owners wearing multiple hats.

Sometimes, we need to think like a turnaround. Mission-critical survival. When cash is tight or operational chaos hits, we may have to make hard calls—cut off a leg to save the body. I’ve worked with companies crashing hard, clients stressed about making payroll that week, or covering that surprise $40,000 workers’ comp audit invoice.

The pressure is real. Business owners carry a tremendous weight. A company with 20 people may have 60 or more souls depending on its success.

But most of our clients aren’t in crisis; they’re doing okay. They’re getting by. Blocking and tackling. Handling problems as they come, taking care of the customer.

Our Job Isn’t Just to Save the Ship—It’s to Help It Soar

Our role at Verbeck Associates isn’t just to keep businesses alive. It’s to help owners build companies that can scale—and run without them. A business that answers every question, handles every area, and makes decisions with clarity and confidence—without the owner in every loop.

We help businesses shift from reactive survival to strategic scalability. And that’s where strategic profit enhancements come in.

It’s not just about cutting costs—it’s about building smarter, leaner, stronger operations with long-term profitability in mind.

In today’s environment—especially with AI accelerating fast—the businesses that adapt will win.

The Three Strategic Levers for Profit Growth

1. Cost Optimization

This doesn’t mean slashing blindly. It means asking:

Where is our cost structure bloated?
Can we scale revenue without scaling overhead?
Where can tech, automation, or AI replace recurring manual steps?

We’re good at spotting these gaps and developing systems and processes to streamline operations, tighten controls, and free up cash flow without adding complexity.

Efficiency = Margin. Slow is smooth, and smooth is fast.

It’s not always about who is responsible—but who is accountable. And what’s the metric that proves the area is working?

That’s how you turn systems into results.

2. Revenue Multipliers

This is about unlocking more from what you already have. Look at:

Average transaction size
Customer retention or reactivation
Cross-sells and upsells
Subscription or recurring revenue
Sales process velocity or bottlenecks.

One client added a post-sale service agreement after every sale. Within 90 days, 20% of customers opted in, creating a new six-figure revenue stream with almost zero additional cost.

You don’t necessarily need more customers. You need to extract more value from the customers you already have.

3. Margin Improvement

Minor tweaks in pricing or cost structure can drive huge bottom-line gains. But too often, business owners:

Are afraid to increase prices
Don’t know true margins by product or service
Price emotionally instead of analytically
Leave money on the table due to inconsistent quoting.

Don’t confuse revenue with profitability. Bigger isn’t always better—it’s just bigger. And it’s tough to sell your way out of a hole. Believe me, I’ve tried over the years.

Margin is where wealth is built.

Bottom Line: Profit Doesn’t Happen by Accident

It’s easy to stay stuck in “getting by” mode. But real growth comes when you start thinking like an investor in your own business:

What costs can we cut or avoid as we grow? What processes can we eliminate or automate?
What hidden revenue levers are sitting idle?
Where can we get more from our customer base and improve margin without hurting sales?

This is the work we’re doing with clients heading into year-end—and it’s setting them up for a stronger 2026.

Take time to review your strategic profit levers.

Start simple—with just one area—and work from there. Contact me to talk over your situation and needs!

Posted on Tuesday,

The #1 Reason Why Businesses Fail: It’s Not What You Think

Many believe businesses fail due to poor sales. While revenue is crucial, it’s not the real culprit behind most business failures.

The #1 reason businesses fail is cash flow mismanagement.

I’ve seen it time and again—businesses with strong sales, expanding customer bases, and solid teams teetering on the brink of bankruptcy. Why? Because they lack a clear grasp of their cash position, financial trends, and looming risks.

Sales Alone Won’t Save You

A company can bring in millions of dollars and still be one bad month away from disaster if it doesn’t manage its cash effectively. You can’t sell your way out of a hole.

Take this example:

I worked with a manufacturing company generating $15 million in annual revenue.
On paper, things looked great—sales were growing, and the pipeline was full.
But behind the scenes?
- Receivables were slow, with some invoices sitting at 90+ days.
- Expenses were rising faster than revenue, eating up cash.
- Inventory was bloated, tying up cash that should have been available.

They were just weeks away from not making payroll.

Without visibility into their cash inflows and outflows, business owners based decisions solely on revenue—which is a dangerous way to run a business.

Why Cash Flow Problems Sink Businesses

Here’s what usually happens when businesses get into financial trouble:

Owners ignore the numbers. They assume strong sales mean everything’s fine so they skip reviewing financials regularly.
Receivables spiral out of control. Customers take too long to pay, and cash runs dry.
Expenses creep up unnoticed. They over-hire, over-stock, or splurge on non-essentials.
There’s no cash buffer. When a slow month hits or a big expense arises, panic sets in.
They make short-term, high-cost decisions. They rely on high-interest debt, slash costs too late, or make desperate moves.

How to Prevent Cash Flow Issues

To keep your business alive and thriving, you must fully understand your cash flow. Here’s how:

1. Use a 13-week Cash Flow Forecast

This is non-negotiable. Every business must have a rolling 13-week cash flow forecast that shows:

How much cash is coming in
How much cash is going out
What your cash balance will look like three months from now

Pro tip: Go to my free resources and get your 13-week Cash Flow Tool

This simple tool forces you to spot problems before they hit.

2. Track Your Cash Weekly, Not Monthly

A monthly P&L isn’t enough. By the time you see the problem, it’s too late.

Every Friday, review your cash position, upcoming payments, and potential risks.
Make monitoring cash flow a weekly habit—because your business depends on it.

3. Get Paid Faster

Slow receivables drain cash flow. Fix it by:

Sending invoices immediately, not waiting until month-end.
Shortening payment terms (Net 15 instead of Net 30 or 45).
Strengthening customer relationships to ensure timely payments.
Enforcing collections aggressively—contact customers before invoices are due, not after they’re late.

4. Keep a Cash Reserve

Aim to build a reserve of 1-3 months’ worth of operating expenses.
Treat it as an emergency fund for your business—not for growth but for survival.

5. Know Your Real Break-Even Point

Many business owners think they know their break-even number, but they may overlook cash needs like loan payments or tax obligations.
Run a true cash-based break-even analysis to understand exactly what you need to stay afloat.

Bottom Line

Sales alone don’t keep businesses afloat. Cash flow does.

If you don’t track where your money is coming from, where it’s going, and when you’ll need it, you’re gambling with your company’s future.

Don’t guess. Know your numbers. Use my free Cash Flow Survival Checklist weekly.

If you need help taking control of your cash flow, let’s talk. I’ve helped businesses turn things around before it’s too late—and I can help yours, too.

Don’t wait until it’s a crisis. Book a 15-minute chat now, and let’s uncover your biggest financial blind spots so you can take action today.

Posted on Monday,

Your Year-End Financial Checklist: Closing Strong and Planning for 2025

As the year winds down, small and medium-sized businesses (SMBs) are at a pivotal crossroads: it’s time to finish strong while setting the stage for even greater success in 2025. This is your opportunity to assess whether your financial performance hit your goals, tackle any remaining obstacles, and lay out a bold strategy for the future.

To help you navigate this critical transition, I’ve created a comprehensive checklist to ensure you close out the year with confidence and kick off the new one with a solid financial foundation. I’m here to help you close out 2024 on a high note and set the stage for a prosperous year ahead!

1. Reconcile Accounts and Review Financial Data.

To set a strong foundation for the year ahead, begin by ensuring your financial records are both accurate and up to date:

Reconcile all accounts: Reconcile bank accounts, credit cards, and loan balances to ensure they match your records. This helps avoid discrepancies that could affect decision-making.
Review key financial statements: Analyze your profit and loss statement, balance sheet, and cash flow to identify any trends, areas for improvement, and any potential red flags. This offers valuable insights into your business’s financial health.
Resolve outstanding invoices and bills: Address any unpaid invoices or overdue bills to ensure your cash flow remains steady.

Tip: Having accurate financial data is crucial for making well-informed decisions as you close out 2024 and prepare for a successful 2025.

2. Set Your Financial Baseline for 2025.

Building a strong financial plan for the upcoming year starts with a thorough analysis of your performance in 2024. This will help you set clear, achievable goals for 2025:

Assess profitability: Dive deep into the performance of individual products, services, or business units to understand what’s driving success and where improvements are needed. This breakdown will guide you in prioritizing the most profitable areas.
Evaluate expenses: Review your spending and identify areas where cost-control measures can be introduced in 2025. Look for patterns in overspending or inefficiencies that can be streamlined.
Analyze cash flow trends: Examine your cash flow over the past year to pinpoint when inflows and outflows peak. Understanding these patterns will help you plan more effectively for liquidity management in the year ahead.

Example: Use this analysis to set goals for key financial metrics, such as gross margins, asset turnover, and working capital.

3. Solidify Your 2025 Financial Plan.

Kick off the new year with a clear, actionable roadmap that positions your business for success:

Create a sales forecast: Analyze current trends, market conditions, and upcoming opportunities to project your sales for 2025. Use this forecast to set realistic revenue targets and align resources accordingly.
Develop a cash flow projection: Use tools like my 13-week Cash Flow Forecast to map out expected cash inflows and outflows. This will ensure you have the liquidity needed for both daily operations and growth initiatives throughout the year.
Outline a budget: Build a budget that balances strategic investments with cost-saving measures. Prioritize spending that drives growth while maintaining a focus on efficiency and profitability.

Pro Tip: Build in flexibility within your financial plan to quickly pivot in response to unexpected challenges or emerging opportunities in 2025.

4. Streamline Year-End Processes
Efficient year-end processes are key to saving time and reducing stress. Make sure you finish the year strong with these actionable steps:

Finalize all 2024 transactions: Reconcile accounts, close out any pending invoices, and ensure all customer payments are received before December 31.
Follow up on overdue receivables: Act now to collect any outstanding payments and improve your cash flow before the year closes.
Prepare for tax season: Double-check that all deductible expenses are well-documented and ready for tax filing.

Action Step: Automate routine tasks, such as setting up reminders for accounts receivable and payable, to ensure smooth year-end operations and free up time for strategic tasks.

5. Align Your Team for Success
Your team is essential to closing the year on a high note and hitting your 2025 goals. Get them on the same page with these strategies:

Set clear expectations: Make sure your team knows exactly what’s expected in the final stretch—whether it’s wrapping up client projects or clearing out inventory.
Review your 2025 financial plan: Share your financial strategy with key team members to ensure everyone is aligned on priorities and performance targets.
Evaluate compensation plans and incentives: Assess how bonuses or incentives can drive your team’s motivation and performance as you enter the new year.

Consider: Boost morale by offering year-end bonuses or hosting team celebrations to celebrate your collective success and inspire energy for the year ahead.

6. Optimize Your Tax Position
Take advantage of your final opportunity to make strategic moves that can reduce your tax burden:

Accelerate expenses: Purchasing equipment or supplies before year-end can increase your deductions for 2024.
Defer income: Push back invoicing or payments until January to shift income into 2025 and potentially lower your tax liability this year.
Consult your tax advisor: Review available tax credits or deductions to ensure you take full advantage of every opportunity.

Remember: Having a solid relationship with financial professionals gives you another layer of wisdom and resources.

7. Evaluate and Improve Financial Systems
The end of the year is the perfect time to assess whether your current financial systems are meeting your needs and setting you up for success in the coming year:

Identify bottlenecks: Review your processes, from reporting to cash flow management, and pinpoint any areas that need improvement.
Invest in better tools: Consider upgrading your financial software or tools to improve efficiency, accuracy, and decision-making in the new year. Hiring a fractional CFO is another possibility.
Set clear KPIs: Establish key performance indicators to track your financial health and ensure you meet your targets throughout 2025.

Think About: Ask the staff that use the tools the most to give you feedback.

Key Takeaway
Closing 2024 with a solid financial position and a clear strategy for 2025 is essential for SMBs aiming for sustained growth and profitability. You’ll enter the new year with confidence and clarity by streamlining your year-end processes, aligning your team, optimizing your tax position, and improving your financial systems.

Need help navigating year-end challenges or building a strategic financial plan for 2025?
Reach out to Verbeck Associates for expert guidance from a Fractional CFO. Let’s set your business up for success in the new year!

Posted on Thursday,

If You Water It, It Grows: Cash Flow Management for Small Businesses

I love the saying, “If you water it, it grows. If you ignore it, it dies.” This principle applies to running a business—especially when it comes to managing cash flow. As a fractional CFO, I often remind clients that cash flow is the lifeblood of their business; it needs regular, focused attention to thrive.

Recently, I spoke with a small group of business owners about my 4 Pillars for Small Business framework (explained more in my free booklet, Be Your Own CFO), and we honed in on cash flow. Cash flow isn’t just about having money in the bank. It’s about understanding where cash comes from, how it flows through the business, and how to measure and manage it effectively.

Why Cash Flow Needs a Detailed Approach

Cash flow management is most effective for small businesses when handled in detail. Here’s a simple but powerful method: use a cash flow tracking tool (like the one available here) and set up a weekly review process. This involves updating expected customer deposits, cash payments for payroll, and other cash payments for operating expenses by vendor. Make it a habit to recast these forecasts each week with actual numbers—this ongoing process will help you identify trends and adjust for any surprises.

Key Cash Flow Metrics to Monitor

There are a few metrics I always recommend tracking to get a clear view of cash flow:

• Net Income: The foundation of cash flow.

• Days Sales Outstanding (DSO): How quickly you collect receivables.

• Inventory Days: Reflects the average time inventory is held before it’s sold.

• Days Payable Outstanding (DPO): Measures how long you’re taking to pay vendors.

Monitoring these metrics gives insights into your cash flow drivers, helping you make more informed business decisions.

Cash Flow Impact: The Power of a 5-Day Improvement in DSO

Let’s look at an example of how a small improvement in DSO can positively impact cash flow.

Say you have a $5 million business with an accounts receivable balance of $575,000. Here’s how you calculate DSO:

1. Average Daily Sales:$5,000,000 ÷ 365 days = $13,699 (daily sales)

2. DSO:$575,000 ÷ $13,699 = 42 days

Now, let’s assume you reduce DSO by 5 days. Your new DSO would be 37 days, yielding $68,500 in additional cash flow:

• New Receivable Balance with 5-Day Improvement:

37 days x $13,699 = $506,500

• Cash Flow Improvement:

$575,000 – $506,500 = $68,500

This means a small change in collections can significantly improve cash flow, freeing up cash for things like reinvesting in the business or paying down debt.

The Strategy: Policies, Awareness, and Consistent Tracking

Managing cash flow doesn’t happen by accident. You must establish policies around invoicing, follow-up, and payment terms and build awareness within your team. You need to use dashboard reporting to track cash flow metrics and keep them at the forefront of your mind. Most importantly, you should focus on the details—cash flow is in the transactions.

You’re nurturing your business’s financial health by giving cash flow the attention it deserves. Remember: if you water it, it grows. And with a steady focus on cash flow, you empower your business to grow sustainably with fewer unpleasant financial surprises along the way.

Have questions? Contact me!

Posted on Wednesday,

Building a Strong Business: Compensation Plan Lessons from BE 2.0

I’ve always been a fan of great business books, and lately, I’ve been diving into Jim Collins’ BE 2.0 (Beyond Entrepreneurship). This book is packed with insights, many of which feel especially relevant to the challenges most companies face today. One principle that stood out for me was a key concept from his classic Good to Great: “First who, then what”—which means getting the right people on the bus before deciding where to drive it.

Collins emphasizes the importance of aligning your team with your company’s values and ensuring they’re in the right roles. It’s not just about talent; it’s about passion, long-term vision, and fit.

The Problem with Compensation Plans

One powerful lesson in BE 2.0 is that compensation plans alone do not guarantee performance. Collins highlights that some of the highest-paid CEOs aren’t necessarily leading the best companies. In fact, short-term financial incentives can sometimes lead to behavior that undermines long-term success, even if they boost short-term results.

I’ve seen this firsthand. I implemented an incentive program several years ago that failed because it created unhealthy competition. The plan prioritized individual success over team success, and the friction between employees started to affect the culture. It was clear that I hadn’t read the culture correctly. After tweaking the plan to encourage more teamwork, the results improved—not just for the company but for the employees themselves.

Individual vs. Team Incentives: Finding the Balance

What fascinated me about Collins’ perspective is the evidence he presents on individual versus team rewards. He argues that short-term rewards can backfire, and I’ve seen both sides. While I appreciate his viewpoint, I tend to favor a balanced approach, especially for smaller businesses. I often see a mix of individual and team-based incentives work best in SMBs, particularly with smaller teams where roles and contributions are more visible.

For example, I’m currently working with a client who’s facing this challenge. They have a “star performer” who isn’t delivering, while the rest of the team is stepping up to pick up the slack. The issue? Their compensation plan heavily favors individual performance, and it’s starting to erode the sense of fairness within the team. To solve this, we’re overhauling their comp plan to reflect not just individual contributions but also team efforts. However, before making any changes, we’re re-forecasting the entire business to ensure the new plan aligns with the company’s strategy and market conditions.

Back to Basics: Using KPIs to Guide Compensation

As part of this process, we’re going back to basics by focusing on key performance indicators (KPIs). For this client, we’re using an 80/20 profitability matrix to evaluate their customer base. By analyzing sales and gross margins, we can identify which customers contribute most to profitability and which ones may need to be let go.

For example, we’ve developed a 90-day strategy to either move low-value customers to higher-margin categories or phase them out. Don’t wing it—having a business plan with targets is essential. Many business owners rely on gut feel, and while that can work, it’s critical to back it up with solid data. That’s why we’re using a simple forecast model, which includes an income statement, balance sheet, and cash flow statement tied to customer-specific sales forecasts.

Guidelines for Building a Compensation Plan

If you’re considering developing or revamping a compensation plan, here are a few key points to keep in mind:

Assess your culture: Is your team more collaborative or competitive? Do they value individual rewards or group success?
Align with your values: Make sure your compensation plan reflects your company’s core values.
Use accurate, timely data: Ensure you have reliable monthly financials to understand what revenue you have available for incentives.
Test and adjust: Trial your incentive plans before committing. Gather feedback from key stakeholders and make tweaks based on performance.
Keep it flexible: Never lock a compensation plan in stone. Business environments change, and your plans should evolve with them. If stability is needed, pay fair base salaries, but be transparent about potential changes to incentive plans.

There’s no perfect compensation plan, but a well-thought-out incentive structure can drive results, boost morale, and increase profitability. For SMBs, I often prefer short-term goals with regular rewards, such as quarterly incentives. This approach fosters urgency, accountability, and results without sacrificing long-term thinking.

If you’re developing or revamping your compensation plan and want to ensure it drives results while supporting your company culture, let’s talk. Contact me to discuss how we can create a plan that fits your business.

Posted on Monday,

7 Ways to Help Your Small Business Perform Better

“What does a fractional CFO do?” I’ve been getting a lot of questions like this lately. It’s prompted me to think about my role and how I help companies. Turns out, it’s a position with multi-faceted responsibilities, but the bottom line is

My CFO firm helps small and medium-sized business (SMB) owners perform better.

I admit, that’s a pretty broad statement. Many different elements of business fall under the goal of “performing better.” Owners want to make more profit, grow in size, efficiently deliver better customer value, and perhaps most importantly, experience more fulfillment with better control and have less stress as they lead their company.

As a Fractional CFO for over 18 years, I’ve enjoyed coming alongside awesome small business owners to help them reach their goals and sleep better at night while doing so. I am continually learning and reading books and getting information from other successful business people such as Geno Wickman from EOS Systems, Michael Gerber author of the E-Myth), Kevin O’Leary, Brendon Burchard, and Tony Robbins. Many of their doctrines influence how I help my clients. Here is a list of solid recommendations that have grown from reading leaders such as these and the experience I’ve gained “boots on the ground” with clients.

These aren’t in priority order as they are all valuable toward the goal of performing better. I encourage you to pick the one or two that resonate most with you.

1. Know your numbers. I cannot stress enough how important it is to understand your company’s financial picture (even though you tell me, “But I’m not an accountant!“) Many business owners don’t even understand the basics and that’s a recipe for failure.

2. Implement four pillars of strong financial practices: a) solid numbers, b) forecasts, c) weekly scorecard reviews, and d) monthly CFO reports. All of these are outlined in more detail in my Be Your Own CFO booklet, a 29-page guide to help business owners have better CFO practices. Free when you subscribe to my blog at VerbeckAssociates.com.

3. Show up strong and practice a daily rhythm. What I mean by “show up strong” is to come to work with a great attitude with physical/mental readiness to work hard. A daily rhythm, unique to you but repeatable, will help you be even more productive, perform better over the long term, and let you push through the messy middle we all get stuck in from time to time.

4. Plan your time and work your plan. I find it helpful to plan my week in time blocks, with periods focused on client service, business development, exercise, etc. My calendar is detailed and consistent week to week. As Michael Hyatt has said, “What gets calendared gets done.” Even if your day goes off track, having a planned approach can help you regroup or keep you motivated to complete the day’s goals. It also helps you identify which types of interruptions routinely knock you off track so you can come up with strategies to eliminate or reduce them.

5. Cultivate an attitude of growth. One of my early mentors, Alan Weiss, said “If you are not innovating, you’re not growing, and if you aren’t growing, you’re dying.” Stability is vastly overrated. I love that. The guy is still progressive and considered a rock star in the consulting world.

6. Document processes. Well-thought-out systems and processes help small businesses scale. Documenting forces you to slow down and evaluate each step, making it teachable to others on the team (videos and screen recordings can help.) Plus, it can help you identify tasks that may no longer be necessary. And when you need to go on vacation, (and you do NEED to go on vacation) documented processes help work continue in your absence.

7. Remember that slow is smooth, and smooth is fast. We live in a world that prioritizes rushing, speed, and “efficiency.” While it’s great to get systems in place that help us move more quickly through day-to-day minutia, it’s also important to slow down and not have to go back and re-do tasks or fix small errors. Pay attention to mistakes you or your team are making. Are you encouraging people to move too quickly (or making yourself move too quickly?) Naturally fast-paced people need to consciously slow down and learn to double-check work (and naturally slow-paced people may need to trust themselves after one or two run-throughs rather than going over things several times.)

What principles have you found helpful in running your small business? I’d love to hear from you! Contact me!

Posted on Monday,

How the Four Pillars of Financial Success Bring Peace

As a business leader, do you ever get stressed out over money? If so, you are not alone.

In previous posts, I discussed the four pillars of financial success. In this post, I want to make it more personal – to show you how knowing and practicing these pillars can reduce your stress as a leader. Let’s review the pillars and consider how they help you manage stress.

These pillars are:

1. Understanding: Knowing the basics about typical financial inputs and what the data reveals.

What it is: You need to understand basic financial inputs such as revenue (income generated from your sales), expenses (costs to run the business), profit (what is left after expenses), and cash flow (the movement of money in and out of your business.

How it brings peace: many business owners fly by the seat of their pants and don’t really know whether they are making money. Understanding what your expenses truly are will keep you from spending money you don’t have, and could keep you from incurring debt to keep things afloat.

2. Forecasting: predicting expected results and cash flow.

What it is: Forecasting is a core process to predict your company’s results and financial performance. It’s a view based on historical data, current market trends, and expected future events. It provides insights to make informed decisions.

How it brings peace: when you understand your company’s performance trends, you can plan better for slow and bumpy periods. You can help your team work together in the leaner times and celebrate in the more fruitful seasons. You won’t be going into each new week blind.

3 Analyzing: using a weekly dashboard to determine where you stand.

What it is: A weekly report provides a more immediate view of your business’s financial health, enabling quick adjustments, centralizing critical financial data, and offering a snapshot of performance and trends.

How it brings peace: Having access to your up-to-date numbers will help you decide whether you can afford that new piece of equipment right now, or must save up for a while. You’ll see if you can make payroll – a definite source of stress if you cannot.

4. Reporting and Reviewing: producing and reviewing monthly CFO reports to stay aligned with your mission and course correct as necessary.

What it is: Financial reporting is critical for businesses of all sizes, providing key insights into financial performance, health, and the decision-making process. Financial transparency is the key to operating a business with integrity.

How it brings peace: It’s important to know if the business is performing and progressing at the correct pace. Are the main financial numbers on track and pointing in the right direction? Knowing where you stand helps you determine if you are indeed on the mission of the business (or your own personal mission). You can sleep better at night knowing your day-to-day financial decisions coincide with those priorities.

I highly encourage you to have practices that align with these pillars. Your stress level doesn’t have to be high over elements of the business you don’t know or understand. I can help. Contact me for a conversation!

Posted on Monday,

How to Keep the End of a Quarter from Feeling Like the End of Your Business

Many business owners think their business is the only business with unpredictable income and cash flow. This makes me grin. Revenue for most businesses is never steady or easy to plan. If you are one of the fortunate ones with predictable revenue, it certainly makes things easier, but you are in the minority.

At the time of this writing, two of my clients had fallen short of quarterly goals. One missed by quite a bit. Their planned net income was now an actual loss. They missed their revenue target by 40%. Expenses were slightly higher due to some one-time expenditures. They had a hoped-for pipeline client deal that didn’t close (and as of this writing, it still hasn’t.) This happens – you think you have a deal nearly done and at the last minute it doesn’t close. Your whole quarter is now toast and you have brackets on your bottom line. They were facing a quarterly result that was much different than they’d hoped for.

Every 12 weeks or so, your business enters a new quarter. We often call them “Q1” “Q2” etc. and there’s a good chance that when you are reading this, you may be getting close to the end of a quarter, or far enough into a new one that you can take some time to reflect on the one before. While I hope your review is more positive than the scenario above, every business should ask themselves these questions every quarter:

How did our business do? Consider more than just the bottom line with this question. How is your culture? Is your staff productive and happy? Is your business still operating according to your core values? These all contribute to the financial results.

Did we hit our target numbers for the quarter? Did we meet or exceed our targets? If so, how are we going to celebrate? What helped our success? If we didn’t meet our targets, why not? What hindered us? What can we do better next quarter? Are our targets realistic?

How healthy is our cash flow plan? If we have disappointing sales or news next quarter, do we have a strong foundation in place to make payroll and other expenses?

Is our pipeline strong? Are we relying too much on one promising client to close or for a big sale to happen? Do we have other streams of income, a wide bandwidth of customers, and efficient processes to help us weather disappointments?

Solid business growth is dependent on a firm foundation that doesn’t completely collapse when a promised sale or promising new client falls through. It depends on daily, weekly, and monthly practices and processes that contribute to informed leadership decisions. An honest quarterly review will help you stay on track and course-correct as needed before an unexpected event upends your business. And it will prepare you to be in an even better position to celebrate should sales and client development be in your favor.

I can help you have an efficient and healthy quarterly review. Contact me for more information!

Posted on Wednesday,

Budget Time: Use the 80/20 Framework to Keep Costs in Line

You’ve probably heard of the 80/20 concept (also known as the Pareto Principle), where 20% of whatever you are considering (i.e. workers, technology, inventory) is responsible for 80% of the results (productivity, sales, and profit.) The fourth quarter of the year is budget season and a great time to take a closer look at your overall cost structure within the 80/20 framework. It’s time to ask yourself what you REALLY need to run and continue to grow your business.

When addressing costs – start with the larger impact and more important things. Dive into the right problems.

Don’t start with something that will have a minimal impact. I like to value stream map key processes with stickies and a whiteboard. Note people and processes around the sales and delivery experience and the customer/vendor touch points like invoicing and getting paid, improving customer delivery, paying vendors, and maximizing cash outlays.

Here are three areas to take a careful look at, with an 80/20 perspective.

PEOPLE

So much of business is based on unknown revenue numbers, and people are your biggest expense. An unfortunate reality is that many times, the people who got you to where you are now are not the same people to get you to where you need to go next. They cannot change and develop as the business does. That’s why budget time is also a good time to review your organization chart. You’ll often see that 80% of your results are coming from 20% of your team. Can you identify the 80% that are less productive and think of ways to scale, or invest in increasing their contribution through training, for example? Are there ways to continue growing your revenue while not growing (and perhaps even reducing) your team as you look into next year?

INFRASTRUCTURE INVESTMENTS

Another cost that can be significant is Infrastructure investments – money you put into the business for tools, applications, equipment, and more. These generally come in what I call stairsteps, not in a linear path. It’s tempting to be attracted, for example, to the bells and whistles of new technology, but it’s quite possible that only 20% of the features would contribute to 80% of your results. Ask yourself if investment into new tech or equipment would overcomplicate the workplace rather than be the solution you need. Will the learning curve create other problems/costs? It’s essential to ensure that these investments will actually elevate productivity and address challenges.

For example, you may decide that a new ERP (Enterprise Resource Planning) system will streamline tasks and management of employees. This can be true! But if the system is overcomplicated, and you have to retain an on-call consultant for a year, is that an effective use of funds in the long run? It could be, but there may also be simpler solutions available using applications you already have. Perhaps some additional training on current applications so users can move from beginner to intermediate or advanced would cost less and work just as well.

Bonus tip: One way to help separate the problem and solution is to identify and address the pain points in one meeting, give time for the assigned team members to research potential solutions, and then have a separate meeting to consider the options they discovered. This allows your team to determine the core problem without having to provide potential fixes right away. A clear understanding of the problem can be extremely helpful in researching solutions.

VENDOR INVOICES / CREDIT CARD CHARGES

Face it – all companies are leaking, some worse than others. Another cost to consider is what your vendors are charging. It’s not unusual for companies to be paying for services and products they aren’t using regularly (or don’t need more of right now.) Again, 20% of the services and products you receive could be covering 80% of your needs.

I recommend that you review each vendor invoice and credit card charge for the next 45 days and determine if each item is necessary. When I’m doing this for a client, I ask the obvious question – “What is this for?” Other questions include, “Are the services billed leading to the expected outcome?” “Are you paying for a subscription for an app you only use twice a year?” “Are automatic deliveries keeping your supplies overstocked?” “Are these conference expenses leading to the collaboration, soft skill enhancement, or team bonding or are you essentially providing your employees a paid-for trip/vacation?” (If that’s something you want to budget for, fine, but be intentional about it.)

If you need a more objective eye, there is a group of consultants like my colleague Steve Thompson at Integrity Cost Consulting. He can analyze your vendor spend to look for historical overpayments. His company earns their fee based on the savings they find. I love that! I like to track savings based on hard savings AND process improvements as a critical success factor.

Cost analysis exercises are generally a helpful practice for most companies, even if they can be somewhat painful. Use this 80/20 framework to budget wisely.

Additional tips:

Ask yourself not only about getting the best price – but getting the best value.
When cuts are necessary, be sure you cut deep enough the first time.
Do cost analysis on a regular basis.

Need some objective input? I can help. Contact me!

Posted on Monday,

Keep the Bathtub Full: Understand Your Numbers

Most business owners went into business to do what they love and do what they are good at – and they hoped to make a living and improve the business’s value while doing it. Most started their careers as employees, so they tend to carry an employee mindset vs. that of an owner, entrepreneur, or CEO. As a result, some business owners have created a high-stress job for themselves, not a business.

Successful business owners create a vision of the business and think like a CEO. Smaller business owners may wear several hats, but in order to become a better CEO, they must strive to delegate responsibility and create sustainable processes to deliver customer value consistently. Employee vs. CEO. There is a big difference. The successful business owner also understands their numbers – the balance sheet, the cash flow drivers, and the income statement as well as their overall performance scorecard.

I’ve had many business owners tell me over the years tell me “I am not an accountant.” True, but you ARE a business owner and you need to understand your numbers! That means learning how to read and understand financial reports such as balance sheets and income statements and understand how they relate. You need to understand your working capital needs and cash flow drivers. Most business owners know how to read a P&L, yet have no idea where their cash is going. They wonder, “How can we be tight on cash when business is booming and sales numbers are growing?”

It is a common perception that reading and understanding financial statements is difficult. Some of the problem is that many of the system-generated reports of many ERP systems are too detailed and difficult to read. But also, business owners haven’t invested the time to learn how to read financial statements and interpret what the numbers mean. I find it generally makes sense to simplify.

It reminds me of the bathtub illustration I learned from a banking CFO back in my KPMG days, used to explain the bank’s cash flow statement. He said, “Cash is like a bathtub of water. Cash comes in through the faucet and goes out through the drain. The trick is to understand the flows in and out and keep the tub full of water.”

One way to gain confidence is to review your financial reports regularly. Develop a weekly scorecard and review your financial statements with your controller or accounting team monthly. Notice trends in key areas like new customers, sales, average transaction value, gross margin, cash flow turnover, and operational efficiencies. What are the financials telling you? Are you increasing your company’s valuation or are you just sustaining a high-stress job?

Spending time on this will help you avoid “reaction” mode (daily firefighting) and allow you to work more in “ready” mode. Ready mode is working on needle-moving activities, the kind that will truly grow your business in all the right ways.

If you spend time with your numbers, you will get better at understanding them. In addition to studying your reports, take a course. Read blog posts like these. Prepare or update your business valuation. Get people on your team that know financial stuff well and can help YOU understand it. Trust me, everything you apply time to, you get better at.

Contact me for additional help!