What is a Virtual or Interim CFO?

This interview with John Y. Lafferty of CFO-Pro explores some of the most beneficial services he offers his clients. John is one of the most experienced Interim CFOs in the country. We’re going to be talking about CFOs and start-up businesses in general and how you get involved in starting up a company properly with proper financial support.

Interviewer: Today we’re going to be talking about this whole idea of outsourcing a CFO. First of all, give us a little background about your business. First of all, how did you get into this business, and did you always want to be a CFO?

John: I started my career in public accounting with Arthur Andersen. I had no idea that I would eventually be a CFO type, but after a number of years there, I went into venture capital, which at the time was the largest institution VC firm in the country. After several years there, I decided to peel off in the industry and be the financial guy and was in a number of privately-held enterprises. I also had the opportunity to run some businesses during that time. Eventually, it became pretty clear to me that the hours I was putting in on a salaried basis were just too much, so I thought ‘why don’t I go out on my own, do what I do, what I knew how to do best and provide financial management services to business owners.’ That’s what I’ve done.

Interviewer: It’s interesting because a lot of companies go out and they’ll hire a mediocre CFO and they’ll pay them full time and they really don’t need that; they need somebody focused on the most important things. Maybe you can give our audience a few tips on what’s there to be appreciated when it comes to high-quality CFO services and how can a fractional CFO person like yourself really get a company properly on track?

John: I’m going in and focusing on what is bothering that business owner; what does he feel his key issues are on the financial side of the business. One of the things that they don’t pay any attention to is break-even sales. They don’t know ‘at what point do I have even sales to cover all of my expenses.’ Beyond that, that becomes profits. They don’t understand the formula nor how to calculate it. That’s something I can help them with within a matter of minutes because when I look at their P&L statement, I can quickly see that there may be some line items that are misclassified. They’re going to need to be above what they call the line or below the line; that’s the gross profit line. Once they’ve understood that, then I say let’s assume you wanted to spend $10,000 on a marketing initiative, the same formula is going to answer the question ‘how much in sales do I have to generate to cover that cost.’

I also look at how many days of sales are in accounts receivable and also in accounts payable. The larger that gap is, the tighter their cash flow is. If they’re collecting receivables in 70 days and paying vendors in 30, that’s a wide gap and so I encourage them to chase those receivables, get that down to 45 days, stretch your vendors a little bit, maybe up to 40 days. There’s one other item that I point out and the way I approach it is let’s assume you can improve your margin by 1% and if you got $10 million in annual sales, that 1% is worth $100,000. If you improve that margin by 1%, that’s $100,000 to your bottom line. Maybe you don’t need it in the business or you take it out and invest it elsewhere. That’s a key thing to begin to understand in terms of watching your margins, managing them, and knowing what it really means to do them.

Want to know more about CFO Services? Give John a call at (630) 269-7646.  

Top Tips for Tidying Your Balance Sheet

Follow these steps to ensure a clean balance sheet as the New Year dawns

Last time, we talked about the importance of cleaning up your balance sheet at year’s end.  Now let’s discuss how you’ll achieve that tidy balance sheet.

While the steps needed to complete a year-end cleaning of a balance sheet aren’t terribly difficult, many company owners don’t tackle them because the owners don’t have the time.  The result?  The lack of balance sheet analysis nags at owners’ thoughts, preventing them from focusing all energies on the task of growing their businesses.

Balance Sheet Tip: Equipment

Take a tour of your facility, and identify those pieces of equipment long unused and sitting idle.  They’re just taking up space, but should be generating income.  You must find a way to convert these items into cash, by either selling them or having a service dispose of them.  Once those pieces of equipment are gone, they come off the balance sheet.  The difference between what you’re carrying on your books, and what you get back in cash for the equipment, goes into your profit and loss statement under “other expenses.”

Balance Sheet Tip: Inventory

Take another facilities tour, and this time look for inventory gathering dust.  It could be a product you once manufactured, which didn’t sell as well as expected.  Today, it’s filling valuable space and tying up your money.  Get rid of it, gaining some cash in return if possible.  The difference between its book value and the cash you garner goes into the profit and loss statement as a “other expenses.”

Balance Sheet Tip: Receivables

Many small business people believe they’re going to collect on long overdue receivables out more than 90 days.  But if it’s not collectible, let’s write it off.  It’s a bad debt, and it goes off of your balance sheet and onto the profit and loss statement as “other expenses.”  Down the road, if the entity owing the money is able to forward you the long overdue payment, it will become “other income” in the year in which it’s paid.

Taking these steps will result in you, the business owner, being fully informed about what’s on your balance sheet.  Your questions have been answered, and you have a higher degree of comfort than you otherwise would have about the veracity of that balance sheet.  If you need help undertaking the process, don’t hesitate to get in touch with me.

I offer a 100 percent guarantee on my interim CFO work.  I take on only clients I can help.   Call me and let’s talk about your business.  My phone number is 630-269-7646.

Advantages in Cleaning Up Your Balance Sheet at Year’s End

Buffing Balances Brings Benefits

The passage from an old to a new year is the right time to focus on cleaning up your company’s balance sheet.  Doing so can yield a broad variety of benefits.

On the asset side of the balance sheet, the number one benefit is eliminating the “dead wood” of non-yielding assets.  Any assets that no longer produce income, and may in fact be obsolete, should be removed from your balance sheet at this time.

On the liability side, you want to ensure your liabilities are properly stated on your balance sheet as you enter a new year.  You want all accruals for taxes, and all other liabilities in which you owe a third-party payment, stated on the balance sheet.  Waiting until next year forces you to go back and correct the prior year.

A clean balance sheet helps your banker and tax preparer

Cleaning up your balance sheet at year’s end should meet with the approval of two figures important to your company: your banker and your tax preparer.

If your lender knows he’s looking at reasonably “clean” numbers on your balance sheet, he won’t have to ask as many questions when you seek a loan.  If you have an existing loan, and he has requested to review your most recent financial statements, he will be inclined to ask fewer questions, be more trusting of information you provide, be more likely to extend the loan and, conversely, less likely to call in the loan.

Your tax preparer is likely to report to the IRS the numbers you provide her.  So if you fail to clean up your balance sheet, you’re essentially reporting “dirty” numbers to the IRS, which could lead to additional, and unwelcome, scrutiny.

A clean balance sheet helps plan your company’s financial future

Having a clean balance sheet lets you undertake some “on the money” forward financial planning.  In other words, that cleaned-up balance sheet makes it easier to facilitate your future-looking financial planning process.  It also makes you more inclined and more highly motivated to get into crucial forward planning.

When you analyze each account to see what comprises the balance on that account, you are able to create carry-forward schedules that can answer any and all questions about what’s in that account.  That’s a way to document what’s in the balance sheet, and very few companies have that luxury, because they’re just so damn busy.  That may, in fact, be you.

I offer a 100 percent guarantee on my work as an interim CFO. I take on only clients I can help.  If you are having issues, call me and let’s talk about your business.  My phone number is 630-269-7646.