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How to Proactively Recession-Proof Your Business

How to Proactively Recession-Proof Your Business

The onslaught and massive outbreak of Coronavirus causing COVID-19 in the last two months has caused the world to turn upside down. Economies have tanked and the DOW has seen the most highs and lows since the 1930s. In this blog, we provide a breakdown to support:

    • The current state of affairs given COVID-19
    • Key things we learned from the great recession and what we can apply today
    • The official definition of a recession and are we headed there?
    • And 10 tips to consider to get through this and come out on the other side

Prior to COVID-19, Economists around the world had been warning that another recession was possible in late 2020. Along with those warnings, there have been many articles to suggest businesses should start preparing given the looming economic downturn. While Economists might feel somewhat vindicated, most (if not all) were definitely not prepared for a downturn of this magnitude.

To say that a coming recession wasn’t written on the wall would be inaccurate. Forbes reported back in January that there were causes for concern for 2020 being a recession year. The two significant indications cited included:

  • an inverted yield curve in 2019
  • slow growth in the manufacturing industry

When on the lookout for a recession, the unemployment rate is another major area to consider. In February, the U.S. Bureau of Labor Statistics noted the unemployment rate was at 3.5% or roughly 5.8 million people.

The Los Angeles Times just recently reported in late March 2020 on California’s numbers citing, “The state’s Employment Development Department processed 186,809 claims for unemployment benefits last week, up from 57,606 the week before… The total last week was 363% higher than the number of claims processed during the same week last year.”

In an article from March, Forbes reported that this is the quickest peak to bear market in history. The decline only took a record 22 days.

With all of these statistics and influx of information coming to light, indicators make it seem that the United States is on its way to entering another recession. However, it requires two consecutive quarters of economic decline to meet the technical definition of a recession, and only the experts can officially declare we are in one.

With what seems like mostly all bad news, we wonder if there is anything hopeful we can latch on to for the future?

International Monetary Fund Managing Director, Kristalina Georgieva, released a statement following the G20 Ministerial Call on the Coronavirus Emergency where she said, “First, the outlook for global growth: for 2020 it is negative—a recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021.”

If we know going into this period that there is a light at the end of the tunnel, we can have the stamina to survive. Looking back at our last recession can provide some learning lessons too.

What We Learned From The Great Recession

Remember the story of Lehman Brothers? Before the 2007 recession, Lehman was the fourth-largest bank in the U.S.

Since its inception in 1850, Lehman had weathered many economic changes. The company survived the Great Depression, two world wars, and the near-collapse of hedge fund Long-Term Capital Management in 1998. But Lehman’s rush into the subprime mortgage market proved to be its downfall. To make matters worse, the bank paid little heed to the signs of the oncoming Great Recession. Lehman was still confident about the firm’s record revenues even in March 2007 as the market was beginning to collapse.

Five months later, as the credit crisis took hold, Lehman’s shares took a sudden dive. Throughout 2007, Lehman had underwritten more mortgages than any other financer, leading the firm to accumulate a portfolio of around $85 billion. In the fourth quarter of 2007, despite the cracks in the housing market, Lehman’s stock briefly regained buoyancy.

However, the company failed to cut back its mortgage portfolio while it had the chance, and it would never have the opportunity to do so again. On September 15th, 2008, the firm was forced to declare bankruptcy, wiping out more than $46 billion of its market value.

The greatest thing Lehman Brothers ever did was go through this experience to be a learning lesson for future generations. We can confidently say, don’t be like Lehman. Take actionable steps now for the oncoming recession to protect the future of your company. The first step is educating yourself and the other financial leaders of your company on what an economic slowdown truly means.

What is an Economic Recession?

As we mentioned earlier, an economic recession is defined as two consecutive quarters of negative economic growth. It is usually accompanied by a significant drop in the stock market, increased unemployment, and a slump in the housing market. Some factors for a recession include:

  • Falling interest rates
  • Rises in bankruptcies, defaults, foreclosures
  • Falling assets and dip in stock market
  • Reduced wages and rising in unemployment
  • Reduced consumer spending and confidence

Some recessions occur back-to-back, while others may occur up to ten years apart. Since World War II, recessions have lasted, on average, for eleven months each. A notable exception was the so-called “Great Recession”, which occurred toward the end of 2007 after the housing bubble burst and lasted for 18 months.

Fast forward to today, and we are faced with what individuals are already considering a recession. Technically, the committee who decides these matters could not formally state we have hit a recession until two quarters have passed.

Until then, we must consider how to forge ahead of this impending hardship. If you want your business to survive the next economic downturn, you will need to take tangible steps to make it recession-proof. Here are some ways you can protect your company from tough economic times that may be coming.

10 Tips to Recession-Proof Your Business

So, with a recession on the imminent horizon, where does that leave businesses today? Planning for your company’s future seems impossible in these times of uncertainty. What we do know is that an economic recession can wreak havoc on business leaders, companies, employees, vendors, and customers.

These are the ten tips our team of experts has compiled to help you navigate through these uncertainties:

1. Financially Prepare for a Downturn Before It Happens

Whether now or in the future, don’t wait for the first signs of a recession before you start to do something about it. By then, it may be much too late. If you don’t have a strategic financial plan, it’s time to get one.

Your strategic plan will help you understand how financially sound your company is today, so you can start saving to weather the next storm.

If you already have an updated financial plan, it’s time to start building a cash reserve. This may be the most crucial step you take. Start saving money in a bank account. Consider building enough reserve cash to cover at least six months’ worth of essential business expenses. Doing so will help you to sustain your company, and the longer you can maintain your company through the recession, the more likely you are to survive in the long-term, through good times and bad.

And if you’re unable to do this now, keep reading below.

Read More: Download our Strategic Budgeting eGuide

2. Develop a 13-Week Cash Flow Forecast

When faced with the unknown, the best way to set your company up for success is with an actionable plan. The critical steps here are to understand where your incoming cash is coming from, how much of it you are receiving, and how it is spent.

Having a grasp on this information can help to visualize the future from a cash perspective. Creating a 13-week plan will allow company leadership to account for all money, make adjustments where needed, and see where to adjust strategically. Be sure to review this document weekly.

Read More: Part 2: Actionable Advice from Our Founder to Improve Your Cash Flow

3. Scenario Planning

Preparing for an uncertain future is possible with tools like scenario planning. Taking a few different visions on what your company’s future could look like enables you to think through those possibilities and understand which outcome best sets up the business for success.

The three main scenarios to plan through would be the original plan, the probable plan, and the worst-case plan. As a business leader, working through each of these scenarios can bring forth thought driven data that should put forth solutions better than any reactive, gut feelings you might have during stressful situations.

Read More: Your Guide To Financial Modeling and Scenario Planning

4. Talk To Your Bank Today

Taking control of your finances today might be the single most crucial step you can make for your business. By proactively communicating with your banker and setting up a conversation with them, you are illustrating that your company is reliable.

You will first want to stay informed on how the bank currently views your business in three areas.

Ask which loans have been downgraded and what industries are being impacted the most. Is your sector secure or not? Honest conversations like these can help you understand how the bank will treat you going forward.

Ask about your business’s risk rating. If the bank decides to downgrade your loans, they will receive a higher risk rating, which ultimately means the bank will try and pass along costly expenses to you if you’re forced to leave the bank.

Read More: Planning and Managing Your Banking Relationship During COVID-19

In that same vein, you will want to maintain good credit. If you are asked to leave the bank and need to find another one, a high credit score is essential to borrow money. If you maintain good personal and business credit, you stand a much better chance of being able to take out a loan when you need it most.

5. Know Your Liquidity Options

One of the most important aspects of your business is its liquidity. It’s critical for paying employees and company bills, but it’s also crucial if you are conducting scenario analysis to help with decision making at your company.

There are many options to choose from when it comes to freeing up liquidity. Your best bet right now is to take advantage of special government programs that have been developed during the COVID-19 outbreak. Other options can range from alternative financing solutions, to using business assets, or even considering private equity investors who can give you cash in return for a partial stake in your business.

Don’t be afraid to think outside of the box and to negotiate for the best possible terms and options. To get ten more liquidity tips, be sure to check out our recent blog below.

Read More: 10 Liquidity Options for Businesses During COVID-19 Outbreak

6. Communicate With Your Vendors

With the current state-of-affairs, we do not know when things will get back to “normal.” If you’re lucky, your business and customers have not been affected at all by COVID-19. What’s more likely is you have. The question to be asking is, how has the Coronavirus impacted your company?

The only way to answer this question is through communication with your vendors and your customers to be sure your cash-flow is not compromised. Start by reviewing your contracts, then talking to your clients and customers. Analyze where the risks are and make decisions from there.

Obtain a full understanding of the bigger picture and create a strategic plan to maintain positive cash flow.

Read More:  The Importance of Proactive Communication & Talking to Your Vendors In This Crisis

7. Strengthen Your Customer Relationships

Your customer base is the most significant source of income. You can’t afford to lose them, especially during a recession, so make them your number one priority. Now is the time to make sure that your customer service is the best it can be. This will give you a higher chance of retaining your current customers and attracting new ones, even during a recession.

Show your customers they’re a priority by adapting your products and services to suit their needs better, as well as offering them incentive programs. During a recession, it’s more important than ever to keep your customers loyal by providing excellent after-sales service.

Read More: Determining Profitability Within Your Business: Analyzing Profits by Employee, Product and Customer

8. Master What Your Company Does Best

When you’re preparing for a recession, don’t stray away from your strengths and start something new.

Diversifying your business is not necessarily a bad thing, even if your company is small. But adding on products or services just to try something new isn’t a good way to protect yourself from an economic downturn.

Experimentation is making you more vulnerable. Instead, analyze the industries of your customers. If you have a decent number in recession-resistant sectors, focus on catering to their needs. How can you save them money, or even better, time? Can your services alleviate something on their plate that will give them peace of mind knowing you are handling it?

Focus on what your company does best and do it even better. This will ensure that you will have a stable foundation when the economy shifts.

Read More: Challenges of aggressive growth and how it can destroy your business

9. Beat Out the Competition

Not every company within your industry is going to ride out a recession. Make sure your company is the one that does.

To gain a lead on your competition, you will first need to research them. What areas are they outperforming you, and how can your company step up to the plate? Doing your research now can save your business in the long run.

With your out-of-the-box thinking, you may need to bring in the help of some automated software to help you drive more leads. Spending a little money now can help secure an active pipeline of good prospects in the right industry to carry you through the recession.

Implement more robust strategies into your business and hone them until they become second nature. Go beyond expectations and offer products or services that they don’t have on hand. During an economic recession, this will put your company ahead of your competitors in the eyes of your target market.

10. Don’t Let Marketing Fall Through the Cracks

It’s always good to review your marketing practices from time to time. If you’re expecting an economic downturn, it’s even more critical. Most companies will cut back on their marketing, creating an opportunity for you to gain more brand awareness and stand out from the competition.

In a recent article from Entrepreneur.com, the idea of perfecting your copywriting was a critical aspect of upping your marketing game. As more remote work is being implemented to cut down on social distancing, more individuals are looking for research and data on the novel Coronavirus. This creates an opportunity for your company to leverage its marketing materials, copy on the website, advertisements, and social media, and gain more engagement from your audience. Persuasive copywriting is the only way this can happen.

Brainstorm with your team other ideas to boost sales and maximize how you use your marketing dollars for the future. Identify your competitive advantage – what separates you from your competitors – and develop a unique selling proposition to push your company’s unique qualities.

Another idea is to productize service-based businesses. If you’re a service, identify how to productize some of what you do. Keep things simple to start and pick one area of focus. Products come in all shapes and sizes, from digital SaaS products to courses, to e-books, to anything that can be purchased and paid for online. Products can bring in additional sources of revenue, and if the customers are happy, they can drive word of mouth sales as well.

These strategies will help to keep your customers loyal through an economic recession while ensuring that you are making the most out of your marketing budget.

11. Bonus Tip from Chief Outsiders

Chief Outsiders recommends launching new offerings to help capitalize on delivery services to your clients in fresh ways. This could be through virtual offerings, digital assets like teaching, training, or coaching, free or limited subscriptions, or other services you can provide. Finding unique and creative ways to meet your clients where they are can keep your business on their mind while supporting them in their new work environments and compiling with government-mandated behavior.

Final Thoughts

Although we can’t be 100% certain that the Coronavirus will lead the US into a proper recession, it’s essential to prepare now. Don’t be caught off-guard in the event of an economic downturn.

While nothing can guarantee your business will make it through a recession, strategic planning can help to give you a fighting chance and may help you keep your head above water while your competitors may sink.

Need help taking the steps to recession-proof your business? Our team of experts can help! Contact us when it is most appropriate for your organization, and we can help give your company a fighting chance to ride out the looming economic storm.

This Is What You Should Expect From Your Tax Advisor

This Is What You Should Expect From Your Tax Advisor

It’s been over 7,000 miles since your last oil change, so you drive to the mechanic for a service. You’re a few pages through a magazine when the mechanic informs you that your car is on its last legs unless you permit them to fix one specific part.

The good news: they can replace the part for you today. The bad news? It’s going to cost $2,000. While the last thing you want is for your car to fall apart, you can’t help but wonder: are they manipulating the situation to their monetary advantage?

For the average person, knowledge of auto mechanics doesn’t exceed our gas tank, so we make the assumption and leap of faith that the mechanic has our best interests at heart. Without expertise in a given industry, we lack the competency to ask the right questions to ensure we get the best service and keep us from being deceived.

Your tax advisor shouldn’t be an exception.

Whether you have been working with the same tax advisor for years or if this is your first year with a new CPA firm, there are a few key things to expect from your tax accountant to ensure your company is getting the best service.

Your CPA is good if they do this

Working with a CPA who is proactive will prevent problems way before they happen. Most clients assume their tax advisor will not only be proactive but is comprehensive in their knowledge of the client’s business. Unfortunately, it’s more common for the tax accountant to wait until the end of the year to get involved and before asking for all your information and processing it.

So how do you know if you’re working with a proactive tax firm? One sign is they maintain contact with clients quarterly to inquire about the health of the business. With more frequent contact, proactive advisors can make adjustments to payments to ensure accuracy throughout the year, rather than surprising clients with a large and unexpected tax bill at year-end.

What makes a tax firm a good fit for your business? It is helpful if the CPA working with your company has had experience working with other clients within the same industry since they have most likely learned from working with those clients. For instance, if a similar client qualified for something like the domestic production deduction, the CPA will be more apt to see if their other clients qualify as well.

Essential qualities to look for in a CPA firm

It’s a good idea to start by identifying the qualities of the CPA firm you are working with or are planning to work with in the future. Here are a few things to be on the lookout for:

  • The integrity of the firm

The integrity of a CPA firm is critical. It doesn’t matter whether the firm is large or small; what matters is the individual working on your account. You may choose a well-known firm with an excellent reputation, but if the accountant working on your stuff isn’t attentive, or overloaded with clients, you’re more likely to endure poor service.

  • The sophistication of the firm

Some firms specialize in certain things. If your business is involved in a particular industry, work with a CPA with that specific knowledge and who has clients in the same field. It’s essential to find a CPA firm that fits the level of what your business is doing.

  • The competency of the firm

The time may come when a client outgrows the skill set of their CPA firm and are unaware of it. It’s important to work with a firm that can handle your growth and the complexities that come with it, as well as one that can provide the level of service you need.

Is it time to find a new firm?

How do you know if a CPA firm is delivering exceptional service or if it’s time to move on? Here are three red flags to consider:

  • Response time

If your CPA doesn’t get back to you within an appropriate response time (most would agree within 24 hours), responds abruptly, or is just not helpful, these are all signs of a bad relationship.

  • Poor working relationship

A CPA who only corresponds via email, despite you asking to speak with them over the phone, is another bad sign. Whether the CPA is is overworked, too busy, or has too many clients, they are not acting in the client’s best interest and will not serve their clients well.

  • Avoidance

You will inevitably have questions for your CPA firm. Those questions may revolve around everything from the paperwork that needs to complete to deductions for your business. If your tax CPA is avoiding or unwilling to answer your questions, or answers your questions in a way that you don’t understand, this could mean the CPA is getting away with doing as little or as much as they want without you knowing.

Read More: Filing 1099s: Best Practices and Mistakes to Avoid

How to avoid the wrong advice

Even if your tax CPA is proactive and is well-versed in your industry, it may be beneficial for your company to partner with a business advisor. A good business advisor has the expertise to advise clients based on their strategic partnerships, ensuring that your tax accountant is working in your best interest and avoiding any bad advice that may lead you down a costly path.

Read More: Accountability Partners and Why You Need One

If you’re overwhelmed or unsure where to start, contact us today. Signature Analytics has a history of vetting and partnering with several CPA firms in a variety of industries. In doing so, we can help your tax CPA focus on getting more done by adding more value this season.

How To Use The Right Accounting Technology In Your Business

How To Use The Right Accounting Technology In Your Business

Every morning, you walk to the Starbucks on the corner and order your usual: a grande drip coffee. You get to the counter where the barista tells you that Starbucks now only serves bubble tea. Alarmed, you walk out away without fueling your caffeine addiction and feeling confused.

There’s something about taking comfort in habits and consistency. It’s for this reason, we create routines for ourselves, retail chains design their layouts to be nearly identical from store to store, and In-N-Out basically hasn’t changed its menu in over 70 years.

As humans, we are averse to change. When we feel out of our element, we resist change and seek comfort.

These same principles apply to the world of accounting as well. Years ago, accounting was a tedious job; there were manual entries that resulted in errors and missing money. Once computer programs were created to automate accounting tasks, the margin for error decreased, work was faster, and the overall accounting industry became more efficient.

Change is not an easy feat; not for people and especially not for companies. However, when it comes to technology, change is the only constant. As technology touches every area in a business, companies must embrace technology to maintain a competitive advantage.

How Technology Can Improve Accounting

Newer technologies used in accounting can impact software, methods, capabilities, and ultimately produces improved processes and results for the clients we’ve worked with and those who rely on us for technical accounting solutions.

For example, with the right technologies in place, companies can improve the efficiency of both their accounts payable and receivable, saving time and creating scalability, which is valuable for any company experiencing growth.

Read More: Which Version of the Accounting Software is Best for Your Business?

What Are The Benefits Of An Accounts Payable Solution?

Many technology tools help create accounts payable processes and get your vendors paid faster, including:

Improved invoicing

Cloud-based programs such as QuickBooks, Netsuite, Sage Intacct, and Xero, are great for invoicing. Cloud-based technologies are beneficial to a company because they allow employees to do work anytime, anywhere.

Creating payment approval processes

Another key benefit is in creating a payment approval process. While approving invoices, you can use a predefined workflow through the cloud-base service and set up rules allowing you to define your AP process, offer one-click payment options, and improve organization.

This process can eliminate the chance of late invoices, along with the risk of sensitive information not reaching the public eye. With cloud-based technology solutions, all data is secure and available only to authorized users.

Integrations

Integrations with cloud-based software provide the opportunity to set up an Automated Clearing House (ACH) payments or checks that get generated and mailed. Setting up an automated payment process like Bill.com is an excellent way of managing AR/AP to receive, route, and pay invoices electronically in real-time while integrating with popular accounting software, like Quickbooks.

Integrations can catch mistakes by setting up audit trails, being able to search and find transactions and payments, and run custom accounting reports. This eliminates the risk of double paying, incorrect entry, and other human errors, which are harder to detect and can cause issues down the road.

Accounts Receivable Solution (AR)
For a company to remain successful, they must bill and collect payments from clients or customers promptly.

Cloud-based invoicing gives you the ability to accept payments online through ACH, credit card, or PayPal. You can set up branded customer portals where they can view their invoices, statements, and past payments. They are then able to use self-service options to make payments.

There are many additional benefits to having a comprehensive and cohesive accounts receivable solution:

      • Bank-vetted, leading-edge security
      • Automation of business rules for payment approvals – allows strict enforcement and accountability
      • No need for check stock in the office
      • Clear separation of duties with defined roles and system access
      • Detailed audit trails show who did what with the date and time stamping
      • Automated to-do list reminders
      • Cloud-based documentation storage

Advantages Of Accounting And Technology Integration
In one of our online webinars, our client SkyriverIT shared how they used the integration of technology and accounting to get paid faster. The average time was 60 days to collect payment. After integrating technology and accounting recommendations, they improved their process, and the average payment time was reduced to 7-10 days!

How was this possible? SkyriverIT used part of their marketing department’s technology, a drip campaign, and created automated accounting payment reminders in conjunction with marketing autoresponders. The benefits of using drip campaigns for accounting can be phenomenal, and here’s why:

      • Use email marketing for payments
      • Through the drip campaign, you can see who has and hasn’t opened invoices
      • You can set up specific autoresponders based on their engagement (email opens, links clicked, downloaded invoices, etc.)
      • Engage with the customers as often as you’d like
      • Customized communications based on customer engagement reduced payment time from 60 days to 7-10 days on average

Read More: Modernizing Your Accounting And Why It’s Beneficial To Your Business

We Can Help

If you need assistance in taking advantage of the right accounting technology to run your business, contact Signature Analytics. We can set up a consultation to learn about your specific business needs and advise on the proper accounting technology to benefit your business.

There are many other accounting technology solutions available with tons of features that will save you valuable time and help move cash forward. Make an impact on managing your business and contact us today.

Outsourced CFO Services – Benefits of a Part-Time CFO

Outsourced CFO Services – Benefits of a Part-Time CFO

Whatever industry you’re in, whatever the size of your organization, the Chief Financial Officer plays a vital role in your company’s success. If you run a small company, you may not have the workload or funds to support a full-time financial executive. If this sounds familiar, a part-time CFO could be a viable solution to reap the benefits of a financial executive without breaking the bank.

Read on to explore why your company needs a part-time CFO, what this fractional executive does, and how to hire for this critical role.

This is Why Your Company Needs a Part-Time CFO

In many small and growing companies, an accountant or maybe even the owner picks up CFO duties. While the owner may know the business inside and out, they often don’t have a lot of experience managing finance and accounting or don’t enjoy dealing with it. In many cases, accountants don’t have the proper training to provide strategy and forecasts the way a CFO does.

A CFO measures the success of your business in dollars and cents to help your company grow as quickly and as profitably as possible, while providing these key benefits:

  • You’ll have a personal advisor: Your CFO will always be there to guide your financial decisions. They come with a wealth of knowledge and will have a grasp on the ins and outs of your business financially.
  • You’ll have help raising capital: Your CFO will play a critical role in managing your business funds and equity. They will help you to raise enough capital to expand and ensure that your revenue is collected on time.
  • You’ll have an expert in financial data: Currently, data is one of the most significant driving forces behind a company. The expectation is that a CFO with experience will know how to analyze Big Data, pair it down, and report the most important facts and figures to the CEO.
  • You’ll have more time to do what you do best: As your CFO brings in-depth knowledge of all things financing and capital, they can manage relationships with partners, shareholders, lenders, and investors. This help will open up your calendar, giving you more time to concentrate on running your company.

Which Kind of Background Should I Look for in a CFO Candidate?

As you’re searching for the right CFO, it will be imperative to consider your company’s short-term and long-term goals. Your goals will help shape the qualifications you are looking for in your next finance leader.

While all CFOs have qualifications and experience in business finance, each has their area of expertise that can serve as a bonus to your company.

The KPI Wizard: This type of CFO loves metrics. They can step into your business and quickly see how you are scoring on performance. If you are not up to par, they will be very swift to tell you where and how to make improvements.

The Numbers Champion: This type of CFO is a leader that feels comfortable wearing many hats. Within the finance department, their role may include handling treasury, controllership, financial planning, and auditing. They won’t let a single figure slip by without notice, and they will keep you informed of all significant financial occurrences.

The Strategy Ace: This type of CFO usually has experience working on other aspects of a company such as general management, marketing, and operations. These experiences give CFOs the ability to effectively communicate with practically anyone on the team to ensure accurate procedures are followed. The results are streamlined business strategies and employees who are prepared to handle any issue that may arise.

The Development Expert: This is a new breed of CFO. Chief financial officers who are experts in growth and development usually have several years of experience dealing with venture capitalism, private equity, and mergers and acquisitions. They will help you grow your business in ways you may not have thought of yourself.

Read More: The CFO of the Future: Why You Need One

These are the Reasons Why Your Company Needs a Part-Time CFO

Small to middle-market companies who range in $40 million in annual revenue, and who may have a small accounting team, may not need an in-house, full-time CFO. Of course, this is dependant upon a variety of factors. However, they likely still need the advice of a financial leader, especially when it comes to the following:

  • Improving your financial awareness: Accounting departments rarely have the knowledge and experience of a CFO. They cannot provide the same level of financial forecasting or strategy development and implementation as a CFO.
  • Reaching solutions fast: While it’s true that you know the business best, a CFO brings a fresh perspective. They can help find solutions to recurring problems and work with you directly to streamline all the financial aspects of the business.
  • Creating cash flow forecasts: A thorough understanding of economics is essential to anyone in the role of CFO. This knowledge enables them to develop accurate cash flow forecasts based on the company’s finances and its standing within the industry.
  • Staying aligned with your financial department: A qualified CFO has a firm understanding of the latest financial software solutions and cloud-based tools. Knowledge such as this provides the company with ways to more easily access important business information.

Read More: Signs Your Company Needs to Hire a CFO

What You Get with a Part-Time CFO

A CFO’s responsibilities are broad and will vary somewhat depending on your company’s industry and size. Regardless of sector, there are a few essential functions they can use to help any company:

  • Providing a thorough understanding of your company’s financial situation
  • Helping you make necessary financial decisions based on that knowledge
  • Taking steps to reduce financial risks now and in the future
  • Forecasting budgets and developing strategies to grow your business
  • Implementing an economic growth plan
  • Managing or supporting multiple departments:
    • Accounting: tracking cash flow and financial planning
    • HR: managing payroll and flexible benefits
    • Legal: overseeing taxation issues
    • Treasury: deciding how to invest the company’s money
  • Monitoring different transactions:
    • Benefit plans: optimizing price and value
    • Acquisitions: managing a merger or acquisition strategy
    • Insurance: making sure that the company has adequate protection

When is it Time to Engage a Part-Time CFO?

There are a few significant signs that it might be time to consider a part-time CFO for your company. Some of these include:

  • Periods of rapid growth: A CFO can help scale your business by focusing on capital, liquidity, and free cash flow. Their expertise can ensure your rapid growth is fiscally sound and sustainable in the long-term.
  • New product development: You can benefit from a CFO’s market assessment skills and their ability to work with marketing and sales partners. Their analytical ability will help you get the best return on investment when it comes time to launch your new product.
  • You want to boost profitability: In this instance, a CFO can understand the cost of various projects, track the right metrics, and use data to streamline the company. When the CFO understands the bigger picture, they can set your company on the right track towards long-term growth. They can even get you back on track if your business has become stagnant after several years of maintaining the status quo with less successful results.

Filling the CFO seat can be beneficial for numerous reasons, including quantifying and reducing risk to the organization, lowering costs to increase profitability and cash flow, and ensuring your long-term company strategy is executed and results realized.

By bringing on a part-time CFO, business owners and managers can realize these benefits at an earlier stage and save on costs, rather than waiting for a full-time CFO role to develop.

If your business could benefit from a part-time CFO, contact Signature Analytics. We are happy to discuss our outsourced CFO services. We can set up a consultation to learn about your specific business needs and can discuss the best, outsourced CFO services for you.

The Three Main Internal Controls for Accounting and How They Protect Your Assets

The Three Main Internal Controls for Accounting and How They Protect Your Assets

Internal controls are a series of policies and procedures that a business owner puts in place for the following purposes:

  • Protecting assets: internal controls protect assets from accidental loss or loss from fraud.
  • Maintaining reliability: internal controls make sure that management has accurate, timely, and complete information.
  • Ensuring compliance: internal controls keep accounts in compliance with the many federal, state, and local laws and regulations affecting the operations of a company.
  • Promoting efficient operations: internal controls create an environment where managers and staff can maximize efficiency and effectiveness.
  • Accomplishing objectives: internal controls provide a mechanism for management to monitor the achievement of operational goals and objectives.

The responsibility for maintaining internal controls falls on administrative management. Members of the management team are responsible for communicating to staff their duties and expectations within an internal control environment. They are also accountable for ensuring that other areas of the internal control framework are dealt with consistently.

Framework for Internal Accounting Controls

To be effective, the framework for internal accounting controls should have a system that includes:

  • A controlled environment/li>
  • Risk assessment
  • Monitoring and reviewing
  • Information and communication
  • Control activities

The Three Main Internal Controls

There are three main types of internal controls, these are:

Detective Internal Controls

This type of control is designed to highlight any problems within a company’s accounting process. Detective internal controls are commonly used for things such as fraud prevention, quality control, and legal compliance. Examples of detective controls include an inventory count, internal audits, and surprise cash counts. Detective internal controls protect a company’s assets by finding errors when they occur so that business owners can minimize their impact on the company.

Preventive Internal Controls

This type of control is a proactive control designed to prevent errors and irregularities from occurring. Preventive internal controls are usually performed on a regular basis. Some examples of preventive controls are:

  • Separation of duties: splitting tasks for bookkeeping, deposits, reporting, and auditing, so there’s less chance of employee fraud.
  • Controlling access: this feature prevents team members from logging into certain parts of the accounting system unless they have a password.
  • Double-entry accounting: a system that adds extra reliability so that books are always balanced.

>Preventive internal controls are put in place to help with clerical accuracy, backing up data, and preventing employee fraud. These internal controls help to avoid any problems or irregularities so that the business processes can run smoothly.

Corrective Internal Controls

Corrective internal controls are put in place to correct any errors that were found by the detective, internal controls. This type of internal control usually begins by detecting undesirable outcomes and keeping the spotlight on the problem until management can solve it. If an error occurs, then it is essential that an employee follow procedures that have been put into place to correct the mistake. Examples of corrective internal accounting controls include physical audits (such as hand counting money) and physically tracking assets to reveal well-hidden discrepancies. Implementing a quality improvement team can be a great way to address ongoing problems and to correct processes.

eGuide: What Business Should Expect From Their Accounting Department

Other Forms of Internal Controls

There are other forms of internal accounting controls, these include:

Standardized Documentation

When accounting documents such as inventory receipts, invoices, internal materials requests, and travel expense reports are standardized, this can help to maintain consistency in the company’s records. Standardized document formats also make it easier to review past records when a discrepancy has been found in the system.

Trial Balances

This internal control entails using a double-entry accounting system. Doing so increases reliability and keeps the book balanced. Errors may still throw a double-entry system off balance. If employees calculate daily or weekly trial balances, this will help maintain analysis of the state of the system so that discrepancies can be discovered early.

Periodic Reconciliations

Occasional accounting reconciliations mean that account balances in the company system can be matched up with balances in independent accounts such as credit customers, suppliers, and banks. Any differences between these accounts will highlight errors.

Approval Authority

This internal control requires members of the management team to authorize specific transactions. Approval authority adds a further layer of responsibility to accounting procedures because it proves that any transactions have been analyzed and approved by the appropriate managers.

eGuide: What Business Should Expect From Their Accounting Department

Ways to Improve Internal Accounting Controls

There are things you can do to strengthen your internal accounting controls. Here are a few suggestions:

Allocate Separate Accounting Responsibilities

Instead of relying on one employee or bookkeeper to handle all the accounting duties, segregate the processes to different members of your team. For example, processing receipts and payments can be separated. Other activities that can be separated include signing checks, approving invoices, and reconciling accounts. Allowing a single person to handle all these accounting processes increases the risk of errors or fraud.

Increase Oversight

Even though you have internal controls, they will not be effective enough without oversight. If you don’t have time to do it yourself, you should allocate a trusted member of your personnel to review statements, account reconciliations, and payment registers periodically. Look out for unapproved expenses or raises, non-existent employees, and unapproved hours. Make it a priority to review your company’s financial data so that you can stay abreast of trends and changes in your financial reports.

Restrict Employee Access to Financial Systems

Typically, business accounting software allows users to edit previous transactions. This unmonitored permission opens up the potential for employees to hide fraud or theft. As a business owner, you should restrict employee access to the company’s financial system to reduce the risk of employees changing and deleting entries. You can also review any transaction changes in the system to reveal any irregular activity.

Have a Third-Party Overlook Financial Statements

You can increase the safety of your assets by having a third party review your company’s accounts. Any employees who are involved with internal accounting and aware of your third-party review will be deterred from fraudulent practices. An independent reviewer will also be able to identify errors and inconsistencies.

Perform a Self-evaluation of Your Internal Controls

Performing a self-evaluation can help you to highlight any areas that come up short before problems arise and give you the opportunity to use more effective controls. The easiest process to perform a self-evaluation is by conducting a trace of a particular transaction throughout company records and procedures. The trace will give you a deeper understanding of your internal controls in action, particularly those controls which are in place to detect or prevent fraud. You will also be able to see if your internal controls have been designed effectively and are operating as intended.

Effective internal controls for your accounting and finance should be an integral part of your business plan. Internal controls significantly reduce the risk of loss of assets and increase the reliability and accuracy of all your accounting and finance operations. Additionally, controls ensure that your company’s accounting system is in accordance with applicable laws and regulations.

We Can Help

You can contact us if you need help establishing internal controls for your accounting and finance department to protect your business assets adequately. Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant), or complement your internal staff, to provide the ongoing accounting and finance support necessary to effectively run your company, analyze operations, and guide business decisions.


Do you know your numbers?

How to Create the Perfect Annual Budget for a Business

How to Create the Perfect Annual Budget for a Business

Have you ever wondered how to create a business budget? An annual budget is an essential financial plan for a company’s expenditure for the coming fiscal year. Company owners can use this plan not only to calculate their yearly budget, but also to determine when to file tax forms, get audited, and close the books. Creating a business budget involves balancing your company’s revenue with its expenses using past trends and realistic revenue expectations so that you can predict your needs for the next fiscal year.

Why Does a Business Need an Annual Budget?

A company needs to know how to make a business budget for many reasons. Most importantly, it acts as a roadmap to where your business is going in the next year. Once you establish how much money you have, you can determine how much money you can spend and how much cash you need to meet the goals of your business. Curious how to prepare a budget for a company? This process is vital for several reasons:

  • It sharpens your understanding of company goals
  • It allows you to portray the real picture of what is happening in your company
  • It provides effective ways of dealing with money issues
  • It fills the need for required information
  • It facilitates discussion of the finances
  • It enables you to avoid surprises and gives you full control

This is How to Prepare a Business Budget

Before you begin your forecast for revenue and expenditure, you will need to gather income and expense data from previous fiscal periods. Collecting this information will help you estimate the future budgeting process based on past trends. For example, if you are creating a quarterly budget, then look back at your previous two or three quarterly financial statements. This way, you can create a custom budget based on your desired timeframe. Once you have the trend data, you can use it to create a baseline projection for future revenue and expenditure. For example, if your revenue has increased at an average of 25 percent each quarter, for the past six quarters, increase your baseline projection for the next quarter by 25 percent.

What Are the Elements of an Annual Budget?

For your budget to be adequate, you should break down income and anticipated expenses either by month or by quarter. Which one you choose will depend on the size of your company. The budget should incorporate separate accounts for each of your business’ departments. These departmental mini-budgets should also be broken down by month or quarter. There are many factors that you need to consider when putting together your company’s yearly budget. These components are essential if you want to create an accurate and up-to-date annual budget and maintain control over finances. The budget needs to include:

  • Projected expenses: the amount of money which you expect to spend during the fiscal year. Projected expenses can be broken down into categories such as salaries, office expenses, etc. There are several steps to make a correct estimate of your projected expenses. The first step is to make a list of your company’s necessities for the fiscal year. You can look back at trends from past years to help you stay accurate. Next, make a list of expenses you will require to conduct typical business activities. It would help if you also listed any of your company’s fiscal obligations. Finally, list the items you would like to purchase for your company but may not be able to afford during the upcoming year. Add up all these expenses to provide a guideline for your budget.
  • Projected income: the amount of money you expect your company to make during the coming fiscal year. Projected income includes revenue and any income which may be coming from grants, contracts, funding sources, memberships, and sales. There are several steps you will need to take to reach your projected income. The first step is to estimate the amount you expect to accrue from sales revenue. Next, determine the amount you expect from fees that you charge for services. Finally, estimate the figures you expect from fundraising, investments, and memberships. Adding up these figures will give you your projected income for the year.
  • Interaction of expenses and income: This aspect of the annual budget entails keeping track of the money that was given for a specific activity, item, or position by a funder. It is important to build in any restrictions that might come with the money so that nothing comes as a surprise later.
  • Adjustments to reflect reality: You must remember to factor in funds for emergencies and unexpected necessary purchases. Also, don’t forget that your annual budget will begin as an estimate, so you will need to adjust it throughout the year to make it more accurate. To do so, layout your figures in a useful format so you can easily compare the total expenses with the total income. Stick to your expenditure budget as much as possible because a budget surplus may not show up until the end of the fiscal year.

This is What Should Non-profit Organizations Should Know

Typically, non-profit organizations are required to undergo an annual audit. The audit must be conducted by a Certified Public Accountant (CPA) that will examine your organization’s financial records to ensure that they are accurate. The CPA will also work with you to solve any problems or correct any mistakes. Providing that the records are in good order, and there is nothing illegal found, the CPA will prepare a financial statement for the organization based on the documents examined. The statement certifies that the non-profit’s accounts are in order and that professional accounting practices (or as we recommend, GAAP) have been followed.

This is How You Trim Your Company Budget

In certain circumstances, you may wish to cut your company’s budget. If so, it’s crucial that you do it in an organized way. Here are some considerations to help you decide on what you can and can’t cut:

  • Make sure you don’t cut services or items that are necessary for running your business.
  • Are you able to reduce the number of physical items you need to run a department?
  • Do you need to consider making staff cutbacks? If this is the case, could you reduce staff hours, ask members of staff to increase their share of their fringe benefits, or is it necessary to lay off some members of the staff?

Do Not Disregard an Annual Budget

Annual budgets are essential for evaluating your company’s performance over the course of a fiscal year. Because you will be comparing and raking revenues and expenditure and comparing these aspects to what was budgeted, you can make sure that your company is sticking to its original plans. Budgeting also presents an excellent opportunity for you to identify issues and opportunities. For example, if sales in the first quarter turn out to be lower than projected, you will be able to see where you can cut expenses late in the financial year to remain profitable. Equally, if you introduce a new product that turns out to be more valuable than you anticipated, you will be able to see exactly where you have additional revenue, and you can revise your budget and perhaps use the extra money to increase production.

Looking for some small business budget templates to help get started? Check out the link or contact us. It’s clear to see why annual budgeting is important for your business. You can make sure that you are utilizing your entire annual budget optimally by employing the best budget management practices. This is the only way your company will truly grow and continue to be successful.

 

Make your strategic budget a priority