How Do You Run a Business Without Good Data? 5 Ways to Change That

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As is my custom, I spent New Year’s weekend honing my 2024 plan and updating bookkeeping for my business as well as for several of my clients.

Yes, I was playing the role of bookkeeper for Verbeck Associates. When you have to do the work yourself, you realize again the value of a great bookkeeper. It’s great to have someone whose job it is to get all transactions in on a timely basis and ensure that accounts are all reconciled. I wish I could say I was always THAT someone for my own business! But as they say about the shoemaker’s son …

The further away from the transaction date, the more complicated it is to determine the essence of the transaction. In one case, I had to bring ten (yes 10!) months of a new client’s QuickBooks up to date. Their bookkeeper had completely dropped the ball. It was brutal, but we tenaciously got four bank accounts reconciled to 12/31.

After that, I sat with the business owner, asking “How did you run your business without good data?”

While it may seem surprising for someone to run a business without looking at numbers, it’s not all that unusual. And while some business owners LOOK at the numbers, they don’t study them in a way to benefit from the information.

Here are some reasons why owners don’t look carefully at the numbers.

The books and records are not in good shape.

This tends to happen when a finance team player (i.e. bookkeeper) isn’t kept accountable for entering transactions in a timely way and providing a quick month-end close. They may be overwhelmed with the minutia, or be in over their head. But all financial staff should be accountable to someone, even if the supervisor isn’t finance savvy. They can still ask the right questions to make sure monthly tasks are current.

They assume things.

Business owners have told me, “I’ve been in business for ten years. I know how we are doing.” They assume their books are in good shape. (Most of the time they aren’t.)

They are afraid to look stupid.

Many business owners launched businesses due to their passion and skills in a particular area. They may be great carpenters, restauranteurs, therapists or marketers so they hung a shingle and started a company or practice. That may not mean that they have the financial and administrative skillset to excel in the operational side of running a business. Deep down, they may know that they are not good at math, or an accountant. There’s no shame in that – unless they refuse to acknowledge that they need some help.

They don’t like the “report card” feel.

Many times, when owners finally look at numbers, it’s been prompted by something unpleasant. It could be tax time and they are meeting with their CPA. They may be collaborating with a lender and have to face hard facts. Bookkeeping, when done correctly, doesn’t lie. If the numbers don’t add up, they don’t. I know someone who was gently told that they were making under $5 an hour once their time was accounted for. Facing numbers and facts like this is scary. No one likes to feel like they are failing, especially when they are putting a lot of time and energy (and even their own money) into a venture. 

So what’s the answer? Here are five things you can do right away no matter what time of year it is:

  1. Face facts. The first step to change is knowing. Decide that starting NOW, you are going to make a more intentional effort to keep up with the financial overview of your company.
  2. Hold your financial employees accountable. You can do this in a way that feels collaborative. Set up a monthly or even more frequent meeting. Tell them you need their help in making more informed business decisions and you’ll need transactions entered and month-end figures in a timely way. Set a meeting early in the new month to review last month’s numbers.
  3. Educate yourself. I offer a variety of resources (and am working on more) that can help you “be your own CFO.” You don’t have to become a CPA to learn to understand basic information like financial statements, cash flow, cost of sales elements, and other standard reports.
  4. Think beyond the numbers. Once you know the numbers, figure out why they may feel out of alignment with your goals. I always look at a business’s performance from a numerical point of view, which is objective. But there’s also a good argument for looking more closely at employee satisfaction and customer service. These are harder to tangibly measure, but there are ways to see if your company is hitting the mark more often than not. Remember that dissatisfied employees and/or customers cause profit leaks.
  5. Consider hiring outside help. Whether it’s an additional employee or a contracted company that provides CFO and/or bookkeeping services (like mine) you may find that your numbers improve because you have people with a gift for that side of business playing that role.

    If I can help, contact me. At the very least, start looking at your numbers more closely, more often.

Great, Good, So-So, or Bad Year?

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Great. Good. So-So. Bad. It’s been quite a year for all of us. As I look back on this year and think about my clients’ results – determining wins and losses with hard, comparable data on sales, margins, efficiency, and profitability – it is sometimes still hard to quantify a year as a great year, good year, so-so year, or bad year. Or perhaps a combination of all of these. Let’s look at a fictitious, but very possible scenario, for a business experiencing all four.

Great Year – We gained some new, big customers!

As you wrap up your 2023 planning, make sure you take the time to reflect to recognize and celebrate your wins. Did you land a major client? Solidify relationships with current clients? I talked about this before in my year-end planning post, but recognition and celebration of wins is one of the things high performers tend to forget to do. It’s so easy for us to magnify our failures, but not our wins.

Good Year – We kept steady customers.

Look at your historical data. What is your profitability by customer, segment, and revenue stream? You may find that while you have some significant accounts, you might also enjoy smaller but steady sales that feed profit every month. This is worth celebrating and cultivating too. You never know who your smaller accounts know, and if you treat them well and they speak highly of you, there could be some significant downstream sales coming your way.

So-So Year – We tried some new tools and got distracted.

Maybe this year you tried some different technology, and it wasn’t always a smooth ride. New technology like DataRails, Asana, Monday.com, Loom, Bill.com, and older technology like NetSuite, 3PL’s, LEAN, remote work and outsourcing can go long way to making your business more efficient. But you can also experience bleeding edge, always looking for the “latest and greatest,” and getting caught up in “shiny object syndrome.” I have done this several times with technology, never maximizing the expected improvements. The man who chases two rabbits, catches none. Don’t overthink (and overspend) on improvement tools and experience paralysis through analysis.  Look at the options, decide, and move forward – with efficient growth always the goal. Ask yourself “Will this tool help us improve the process to get to timely and excellent deliverables? Or will it take more time and energy from our staff and get us behind – and end up in the same place we started?”

Bad Year – We made mistakes. We lost some money. We had to let people go.

No business has a perfect year. Some have terrible years. Maybe you lost (or had to lay off) key personnel. Maybe you made a major mistake on a client deliverable and had to redo the work for free. Maybe you overspent in areas that you should have kept a better eye on.

EVERY business makes mistakes. The key is to learn from them, change processes or get help/training to avoid the same mistake again, and most importantly, learn to truly let go and MOVE ON. Failures can be expensive lessons but dwelling on them will only drain your mind and pockets even more. Put the past where it belongs – in the past.

Questions to ask at the end of the year:

As you try to evaluate whether your year was great, good, so-so, or bad, here are some questions to ask. These will also help you prepare for the future.

What technology served you well? Do you need to make a change? Add features?

What does your team and personnel plan look like?  What are their metrics? How are you measuring their contributions to workload, culture, and profits?

What is the work culture like? Are people enthused about working here?

Is the team improving its capabilities regularly? Are team members always learning and improving?

What business segments are most profitable? Which are not?

What is the volume for your top 10 customers? Do we expect the same or better next year?

How could you improve the sales process and customer onboarding?

What one process could you improve to at least double efficiency? What one process could you eliminate?

How can you improve the back-end processes in accounting, payroll, accounts payable, and accounts receivable? (Ask the people who do the daily work in these areas.)

What are our top three goals for next year?

I can help!

Whether you had a great, good, so-so, or bad year, I believe Verbeck Associates can help any business be better.   I’ve seen so much as a full-time fractional CFO for the last 16 years. Many businesses wish their net income was better. They are experiencing scarcity in the supply chain, more competition for qualified team members, and rising interest rates/inflation. You are probably feeling the effects too. But you still have choices and power to fix some leaks, institute better processes (like consistently going over a Weekly Scorecard), develop strategy, pick the right team and technology, and move forward. The choice is up to you, and I’d love to help. Contact me for a free conversation and a basic evaluation of what we can do together to make the end of 2023 reflection contain more of the “Great/Good” elements than the “So-So/Bad” ones.

The 13-Week Cash Flow Forecast

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

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

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

Turnaround of the Year

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I am super excited to announce that I was awarded turnaround of the year by the Global Turnaround Management Association.  What an honor to be recognized by the TMA and to work with this team of professionals saving this ailing manufacturing company.

My work was initially the due diligence, the financial modeling, and the purchase accounting.  I spent a year and a half on this project working with the turnaround team, accounting personnel and leadership team.  We developed lean processes, streamline the backroom operations, and created a reporting and accountability structure that was extremely effective.

The end result: positive earnings and EBITDA, predictable cash flow, a positive less stressful environment saving 100 manufacturing jobs and resulting in a stable and valuable company!

Check it out

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!