By Caroline Wetzel

 If you’re a small-business owner, you know that the daily decisions you make impact your bottom line. Are you exercising the same care for your finances that you apply to the services you offer your clients?

The following is a checklist you can use to evaluate your financial health as a small-business owner.
 

Are You Focusing On The Big Picture?

There are many pieces to a small-business owner’s total financial picture. Your financial plan, budget and investments are three critical components to keep in mind no matter how busy daily operations become.

Financial Planning

Taxes can be one of the most significant expenses for business owners. In order to identify and follow the most appropriate tax-planning strategies, small-business owners need to be clear about both their business goals and personal financial goals.

Do you:

• Maintain a prioritized list of business and personal financial goals and refer to it when you need to make new decisions?

• Have a small-business structure that offers you the most appropriate legal protections and benefits?

• Reduce or defer taxes and maximize available deductions and credits? This may include timing income and expenses, using charitable gifting and saving for retirement using accounts such as an individual or solo 401(k), SEP IRA or defined benefit plan.

Budget Management

Eighty-two percent of all small businesses that fail cite cash flow problems as the primary reason. One way to identify such challenges before they become lethal is to manage your budget according to your business plan.

Do you:

• Know how much revenue you must generate to break even and cover expenses before profits?

• Monitor your income, expenses, inventory, credit and cash regularly, adjusting and rebalancing where required so you cover your fixed expenses and maintain funds in your cash reserve?

• Use your budget, break-even point and cash flows over time to evaluate your business financing options and identify the ones that make most sense for you, when financing is required?

Investments

Many small-business owners mistakenly invest all of their time and money into their business.

Do you:

• Maintain a cash cushion for both your personal finances and business needs, so that if you run into a cash flow crisis you have something to access?

• Save regularly and invest any cash inflows that exceed your current expenses and immediate lifestyle needs into an account outside of your business?

• Diversify your non-business investments across companies outside of your industry, in different geographies offering services that vary from yours?

Beyond those three critical components of financial health, here are a couple of other factors that small-business owners need to have a firm grasp on.

Are You Protecting What You Have?

Many small-business owners wisely purchase insurance to protect their assets from risks unique to them.

Do you:

• Understand the types of risks that you face in your small business?

• Own insurance and regularly review it to minimize the impact of your business risks, if they should happen? Examples of insurance that is helpful to small-business owners include:

• Liability insurance

• Property insurance

• Business interruption insurance – for lost income and overhead expenses during a disaster

• Life and disability insurance – for employees as a fringe benefit and/or for business purposes like funding a succession plan, in case there is a loss of a key person, or collateral for a loan

• Workers’ compensation insurance – for businesses with three or more employees

• Health insurance

Are You Keeping The End In Sight?

Even if you can’t imagine life without running your business, it is essential to think about what would happen if you could not manage it due to disability, retirement or death.

Do you:

• Have a business succession plan that considers: (1) an individual who has the skills, authority and interest in running the business and (2) how the transfer might take place? If you plan to sell, do you know how your successor will obtain the funds to assume ownership?

• Maintain a retirement plan? Depending on the plan you own, you may be able to reduce your tax obligations today and benefit from tax-deferred growth on the money you save in your plan. A variety of retirement plans are available, from SIMPLE and SEP IRAs to individual 401(k)s and profit sharing plans.

Article originally written and publishing on Kiplinger.

By Melissa Houston
Founder of She Means Profit

Fractional Chief Financial Officers (CFOs), also known as virtual CFOs, are becoming more popular for businesses to use. Chief Financial Officers are the most senior finance position of the organization, they oversee the finance department, and often are considered a trusted advisor to the Chief Executive Officer (CEO).

A fractional CFO is a fully qualified CFO who is available on a part time basis or on retainer. They can work virtually or in office, depending on your business needs. It’s vital to hire a CFO with the right qualifications that include a combination of a professional designation and a minimum of ten years of work experience.

When your business is growing quickly but you do not have a budget to hire a full time CFO, a fractional CFO might be what you need. It’s a cost-effective way to get the services that you need, and you can create a tailored plan to your specific business needs.

Here are a few ways that a fractional CFO can help your business:


1. Help with short-term and long-term planning

Companies need to create financial plans for their business that offer direction and growth for the business. A CFO is well qualified in high level financial scenario analysis and can provide with diversified growth plans that will help you make smart business decisions.

2. Ensure a proper financial foundation is in place

The best preparation for the growth of a business is ensuring that your finances and financial foundation is in good order and can sustain the growth of the business. If the financial foundation is shaky while you are growing your business, you will be putting your business at financial risk unnecessarily.

3. Help manage growth

It is of particular importance when a business is in its growth stage that the growth be managed carefully, as growing at too quick of a pace can be risky to a business. A seasoned expert will guide you through the growth stage and ensure you have the capital to support the business through that stage.

4. Strategic financial planning and advice

If you are considering raising capital for your business or any other important project that requires financial advice, you need to solicit the expertise of a CFO. A CFO can help you identify your blind spots in your business and get you to consider different angles of an important investment decision that you need to make.

5. Provide audit support
 

Audits can be unnerving for business owners to go through and having an expert to advise and assist you during an audit can be beneficial. CFOs can take over that function for you and answer questions the auditors may be asking. Having a finance professional in charge of an audit helps the audit go smoothly with few issues.

The bottom line is a well experienced CFO will be a valuable asset to your team. It may be time to hire a fractional CFO when your current team members can no longer provide the financial guidance that you need. A CFO offers high level financial support and strategic advice.

By Ron Nierzwicki
President at KSMB Associates

 Your accounting books are a mess. You have no real visibility of how well or poorly your company is doing. You haven’t done a bank reconciliation in a year.

You get a call from one of your suppliers and they say that their check bounced. You get 5 more similar calls that day. You can’t understand why. Your books show that you have plenty of cash in the bank. You go back and realize that you reported a large cash receipt twice and didn’t record a whole week of checks. Not doing your bank recs really cost you. Now you have a dilemma. No cash in the bank and you owe a significant amount... 

Don’t be this company. Let’s show you how to prevent this from happening to you.

Why Might Your Books Be A Mess?

• You don’t have time as you are too busy running your business
• Business is too complicated for a novice to do the work
• Emergencies keep popping up. Accounting is always last on the list.
• Bank recs are not being done or are far behind
• Lack of internal controls; no visibility to account receivable and payable
• Not understanding the importance of good books

Results of Messy Books

• Running out of cash and don’t understand why
• Not certain whether your company is profitable
• Don’t understand your costs
• Going out of business
• Insufficient information to make good decisions
• Not collecting all the money you are owed
• Double paying vendor invoices
• Inability to obtain a bank loan
• No clear distinction between business and owner’s personal transactions
• Tax preparation costs are more expensive than they should be

Steps To Take To Clean Up Your Books and Keep Them That Way

• Install an accounting software package
• Set up a chart of accounts and understand what should be in each account
• Get up to date with all bank recs
• Be certain you have support for all items on your balance sheet
• Do your accounting timely
• Separate out personal from business transactions
• Compare your profit and loss statements to prior periods
• Be consistent in completing your books monthly
• Do a detail monthly review of the numbers
• Seek help if feeling overwhelmed

KSMB Associates can help. KSMB offers a full range of accounting services and can help you get your books back in order and on the right path to success!