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What Should Small and Mid-Size Businesses Expect From Their CFO?

What Should Small and Mid-Size Businesses Expect From Their CFO?

The CFO’s role within an organization depends on several factors. These components may include the expectations coming from the CEO and board of directors, and may also vary depending on the industry, corporate strategy, and the goals of the business. A company’s size can also have a significant influence on the CFO’s role.

Below, the Signature Analytics team has outlined some general responsibilities that every business should expect from their CFO.

The Importance of Forward-Looking Financial Analysis

The foundation of any company’s accounting and finance function is to produce timely and accurate financial information for the business. The CFO oversees these accounting and finance functions, but their true value comes from the ability to provide forward-looking financial analysis. This analysis should be focused on driving additional profitability and value to the company.

Read More: Outsourced CFO Services – Benefits of a Part-Time CFO

Whether you have a full-time, part-time, or outsourced CFO, below are some examples of the forward-looking financial analysis you should expect from the CFO role:

1. Cash Management & Forecasting

Can you predict when your business will have a surplus of cash that needs to be managed or when you will have a shortage of money that requires financing?

Cash flow problems can kill businesses that might otherwise survive. Your CFO should be monitoring cash flow and analyzing cash flow projections regularly to ensure your business does not run out of cash.

2. Budgeting & Expense Control

Does your business have a budget? Do you receive an analysis comparing prior year actual, current year actual, and current-year forecast on a regular basis?

Your CFO should own the budgeting process by incorporating input from each department for the most accurate and complete projections. They should also be monitoring budgeted versus actual results on a quarterly or monthly basis and reforecasting accordingly.

Read More: How CFOs Add Value To Your Business

3. Compensation Plan Development

Is the compensation of your employees aligned with the goals of the company?

The CFO of a company should help to structure employee compensation plans that incentivize efficiency and align with the financial goals of the company.

eGuide: What Business Should Expect From Their Accounting Department

4. KPI Development & Analysis

Are you maximizing margins? Are profits analyzed by revenue stream? Are employees being utilized appropriately to maximize profitability?

KPIs (Key Performance Indicators) are different for every business. They should act as the company’s compass, and the CFO serves as the navigator.

It is the responsibility of the CFO to work with those in operations to help develop KPIs applicable to the company and support the analysis of those KPIs regularly. The CFO should be using the data from the KPIs to assess business performance in real-time. Making changes that directly improve KPIs can help build the future value of the company.

Read More: What Are Key Performance Indicators and Why Are They Important?

5. Board & Investor Communications

Are you providing valuable financial information to your Board of Directors so they can review the trends of the company’s operations and assist in making appropriate decisions? Is the information presented professionally?

Your CFO should be preparing presentations for your board members that effectively communicate the company’s financial information in an organized manner. The information should illustrate trends to visualize projections so the data can help drive business decisions.

6. Securing Financing & Raising Capital

Do you review your banking relationships regularly? Are you confident you have access to financing on the best possible terms for your business? What are the capital needs of the company now and in the future? What is the best way to meet those needs?

Your CFO should play a key role in identifying and securing investment and financing. They should identify capital requirements before approaching financial institutions and investors to ensure you raise the appropriate amount of capital required to support your growth plans.

A successful CFO should also prepare presentations of the company’s financial information, allowing potential investors or lenders to understand the data and the companies performance.

7. Tax Planning

How often are communications occurring with the company’s tax advisor to maximize all tax-related strategies?

Your CFO should maintain consistent communication with tax preparers to minimize your company’s potential tax liability.

8. Ongoing Analysis & Review

All of these responsibilities should be considered ongoing processes that are revisited on a regular pre-determined schedule and modified based on the most recent financial information available.

Furthermore, all of the results should be measurable to track the success of the performed analysis.

eGuide: What Business Should Expect From Their Accounting Department

A Solution That’s Right For You

If your CFO is providing forward-thinking analysis, they are providing infinite value to your company.

Each of the outlined goals above can help maximize profitability and value for the business, and, if managed appropriately and adequately, companies with the correct financial infrastructure can witness significant operational improvements and growth. Having this kind of efficiency will allow you to think about your business in new ways and likely uncover new possibilities for what’s next.

If your business requires any (or all) of the forward-looking financial analysis mentioned above, but you’re not in a position to hire a full-time CFO or may have a team that just needs additional support, the team of experts at Signature Analytics can help.

Our highly experienced accountants can act as your entire accounting department (CFO to staff accountant). If that solution isn’t the right fit, our team can complement your internal accounting staff, to provide the ongoing accounting support, training, and forward-looking financial analysis necessary to effectively run your company, analyze operations, and guide business decisions.

Have questions about our process? Contact us today for a free consultation.

 


 

Do you know your numbers?

8 Things to Consider When Planning an Annual Budget for your Business

8 Things to Consider When Planning an Annual Budget for your Business

Crafting an annual budget is one of the most important financial aspects of a business, but often gets overlooked.

Business budget planning is an essential task that is frequently neglected at small and mid-size companies. So why is it so important? Well, mostly because it is a process that prepares your company to answer critical questions about what the next 12 months will look like:

  • What are you projecting sales to be next year?
  • Are you expecting margins to improve next year?
  • Do you plan to hire additional employees?
  • Will you have any significant capital expenditures soon?

These questions (and many others) are typical of investors, financial institutions, potential strategic partners, and financial buyers. Every business, regardless of size, should have the answers to these questions to be able to plan the annual operating budget accordingly.

Having a chief financial officer, or CFO, as part of your company’s C-Suite executive team can be an asset in this process.

A CFO will have access to and be up to date on the most recent financial data pertaining to the company. These resources can help the company craft its budget, as well as short and long-term financial goals. Strategic budgeting is a skill that any good CFO will have in their arsenal. It’s just a matter of working as a team to bring all the relevant information together to plan for the future.

Read more: What CEOs Need From Their CFO

If you are overwhelmed by company budgeting planning, don’t have a CFO, or don’t know where to begin, below are some tips to help you get started:

1. Consult All Departments

The annual budgeting process should not be completed behind closed doors by one member of the accounting or finance team. Instead, all the departments within the company should be part of the conversation and provide feedback, insights, and expectations for the following fiscal year.

Who should contribute to the conversation? Be sure to loop in:

  • The sales team: they can assist with realistic revenue assessments
  • The manufacturing or service team: they can advise on costs of delivery and any large purchases required to update machinery
  • The research and development team: they can discuss expected expenses as well as the timing on any new products anticipated
  • Any other departments who can add value to the conversation

It is encouraged to incorporate feedback from each department as the results are much more likely to be accurate. Therefore, project completions are possible for the upcoming fiscal year. Too often, companies that do complete the annual budget planning process estimate an overall percentage increase over the prior year’s actual income – this is something that should be avoided.

2. Estimate Revenues

Expected sales have a significant influence on costs, including employee headcount, but it can be very challenging to make projections accurately. Here are some ways to come up with the best estimate:

  • Consider the recent monthly growth rate experienced by the company and decide if it can be continued.
  • Review industry guides and other expert publications that focus on your industry.
  • Review financial information from a number of your competitors, if available.
  • Communicate with your current customers to better understand their expected needs of your product or service.
  • Discuss the expected sales with your sales department and set expectations to help determine compensation for this team.

3. Determine Expenses

Once the expected revenue figures are estimated, the focus can shift towards expenses. Here are some considerations:

  • Some costs relate directly to revenue, whether they be inventory or employee services. Typically, the gross margin of a business does not fluctuate substantially unless new products are developed, inventory prices change, or inefficiencies are identified within the manufacturing process. Use this time to challenge your employees to identify cost savings related to the delivery of products or services.
  • Other expenses are fixed costs such as rent, insurance, equipment leases, and certain other services purchased. These expenses may be easier to estimate; however, you should consider reviewing the policies in place, especially around insurance. Use this time to determine if better insurance rates are available or if different coverages would be more advantageous.
  • Employee compensation should always be established to be in line with revenues and related growth in the coming year. Many companies believe that all employees require annual raises, but if the results show a contraction in the business, then it may not be reasonable. Consider tying aspects of compensation to the growth of the company. With today’s inflationary trends, make sure you include cost of living wage increases for your employees in your budget and projections as well.
  • Along with compensation, estimating employee headcount is a critical aspect of the budgeting process. It is important to identify when you will need to hire, how long that hiring process takes, and what experience level would optimize the operations.

4. Identify Capital Expenditures

Often not considered in the budgeting process are those large or expensive purchases which are vital to the continued success of the business. These may include new computers, systems, machinery, vehicles, furniture, etc. It is essential to keep in mind that each new employee hired will likely require a certain amount of capital expenditure.

Investments in equipment or processes that are directly related to your product or service should also be considered. Will you need to purchase any new materials next year? Is there old equipment that needs to be updated? Avoiding investment in equipment can impact your output, quality, or delivery timing, which can directly impact your revenues.

5. Calculate Cash Flow

While putting together a projected income statement can feel great, it is just as important to calculate the expected cash flow of the business.

Your company may pay bills faster than customers pay theirs. You may need to purchase inventory well in advance of sales if acquisition time is significant. In cases such as these, a cash flow statement should be created using the income statement as well as AR/AP turnover rates and other metrics from the balance sheet.

Read more: These Are the Four Financial Statements You Need to Grow Your Business

6. Be Conservative

While it may seem advantageous to show investors that the company will significantly grow, it’s a possibility that results may disappoint. Even worse, business decisions may have been made using such projections (aka best guess scenarios). When in doubt, it is a good idea to be more conservative and leave some room in the projections in case of emergency, unforeseeable large expenses, or a drop in revenue and sales.

7. Start Early

Businesses should begin the annual budgeting process three to four months before the start of their fiscal year to allow sufficient time to craft a detailed estimate before the year ends. However, the annual business budget should be monitored and updated on an ongoing basis. For this reason, it’s never too late to get started.

8. Monitor, Evaluate & Reforecast

Once you complete the budgeting process, the biggest mistake you could make is to file it away only to pull it out again at the end of the following year.

A budget should be monitored monthly, or sometimes weekly for smaller companies. Budgets should be edited if circumstances change, like bringing in more fruitful accounts or losing critical customers.

If you have a CFO on your team, they can help facilitate a strategic forecasting process that extends beyond the annual budget and encompasses more of a three-year plan. This can help push your company to think about future business decisions and goals.

Furthermore, budgets should always be compared to actual results to understand why there are differences. Doing this will help monitor spending money throughout the year and help management make important decisions in relation to the business. Put these tips into action and learn how to prepare an annual budget with our in-depth guide.

We Can Help

Signature Analytics will help guide your company through the annual budgeting process. We will work with your management team to create a budget for your business and monitor that budget throughout the year.

This would include analyzing the budgeted versus actual results quarterly and helping forecast accordingly. We can also perform industry and economy reviews to assist with the forecasting process and provide benchmarking data.

If you want assistance creating (or improving) an annual budget for your business, contact us today for a free consultation.

Meet the Newest Members of Our Team

Meet the Newest Members of Our Team

As we mentioned in our May blog post, we have experienced significant growth over the past few years, including a 146% increase in Q1 2014 revenue compared with Q1 2013. To support this growth and ensure we are consistently maintaining the superior level of quality that our clients expect from us, we have added six new employees to our team.

Get to know the newest members of the Signature Analytics team…

Erin McNamaraErin McNamara joined Signature Analytics as a CFO level employee in May 2014 after spending 12 years at KPMG where she was a Director. Erin has worked with both public and private companies in various industries including oil and gas, financial services, consumer goods, and diversified industries. Her international career includes serving clients in seven countries where she lead external audits and advised clients in technical accounting, financial reporting, finance operations, risk management and strategic planning. Erin also has significant experience leading finance and controlling, including three years as COO/Controller for a $70M unit at KPMG and acting as a full-time interim controller for one of her clients for a year. Erin is a CPA who received her bachelor’s degree in Accounting from Missouri State University and her master’s degree in Business Administration from the University of Missouri.

Melissa HallockMelissa Hallock joined Signature Analytics as an Accounting Manager in February 2014 after spending six years with a premier public accounting firm, Lindsay & Brownell, LLP. During that time, she provided accounting and tax services to start-up and mid-sized businesses across a variety of industries, including real estate, consulting, investments, and biotechnology. Melissa received her bachelor’s degree in Psychology from Tufts University and Certificate of Accounting from the University of California, San Diego. She has also taken an active role within the community by donating her time and expertise as Treasurer of a local non-profit, Villa Musica.

Clark WeigandClark Weigand joined the Signature Analytics team as an Accounting Manager in May 2014 after spending three years working in Seattle with a specialty tax firm. While at the firm, he studied and prepared financial statements to improve profit and tax reporting for businesses, developed a vast understanding of tax and U.S. GAAP principles, and undertook other complex accounting assignments. Clark received his bachelor’s degree in Accounting from the University of Arizona and master’s degree in Accountancy from the University of Nevada in Reno.

Alex DonskoyAlex Donskoy joined our team as a Staff Accountant in February 2014 after graduating from San Diego State University with a bachelor’s degree in Business Administration – Accounting. While attending SDSU, Alex had various accounting internships in which he performed tasks such as 401k auditing and internal audits. Since joining Signature Analytics, Alex has supported multiple clients, performing their daily accounting duties and managing their month end close processes.

 

Frank L. Jaime IIIFrank L. Jaime III graduated from San Diego State University in May 2014 with a bachelor’s degree in Business Administration – Accounting before joining Signature Analytics as a Staff Accountant the same month. During college, Frank worked for a financial advising firm where he was responsible for programming Excel workbooks to update advisors of new client investment opportunities. He also worked at San Diego State University managing construction project accounts for the on campus Electric Department.

Heather RoldHeather Rold joined Signature Analytics as the Marketing Manager in April 2014. Prior to joining the team, Heather spent more than eight years managing and executing a wide range of marketing and communications projects focused on increasing brand awareness and enhancing customer acquisition and retention for companies in the biotechnology, healthcare technology and medical device industries. She received her bachelor’s degree in Business Administration – Marketing from San Diego State University.

 

Join the Signature Analytics Team

As we continue to grow, we are looking for talented and ambitious people, with exceptional communication skills, and high integrity to join our team and help contribute to our success. If you, or someone you know, are interested in joining the Signature Analytics team, see our Careers page for current job openings or email us at careers@signatureanalytics.com.

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Adding Top-notch Talent in Response To Continued Growth

Adding Top-notch Talent in Response To Continued Growth

Signature Analytics has experienced significant growth in 2013 and there have been no signs of slowing. The growth is a result of new outsourced accounting and technical accounting projects, including financial due diligence for a private equity acquisition of a distribution company, a number of financial modeling projects, establishment of appropriate processes and controls, projects to determine appropriate uses of cash, along with numerous companies requesting monthly accounting maintenance and bookkeeping services. Due to the continued growth, Signature Analytics hired Lara McFarlin as a CFO level employee in November 2013.

Jason Kruger, president of Signature Analytics, noted, “Lara’s experience perfectly complements our current CFO level services as she brings a combination of public accounting experience as well as a number of years of operational experience which our clients should benefit greatly from.”

With her master’s in Accounting from the University of Virginia, Lara began her career with Ernst & Young in their San Jose office where she managed audits in the technology and biotechnology sector focused on revenue recognition and preparation of GAAP financial statements. Most recently she was the controller of Crunch, LLC (Crunch Fitness) where she oversaw the month-end close process from numerous accounting systems, managing outside parties for 13 companies including joint venture, franchise, fully-owned, and parent companies. Lara was a key player in converting the Company’s accounting system from Peachtree and Solomon to Great Plains, implementing a reporting process, converting the payroll system from Compupay to Paylocity, and overseeing the payroll process. She was also instrumental in establishing revenue recognition policies for the numerous revenue streams of the Company in accordance with GAAP.

Lara’s strong knowledge and understanding of accounting systems is expected to benefit our client base as they grow and look for alternatives to their current system. Furthermore, her expertise in a number of industries from technology to real estate to manufacturing to retail and franchises is a perfect fit with our clients.

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