Ask The Experts Chia-Li Chien: Guide CEO Financial Decision


by Chia-Li Chien | May 23, 2012

Ask The Expert Chia-Li Chien

 

Questions From Karen on Fri, Mar 2, 2012 at 1:15 PM
In business since 1995
Industry Government Service Business
Average Annual Revenue $1.2 MM
Question: "We don't have a treasurer/CFO who can guide our bookkeeper and president/CEO with financial decisions. We attempt to increase business revenue however with limited cash in business. What should we do?"

Real Answer Chia-Li Chien

 

Answer From Chia-Li Chien on Sun, Mar 4, 2012 11:05 AM
Answers:

Karen, Congrats on been the top 5% of small businesses in US. With a slow economy specially doing business with government. It often comes with challenges in long cycle of cash coming into your business. No matter how proactive you are working with these government agencies sometimes you just don't know when your next revenue is coming.

Well, it's easy just to say "why don't you diversify your revenue sources?" But that requires careful design of your business model. You can always contract with a part-time CFO to conduct "Financial Performance Reporting and forecasting" on monthly basis. Monthly monitoring include:

1) Cash flow, P&L and Balance Sheet
2) Profitability by customer or by product
3) Performance by Budget or by actual
4) Working capital, cash reserve and cash position

In addition to these important monthly financial performance reporting and forecasting. You want to focus on Mission Critical Activities (MCA) that will increase the value of your business. There are:

 

MCA_A Increase recast EBITDA
MCA_A1 Increase sales
MCA_A2 Lower Cost of Goods Sold
MCA_A3 Control operating expense

 

MCA_B Reduce Risk
MCA_B1 Reduce Business Risk
MCA_B2 Reduce Cost of capital
MCA_B3 Reduce Customer Concentration
MCA_B4 Key management team

 

MCA_C Employ additional high yield capital
MCA_C1 Improve investment decision
MCA_C1 Decrease capital base

 

None of above is a quick fix to your cash flow nor revenue. For the long run, you want to take time to really look into your overall business model. By intentionally focus on the monthly monitoring and mission critical activities to increase your business value.

Recommended Actions You have couple of options:

1) Do it yourself - go take financial classes at AMA or nearby college or university.

2) You can always check with your CPA firm who provides the accounting or bookkeeping service for you. They might have simiar service, if they do be sure to ask for "bundle" discount.

3) Contract a part-time CFO. In my business, we provide 8 to 16 CFO hours a month for business between $1 to $3 MM in annual revenue. The above monthly routine monitoring will greatly enhance your profitability, business value and keep you on top of the game.
Recommended Readings

Police Your Own Business! Three Things to Watch for ...
Know What Your Numbers Mean
Insist on Real-Time Access to Financials
How to Get Unstuck From Debt
Avoiding a Mountain of Debt
Connections between three financial statements

 

Ask Chia-Li Chien

 

About Chia-Li Chien

Chia-Li ChienChia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY!” She is chief strategist of Value Growth Institute dedicated to creating business value that transforms your world. Chia-Li is also a Midas Advisor to MidasNation, a community dedicated to helping private business owners increase the value of their firms.  She is the award-winning author of Show Me The Money and faculty member of American Management Association. Her blog and newsletter was named a top small business resource by the New York Times “You’re the Boss” blog. To book Chia-Li for a workshop, keynote, or strategy session click here or http://vgi168.com/bookjolly. To book Chia-Li for consultation click here or http://vgi168.com/counsel.

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