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The economic downturn is here, and with it comes the possibility of a recession. While it’s impossible to predict exactly what the future holds, it’s important for businesses to take steps to weather-proof their operations in order to prepare for the worst. While there’s no one-size-fits-all approach, there are certain steps that business owners can take to ensure their business is resilient should a recession occur. In this article, we’ll explore some of the most important steps that businesses can take to weather-proof their operations and processes to have a stronger base to support their success in the face of economic uncertainty.

“It all has to tie back to a budget and then to the cash flows of your business. When you are clear on that, it gives you the confidence to operate effectively, and understand the impact of different scenarios.”

-Jason Kruger, Founder Signature Analytics

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The Signature Analytics team tackles the possibility of a recession

As business owners ourselves, we sat down to talk through some strategies and tactics that business owners can take to reduce costs, make smart and strategic moves, and, weather-proof their businesses in these times of economic fluctuations. Here are some excerpts from our conversation (edited for fluidity and context).

For many businesses the ill effects of COVID have receded, freight costs are coming back down to a manageable level, and the costs of raw materials are also coming back down. With these reductions in costs, there are choices to be made. You can keep those increased margins knowing that times may get leaner in the fairly near future, or you can pass those cost-cuts on to your customers in hopes of driving more business and increasing revenues. Each of these strategies has its merits, you really have to dig into your numbers to make the call that’s right for your business and your industry.

To make that call and many others we dig into here you’ll have to have accurate financial reporting – it’s what we do best so it’s where we think all smart business decisions start.

Accounting & Financial Analysis, News, Nonprofits

“Business owners need to really invest in scenario planning, what happens if revenue is 10% below what we think? It can happen. You have to understand your variable versus your fixed cost. I suggest you take a long look at ways to reduce some of your fixed costs.”

-Pete Heald, CEO Signature Analytics

Compensation costs are holding steady

There’s one area where costs are not coming down, nor will they anytime soon, and those are compensation costs. The minimum wage keeps rising and the unemployment rate is still at historic lows despite the flurry of cuts at the largest tech giants. No one is taking a pay cut just because the world has opened back up and supply chains are moving again. If your business is hiring new people right now and you’ve adopted a hybrid or remote work model, there are some interesting decisions to be made in terms of where you source your people and how you compensate them.

Here in Southern CA, the unemployment rate is 2.5% and if you’re hiring a brand new college grad, you’re paying a premium in many industries. If however, you are open to remote employees, it opens things up quite a bit. It means you can hire anywhere which can bring big changes to comp structures and benefits structures.

As you’re looking at your margins and spending across the board, don’t forget to take the time to audit those employee benefits. You want to be sure that the benefits you offer are doing the job they’re meant to do: attract and retain great people.

When we audited our work environment and employee benefits we discovered that the majority of our staff preferred to work remotely. That opened up the option of reducing our real estate costs while providing a hybrid remote-first work environment that works for us, for our margins, for our culture, and for our clients.

Re-examine your debt and get a good banker

Another area in which business owners can take action to reduce costs and prepare for the possibility of interest rates continuing to go up is by re-examining their loans. If you don’t have a good relationship with your banker, build one. A banker should be your ally. If you do have challenging quarters (or years) having a banker on your side is beyond helpful.

Take a look at any variable-rate loans your business has and see if you can refinance at a fixed rate. Some SBA loans which started with very low-interest rates (around 5.75%) are already up to 10.5% and could go as high as 12% in 2023. Consider the term of that fixed rate however, ask “where do I think rates will be in 2 or 3 years?”

The key to a good banking relationship for your business is communication. A good banker will be a resource throughout the life of your business if you are transparent with them and share your financial reporting. The truth is: they’re going to find out if you’re having financial troubles. It is better to share your financial statements with them early and help them be an advocate for you. Your banker will have resources and insights to share. If you keep your banker in the dark it creates concern about what else might be going on that you aren’t sharing with the bank. That concern could create an adversarial relationship that neither of you wants.

John Harelson at Endeavor Business Bank says:

I care about every one of our clients and I hope they think of me as a resource and an ally. When business owners come to me with financial challenges I’m eager to help. Depending on the issue they are facing, I can provide introductions to trusted connections for a wide variety of business challenges too. I have introduced organizational change consultants, HR, legal services, or, in the case of Signature Analytics, great financial management, and outsourced accounting. I want all our banking clients to do well. It’s why I do what I do.

Most loans have financial statement reporting requirements as well as metrics and behaviors built into the loan covenants. Those requirements are very important to your banking relationship. Always know what metrics and behaviors need to be met, reporting any violations as soon as possible will help ease the concerns of your bank that you are on top of it. Bring a partner like Signature Analytics in so your accounting department isn’t racing against the clock and get those financial statements and compliance data to the bank on time.

How can nonprofits prepare for a recession?

We’ve been working with the Trevor Project and a number of larger nonprofits for years. When NFPs are doing financial scenario planning in a down economy, they have to plan for the likelihood that fundraising may decrease. 2023 fundraising may not be at the same levels as 2022.

The challenge for many nonprofits is that just when people are tightening their belts and less likely to give, that’s when their services are needed the most. Saving money on operational costs is essential. Outsourcing non-core functions – HR, Accounting, and Marketing can be a way to reduce those operational costs. Outsourcing can provide on-demand expertise and increase efficiencies at a flexible cost that will be able to scale up and down.

Risks that outsourcing can address (mini-case stories)

Scaling up (or down) based on immediate needs:

We just started working with a company that had a part-time controller for years. That one person couldn’t scale up when they had a huge influx of business and that was just the time they didn’t have time to onboard new employees. Outsourcing with a reputable partner means they can scale up (and down) quickly based on immediate needs. For this client: we came in and got all the systems and processes in place, set up their day-to-day accounting and provided those services, and stepped in in that controller role to keep the finances running at full speed even as their business grew at a rapid pace.

Losing a key person:

With unemployment so low, recruiters are pulling staff from one company to another with regularity. Having an outsourced solution protects you if you lose a key person. Without someone to fill in and without clearly documented SOPs you can find yourself running blind. That person that left might have been doing invoicing and processing payroll, key functions that take time to teach. It’s easy to put too much reliance on one person especially if you are running lean. The loss of a key accounting person can mean that a business can’t collect its invoices in a timely manner which puts real stress on a business.

We’ve recently stepped in and filled a leadership role in a prominent NFP while also providing accounting help in the day-to-day side of their financial operations.

Our Partner Satpal Nagpal at GHJ shared some insights with us about the value of reliable financials for both nonprofits and for-profit companies.

These are excerpts from our conversation:

These are uncertain economic times. There are conflicting signals of a recession, will it be mild, or deep? When we see external uncertainties like this we feel it is even more important to control those things that are controllable. You don’t want to layer on an element of uncertainty in your decision-making because of unreliable financials. Making sure you have a solid foundation you can trust with accurate reporting, reliable bookkeeping, and accounting services will provide you with the right data to make predictions you can trust.

Because of the level of uncertainty out there in the financial landscape, businesses should be engaging in scenario planning for whatever comes their way. What will you adjust if the recession is mild vs deep, where will you cut back or what levels will you manipulate? These scenarios must be built on the backbone of good financials. And an audit of your financial statements can set you up to make better business decisions.

The fact is, in a tight fiscal environment, lenders and other financial institutions look at businesses’ financials with a sharper eye, and you don’t want to be caught off guard. For example: Nonprofits received funding from a lot of sources over the last 3 years [due to the pandemic and other factors]. As that money came in, the criteria for how it was to be spent and what oversight was going to be put in place was unclear. In my opinion, that’s about to change. And when it does, having a good process of internal financial controls and compliance will make the process of audits and compliance much more straightforward.

Making sure your business records are up to date and working with a strong team like GHJ to provide audits ensures that everything is in order when the regulators request information.

What business owners and nonprofits may not realize is that you can’t go into an audit unprepared. Audit preparation is a process that takes time and collaboration.

At GHJ, we build collaborative relationships to provide information to our clients, whether it’s benchmarking or best practices, or critical information on internal controls. That’s where our collaboration with Signature Analytics makes us very successful. That relationship provides business owners with a strong and reliable financial foundation and the audits to prove that their accounting andn finance departments are being managed with impeccable accuracy.

Maybe the most important piece of advice is to challenge your assumptions.

All the cost-controls and auditing we’ve been talking about has to tie back to your strategic budget for it to be implemented in a smart way. To weather-proof your business for a recession the number one step is to make sure you have really solid financials. Start with scenario planning, look at your debt, analyze what is variable vs fixed, and think about that business banking relationship. If you’re in a good place, take out a Line of Credit now. If you have one, extend it. If you wait until times are tough you may no longer qualify for the level of funding you qualify for now. Don’t assume your SBA rates are the only good rates out there, different lenders have different risk profiles.

Challenge your own rates and prices. Have you increased your rates to keep up? The narrative right now is that we all have to accept the rising cost of goods & services. But with a potential recession, the opportunity to increase prices may be coming to an end – if a recession hits, that opportunity to raise prices will be lost. So get clear on your margins, overhead, utilization rates, and cost controls and increase your prices now.

Places you may be inefficient and can make smarter business decisions:

Look at your tech stack and make sure the technology you contracted to use years ago is still the best. Maybe you can move to a new system for less – you know you’re not getting those deals from year one anymore.
Audit your real estate needs. We did. We realized our staff wanted to be remote – or hybrid and we chose to meet that need for our staff and at the same time reduce major overhead costs in our real estate expenditure.
Challenge your assumptions about compensation and benefits. The right comp structures will attract the best people who align with your company culture.
Audit your income statements
Clean up your aging AR
Examine those loans, and make sure you’ve got the best rates.
Look at the various investments you are making in your business – re-allocating certain funds in down economies can be a wise move (just don’t get reactive!)
Check employee utilization rates and org structures for inefficiencies.

All of these discussions have to come back to your strategic budget, and good financials. For us, that’s at the heart of good business decisions. It’s why we do what we do. We help business owners make smart business decisions.

If you have a topic you’d like us to do a deep dive on: send us a message, we’d love to hear from you.

How Outsourced Accounting Supports Non-Profit Annual Audits

The regulations a nonprofit organization must adhere to can be daunting. Even the most robust accounting department is intimidated by the looming specter of an audit. In the world of nonprofits, where keeping operational costs low is a priority in service of the greater good, and accounting departments are often running very lean, audits can be extremely taxing on an internal accounting department.

At Signature Analytics, we pride ourselves on the work we do supporting midsized and larger non-profit organizations across the country. We have deep expertise in the financial statement preparation necessary for nonprofits to successfully pass their annual audit.

There are a number of situations in which outsourced services and their inherent flexibility can be of particular service. For example, if your nonprofit has had a sudden influx of donations, if your organization has grown rapidly, or if you have lost key people, or had to scale down quickly, access to flexible outsourced accounting services with an expertise in the world of nonprofits might be the right solution for your organization.

There are major areas of vulnerability for a nonprofit including

Outdated technology which leads to manual and time-consuming processes
Lack of internal controls that can cause discrepancies in financial statements
No single source of truth for financial data
Vacant finance and accounting leadership roles

Passing an annual audit is essential to the longevity of your mission and to the impact you can create. At Signature Analytics, we are dedicated to supporting nonprofits as they navigate upgrades to their technology and improvements to their financial management because we know that with better financial management, your mission can thrive.

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What are the requirements for a nonprofit to pass its annual financial statement audit?

In order to pass their annual financial statement audit, a nonprofit must provide evidence that their financial statements are accurate and meet the standards set forth by Generally Accepted Accounting Principles (GAAP). This includes providing a full and complete set of financial statements, including a statement of financial position (balance sheet), statement of activities (income statement), statement of cash flows, statement of changes in net assets, and statement of functional expenses. The nonprofit must also provide supporting documentation, including general ledger accounts, contracts, bank statements, and other records. Additionally, the nonprofit must be able to demonstrate that they have internal controls in place to properly mitigate risk and that they are in compliance with all applicable laws and regulations.

Read the Case Study of How We Work with San Diego Rescue Mission here:

What are the challenges nonprofits face in preparing for their annual financial statement audits?

Nonprofits face a variety of challenges in preparing for their annual financial statement audits. These include: ensuring they have accurate financial records that are prepared in accordance with Generally Accepted Accounting Principles (GAAP), collecting and organizing the necessary supporting documentation, and having the necessary internal controls in place to properly mitigate risk and ensure compliance with all applicable laws and regulations. Additionally, nonprofits must ensure that they are able to provide evidence to support the accuracy of their financial statements and adequately address any discrepancies or irregularities that may be found during the audit process. Finally, nonprofits must ensure that they have the necessary resources and personnel available to conduct the audit in an accurate and timely manner.

Nonprofits are often understaffed in an attempt to keep administrative costs low for their 990 reporting. This can lead to high stress or burnout. On top of the constraints of staffing, technology is notoriously lagging in nonprofits making processes time-consuming and manual. Under these circumstances, it is not surprising that accounting staff struggle to meet the expectations of an increasingly sophisticated and demanding Board of Directors.

Audits can strain an internal accounting department by requesting specific reporting and 990 preparation expertise. Using an outsourced partner can help by improving internal controls, standardizing and documenting processes and recommending technologies to improve manual processes.

Who can prepare financial statements for a nonprofit financial statement audit?

A CPA has to audit the financials for a nonprofit financial statement audit however, that CPA cannot prepare the statements being audited as that would be a conflict of interest. The financial statements including the Statement of Activities, Statement of Financial Position, and all related financial reporting must be prepared by a separate entity and presented to the auditing CPA for their review. Often, nonprofits think they can take on this task of financial statement preparation but do not realize the intense scrutiny that their financials undergo in the audit process.

What are some of the requested amendments that Financial Statement Audits return?

Unrecorded Liabilities: Auditors may identify unrecorded liabilities that should be recognized in the financial statements.
Unrecorded Assets: Auditors may identify unrecorded assets that should be recognized in the financial statements.
Off-Balance Sheet Obligations: Auditors may identify potential off-balance sheet obligations that should be disclosed.
Improper Accounting Treatment: Auditors may identify improper accounting treatments and suggest appropriate changes.
Misclassification of Expenses: Auditors may identify misclassifications of expenses, suggesting changes to ensure accuracy.
Unsupported Transactions: Auditors may identify unsupported transactions, suggesting appropriate support documentation.
Uncorrected Errors: Auditors may identify errors that have not been corrected, suggesting changes to ensure accuracy.

READ THE CASE STORY OF HOW WE SUPPORT A LARGE NATIONAL NFP HERE

What are the consequences of failing a financial statement audit?

The consequences of a failed financial statement audit for a nonprofit can be serious. It could lead to a loss of funding or donations, increased scrutiny from regulators, or even criminal charges. It could also lead to a loss of public trust and confidence, which could be difficult to regain. Additionally, the organization’s reputation may suffer, leading to fewer volunteers and donors. Lastly, it could lead to the organization being unable to obtain financing or loans or losing its 501c3 status.

Watchdog organizations keep careful tabs on the results of annual audits and report the results. The advantage to this is that when you pass your audit and get excellent reports those reports are published, helping guide donors to your nonprofit.

What updates or new requirements must Nonprofits comply with in 2023?

New Pronouncement requirements from FASB are a constant source of accounting department stress. The requirements can easily creep up on a nonprofit. Many NFP accounting teams don’t know how to implement these requirements but they are a required part of GAAP. One example is ASC 842 for Leases:

FASB ASC Topic 842, Leases is a new accounting standard that requires organizations to recognize leases on their balance sheets. This means that nonprofit accounting departments will need to identify all leases they have entered into and determine whether they meet the definition of a lease under the new standard. If they do, the nonprofit must record the lease liability and right-of-use asset on their balance sheet, and also disclose additional information in their financial statements. This will impact how nonprofits report on their financial statements and require additional processes and controls to ensure proper tracking and reporting of leases. Nonprofit accounting departments will need to ensure they have the proper systems and processes in place to comply with the new standard and accurately report their lease obligations.

There are several other FASB (Financial Accounting Standards Board) Pronouncements that have specific (and often challenging) requirements for nonprofits. Some of the key pronouncements include:

FASB ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The Update is expected to increase transparency around contributed nonfinancial assets (also known as “gifts-in-kind”) received by not-for-profit (NFP) organizations, including transparency on how those assets are used and how they are valued. These amendments should be applied on a retrospective basis and are effective for annual periods beginning after June 15, 2021, and interim periods with annual periods beginning after June 15, 2022.

FASB ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities: This pronouncement provides guidance on how nonprofit organizations should present their financial statements, including new reporting requirements related to net asset classifications, liquidity, functional expenses, and investment returns.

FASB ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made: This standard provides updated guidance on how nonprofits should account for contributions they receive and contributions they make. It clarifies the definition of a contribution, provides guidance on how to distinguish between contributions and exchange transactions, and provides additional guidance on how to account for conditional contributions.

FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606): This standard outlines the requirements for how nonprofits should recognize revenue from contracts with customers. It establishes a five-step process for revenue recognition, including identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price, and recognizing revenue as the performance obligations are fulfilled. NFPs regularly make errors implementing ASC 606. For example, many NFPs record grant revenue when the cash is received instead of upon award.

FASB ASU 2016-02, Leases (Topic 842): This standard, as mentioned above, requires organizations to recognize leases on their balance sheets. Nonprofits are required to comply with this standard just like any other organization.

These pronouncements all have significant impacts on nonprofit accounting departments and require careful consideration and planning to ensure compliance. Nonprofits need to understand the implications of these pronouncements on their organization. Here at Signature Analytics, we recognize the additional burden these new pronouncements place on an already stretched accounting team and we are here to help.

How does Signature Analytics help nonprofits in audit preparation, day-to-day accounting, and beyond?

We partner with nonprofits and act as a member of the internal team. It is our privilege to serve our nonprofit clients and support their missions by providing the kind of accurate and trustworthy reporting that gives their Boards of Directors confidence in the way the organization is being run. Our long history with nonprofits speaks to the commitment we have and the relationships we build with our NFP partners.

We build Standard Operating Procedures for everything we do so that you have visibility into the processes that make your accounting work. We have the depth of expertise and financial sophistication to address all levels of concerns from a savvy Board of Directors. Our reporting is clear and precise, supporting your requirements around 990 preparation and Financial Statement Audits so you have the reliable financial information to proceed seamlessly through those requirements. We support your grant preparation, writing, and reporting by providing accurate and timely financial information.

Because of our commitment to the success of each of our non-profit clients, we support many nonprofits beyond financial statement audits. In fact, we regularly engage with our NFP clients for ongoing day-to-day accounting support after our initial audit help. We take the stress out of nonprofit accounting across California and across the US.

If your nonprofit is falling behind on audits, if your Board is requesting a level of reporting that is causing your in-house accounting staff to be burned out or over-stressed, if you need accurate financials to make smart decisions… Please reach out. We are here to support your mission with reliable outsourced accounting support.

The Six Best Practices for Financial Reporting and Analysis

Financial reporting is an essential process for businesses of all sizes. By tracking, analyzing, and reporting a business’ results, the key stakeholders can make smart decisions about how to manage their business, including allocating resources and managing cash flow.

“Financial Reporting” is a broad term that encompasses a number of different types of documents, including a company’s financial statements. To put it simply, all financial statements are considered financial reports, but not all financial reports are financial statements.

In this article, we will delve into the best practices for financial reporting and analysis, and how companies can shift from a reactive to a proactive approach. Additionally, we will explore the crucial role of budgeting and strategic planning in achieving financial success and staying on track with business goals.

What is Financial Reporting and Analysis?

Financial reporting and analysis is the practice of gathering and evaluating financial data to assess a business’ performance. This process provides insight into a company’s revenue, expenses, assets, liabilities, and equity. Financial reports offer a comprehensive view of a business’ financial health, enabling decision-makers to address the health and progress of the business.

What Does Financial Reporting Include?

Financial reporting typically includes:

Monthly, Quarterly, and Annual Reports, which include the income statement, balance sheet, and cash flow statement. These financial reports provide an overview of an organization’s financial performance over a specified timeframe.

A/R and A/P Reports, which contain data about invoicing and accounts payable including aging (how long you are taking to collect revenue or pay vendors). These reports can include metrics and KPIs.

Periodic Analysis. It is important to do periodic deep dives into your operations. This may include inventory audits, gross margin and/or gross profit analysis (by market, product, service line, etc.), compensation analysis, headcount analysis, or utilization analysis.

Let’s take a look at how business owners can improve their financial reporting process.

The Best Practices For Financial Reporting and Analysis

1.Know The Financial Reports That Are Essential to Your Business

For many business owners, it can be overwhelming to know which financial reports to focus on. Additional volume of reporting does not equal improved understanding. Getting a 50-page financial report does little to help a busy executive understand their business. So, let’s break down the most important financial reports that every business owner or CEO should be aware of, and how they can help you make smarter decisions for your company’s growth and success.

The five most important and commonly referenced financial reports are:

Income statement
Balance sheet
Statement of cash flows
AR aging report
Budget vs actual

Income Statement

An income statement, also known as a profit and loss statement, is a financial document that summarizes a company’s revenue, expenses, and profits over a specific period of time. The income statement is used to measure a company’s financial performance.

Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It lists the company’s assets, liabilities, and equity and shows how these elements are related to each other: Assets = Liabilities + Equity. The balance sheet is used to assess the company’s financial strength and stability, as well as its ability to pay debts and meet obligations.

Statement of Cash Flows

A statement of cash flows is a financial statement that provides information about a company’s cash inflows and outflows over a specific period of time, typically a month or a quarter. The statement of cash flows is used to understand how a company is generating and using cash, which is critical for its short-term liquidity and financial stability.

AR Aging Report

An aging report, also known as an accounts receivable aging report, is a financial document that shows how long it takes for a company to collect payment from its customers. The aging report categorizes the company’s accounts receivable into different aging buckets, such as 0-30 days, 31-60 days, 61-90 days, and over 90 days, and provides a summary of the amount of money the company is owed in each category.

The aging report is used to manage the accounts receivable process and to assess the risk of bad debt. By analyzing the aging report, a company can identify which customers are paying on time and which ones are falling behind, allowing it to take appropriate action to improve cash flow and reduce the risk of bad debt.

Budget vs Actual

Budget versus actual reporting, also known as budget variance analysis, is a financial management tool that compares a company’s actual financial performance to its budgeted or planned performance. The objective of budget versus actual reporting is to identify variances or differences between actual results and budgeted or planned results and to analyze the causes of these variances.

Budget versus actual reporting typically includes the following elements:

Budget or planned results: This is the amount of revenue, expenses, and other financial results that the company planned to achieve during a specific period of time.
Actual results: This is the actual amount of revenue, expenses, and other financial results that the company achieved during the same period of time as the budget.
Variance analysis: This is the process of comparing the budgeted or planned results to the actual results to identify variances and analyze the causes of these variances. Variance analysis helps the company understand why its results were different from its expectations and provides information for making adjustments and improvements.

Budget versus actual reporting is an important management tool for monitoring the financial performance of a company and making informed decisions about budgeting, forecasting, and resource allocation. By analyzing budget variances, a company can identify trends, improve planning and budgeting processes, and make informed decisions to improve its financial results. Together, these financial reports are essential for managing the business.

Ensuring that the data from financial reports is accurate is essential for business owners to make smart decisions about the direction of the company. If financial reports are not providing actionable insights, companies like Signature Analytics can help to determine what needs to be improved in accounting and financial reporting.

2.Implement GAAP Accounting Principles

GAAP stands for Generally Accepted Accounting Principles. It is a set of guidelines and rules widely used as a framework for financial reporting in the United States, providing a common set of standards for entities to prepare and present their financial information in a consistent and transparent manner. These principles are established by the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA).

GAAP accounting principles include:

Historical cost principle: Assets and liabilities are recorded at their original cost.
Full disclosure principle: All relevant and material information should be disclosed in the financial statements.
Matching principle: Expenses should be matched with revenues in the period in which they were incurred.
Revenue recognition principle: Revenue should be recognized when earned, regardless of when payment is received.
Objectivity principle: Financial statements should be based on objective evidence.
Consistency principle: Companies should use the same accounting methods from one period to the next.
Conservatism principle: In case of uncertainty, the financial statement should reflect the worst-case scenario.
Materiality principle: Only information that is significant enough to affect the decisions of users should be included in the financial statements.
Fair presentation principle: Financial statements should be presented in a way that is not misleading.
Cost-benefit principle: The benefits of providing information should outweigh the costs.

By following these principles, GAAP aims to ensure that financial statements are consistent, comparable, and reliable, which can help users make smarter decisions about the financial health of a company.

The process of managing financial reports is not easy for most small and mid-size business owners – especially when it’s necessary to do it accurately on a consistent basis. If you need assistance in managing financial statements to ensure they adhere to GAAP, contact us today.

3. Follow the Four C’s of Good Data

Another best practice for financial reporting is to ensure that the data used for reports is accurate and timely. This means that the data is correct, current, complete, and consistent (the 4 c’s). By ensuring that the data meets the 4 c’s, businesses can ensure that their financial reports are reliable, which can increase credibility and trust among stakeholders. Furthermore, errors and inaccuracies in financial reports can lead to poor decision-making and costly mistakes.

It is essential to have a process in place to verify and validate data before it is used in financial reports. This can be accomplished by implementing a data governance framework, which includes data quality checks, data audits, and data validation. This process will help to ensure that the data is accurate, complete, and consistent, and will help to improve the overall quality of financial reporting.

Use of technology to streamline the reporting process

By using technology to streamline the financial reporting process, companies can improve the 4 c’s of their financial reporting. A company can use technology to streamline the financial reporting process in the following ways:

Automate data collection and entry: Using financial management software to automate the collection and entry of financial data can reduce the risk of errors and save time.
Real-time reporting: Advanced technology solutions can provide real-time financial reporting, allowing companies to make informed decisions quickly.
Data visualization: Technology can help companies present financial data in a clear and visually appealing way, making it easier to understand and analyze.
Cloud-based solutions: Cloud-based financial management systems allow for secure access to financial data from any location on various devises, making it easier for teams to collaborate and share information.
Integration with other systems: Integrating financial reporting systems with other business systems, such as sales and purchasing systems, can provide a more comprehensive view of the company’s financial position and reduce double entry. Again reducing the risk of errors and saving time.

Keep Processes Simple and Consistent

By reducing process complexity, businesses can improve the 4 c’s of their financial reports, which ultimately helps to make informed decisions about the financial health of the business.

Processes should be documented to ensure consistency, understanding, and efficiency. Documenting processes provides a clear and consistent understanding of how tasks are to be performed, reducing the likelihood of misunderstandings and errors. Once processes are documented, then a company can move to process improvement.

Process improvement is an important best practice for financial reporting. A complex process can lead to errors and delays, making it difficult to produce accurate and timely financial reports. To reduce process complexity, businesses can take several steps such as simplifying the data collection and analysis process.

This can be done by reviewing the current process, identifying areas of inefficiency, and simplifying or eliminating those steps.

4. Establish Monitoring and Reporting Frequency to Ensure Accurate and Useful Financial Reports

Accounting management establishes a consistent monitoring and reporting frequency for accurate financial reporting. This includes setting regular intervals for recording financial transactions, such as daily or weekly, and for compiling and analyzing financial data, such as monthly or quarterly. By doing so, business owners can have confidence that their financial records are accurate and up to date, which in turn allows for more effective decision-making and forecasting.

Additionally, setting a regular reporting frequency helps to identify trends and patterns in financial performance, and can aid in identifying potential issues or areas for improvement.

5. Implement Performance Analysis and Benchmarking

Performance analysis is the process of evaluating the performance of an organization, business unit, product, etc. The goal of performance analysis is to identify areas of strength and weakness and to understand how performance can be improved. Performance analysis typically involves gathering data, analyzing the data, and presenting the results in a meaningful way.

Benchmarking, on the other hand, is the process of comparing the performance of an organization, business unit, product, etc. against standards of excellence or best practices within the industry. Benchmarking provides a way to measure performance against a standard, and to identify areas where improvements can be made. Benchmarking can be used to evaluate a variety of factors, including cost, quality, productivity, and customer satisfaction.

Performance analysis and benchmarking are often used together to provide a comprehensive view of performance and to identify areas for improvement. By comparing performance against industry standards and best practices, companies can make informed decisions about their operations and strategy, and improve their overall performance.

In addition, regular performance analysis and benchmarking allows companies to monitor their progress over time, making it easier to track their performance and identify areas where they need to improve. This leads to increased accountability within the organization.

6. Create Clear Summaries and Explanations

For busy company leaders, it is important that the financial reports that are received provide valuable insights that aid in decision-making. Creating clear summaries and financial analysis is essential for financial reporting. Accounting and financial leadership should present the most important data in a simple and direct way, using clear and concise language, providing summaries at the start of the report, and using charts, tables, and graphs to present key data.

It is also important for accounting and financial leadership to explain any data or figures in the report to help company leaders understand the context and significance of the information. This way, stakeholders can understand and use the financial reports effectively, which helps in making informed decisions about the financial health of the business.

In Summary

Financial reporting and analysis is a crucial process for businesses of all sizes to track, analyze, and report their financial performance. By understanding the importance of budgeting and strategic planning, as well as the key financial reports and statements, business owners can shift from a reactive to a proactive approach and make informed decisions about managing the business.

About Signature Analytics

Signature Analytics is the smart choice for business owners. With the support of our outsourced accounting and CFO Business Advisory services, your business can make smarter decisions based on accurate data.

We customize the right solution for your business to get you the Accurate, Relevant, and Timely (ART) financials you need to run your business successfully. Contact our team of experts for expert accounting and financial analysis.

The Benefits of Outsourced CFO Services

eGuide: What Business Should Expect From Their Accounting Department

According to Price Waterhouse Cooper’s 2022 survey, “Outsourcing is delivering results. A large majority of customers (87%) say that today’s outsourcing delivers the benefits projected in the original business case, whether partly or completely”

Additionally:

“Many respondents (53%) indicated they outsource activities that they consider to be ‘core’. For example, in the finance function, this could be a move from outsourcing payroll and accounts payable towards seeking assistance with budgeting, forecasting and management reporting.”

It takes a wide variety of specialties and skills to run all types of businesses, and outsourcing some of these roles can provide a depth of expertise and breadth of experience that would be otherwise unattainable. Either unattainable because of cost concerns, or because of the tight labor market.

What should I expect from Outsourced CFO Services?

Saving money is not the primary benefit of hiring an outsourced CFO and accounting partner, though it is a nice side effect. Many companies who are facing financial challenges cut back on hiring higher-level finance leadership roles (like an in-house CFO) just at the time when those insights and guidance are needed the most.

According to PwC’s 2022 Pulse Survey, “Labor costs will have the strongest impact on corporate margins in 2022. Changing processes to reduce reliance on employees, allowing permanent relocation outside of corporate offices and outsourcing are all part of the strategy to reduce costs.”

Leveraging outsourced chief financial officer (CFO) services can save your business more than you invest through the financial, operational, and strategic insights they bring to the table. As an active part of your leadership team, your outsourced CFO partner can help business owners and CEOs drive greater profitability and business growth through full service consulting firm services. They will also help you make decisions based on accurate data, future projections, and financial expertise.

In addition to the flexibility and insights an outsourced CFO solution can bring, a fresh set of eyes can illuminate areas of inefficiency that have become so much a part of the fabric of the day to day operations of an accounting department that they go unnoticed.

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 strategic planning, and the goals of the business. A company’s size can also have a significant influence on the CFO’s role.

The Importance of Forward-Looking Financial Analysis

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

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:

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.

If your company is struggling with cash flow issues, there may be hidden inefficiencies, accounting practices, and operational issues that can be addressed by a CFO who looks at the big picture

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 and financial reports. They should also be monitoring budgeted versus actual results on a quarterly or monthly basis and reforecasting accordingly.

The fresh perspective of outsourced contract CFO services can provide high-level strategic guidance to optimize revenue growth in new and exciting ways.

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 projections and goals of the company.

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.

Finding one source of truth and ensuring that the data driving financial statements and reporting are accurate, relevant, and timely is essential to the function of an outsourced CFO.

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.

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 using key performance indicators. The information should illustrate trends to visualize projections so the data can help drive business decisions.

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 company’s performance.

If your company is planning for an exit, an outsourced CFO can help you present your company’s finances to get the best possible valuation.

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.

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

Technology Streamlining or Upgrades:

Finding the most efficient tools can streamline reporting and internal processes and reduce wasted hours in your accounting department.

What to Expect from an Outsourced CFO:

While some accounting departments worry that an outsourced CFO will come in to be a hatchet person, that is rarely the case. To be successful, an outsourced CFO services company will work closely with the CEO or business owner and leadership team to align on goals and then share those goals with the accounting and finance service departments to make sure that the financial and accounting functions are aligned in supporting the business goals. .

Outsourced CFOs are advocates and allies, not adversaries. The added burden of being asked to conduct an audit, or to make strategic decisions and provide finance insights to a BOD or new CEO can overwhelm an otherwise functional accounting team. When you work with a high-level finance and business advisor they can put the right processes and procedures in place to avoid overburdening the existing team. Additionally, an outsourced CFO can see areas in which technology can help streamline processes to free accounting staff to do what they do best.

An outsourced CFO can help the existing leadership by serving as a finance and accounting coach to the CEO providing financial expertise and future-facing guidance for the organization.

When is the best time to bring on an outsourced CFO?

The best time to try outsourcing CFO services is not in a time of crisis, or as a last-ditch attempt to right a sinking ship, but in times of growth and prosperity when there is bandwidth and enthusiasm to create better processes and the financial leadership expertise to support growth and innovation.

However, if your business is in, or approaching, crisis mode an outsourced CFO services company may be exactly what’s needed. They will have helped other businesses navigate crisis situations and can implement strategies for your business leveraging their experience in multiple industries.

A Solution That’s Right For You

If your CFO is providing forward-thinking analysis, they are providing infinite value to your company. Think about how your business has grown and changed over the past 6 months, 12 months, and 3 years. Have you changed and elevated your financial and business model strategies to meet those changes?

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.

It takes all areas of expertise to run a business. The role of the experienced CFO with its finance expertise and financial insights supports the CEO’s vision and the Controller’s daily operational duties. With the Outsourced CFO and Business Advisory services at Signature Analytics, you can have high-level finance insights that scale with your company’s growth.

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, then explore the breadth of services offered by experts at Signature Analytics.

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 for the long term.

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

Cost Control as a tool for innovation and growth

Cost Control Strategies, Cost Control Challenges

The modern business landscape has historically been more concerned with innovation and disruption than with cost control solutions. But the fact remains that to run an efficient business and to increase profits, optimize budgets, and ensure long-term financial sustainability, cost control solutions are key.

A common mistake management teams make is lumping cost controls in with machete-wielding cost-cutting initiatives. Cost-cutting initiatives and cost-control solutions are not one and the same. Effective cost control solutions are proactive and support innovation by recognizing inefficiencies and finding solutions before they drain resources. Cost-cutting initiatives are often reactive and look to remove programs, departments, or other costs because of an urgent need to reduce spending.

Cost control is, in fact, an integral part of managing any mid-sized business. As the economy continues to fluctuate, businesses must be diligent in ensuring that their spending is under control and that their finances are in order. It is important to understand how to effectively manage costs so that businesses can maximize profits and remain competitive. Additionally, by recognizing areas in which cost control solutions can be implemented more money can be made available for innovative initiatives that might have otherwise gone unrealized due to lack of dedicated funding.

The first step in a cost control initiative is to identify areas of spending that are not essential. This can be done by evaluating the budget of each department, and determining which costs are necessary and which are not. By eliminating non-essential costs, businesses can save money and focus on more productive products, services or research and development. It is important to create a strategic budget that includes all areas of business operations, department by department. A strategic budget that is regularly referenced and revised helps businesses make sure they are on track to meet revenue goals and spending metrics.

Common Cost Control Challenges

Confusing cost control functions with day-to-day accounting: A business’ accounting department reports activities, while cost control initiatives are focused on analyzing spending, evaluating departmental performance, and actively seeking ways to be more efficient. To make business decisions based on good data you need accurate, relevant and timely financials.
Management teams lumping annual strategic budgets in with cost control findings: Cost control recommendations and findings are based on real-time numbers, whereas a strategic budget is set in advance. When a business’ budget and real-time cost control findings have discrepancies there should be a red flag that your CFO or high-level finance business advisor can dig into to find sustainable solutions.
Access to data: Financial data can come from outside vendors, and 3rd party systems as well as from internal reporting. Not all of that data will be reported the same way leaving room for misinterpretation. Having expert finance and accounting leadership can help keep the data clear and actionable. Finding a single source of truth to use to compare budget and actual is essential to making smart business decisions.
Cash, accrual, and GAAP: With cash basis accounting, expenses are recorded only when cash is exchanged, which can delay the recognition of an expense. Under accrual basis accounting, expenses are recorded when goods are exchanged, regardless of when cash is exchanged, which means that the expense is recognized immediately. This can give managers a more immediate and accurate picture of the company’s financial performance and enable them to better manage costs.
Scope creep: Without leadership in each department, businesses can run over budget without realizing it. Regular audits of all departments and project performances can help cost control measures be proactive instead of reactive.

Cost Control Strategies

Collecting costs in a consolidated format allows organizations to make more accurate and informed projections, know where they can minimize costs, and identify areas of overspending.

For businesses whose complexity requires multiple technologies, teams, and vendors, having cost control solutions is essential to staying profitable and ensuring that the data that is reported in the month-end close accurately reflects the costs of ongoing initiatives.

Look at your vendor relationships: Cost control and vendor management often go hand-in-hand to streamline contract negotiations, work to build sustainable relationships with vendors and customers/clients, and create partnerships that benefit both businesses.

Audit your technology contracts: Technology is always evolving and that contract you signed 5 years ago has likely crept up in price every year since you got the “new customer special”. While changing technologies can be painful, it can cut unnecessary costs, lower inefficiencies in time and process, and potentially help you rethink the data and usage that the technology addresses coming up with a better solution for your business.

Evaluate your benefits: Does your team love Friday happy hour? How about the health coverage you offer? Are your employees taking advantage of your 401K matching? Think about what matters to the people for whom you provide benefits and you may find there are places to cut costs while actually offering the benefits your team wants.

The goal of cost control is to give your company a powerful framework that’s designed to improve visibility and keep you in control of your costs so you can invest in the initiatives that drive revenue and innovation.

Cost Management vs. Cost Control

The terms “cost management” and “cost control” are used interchangeably. Both address processes from budget planning, cost estimation, financing, and funding to managing projects during execution. We think of cost controls as proactive and cost management as reactive or rather cost controls are implemented company-wide whereas cost management is geared more to specific projects or initiatives that are overseen by a project manager.

Cost Control

When talking about cost controls, business owners first establish a budget and then measure the variance between it and the actual cost. This variance analysis allows the finance, accounting, and department project managers to alert leadership to spikes and address issues before costs get out of control.

Cost Management

Cost management is an on-the-job process of tracking and reporting costs throughout a project or initiative. Cost management will be the job of a project manager and often applies to industries with estimates, inventory, and measurable goods and expenses throughout the scope of work. Managing the costs of any engagement, whatever the industry, requires understanding utilization rates, overhead costs, and numbers behind your profitability metrics.

Creating a Culture where cost controls are rewarded

How can you create a culture where cost controls are rewarded in your company? Your greatest asset in the quest for better and more sustainable cost controls in your company might just be your employees. But how do you incentivize people to be their own watchdogs? There’s ample evidence for reward and game-based incentivizations for all kinds of activities. Why not use some of those strategies to get your whole company to help create a cost control culture.

Create a cost control incentive program. Offer rewards for employees who find ways to reduce costs or save money.

Make cost control a priority. Make it clear that cost control is an important part of the company’s culture and that it should be taken seriously.

Provide training. Educate employees on cost control and how to identify potential cost savings opportunities.

Hold regular meetings to discuss cost control. Make cost control a regular discussion topic during team meetings or other company gatherings.

Recognize and reward cost control successes. Publicly recognize employees who have successfully identified and implemented cost savings initiatives.

Create a cost control policy. Establish a company wide policy on cost control and ensure that all employees understand and adhere to it.
Gamify your cost controls. Grant weekly power-ups, badges, and rewards, create avatars on a digital or physical display to show the rest of the company who is “winning” in the game of cost controls. If it’s fun, you’ll get more buy-in.

The Upshot

When it comes to cost control solutions, there are many tools at a business owner’s disposal. Using those tools wisely to create an environment that is both efficient and effective for business growth and innovation is a balance that can be challenging. At Signature Analytics, our outsourced accounting and CFO business advisory services provide the leadership and guidance business owners need to implement accounting best practices that are cost-saving while keeping the business goals and strategic long-term objectives in mind.

If your business needs strategic cost control advice, and implementation of accounting best practices, reach out to us today.

The business value of getting your month-end close process right

Accounting & Financial Analysis, Accounting News & Guidance Updates, News, Technical Accounting & Reporting

Month-end close is a source of stress for many growing and mid-sized accounting departments and their C-Suites. It’s a race against the clock to get the timing and useability right.

For the C-Suite, the real-time nature of the month-end close provides actionable insights into their business’ operations and financials. These insights lead to better-informed decisions about the direction of the company.

For the accounting team, the month-end close is a crucial task they must perform rapidly without errors. It also has to take place simultaneously with day-to-day accounting functions.

Because of the value and timing of month-end closing, conversations around it are often a source of friction. In this article, we look at the month-end close process and why each step impacts good business operations.

Benefits of an Accurate, Relevant, and Timely Month-End Close:

When done right, the month-end close provides your company and accounting department with improved organization, decision making, and risk management.

Immediate Decision Making

The month-end close allows you to keep accurate financial records throughout the year so you can make insightful business decisions at any time, not just at the end of the year.

At a quick glance, you can get an immediate snapshot of where there are cash flow problems, operational issues, or inconsistencies within your accounting department. The month-end close confirms your business is on the right track through monthly reviews of key financial data.

Transparency

The month-end close also makes your business transparent to others, instead of only having year-close data that could be months old and tell an inaccurate story. This provides great value for when you’re seeking a much-needed loan, or if there are potential buyers looking at an acquisition.

Taxes

Taxes can be a headache no matter what size company you’re running. A consistent and accurate month-end close process makes tax filing and audits significantly smoother.

When it’s time for your CPA to do the year-end close and file taxes, they have all the data from your month-end closes saving them time which saves you money. The month-end close process also means you’re always prepared for an audit should one come up.

Common Challenges and How to Overcome Them

Too Many Data Sources

Many large organizations rely on spreadsheets, emails, phone calls, and in-person meetings to gather the data for their month-end close.

This causes delays as your accounting team is trying to recover the necessary information from employees, software systems, and accounts. It’s vital that, when it’s time for the month-end close to begin, you can draw all your financial data from one centralized source, such as Netsuite Fathom, Quickbooks, Salesforce.

Manual Processes

Unfortunately, human beings are error prone. While this may be okay when you spill your coffee in the morning, you don’t want human error anywhere near your accounting system.

You can reduce human error by automating your accounts with the right software and avoid mistakes that are often made with manual entry of data.

Poor Project Management

Any area of your business is going to falter with poor project management, and your accounting department is no exception.

When performing the month-end close, you want to have systems in place that increase accountability and quality-check the collected data. You also want your accounting team to have good time management processes by setting up deadlines and goals for them to work towards.

Reports Needed for Month-End Close

When conducting your month-end close, you’ll need a few key documents to report your numbers with accuracy. We’ll give you the basics of each report here, but you can find more in-depth information on each topic on our blog.

Financial Statements

There are three key financial statements that will give your accounting department the required financial data it needs.

Your monthly income statement will list all of your company’s revenue and expenses for the previous month. Reviewing this document for your month-end close ensures you’re not forgetting any invoices or being overcharged for certain services.
Your Balance Sheet indicates your financial health by using the following equation:

Total Liabilities + Owners Equity = Total Assets

When performing the month-end close, you’ll want to make sure that this equation is equal on your balance sheet to avoid any accounting errors.

The Cash Flow Statement is similar to the income statement, except that income and expenses are recorded when a cash payment is received, instead of recorded when a service is performed.

Comparing these key documents will validate that there are no inconsistencies and that your financials have been reported accurately over the previous month.

General Ledger

A General Ledger is an account used to store, sort, and summarize all of a company’s transactions. You can use a General Ledger account to generate financial statements or quickly spot irregularities in your accounting records for the month-end close.

Petty Cash Totals

A Petty Cash Fund is a minor amount of cash that is kept available for your company to use for purchases that are too small to bother using a credit card or check. At the month-end close, you need to check that your receipts of items paid for with petty cash match your funds in that account.

Inventory Levels

The month-end close is a great time to check in on your inventory. You want to monitor the depreciation or appreciation of your non-liquid assets such as equipment and property. Checking the value of these assets monthly provides you with crucial information regarding the value of your company.

You also want to look at replenishable inventory during the month-end close. Take inventory of what you have in surplus, and where you need to re-stock.

Monthly Close Timing

The monthly closing process normally takes anywhere from 5-10 days. Ideally, you should start the process two weeks before the month ends to complete all tasks. By being aware of what slows accounting teams down, embracing automation, or outsourcing the month-end close, you can reduce time spent as well as close on your target date.

Best Practices for Month-End Close:

We’ve covered a lot about the month-end close. You now know what not to do, what reports to use, timing, and the benefits of doing the monthly close right. But how can you make sure it’s done right?

Focus on Quality (Especially When Starting Out)

If you follow the right processes, your month-end close will naturally speed up over time as everyone gets comfortable with their roles and responsibilities. It’s imperative that your primary goal is to do it right once, and not wrong three times. If you do it wrong, then you’re making business decisions off of incorrect data, which could be catastrophic to long term financial health.

Of course, it’s nice to get things done early and focus on other issues, but that will come with time. Making sure things are done right to start will pay off in the long term.

Build Cross-Department Relationships

Having you, or your accounting department, be aware of how the rest of the business operates will provide valuable insight when going over the monthly financial documents. With an understanding of how other departments work, you’ll be able to make more sense of the financial data they produce.

Building cross-department relationships is also great for team efficiency. Through these relationships, everyone at your company will have a better understanding of how the business runs, making it easier for them to collaborate in the future.

Bring In the Experts

Perhaps you’ve been doing a lot of the month-end close yourself, or you don’t like how much time and capacity it takes away from your accounting department.

At Signature Analytics, we review financial activity and performance for a calendar month to prepare for the monthly financial statements. This includes quality control with senior-level accountants validating the work.

If you’re interested in outsourcing the month-end close process, or any of your other accounting needs, contact us today.

How to Use Financial Gap Analysis

A gap analysis is a tool that companies use to compare their current financial performance with their target performance. Business owners and managers can use this information to not only identify any financial gaps but to better understand how to overcome them and find the best course of action towards the company’s financial goals. The “gap” in a gap analysis is the space between where an organization is and where it wants to be in the future. Not to be confused with GAAP (Generally Accepted Accounting Principles) reporting, a gap analysis is a measure of where a business has gaps in finance, operational efficiency or other blind spots.

The main questions a gap analysis aims to answer are:

Where are we now?
Where do we wish we were?
How are we going to close the gap?

In this article, we will outline the purpose and process of a gap analysis and answer some frequently asked questions.

Understanding Gap Analysis

A gap analysis is a method of assessing the financial performance of a business to determine whether requirements or objectives are being met and, if not, what steps should be taken to meet them. By defining these gaps, management teams can create plans to address any underperforming areas and work towards the goals of the organization.

Performance gaps can be measured across multiple areas of the business, such as revenue generation, sales processes, technology adoption, internal communication or operations processes. Gap analysis can also be used to assess the difference between liabilities and rate-sensitive assets including bank assets, bonds, loans and leases.

There are typically five basic steps to a gap analysis, which include:

Benchmarking the current state
Defining financial goals
Analyzing the gap data
Compiling a gap report and making a plan
Monitoring progress

When Is a Gap Analysis Necessary?

Whenever fluctuations in profitability, changes in operational efficiency or rapid growth occurs, performing the process of a gap analysis, and specifically a financial gap analysis, can bring essential insights into how a business operates to light. This information can help a company navigate a scope of financial situations, ranging from long-term strategic planning to short-term budget issues.

However, companies do not need to be underperforming to perform a gap analysis. Since these analyses are strategic in nature, business owners and managers can use them to understand aspects such as market positioning and labor needs. Further, company leaders can use this information to scale the business and/or set the organization up for long-term financial success.

Types of Gap Analyses

Gap analyses can generally be split into two categories: strategic and operational.

Strategic gap analysis assesses gaps in business planning and the overall organization.

Operational gap analysis, on the other hand, examines a specific project, process or day-to-day work of a team or department.

Types of gap analysis include:

Financial/Accounting gap analysis
Product or market gap analysis
Strategic gap analysis
Skill gap analysis
Compliance gap analysis
Product development gap analysis
And more

Gap Analysis Examples

Many businesses use the gap analysis process. Let’s take a look at some examples of gap analysis uses.

Gap analysis is most useful when an organization needs to:

Develop a change management strategy but leadership needs to first identify the gap between the current and desired state
Create a new strategy for the team and want to understand where the organization currently sits
Prepare for an audit and showcase how the company is proactively addressing any gaps
Find out why the organization isn’t meeting important key performance indicators (KPIs) and strategic objectives
Identify opportunities to improve existing processes
Prepare a strategic plan and prioritize resources

How To Perform a Financial Gap Analysis

A gap analysis template can be used and typically contains five basic steps to evaluate the gaps. Let’s take a look.

Benchmark Current Financial State

A gap analysis starts by defining the state which an organization is operating at. The current situation represents an objective reality which can be measured using currently available financial data. This data serves as a baseline against which future growth potential can be measured.

For instance, if an organization wants to perform a gap analysis of profits, then the current situation would be based on the most recent annual, quarterly or monthly profits. Financial key performance indicators are gross profit margin and operating profit margin.

Define Financial Goals

Management can use this step to define what is important to the success of the organization and their future financial goals.

The desired financial situation is the company’s goal for the key financial metrics performance. It should be based on the same measures as the current situation; for example, if the current situation is a measure of profits, then the desired situation should also be based on profits.

Analyze the Financial Gap Data

In a financial gap analysis, the gap is measured between the current financial situation and the desired financial situation. The gap is, quite simply, the difference between the current financial situation and the desired financial situation. To evaluate a company’s financial performance start with the P&L statement and to evaluate the gross profit margin and net profit margin. This step provides an opportunity to not only identify a gap and determine its size, but also to figure out why there is a gap.

This step can help management identify the roots of any issues or underperforming areas. Business leaders can successfully analyze the financial data by:

Being specific about the gap.
Asking questions to determine why the gap is occurring in order to determine the root of the problem. For instance: what is holding back our team from meeting the sales goals?
Looking through the company’s financial statements:, income statement, balance sheet, and cash flow statement to determine financial position.

Establish a Plan

After leadership identifies the gap and determines why it is occurring, they can create a plan to address the issues to improve the company’s financial health. In some cases, there may be a single solution for bridging the gap; in others, leadership may utilize several strategies in order to address any issues revealed by the analysis. These plans often include a detailed set of processes set at a specific cadence.

Monitor Progress

Gap analysis should be a continuous process where after changes have been made, the company re-evaluates its current position, progress, and goals.

Gap Analysis FAQs

A gap analysis is a powerful tool in strategic planning. However, many business leaders may not be sure where to start. Let’s answer some frequently asked questions.

How Do You Do Gap Analysis for your Business’ Finance and Accounting Department?

A gap analysis of your business’ finances is the same as gap analyses in other departments; the only differences are the goals and objectives assessed during the analysis. For example, in a financial gap analysis, a team might look at the company’s performance in terms of sales or revenue.

What Are the Three Fundamental Components of a Gap Analysis?

The three fundamental components of a gap analysis include: assessing the current situation, determining the goal state, and highlighting the gap between the two. Then, the organization leaders can create an action plan to bridge said gaps.

What Should a Financial Gap Analysis Include?

A financial gap analysis typically focuses on a few key elements. These elements can include, for example:

Revenue
Cost of Goods Sold
Gross Margin
Gross Profit
SG&A Expenses
Net Income
Net Income Margin
Cash or Liquid Assets
Assets
Debt or Liabilities
Equity / Equity Structure
Free Cash Flow
A/R
A/P
And more

What Happens After the Gap Analysis?

Following the analysis, the leaders of an organization will have a clear picture of where the gaps in the organization are, how big the gaps are, and how management may begin to address them.

Forward progress relies on consistent work over a period of time. We recommend taking concrete measures to manage progress, such as implementing key performance indicators (KPIs).

About Signature Analytics

Signature Analytics is the Smart Choice for business owners. With the support of our expert accounting and CFO Business Advisory services, your business can get to the next level of profitability and operational efficiency.

Our assessments provide a deep dive into your existing accounting structures and processes and help us customize the right solution for your business. With those insights, we then bring in the right outsourced team to get you the Accurate, Relevant, and Timely financials you need to run your business successfully.

Contact our team of experts for business and financial analysis and any other questions you may have during this challenging time.

Controller vs CFO: 3 Key Differences

Though the Chief Financial Officer (CFO) and the financial controller work closely together, they have significantly different roles within a company. The biggest distinctions can best be described by breaking down the operations and responsibilities of each role. In this article, we’ll look at the three key differences between these positions. We’ll address their scope, daily responsibilities, and hierarchy to help give you a better understanding of how CFOs and controllers impact your company.

News, Planning for success

#1 Scope of Roles

CFO: The Strategizer

The CFO is the finance leader and chief financial strategist of a company. CFOs play a significant role in laying out the direction for a company’s future and advising stakeholders on important business decisions. Chief Financial Officers identify business risks by looking at financial data and make appropriate decisions to mitigate those risks, among their many leadership functions.

The CFO and CEO collaborate to make a case, based on the CEO’s vision and the CFO’s data, to get company-wide buy-in for changes in direction and new ideas. It is the CFO’s strategic leadership that steers the company in the right financial direction while holding departments that are tangential to the accounting and finance department accountable for the implementation and execution of the new direction.

Controller: The Tactician

The controller carries out the implementation and day-to-day management of the operations of the accounting department. The work that they do can be referred to as controller services. The controller’s oversight and account management enable the CFO to meet the company’s strategic goals. A good financial controller will develop efficient and effective strategies to increase profit margins, increase employee productivity, and find cost savings through cash management.

A controller is one of the most influential people within your company’s accounting and finance department. They can benefit your company by providing a balance of financial expertise and accounting services management that bridges the communication between C-suite and day to day functionality of the accounting department.

Read More: Benefits of a Part-Time CFO.

#2 Daily Responsibilities: Management vs. Forecasting

Although both CFO and controller roles oversee the financial aspects of the company, they have very different day-to-day responsibilities. Here’s a look at the difference between the two:

What are the Daily Responsibilities of a Controller?

A financial controller has four tiers of accountability, each with its own set of responsibilities. These include:

Management

Implementing and maintaining accounting procedures, processes, and policies
Supervising all accounting department operations
Overseeing control of accounting within subsidiary companies
Ensuring the integrity of all accounting functions
Providing job training and mentoring to the accounting department

Transactions

Maintaining an up-to-date data storage system
Ensuring accounts payable and receivable are on time
Ensuring payroll is on time
Supervising bank reconciliations
Keeping an updated chart of accounts

Reporting

Preparing relevant and timely financial reports
Preparing the company’s annual budget and annual report
Suggesting ways to improve company performance
Generating and reporting financial operating metrics
Reporting budget variances to management
Generating analysis for financial management decisions

Compliance

Monitoring debts and compliance
Providing information to external auditors
Providing financial information for tax filing
Facilitation of tax information to your CPA
Providing financial information to company executives
Assisting the finance team with financial decisions
Helping the accounting team with cash flow management

What are the Daily Responsibilities of a Chief Financial Officer (CFO)?

A CFO is less directly involved in the accounting department’s day-to-day accounting operations compared to the controller. The tiers of accountability that a CFO has are:

Economic Strategy and Forecasting

Reviewing and comparing the company’s past and present financial situation to improve financial strategy
Generating forecasts for the company’s financial future
Reporting on where the company is most financially efficient and where improvements can be made
Predicting future scenarios and analyzing the best direction for the company’s success

Treasury Responsibilities

Deciding the best ways for the company to invest money
Overseeing the company’s capital structure
Determining the best options regarding debt and equity
Analyzing issues related to the company’s capital structure

#3 Hierarchy: Director vs. Executive

The accounting department may be missing critical opportunities if there is no one in the role of controller. Not only that, but the CFO may be working overtime to get all the information they need to make accurate decisions. Likewise, without a CFO, the larger fiscal picture may be neglected, and the company may not have an accurate forecast of future finances.

The CFO is traditionally ranked just below the CEO in terms of hierarchy. The controller reports to the CFO, sometimes alongside the treasurer and tax manager.

Below the controller can be roles such as the accounting manager, financial planning manager, accounts receivable manager, and accounts payable manager.

Does Your Company Need a Controller or a CFO?

If you’re struggling to decide whether your company needs a controller, a CFO, or both, here are some things to consider:

Controller

You may consider hiring a controller if:

Your business is expanding: If you are scaling your growing business and your company is becoming more complex as you add lines of businesses or open new locations, a controller can make recommendations to help you use your capital wisely and save money wherever possible.
You need to supplement your accountant: there is a significant difference between an accountant and a controller. A controller can supervise your accounting team and streamline your financial processes.
Your CFO is overwhelmed: A controller can take a load off your CFO by focusing on the day-to-day supervision of the accounting team. They can provide the CFO with the necessary information to help them make accurate financial forecasts that support future strategic decisions for the business.

A controller can also help companies grow in several ways, including:

Taking Accountability for Your Company Finances: Your controller will take full responsibility and accountability for your company’s financial systems and should have a thorough understanding of your business expenses from your financial statements.
Finding areas where you could be saving on costs: Controllers find ways to improve profitability and budgeting, helping all departments align on ways to decrease expenses and improve product margins through cash flow management.
Creating value as a business partner: A controller can manage vendor relationships to ensure the best terms and contracts. A good controller will push back on spending decisions and offer advice on ways to cut costs and use capital wisely, often opening up funds for more proactive initiatives for the business’ ultimate growth.
Managing your company data: Your controller will supervise the company’s accounting processes and make sure it’s carried out accurately, efficiently, and securely. Good controllers stay up to date on current accounting and finance technology and best practices to keep your business on the cutting edge.

CFO

You may want to consider hiring a CFO if:

You’re in a transition stage, such as going through a merger, acquisition, or relocation: It’s never easy going through a big change. A good CFO will keep your finances on track and provide high-level insight and executive leadership as your company transitions.
You need financial forecasts for your company: All the financial data you keep track of is being wasted if you can’t use it proactively. A CFO can turn your historical data into projections so you can make insightful data-driven business decisions for the future.
You’re overwhelmed: You have enough on your plate running the company every day, and the added burden of guiding your finance department can quickly take over all of your time if you don’t have the right support. A CFO will lighten your financial workload so you can focus on more important decisions.

A CFO can help your business grow in several ways, including:

Negotiate better deals: A CFO can help your company score better rates with vendors, secure credit lines and loans from banks, and negotiate with clients to give your business a financial advantage.
Manage financial growth: A CFO will track all financial metrics across the board at your company and work hand in hand with each department to optimize financial growth.
Manage risk: You can only manage so much risk yourself. An experienced CFO will enforce the right financial controls and keep a vigilant eye on financial data to avoid any errors.

Outsourced vs In-House Controller: Which is Right for Your Business?

Outsourced controllers are likely less of a financial commitment than hiring in-house: In-house controller hires are longer processes with interviews, background checks, and likely recruiter fees involved as well as long contracts, benefits, and incentives. Both are experienced controllers that will report financial results for your accounting department.

Outsourced controllers are already trained in processes that save time. Far less training time is needed when you use outsourced controller services. Additionally, the level of accounting expertise you have access to with outsourced teams of finance and accounting professionals is more sophisticated in their controller services than the expertise of one individual who gets hired in-house full-time.

An outsourced controller will have experience in a wider range of industries providing innovative solutions to old problems. In-house controllers may not see the forest for the tree, missing opportunities to cut costs or amend business practices that may not be optimal.

Vacations and time off will not leave your company high and dry when you rely on internal controls. With an outsourced financial controller on your team, you will have access to expertise in accounting and bookkeeping when you need it. The deeper bench that outsourcing offers is one of the major benefits of outsourcing finance and accounting functions.

Contact Signature Analytics today to find out how we can help you optimize your company’s financial future.

Maximizing the value of your business before a sale

Benjamin Franklin said “By failing to plan, you are preparing to fail”, and nowhere is this more evident than in preparing to exit your company. If you own a business and have NOT thought about how you’ll exit, now is a good time to create a plan. Whether you intend to sell your business in 3 – 5 years or plan to stay in it for the long haul, the best way to grow intentionally, quickly, and profitably is to grow with an eye to sale or acquisition.

Accounting & Financial Analysis, News, Technical Accounting & Reporting

You didn’t start your business without a plan – why would you sell it without one?

Many mid-market business owners are unclear about their business value, how they can maximize their business value, and how they can determine their business valuation. As you create a plan for your business, your CFO will likely highlight the importance of well-structured debt, access to the right kinds of investment (VC, PE), and the importance of GAAP accounting and the kind of well-run finance and accounting department an acquiring company is looking for. If you do not have a finance executive on your team, getting those and other areas of your company’s Finance & Accounting (F&A) department in order will be essential to getting the maximum valuation for your business.

Timing is yet another factor that must be taken into account in order to maximize the value of your business for a sale. We often see owners reacting to a buyer who makes an unsolicited offer; this puts the buyer in the driver’s seat, not the owner. Being proactive in the process will yield substantially better sale prices than letting a buyer dictate the offer price. Additionally, proactively improving the areas of your business that drive value and eliminate risk in your company will be beneficial regardless of your decision to sell. Finally, understanding the marketplace will help set your expectations and give you a basis to manage toward the value you want.

Whether you plan to sell or just want to work toward having the kind of company someone would want to buy, you can be sure that your value is going to be higher if your company’s financials are in order. Having accurate, timely, and relevant financial data supports better business valuations and ultimately higher profits upon exit.

When should I start to plan to sell my business?

Exit planning ideally needs to begin 3 – 5 years before you plan to pass over the keys to the kingdom. The considerations that dictate this timeline range from tax planning and middle management leadership development, to timing markets and working with investors. Whatever your plan for exit, any potential acquiring entity will certainly do their due diligence, starting with your company’s financials.

Over 40% of owners plan to exit their business in the next 5 years. However, a majority of business owners do not have a formal exit strategy established.

If you’re thinking about timing the sale of your business, get started now in order to maximize the value of your business.

Start with why.

Understanding why you want to sell will help you get focused on the timeline and the asking price you will be aiming for. Whether you want to retire, are seeking a better work-life balance, are interested in starting a new career, or searching for a new purpose, the choice to sell a business you have built should not be taken lightly or executed hastily.

Questions you may want to consider:

Is the business ready to be sold?
Who do I want to sell the business to?
Am I ready to sell the business (emotionally)?
What will I do with the proceeds of the sale?
Am I prepared from a legal standpoint?
Do I have/need a wealth manager or other advisor?
How much could I sell the business for?
What will I do after I sell the business?
Am I willing to work for the new owner for a period of time?
When is the right time to sell the business?

How do you get the highest valuation for your business?

No one wants to sell to the lowest bidder. So what can you do to attract the right buyers willing to pay the highest price?

Understanding revenue streams and having underlying clean data is essential to maximizing your business value. Quality of earnings and/or financial statement audits are important pieces when a buyer does their due diligence for a deal. Think of ways you can create visibility into the profitability of your business for a buyer.

Business valuation is typically tied to the type of industry your company is in. As you work to maximize your business valuation, consulting with an expert in Mergers & Acquisitions (M&A) will be an asset to your process. They understand the value drivers from an acquiring entity’s perspective and can highlight areas of strength and weakness for you to address pre-listing. They also are experts in marketing your business to a broader range of potential acquirers.

Minimize risk to maximize value

Buyers value limited risk in the businesses they buy. There are business structures and revenue opportunities that can be addressed before the listing of the business to reduce risky business structures.

Reduce the concentration of earnings:

Don’t put all your eggs in one (or 3) baskets. If your revenue is high but it is largely from a small number of customers, the risk is that on sale of the business those customers leave and the revenue that was core to the valuation is no longer coming in. Spreading revenue among many customers ensures that no one account’s loss can negatively affect your company or your valuation. Better to have 50 mid-sized clients than 3 massive ones from a concentration of earnings perspective.

Implement Reliable Financial Reporting

When a buyer is looking to purchase a business, they want to know how it is performing. The price is often based on the trailing twelve months’ financial results and GAAP-based reporting. For a buyer, seeing clean financials builds trust, allows them to make decisions decisively and quickly, and provides insights into opportunities for growth that may increase their offer based on their plans for the future of the company.

Build a recurring revenue model

Subscription-based companies (where customers sign up and pay monthly) like Spotify, Blue Apron, and Dollar Shave Club have very high multiples and valuations because businesses with recurring revenue are more stable.

With this ongoing recurring revenue, these businesses have consistent income to rely upon and forecast against. Project-based businesses face more risk because as projects end, that revenue must be replaced. This typically requires more sales effort and expenses to grow overall revenue.

If your revenue is project-based or retail sales, you can develop a recurring model. For project companies, are there ongoing consulting engagements or other services that can be offered to develop a recurring model that can be offered to your client base? Building stable recurring income is positive for the business, whether you choose ultimately to sell or to hold on for the long term.

Bolster middle management and reduce reliance on the owner

If an entire business is based on the owner, e.g., the owner is running everything, has all of the relationships with the clients, and makes all of the sales then there is far less appeal for a potential buyer.

As an owner, it can be hard to disconnect from the day-to-day of running the business. One way to put structures in place to support the slow extraction of the owner from the daily running of a business is to build up the management team. By building a team that can run the business without you, you create business value that can transfer once you, the owner, are no longer involved.

A multi-level succession roadmap allows the company to fill gaps in skills and competencies for the entire company. There are several other ways a buyer may limit their risk on this issue, including requiring that the owner stays on board for another 3-5 years, paying a lower price, or reducing the upfront payment and creating an earn-out clause that pays out over a period of time -based on the business’ performance post-acquisition.

Build structures that scale

A business’ infrastructure includes such things as people, processes, tools, equipment, technology, approach, and culture that enable the business to service its customers. An owner who’s built a solid infrastructure that supports growth and scalability with efficient, repeatable, and consistent processes will find that their business has a higher value.

Benchmark your performance

Companies that generate stable, above-industry-average earnings are more valuable. To measure that, you need to understand the industry standards and measure yourself against them. If multiples in your industry are typically based on revenue, a higher net income supports a higher revenue multiple. If your industry valuations are typically off of EBITDA, then a higher EBITDA will be worth more under the same multiple and many times can even attract a higher multiple.

Regardless of the valuation methodology, there is always a strong case to improve your bottom-line margins. This can be done through active management, good key performance indicators (KPIs), accurate, relevant, and timely (ART) financial reporting, creating efficiencies in your business, outsourcing non-critical tasks, and building to sell.

Who Will Buy Your Company?

When you’re looking to sell, there are a number of potential buyers: strategic (competitors), private equity/venture capital, outside 3rd parties, insider (employee), or even having an employee stock ownership plan (ESOP).

Strategic Buyer (Competitor):

Selling to a strategic buyer may land you the highest potential sale as they might see value in a new geographic market, customer base, etc. When selling to a strategic buyer a consequence may be that your business becomes a part of a bigger whole. Often, the acquirer will look to cut the costs of your business by combining back-office support (accounting, HR, etc.), which may lead to some of your employees losing their jobs.

Private Equity / Venture Capital:

This may give you an opportunity to cash out and accelerate your business’ growth; however, as the owner, you may not only lose control, but you will also likely remain involved in the business for a specified period of time. This option may also give you the chance to “have a second bite at the apple.” Meaning you only sell a part of your business and help the financial buyer grow it. When the business is sold in the future, you get to reap the benefits from the growth in the second sale.

Outside 3rd Party:

Selling to an outside 3rd party can result in a high sale price; however, because the buyer may not know the industry, they will likely have the owner remain involved in the business in some capacity.

Insider (Employee):

Selling your business to an employee is typically the most painless transition; however, employees usually do not have significant resources to purchase the business, and this could result in the lowest sale price.

Employee Stock Ownership Plan (ESOP):

This option allows an owner to cash out, and the employees of the business become owners. This option typically works for steady, cash-producing businesses. There are unique challenges with ESOPs, and they are highly regulated.

Before choosing a buyer, it’s important to understand what you want to achieve. What do you, as a business owner, want to do with your life or your career?

Your personal objectives should help define how much you need from the sale, along with the timeline of when you would like to sell the business. Four million dollars now may meet your goals. Or working hard, improving your business, and taking on the risk of time may lead to a future valuation of a larger, more attractive business worth $10 million. Neither answer is right or wrong. It depends on you.

What’s Next?

According to a survey by Exit Planning Institute, Failing to plan for considerations beyond those of finance when planning to sell your business is the cause for 76% of business owners who exit regretting the choice a year after the sale:

Life doesn’t end after exit. Being clear on your personal and family goals and what comes after your sale is just as important as being clear on the steps needed to maximize the value of your business before a successful exit.

For more information about how we support business owners as they create business value, contact us.

Financial Metrics: Master the Language of Business

Business owners have access to myriad of metrics and data, but what is important? What financial metrics are the RIGHT metrics to track in order to make smarter business decisions? In this article, we review the most important financial metrics that business owners should track in order to make informed decisions in their businesses.

In a sea of data, it can be challenging to pick out the important markers that indicate a course correction or impending windfall. By tracking these financial metrics, business owners can have a canary in the coal mine or bellwether to give them insights into trends that indicate important changes that can be made to be more profitable.

To make informed business decisions, it is important to track certain financial metrics that can be found in the company’s financial statements. These include the balance sheet, income statement, and cash flow statement. By monitoring these metrics, business owners can gain insight into the financial health of their business.

What are Financial Metrics?

Financial metrics are indicators used to evaluate your business’ financial performance, position, and strengths and weaknesses. Key financial metrics provide key statistics from financial statements to calculate your business’ liquidity, leverage, profitability, and growth potential to help you make key decisions and evaluations to improve financial performance.

Financial Metrics Help CEOs Make Better Decisions

Metrics give you an honest and in-depth look at how your business is operating so you know when and where to make changes to improve your financial position. They can also be used as tools to determine company strengths as well as benchmarks for key performance indicator objectives.

There are an overwhelming number of metrics available to business owners, so it’s important to know what your business goals are and what metrics can achieve these goals.

Core Financial Metrics You Need to Know

Liquidity, leverage, profitability, and growth are core business metrics you can identify on your company’s financial statements to ensure your business is going in the right direction. Being aware of these metrics as your business grows and develops will be critical for long-term success and financial health.

Liquidity Metrics

Liquidity metrics are used to determine if your business has enough cash, or assets that can be easily turned into cash, to pay off short-term bills. By knowing what liquid funds are available you can get a good idea of your company’s short-term financial health.

When determining your company’s liquidity, you’ll use data from your balance sheets. The two key metrics we’ll use for liquidity are working capital and current ratio.

Working capital outlines the funds you have available to pay off your short-term financial obligations. Working capital can also be valuable for planning yearly budgets and being aware of short-term spending capacity.

To calculate your working capital, gather your current assets and liability from your balance sheet and use the formula:

Working capital = current assets – current liabilities

Your working capital should cover your short-term bills and financial obligations. If not, you will need to make some major adjustments or look for external capital to ensure the survival of your business.

Current ratio uses the same data as working capital but provides a ratio to determine short-term financial health.

Current ratio can be calculated with the formula:

Current ratio = current assets ÷ current liabilities

A current ratio that is less than 1 means you may be unable to pay off financial obligations if they were to all be called in in a short time-period. A good current ratio is between 1.2 and 2. A high current ratio is considered a positive for a company. Banks are more likely to extend credit to companies who can demonstrate that they have the ability to pay obligations. If a current ratio is super high, it might show that the company is not using its assets appropriately.

Using liquidity metrics is a great way to get an immediate snapshot of your current financial health. It should be checked often to make sure negative trends or negative liquidity doesn’t go unnoticed.

Financial Leverage Metrics

Leverage metrics tell you if your company is in a position to borrow from lenders or creditors. But before we learn what metrics to look out for, it’s important to know what leverage is and how it impacts your business.

Leverage means you have an increased earning potential with borrowed funds. Business owners often use leverage when they expect to earn more from borrowed funds by an amount that exceeds the cost of borrowing. A smart use of leverage can maximize the profitability of certain investments.

A key thing to note with leverage is that it amplifies losses as well. If your business does not perform the way you expect it to, then you’ll be paying off interest from your credit or loan with the money you need for more urgent issues caused by bad performance.

Metrics such as total debt to assets ratio can give you a good indicator of your leverage potential.

Total debt to assets ratio tells potential lenders if your company can pay off its loan in case the business fails. Basically, it measures the degree of leverage of the company.

Total debt to assets ratio can be calculated by the formula:

Total debt to assets ratio = (short-term debt + long-term debt) ÷ total assets

Total debt to equity ratio shows your company’s financial structure and is similar to total debt to assets ratio except it deals with your ability to pay off long-term financial obligations. This is a common ratio in looking at a firms solvency.

Total debt to equity ratio = total liabilities ÷ total shareholder equity

The optimal debt to equity ratio varies by industry.

Profitability Metrics

Profitability metrics measure your business’ ability to earn. By understanding profitability, you can determine if your company is on track and has growth potential, or if action plans need to be put into place.

Gross profits + margins indicate if your business is producing and selling products efficiently. These metrics show earning ability before your overhead expenses are factored in. Gross profit margin and net profit margins are a good way to single out your product and see if it’s on track.

Profits give you a dollar amount of the amount made during the income statement period, while margins give you results as a percentage.

Gross profits = net sales revenues – cost of goods sold

Gross profit margins = gross profit ÷ net sales revenues

Operating profit + margins indicate earnings from your normal business operations. These metrics provide a snapshot of your profitability with all costs factored in.

Operating profit = gross profit – operating expense

Operating profit margins = operating profit ÷ net sales revenues

Operating profit includes depreciation and amortization, but does not include interest or taxes.

Growth Metrics

Growth metrics determine if your company is falling behind or is in a good position for future financial success. It’s vital to recognize what defines business success for your company, and what growth you should track.

Common indicators for growth include sales revenue, profits, working capital, and your customer base.

A simple way to calculate the growth rate for the previous year can be found in the following formula, but it works for any period.

2022 Revenue – 2021 Revenue = Yearly difference in revenue

Growth Rate = Yearly Difference in Revenue ÷ 2021 Revenue

A business with stagnant sales and profits can’t keep up with inflation. It’s vital to make sure your company is growing in the key metrics listed in this article, so you don’t fall behind.

Learn More About Financial Metrics with Signature Analytics

Understanding how to use business metrics can make businesses aware of problems as soon as they happen and plan proactively for the future.

Contact us today to learn more about Financial Metrics and how outsourced accounting can help you use your financial metrics to positively transform your business.

Top 6 Accounting Best Practices Your Business Should Follow

Knowing the building blocks for effective managerial and financial accounting is critical for any company’s financial health. Following and implementing good accounting methods will help you make informed decisions and provide your business with financial stability and growth.

In this article, we will look at the six best accounting practices your business should follow

Strategic Budgeting E-Guide

1. Clear Financial Planning

A company’s financial status being successful starts with a clear and well-thought-out plan. While there are many ways to develop a financial plan, we prefer Financial Scenario Planning and Strategic Budgeting.

Financial Scenario Planning is a proactive planning tool that can prepare your business for any scenario. To start financial scenario planning, brainstorm all occurrences that could impact business expenses and financial positioning.

Then create a base, best, and worst-case scenario for each occurrence:

Base case: Use data from the previous year to predict the most likely scenario for your occurrence.
Best case: Imagine a situation where your occurrence exceeds projections (adding new customers, making a big acquisition). It’s important when using this scenario to be realistic with your projection.
Worst case: What’s the worst situation that could arise in your business in the coming year? Create an action plan for this scenario.

Brainstorming and building out potential scenarios that might impact your business’ finances help you make more informed decisions, give investors an in-depth preview of returns and risks, and minimize losses.

Strategic budgeting is the process of developing a budget that is based on your strategic business plan.

Start by creating a strategic business plan that includes future corporate milestones, what tasks must be done to reach them, and Key Performance Indicators (KPIs). Then use your budget to gauge if the finances of your business are on track.

Download our e-guide below to help you create a strategic budget.

2. Set up Fraud Alerts

Unfortunately, the most common victims of fraud are small businesses.

Preventing fraud in your company starts with putting fraud practices in place such as segregating accounting duties, adding outsourced oversight, enforcing time off and vacation policies for all employees, and reviewing statements monthly.

Setting up internal fraud alerts and protocols provides an extra layer of security on top of your existing practices. Fraud alerts require lenders and creditors to take extra steps to verify your identity before extending or creating lines of credit. Simply send a signed letter on your company letterhead to the commercial relations department of one of the three national credit bureaus (Equifax, Experian, TransUnion) to set the fraud alert protocol in motion.

3. Utilize Automated Software For Certain Accounting Services

Not using automated accounting software is likely costing you time and money.

Finances aren’t always as simple as understanding accounts payable and accounts receivable, and even the best accounting professionals can make mistakes. Accounting software automates tasks, reduces accounting errors, helps with cash flow tracking, and makes your business accounting faster and more efficient. The right software also keeps everything in one place, backed up, and easy to find.

From invoicing to payroll, automated accounting services make sense with the right implementation and oversight. Easily available automated accounting services can eliminate the risk of double payment, incorrect payroll entries, or late payments while reducing your workload. Good accounting software has the right integrations to create a network of technology and communication that supports accounting and operational business functions.

4. Master The Three Financial Statements

There are three financial statements that every small business owner needs to understand: income statements, balance sheets, and cash flow statements. With an understanding of these, business owners can more readily implement best business practices based on clear financial data.

Income statements measure your business’ profitability during a specified accounting period. They give you a clear look at all your revenue and expenses to determine net profit or loss.

Balance sheets show the financial health of your business. A balance sheet reports what your business owes (liabilities) and adds that to how much capital has been invested (equity) to determine your assets. The assets should always be equal to the sum of your equity and liabilities.

Cash flow statements focus on the overall money coming into the business compared to the money going out. While income statements are all about showing profit during a certain period, cash flow statements are a clear way to compare cash inflow vs cash outflow.

5. Backup All of Your Records and Financial Reporting

Backing up your records is an essential practice for the safety of your business and following legal requirements. Fortunately, having the right technology in place automates a lot of the backup process for you.

For all software, user error is the weakest link, so ensuring your fraud protection protocols involve strong password protection is the first step to take. Additionally, it is important to make sure that your technology is itself secure. That requires that you or someone in your IT department researches the security and safety of any new technology before choosing a place to store your financial information.

6. Hire Experts

If you haven’t read the book Who Not How,, this is an exercise in implementing the principles of that book. To get expertise, you can either build it or hire it. Hiring expertise is faster and often more efficient. If you need expert knowledge and insights in your accounting department immediately, the best solution is to outsource the expertise you need.

By bringing in a team of experts, you can easily automate manual accounting processes so your existing accounting team has more capacity and time to work on important and ongoing issues.

An outsourced team of finance and accounting experts can evaluate your accounting team’s skills, accounting structure, current technology, and data cleanup protocols and offer insight on how to run a more profitable and efficient business.

Importance of Effective Accounting Best Practices

The value of following good practices for effective accounting can’t be stressed enough.

Implementing effective accounting practices provides the necessary information for you and your company to make informed business decisions. It also creates a clear and objective evaluation of your company’s performance, so you know exactly how and when to make improvements.

Ready to implement these best practices? We can help.

Cash Flow Management for Nonprofits

Accounting News & Guidance Updates, Cash Management & Forecasting, News, Nonprofits

When it comes to managing the finances of a nonprofit, cash flow is essential to both operations and future-facing decision-making. Understanding cash flow reporting, however, can be challenging for accounting teams, boards of directors, and leadership for many reasons.

Cashflow at its most simple is the inflow and outflow of cash.

Cash flow reporting means income is only reported when it is in hand. That is different than accrual-based accounting in which reports are based on accounts receivable and accounts payable. Accrual-based reporting recognizes income when it is earned, and expenses when they are incurred, not when the income is received and the expenses are paid.

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An accounting team that is used to reporting accrual-based income would book income when a donation is pledged, for example. If, however, that donation is delayed for any reason, a fiscal year or quarter can end without those funds being received, significantly skewing the nonprofit’s cash flow reports. Because the structure of nonprofits is different than that of for-profit companies, using cash flow management as a tool for a deeper understanding of the organization’s financial standing can be especially helpful.

Endowments, restricted funds, and cash reserves are best tracked with cash flow reporting and not accrual-based accounting for this reason. For many nonprofits, their accounting departments and leadership teams find the complexities of cash flow management challenging and time-consuming. Reports can be data-intensive and difficult to understand. For other nonprofits, the level of reporting can be too basic for more sophisticated boards of directors, such as those with high-powered CEOs and former business leaders of large for-profit companies.

As valuable as the insights that come from reviewing a trailing twelve-month cash flow report can be to forecasting and budget creation, many nonprofit organizations find that the overwhelming amount of data involved in reviewing a year of cash flow reporting makes it difficult to base intelligent decisions on cash flow numbers. For each nonprofit, the right amount of cash flow reporting will vary in order to meet the needs of leadership teams and boards of directors while still remaining accountable to donors, grantors, governments, and charity watchdog agencies.

The big question for donors, watchdogs, government auditors, and grantors is: Where did the money go? If you can’t answer that question, fundraising will likely be increasingly difficult. Because of this elevated level of scrutiny, it is essential that nonprofits manage cash flow with great attention to detail and to the highest standards of grant and government accounting.

Should you run your nonprofit like a for-profit?

It’s a common refrain: you should run your nonprofit like a for-profit. But is it accurate? Despite what many high-powered businesspeople suggest, nonprofits are not merely under-developed for-profits. There are key considerations that nonprofits must weigh, especially when it comes to cash flow.

Nonprofits are not focused on asset accumulation, and they cannot use net assets as leverage to raise cash.
Nonprofits exist at the mercy of the IRS. The 501c3 designation is a tax charter bestowed upon organizations by the IRS allowing tax-deductible contributions in exchange for their good works. Regular audits are required in order to retain that coveted status.
Nonprofits do not always have access to the cash in their bank accounts. With certain donations earmarked for certain programs, restricted donor funds are not counted the same as unrestricted donor funds.
Nonprofits are contractually obliged to spend funds in the way in which their charter was formed.
A for-profit business’ annual fiscal cycle takes into account year-end distributions, dividends, and taxes while a nonprofit’s fiscal cycles are focused on expenditures and donations, tracked with cash flow management.
Nonprofits file annual 990 reports that compare operational expenses and program expenses. Those reports are made public, and donors use them to discern the efficacy of the organization. Without impeccable cash flow reporting, those 990s can show inaccurate spending.

Leaders in nonprofits pay close attention to assets and liabilities. But sometimes that leads to complex fiscal questions. Statements of Financial Positions can look very strong because of endowments, whereas access to those funds can be highly restricted for operational expenses. Impeccable, accessible, and easy-to-read cash flow reporting is paramount to communicating the realities of a nonprofit’s fiscal situation to a board, donor or to government entities.

Donor-restricted funding

Nonprofits often have inflows of cash that are earmarked for specific initiatives, either by the donor or a grant, making accurate management and reporting of cash flow even more important.

To make matters more complex, all nonprofits over $2M have to be audited annually in order to retain their 503c status. Managing cash flow is therefore highly consequential to the day-to-day running of a not-for-profit as well as to the future funding of the organization. For nonprofit accounting departments, the importance of good cash management, and a strong understanding of your cash flow cannot be overstated.

What are some nonprofit pitfalls?

Challenge: Sophisticated BODs require extensive reporting:

A really savvy board of directors (BOD) can be demanding. Your BOD may be made up of CEOs of $50M companies who know what they need in order to make informed decisions about the future of the nonprofit. When not-for-profit accounting teams are asked to adhere to elevated standards of accounting and, additionally, asked to provide sophisticated financial reporting, they can become overburdened, or burned out. Hiring a full, in-house finance and accounting team, however, can be prohibitively expensive especially as reported in operating expenses on the 990. This is one of the reasons that a fractional accounting team is such a powerful and flexible tool for nonprofits.

Challenge: Hiring increases operational expenses

Implementing a leveraged accounting team that fits into an annual budget means that your report on your 990 shows a healthy balance between overhead and project spend. With deep knowledge of 990 preparation, a Signature Analytics team can assist your organization in reporting spending accurately and to the highest possible standards expected by auditors, grantors, Boards of Directors, and donors.

Challenge: Tracking earmarked funds is complex and time-consuming

Due to significant changes in accounting regulation, the accounting departments of nonprofits are under increased pressure to manage their finances with transparency and impeccable reporting practices. New Financial Accounting Standards Board (FASB) standards require nonprofits to report finances in a way that makes it clear which funds have donor restrictions and which funds come without donor restrictions. The updated requirements dictate that nonprofits show these categories on financial statements by having separate columns for “without donor restrictions” and “with donor restrictions.” or by showing separate line items in the revenue section of the Statement of Activities.

Cash Flow Management for Nonprofits in 3 Simple Steps

1. Anticipate and Plan for Future Cash Needs

Having accurate, timely, and relevant (ART) reporting helps build a cash flow management system based on accurate historical data. Looking at a trailing twelve-month (TTM) cash flow statement can give crucial insights into the patterns you have in spending and the ebbs and flows of fundraising. A rolling cash forecast tracks estimated inflows, such as donations and fundraising, and outflows, such as vendor payments and payroll. With accurate data, you can better plan for program expenses and avoid cash flow surprises.

2. Allocate Funds Intentionally

With accurate cash flow reporting, you can make strategic decisions about where to allocate your organization’s funds. It can be much clearer which programs have the highest return on investment (ROI), and which make the greatest impact in your community with the least investment. Cutting underperforming or ineffective programs can improve outcomes for your participants, your donors, and your statement of financial position.

3. Keep funds safe from fraud.

Nonprofits have increased susceptibility to fraud. The greatest risk of fraud stems from internal stakeholders who, through poor internal controls or long tenures, no longer have oversight of their financial dealings. With the additional oversight your organization is under, all it takes is one mistake to compromise the future of your organization. The best way to eliminate fraud and unauthorized use of your company bank accounts is to have an outsourced partner who keeps tabs on the people who have access to your financial systems.

How Signature Analytics Can Help Your Nonprofit

Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.

For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.

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Strategic Planning & Budgeting for The Year Ahead

Quarter four is the time for annual planning and budget development (if not before). It’s also the time of year when some CEOs realize that their budget last year might not have been entirely based in reality. If you have looked at your budget vs reality and realized that the two are only distantly related, the first step to take is to gather the troops and do a strategic budgeting exercise.

Unlike in the BCE years (Before COVID Era), 2023 budgets can’t be a roll-over exercise. With rising inflation, interest rates, and costs, as well as the threat of a potential recession, your 2023 budget will need to be well-thought-out and, as the title of this article suggests, strategic.

“A business needs to have both a strategic plan and a budget.”

DOWNLOAD THE STRATEGIC BUDGETING E-GUIDE

What is a Strategic Budget?

A strategic budget provides the tools to set up a dynamic financial model and lay out clear goals for future success. A strategic budget is made up of two elements: A strategic plan and a budget.

A strategic plan lays out the future direction and goals for your business’s overall vision while outlining clear actions to achieve them.

A budget is used to identify financial and key performance indicators to ensure your business is meeting its goals.

When the strategic plan works hand in hand with your annual budget, the combination ensures that your company’s vision is clear and on track throughout the year.

How Do I Build a Strategic Budget?

Your strategic budget starts with a plan. You need to lay out your business goals and what must be done to achieve them. It’s important to take your time on this step, as it’s the foundation for the whole process and will set the tone for your financial year.

Assemble your leadership team, review goals per department, examine the budget from the previous year and discuss discrepancies between reality and that historical budget. This is how you’ll be able to forecast what funds will be needed to implement your plan over the next 12 months and what the expected impact of your vision will be.

As you operate your business throughout the upcoming year, the strategic budget will be your source for identifying financial and operational key performance indicators (KPIs). It will be a guide to give you a clear tool to gauge your business’s financial health as the year progresses.

Why Do You Need a Strategic Budget?

Running a business without a strategic plan and a strategic budget is inadvisable. Doing so, especially in financially volatile times, is borderline reckless. A strategic budget gives your business the financial intelligence to understand and define its needs from its wants. With those insights, decisions can be made to optimally invest available cash and have more available for future needs.

In addition to providing a framework for financial decisions throughout the year and an understanding of predicted cash flow, strategic budgets can provide stability during major events such as mergers, acquisitions, and turn-arounds.

A well-constructed strategic budget, built to support your strategic business plan, gives your business greater stability and puts your business in a position to improve margins, increase profits and make better business decisions.

Download this in-depth e-guide on strategic budgeting and set yourself up for success in the coming year.

If you need help in developing the financial insights and reporting to use in your strategic planning and budget efforts, an outsourced accounting and CFO services team can help. In addition to the free resources, you can find on our blog Signature Analytics provides premium outsourced accounting services with a proven track record of success for our clients. Need forward-facing financial expertise? See how our CFO and business advisory services provide greater visibility into your business financials.

Accounting vs Finance: What’s the Difference?

Accounting & Financial Analysis, Accounting News & Guidance Updates, News

Business owners need both accounting and finance to effectively run a profitable company. Many companies find that they have one or the other well in hand but are missing critical parts of a complete accounting and finance department. In this article, we outline the roles and responsibilities of accounting and finance teams, why they are both essential parts of a well-run organization, and how to evaluate whether your company has all of the necessary players in place.

A brief overview of the Accounting and Finance functions:

Accounting focuses on capturing a snapshot in time of a business’s financials. An accounting team looks back at a company’s past financial transactions to keep score (think: month-end close, historically-facing data).

Finance is focused on strategic financial decisions for the future (think: forecasting, debt-structuring, financial strategies, and analysis).

To have a complete picture of your business, you want the accounting team’s historical-facing data to support the finance team’s future-facing decisions. Let’s look at the Accounting Team first:

What are the key metrics an accounting team should provide?

Inaccurate or incomplete data leads to uninformed decisions. For a business to make intelligent choices, accurate accounting metrics must be available in a timely fashion. In addition to accuracy and timeliness, that data must be understandable.

Here are some of the key metrics every accounting team should track:

Operating cash flow:

An “at-a-glance” view of cash flow in and out of the business.

Working capital:

Accessible liquid capital vs short-term debts, operating costs, or loans.

AP (Accounts Payable/AR (Accounts Receivable):

The formal way of tracking what you are owed and what you owe.

Direct Cost & Operating Margins:

The amount of profit that is made through sales after subtracting costs of production, wages, & raw materials.

Operating Income

The sum total of a company’s profit after subtracting its regular, recurring costs and expenses.

Net Profit

Operating income minus taxes and interest.

Return on Equity

Return on Equity (ROE) is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage.

All of these metrics are compiled monthly into what we all know as a month-end close in which the accounting team reviews, records, and reconciles all account information.

Read: The top 5 reports every business owner should review

Understanding these documents helps you and your leadership team make strategic decisions for hiring, inventory management, cash flow, debt structure, future initiatives, and other critical business decisions.

As the CEO, you need experienced people onboard to handle both accounting (the day-to-day and historical-facing) and finance (the future-facing) functions. Without a strong, experienced team, you may find yourself wearing the CFO, controller and even the bookkeeper hat in addition to your role as leader of your organization.

What expertise do you need in your finance and accounting departments?

As the size and complexity of your business increases, the expertise and experience level of your finance team will need to keep pace. While your bookkeeper may have grown with the business, bringing in accounting roles and finance roles to support your staff can directly benefit your business.

As you audit your existing team, think of the following roles and how they can support accurate, timely and relevant financial data to drive your business forward:

Your accounting team should have a staff accountant, accounting manager, and controller. Note: the controller bridges the divide between accounting and finance departments, acting as a liaison between the accounting (historical-facing) and finance (future-acing) roles.

Your finance team should have a controller, possibly a finance manager who oversees AR/AP and Payroll, and a CFO or finance leader in that executive role of CFO.

When you think of the role of the CFO and the finance department, the larger the organization, the more important the strategic business advisory role of the CFO is. The CFO is responsible for financial strategy, investor relations, shareholder reports, and strategic shifts made to increase profitability. As a business owner, their insights will help guide major business decisions.

How can I tell if I have the right people on my accounting and finance teams?

If your business has grown, if you find that you are not getting the insights you need to make the right decisions at the right time, you may need a more experienced accounting and finance team.

At Signature Analytics, we begin every engagement with a 30-day assessment during which we take a deep dive into a company’s people, processes, and technology. Because we provide a flexible and scalable outsourced accounting solution, we can recommend a team that will not only provide what a business owner needs today to address issues that are pressing

Want to find out more?

Read our article “10 Tips to Help Improve Your Company’s Cash Flow” or view our guide to learn what successful businesses should expect out of their finance and accounting departments.

Signature Analytics Named an SDBJ 2022 Best Places to Work

Best Places to Work, Company Culture, Featured, News

Signature Analytics is honored to have been named a 2022 ‘Best Place to Work’ by the San Diego Business Journal, and to be recognized amongst so many great companies in San Diego.

Each year, the San Diego Business Journal’s Best Places to Work Awards program recognizes outstanding companies whose benefits, policies, and practices are among the best in the region.

Now more than ever, companies have to be more thoughtful, creative, and purposeful about keeping their employees engaged and motivated. Companies that have made the 2022 list have done exactly that.

CEO, Peter Heald says, “We are so honored to have received this award as one of San Diego Business Journal’s Best Places to Work in 2022, marking the third year we have received this accolade. I am grateful to our entire team for their hard work, dedication, and continuous improvement in making Signature Analytics such an incredible place to work.”

How Is a Company Deemed a Best Place to Work?

Each year, San Diego Business Journal partners with Best Companies Group, which manages over 50 Best Places to Work Awards programs on the regional, state, national, and international levels.

Best Places to Work is open to all public and privately held companies for both for-profit and nonprofit to be eligible for consideration. To qualify, however, companies must have a facility here in San Diego as well as a minimum of 15 local employees.

The Best Places to Work Awards program includes 100 San Diego companies. Each San Diego company that applies to be recognized encounters a two-part assessment process, which considers an anonymous employee engagement survey (75%) and the benefits a company offers (25%).

Why is Signature Analytics One of the Best Places to Work?

At Signature Analytics, we pride ourselves on our strong company culture and dedication to our employee growth. Hear it best from our team.

Anthony Sands, Senior Vice President Business Development and Regional Manager at Signature Analytics says, “Working at SA is exciting, engaging with co-workers across multiple clients allows us to be connected in a virtual workspace. The flexibility continues to be a benefit, as our accounting experts work remotely to support clients’ needs. Of course, connecting in-person, during quarterly events contributes to building the culture at Signature Analytics.”

Nancy Wilson, Accounting Manager at Signature Analytics says, “I love working at Signature Analytics because of the flexibility and the support. I work from home, but I don’t work alone. The team is engaging, and I know I always have someone to reach out for help. I am regularly asked by leadership if there is anything I need or any way I can be better supported so I can succeed.”

About Signature Analytics

Founded in 2008, Signature Analytics was created to fill a critical function for CEOs and business owners in small to mid-size companies.

Jason Kruger, Founder and President of Signature Analytics, recognized that many companies required more sophisticated accounting and financial planning services, but not their own full-time accounting staff or full-time CFO.

Signature Analytics provides outsourced accounting solutions that work with businesses’ existing accounting resources to guide leadership and support increased profits and productivity.

Signature Analytics works with a variety of companies with specific expertise in these industries:

Non-Profits
Professional Services and B2B Service Companies
Technology
Manufacturing and Distribution
Life Sciences
Rehab, Recovery, and Wellness Centers

Learn more about Signature Analytics.

SBA Updates the EIDL Loan Program to Assist Hard-Hit Businesses

News, Signature Analytics Company Updates

The U.S Small Business Administration (SBA) announced changes to the Economic Injury Disaster Loan (EIDL) program. Effective September 8, 2021, small businesses can apply for support until December 31 or deplete the available funds. Furthermore, small businesses can borrow up to $2 million and update existing funds to cope with COVID-related financial disruptions.

What Are The Key Changes To the EIDL Program?

The SBA released the Interim Final Rule to implement the changes to the Disaster Loan Program. These changes apply to all applications submitted on or after September 8 or COVID EIDL applications submitted before but approved on or after September 8.

The loan cap has been increased: The SBA has increased the loan cap from $500,000 to $2 million. Businesses that also applied for a loan before the changes can also apply for a loan increase. In addition, businesses under a single corporate group can apply for up to $10 million.
Interest: The interest rate for for-profit small businesses is 3.75% and 2.75% for nonprofit organizations over 30 years.
Amortization: While the amortization period is fixed, businesses can now defer payments for the first 24 months from the original closing date. During this period, interest and payments shall accrue. The borrower shall then make loan prepayments over the next 28 years. Fortunately, there are no prepayment fees or penalties.
Use of funds: The SBA has expanded the use of funds for expenditures and debts. For example, working capital, rent, maintenance, commercial debt, federal business debt, cards, payroll, and healthcare benefits. However, small businesses cannot use the funds to expand their business.
Amount: For businesses requesting $500,000 or less, the SBA considers if the business was operational before January 2019. In its calculation, the SBA considers double the business’s 2019 gross revenue and subtracts the cost of goods in 2019 to find the loan amount.

For loans above $500,000, the SBA will calculate the loan amount and conduct a cash flow analysis.

Exclusivity Period: From September 8, 2021, the SBA started accepting loan applications. Loan approvals are underway for loans below $500,000. Other loans will be disbursed from October 8, 2021. The thirty-day exclusivity period (September 8 to October 8) ensures that the smallest businesses access relief first.

The SBA is also optimistic about reviewing loan applications above $500,000 within six weeks to expedite the fund distribution. Businesses can also apply for extra fund amounts, but they should prepare for a long waiting period, approximately nine months, if the first loan is below $500,000 and the second above $500,000.

Guaranty: No personal guaranty is required for loans below $200,000. A personal guaranty from all individuals and entities that own more than 20% of the business is required for loans above this amount. The same rule applies to corporations and partnerships where an individual or an entity owns more than 20%.

If no one owns more than 20% of the business, at least one person must provide a full guaranty. Sole proprietors, independent contractors should also provide a personal guaranty. For general partnerships and limited liability partnerships, all partners should provide a personal guarantee.

Collateral: You do not require collateral for loans below $25,000. However, for loans above this amount, the SBA uses business assets such as furniture, fixtures, equipment, and machinery. Also, if you qualify for a $2 million loan but only have $500,000 collateral, you don’t have to fund the collateral gap.

In addition, if your business owns real estate and qualifies for more than $500,000, the real estate and property should be listed as collateral.

Loan forgiving: EIDL loans are not forgivable. However, businesses can also apply for advances under the COVID EIDL program. Fortunately, businesses do not have to repay these advances.
Fees: There are no application fees for loans below $25,000. However, for loans greater than $25,000, there is a one-time $100 fee. A one-time $100 fee for loans above $500,000 also applies when the SBA accepts real estate as collateral. The applicant shall also cover any associated costs with recording the real estate lien.

EIDL Program Background

The COVID EIDL program provides businesses with relief funds to alleviate the adverse effects of the pandemic. The fund aims to provide working capital and operating expenses to help keep small businesses afloat.

EIDL loans are different from other disaster recovery loans. This program allows the SBA to provide low-interest, fixed-rate, and long-term loans for small businesses to help them recover from the effects of the pandemic. The relief ends on December 31, 2021, or when the funds deplete, or whichever comes first.

The funds come at a critical time following a report by Goldman Sachs that shows 44% of small businesses have less than three months of cash reserves. As such, small businesses are likely to collapse if another COVID-related emergency should arise.

The research further revealed that the pandemic affected small businesses disproportionately. More than 51% of black-owned small businesses have less than three months of cash reserves.

Keep in mind that businesses cannot specify the loan amount. Enterprises can send their applications, but the SBA calculates the loan amount based on the economic injury. Economic injury is the change in the financial situation of a small business because of an effect of a disaster. In this case, the economic injury funds, EIDL, are being distributed following the COVID pandemic.

Am I Eligible for COVID EIDL Funds?

A small business qualifies if it has less than 500 employees. This includes businesses and their affiliates. However, the business must not have more than 20 locations.
Agricultural enterprises qualify if they have less than 500 employees.
An individual or sole proprietorship that operates without staff or as an independent contractor.
A corporative and its affiliates with any, with less than 500 employees.
A small tribal business with less than 500 employees.
An affiliate can apply for the loan if the qualifying entity has an equity interest or profit share of 50% and above.

Applicants must show “substantial economic injury” caused by the pandemic. The injury includes events that cause the small business:

Be unable to meet its obligations as it matures
Fail to pay its operating expenses
Market or produce services as marketed

The fund further emphasizes support to hard-hit industries. These include:

Accommodation and food services
Apparel manufacturing
Arts, entertainment, and fitness facilities
Clothing and clothing accessory stores
Educational services
Mining
Non-internet broadcasting
Non-internet publishing services
Personal laundry services
Rental and leasing services
Site seeing and scenic transportation
Sporting goods, books, and music stores
Transit and ground transportation

Who Is Not Eligible For COVID EIDL Loans?

Small businesses that were not in business before January 31, 2020
Businesses that do not meet the program’s size limitations. Employees are capped at 500 and 20 for physical locations for companies with multiple locations and affiliates.
Businesses engaged in illegal activity at the federal or state level.

What Can I Use The EIDL Funds For?

If you have applied and qualified for the EIDL funds, you need to channel the money to allowable uses. Many business owners are concerned about spending the funds incorrectly. Generally, it’s best to have a strong accounting program to track your spending for business visibility and future scrutiny by government agencies.

Working capital

Businesses have both to-date and future expenses. Usually, to-date expenses are reported as liabilities in the accounting books and which a business cannot fulfill due to the pandemic. In this case, the business can use the EIDL funds to pay debts and bring the working capital to normal levels.

Future expenses are business needs the entity cannot fulfill throughout the injury period. This refers to payments such as fixed debt payments and fixed payments such as rent, insurance, and utilities. In addition, businesses can use the funds to pay commercial debt such as credit card debts, lease payments and mortgage payments, and federal debt, including payments to the SBA. Debt payments can include monthly installments, prepayments, and deferred interest.

What Can’t I Use EIDL Funds For?

The payment of dividends and bonuses.
Payments to directors, partners, directors, stockholders, and officers.
Payment of stockholder or principal loans except when non-payment would result in hardship to the stockholder and when the stockholder injected the fund due to the disaster.
Expanding the business and acquiring fixed assets.
Repair physical damage to the business.
Payment for relocation.
Penalties for non-compliance with laws.

How to Apply

If you have already applied for a loan with the SBA, sign into your portal and find Form 4506-T to apply for the new revised loans. New applicants can submit the same form by visiting here. In addition, applicants should be ready to release tax forms to the SBA for revenue verification.

How to Make the Best Use of EIDL Funds

As a small business owner, it’s crucial to apply for the EIDL funds to recover from the COVID pandemic. However, once your loan is approved, the next step begins- spending the funds. Therefore, it’s essential to plan your finances and account for all the spending for compliance reasons.

Talk to one of our financial experts to discuss how Signature Analytics can help improve your financial decisions.

Signature Analytics Welcomes New Market Leaders to the Team!

At Signature Analytics, we’re excited to offer a warm welcome to Bill Ness and Zak Higson, who recently joined the team in two essential leadership roles. These executives bring several years of business expertise and experience to our one-of-a-kind group, and we wanted to take the opportunity to better introduce them to the local markets that they will be supporting along with our extended services team.

Accounting & Financial Analysis, Cash Management & Forecasting, News

While welcoming these two to our team, we also want to highlight a recent and well-deserved promotion for our existing team member, Tony Sands, who’s been an integral part of the company’s success over the last several years.

“As Signature Analytics looks toward our next phase of growth, we were searching for leaders and team members that reflected our core values as a customer-centric company. With these new leaders, we not only found decades of business expertise at some of the region’s most respected companies but also a deep commitment to Signature Analytics’ mission to help business owners improve performance and achieve their goals.”

– Pete Heald, CEO

Please read below to find more about these recent additions and promotions and what they mean for the future ahead.

Meet Bill Ness, EVP & San Diego Market Leader

Bill recently joined the Signature Analytics team as our Executive Vice President & San Diego Market Leader. In this role, he’ll be leading our accounting, financial, and business advisory services team with his comprehensive operations expertise.

His experience is both extensive and impressive in the San Diego market and has served startups to Fortune 500 companies. He has a deep understanding of building service models, strategic operational planning, mentoring and developing team members, while also contributing to company expansion and growth, and is excited to put this knowledge towards helping business owners and company leaders improve and grow their businesses. He aims to foster a culture of team excellence and exceptional customer care and maximizing team resources to reach important business goals.

Whether you think you can, or you think you can’t – you’re right,”
– Henry Ford

Bill is originally from the East coast (Maryland) but has also done time in NC, AZ, and UT. A fan of crab cakes, Bill still connects to Maryland by shipping crab cakes to CA each month. Outside of work often you’ll find Bill at the gym, on a run, trying to find fun on the golf course, or helping watch his new grandson Cole.

Meet Zak Higson, EVP & New Market Leader

This past month, Zak also recently joined the team as our new Executive Vice President and New Market Leader. He has over two decades of finance, operations, and business consulting experience and was also a Co-Founder of several successful restaurants throughout San Diego County over the last decade.

Like many of our clients, he’s been a serial entrepreneur with a strong work ethic and has a great deal of experience in the food and beverage, hospitality, distribution, and manufacturing industries. His strong people skills, financial acumen, and deep understanding of our customer needs and challenges let us know that our clients will be in very good hands. As we look to further expand our reach in 2022, Zak will play an integral role in guiding the organization into new markets.

Zak and Bill will work alongside existing company leadership to take Signature Analytics to new heights. Their knowledge of our current marketplace and our customers is plentiful, and their presence is valued here.

It’s always ok to not know, but it’s never ok to not care.
– Zak Higson, Executive Vice President & New Market Leader

Zak is an avid hockey fan and a true-blooded Canadian at heart. He spends a lot of time with his three kids; Clark (11), Merara (3), and Rowena (1). Zak is involved in numerous food banks, has a passion for improving the food system, and even has a small hobby farm of his own.

Tony Sands, SVP – Business Development & Regional Sales Manager

Tony recently accepted the promotion to Regional Sales Manager for the Signature Analytics team. In this role, he’ll be leading our business development efforts within the Southern California markets of San Diego, Orange County, and Los Angeles. Throughout his 6+ years at Signature Analytics, Tony has continued to drive tremendous client success through listening to the needs of the clients and developing a custom solution to meet and exceed their goals.

His experience stretches throughout San Diego & Orange County markets since 2001. Always focused on middle-market businesses, starting with credit training at a regional commercial bank to portfolio management with a start-up bank and business development with a high-growth bank.

Tony’s passion for building relationships in the marketplace among partners and clients has been key to his success. He’ll continue to support current business development efforts to drive new business and company revenue growth. In his new role, his vast client expertise and consultative approach will be essential in developing, mentoring, and training our growing team. Tony is excited about the new challenge and has set ambitious goals for team success while fostering a culture of continuous growth.

“Luck Is What Happens When Preparation Meets Opportunity”
-Seneca

Tony is an alumnus of SDSU and has family throughout the Southern California area. He takes pride in using his finance degree daily. In his personal life, he enjoys spending time outdoors with his wife, Ashley, and daughter, Irelynn. He is committed to CrossFit, football fields, home improvement projects, winter sports, most importantly – he likes to be challenged!

Looking Ahead to the Future

At Signature Analytics, we know that every business leader we work with is faced with critical choices that impact their companies’ future, and they need good visibility to make the right decisions. Looking ahead, we’re still focused on delivering accurate, relevant, and timely financial information each month, enabling business leaders to make better decisions about their company’s future.

Having Zak and Bill join the company’s leadership team along with Tony’s new executive role is both exciting and pivotal for the next phase of Signature Analytics, which includes growing our team, improving our product and service offerings, and looking to expand into new markets.

Our vision is to help business owners and leaders improve performance to achieve their goals. This statement is essential to the values we embody as a consulting-based organization and why our culture focuses on driving continuous improvement, results, and growth for companies. We do this by providing a team of expert accountants and financial advisors who take your business beyond the numbers with actionable insights and recommendations that focus on forward-looking activities, direction, and strategy.

Beyond Financial Management: Is Your CFO a Bookkeeper or a Strategic CFO?

Most often, when you start a business venture, money is tight. You are usually focused on pouring your savings to get the business up and running. While you’re busy managing the day-to-day aspects of running a business, you may overlook other tasks like developing sound processes and workflows that aid in the management of the finances of your business. It happens a lot. However, once your business starts growing, the importance of having a sound accounting and financial management foundation is highlighted.

Most business owners then begin to consider better, more efficient, and accessible ways of understanding their numbers to grow their business. They start to assess the different roles that make up the accounting and finance function. They start asking questions such as; will a bookkeeper be able to take care of the financial functions of my business, how do I find a good accountant, or do I need a CFO? Below we’ll address these questions to help you better understand the financial management team you need to grow your business.

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Bookkeeper vs. Strategic CFO

Depending on how big your business is and its lifecycle, there are various options for managing its financial operations. There are internal and external roles that can help with day-to-day financial processes, such as reporting and strategic advisory functions, that have to be considered when choosing a team to manage your business’s finances.

The financial management team you choose will depend on your goals, resources, and the expertise of the people you already have on your staff. Below, we will further explain who strategic CFOs and bookkeepers are to help you determine which of your organization’s needs.

While we understand that these are two VERY different roles within the accounting and finance function of your business, so if you get that, great. However, you’d be surprised how common it is for the duties tied to these two roles (and others) to be very misaligned with excepted responsibilities and skills. We want to clear that up as both are crucial to your growing business.

What is a Bookkeeper and What Do They Do?

A Bookkeeper is tasked with recording and maintaining financial transactions such as sales revenue, expenses, and purchases. These professionals record these financial data into ledgers and financial software such as QuickBooks Online. Bookkeepers are usually most sought after by small business owners to assist with financial management tasks. A good bookkeeper should be able to perform the following tasks:

Record expenses, sales, accounts receivables, and accounts payable.
Reconcile bank statements to detect any accounting errors, achieve accurate balance, and record the reconciled bank statements in your accounting system.
Paying bills: After recording the purchase transactions, the bookkeeper is responsible for ensuring that bills for supplies and inventory purchases are offset.
Sending invoices: Bookkeepers prepare invoices and send them to clients so that your business can receive payments on time.
Organizing and maintaining various documents such as purchase receipts.
Tracking inventory: Bookkeepers track inventory using various accounts to ensure that the stock is neither insufficient nor above the required capacity.

You should expect that a good Bookkeeper or a Junior or Staff Accountant to provide you with basic monthly financial statements such as income statements, cash flow statements, and balance sheets. However, you shouldn’t expect your bookkeeper to perform the following tasks:

Provide guidance on how to improve your finances
Analyze your financial results
Create financial projections of profit or cash
Make decisions about the financial directions that your business will take

Making such decisions is where a Strategic CFO comes in.

First Things First, What is a CFO and What do They do?

A CFO is the Chief Financial Officer of a business. As such, a CFO will focus on your financial strategies and overall financial management. But what makes a strategic CFO? A CFO can be a pragmatic strategist by addressing vital uncertainties, constraints, and performance issues and taking tangible, realistic actions geared toward moving the company forward. The CFO accomplishes this by performing the following tasks:

Developing strategies and detailed plans for achieving your business financial goals: It is imperative that CFOs up their game strategically. A CFO’s development strategy should entail performing tasks such as assessing the business environment, confirming the objectives of the business, identifying the resources needed to attain these objectives, and then designing ways of achieving them.
Providing comprehensive guidance to help you make financial decisions: A good CFO should assess the market conditions, check the viability of different financial investment projects, and advise you whether to invest in them.
Preparing annual budgets and financial forecasts: The CFO should be able to create annual budgets that make a baseline to compare actual results to projected results, determine how the results vary, and come up with ways of remedying the variances, especially if they are negative. Also, they should prepare financial projections that tell you whether the company is heading in the right direction and the expected income that the business will achieve in the future. These budgets and their activities should also align with your greater business goals for that year and beyond. Learn more about strategic budgeting here.
Measuring and improving financial performance: They should use different measurement metrics such as current ratio, quick ratio, operating cash flow, return on equity, accounts payable turnover, EBITDA & EBITDA growth to measure the financial performance of your business and develop ways of improving the performance.
Maximizing profits: The CFO should perform tasks such as controlling costs, improving productivity, and analyzing the pricing strategies to help you maximize your business profits.
Assessing and minimizing financial risks: Suppose a given project is not doing well financially as was projected, the CFO should be able to establish exit goals, evaluate exit readiness, promote exit options, provide analysis of the value of exit options, and execute a strategic exit plan. You can learn more about exit planning here.
Managing cash: When it comes to cash management, the CFO is tasked with figuring out how to make payrolls and ensuring that the business does not run losses. Most CFOs manage cash challenges by focusing on cash outflows and stemming the amount of money that leaves the organization.
Establishing policies and procedures that ensure smooth financial operations: Your CFO should create accounting and financial processes, procedures, and policies that clarify roles, authority, and responsibilities that help align your F&A operations with your financial goals. They should also understand the scope of financial risks that an organization faces and develop mitigation strategies against these risks.
Raising capital: A CFO should be able to source investors, shorten the time required to raise capital, ensure that you get the best investors, and negotiate the best price and terms for the equity.
Handling mergers and acquisitions: For companies selling or acquiring smaller businesses for growth, a CFO plays a crucial role in the merger process. For starters, they are the ones who create a transactional plan and maximize the synergy with the potential acquisition targets. They also ensure that the integration between your company and the company you’ve merged with is smooth.
Managing relationships with shareholders, lenders, and investors: CFOs are also tasked with ensuring smooth relations with various parties such as shareholders, lenders, and investors. They do this by reporting the financial position of the business or paying dividends and loans.
Overseeing all accounting and finance staff and coordinating activities among them: A Chief Financial Officer is responsible for controlling the financial activities of a business and coordinating the activities of accountants and financial managers to ensure that they are geared towards ensuring that the company attains its financial goals.

Can Your Bookkeeper Just Become Your CFO?

As we noted earlier, if you own a small business or a startup, hiring a bookkeeper would be a smart move. The Bookkeeper will help you keep accurate records and ensure that various transactions, such as cashing checks to pay vendors, are handled on time.

However, after your company has grown exponentially, you’ve hired more employees and attracted more clients. Maybe you’re in the stages of making the next big move like an exit strategy, PE/VC investment, M&A, or hypergrowth to an IPO; then it might be time to include a CFO position within your finance functions.

Given that your Bookkeeper was the one handling your finances during the growth period, you may be tempted to elevate them to a Controller or CFO position. Frankly, that wouldn’t be the most advisable move. For starters, the Bookkeeper or any other lower-level accountant will now be well in over their head. Moreover, given their lack of or limited knowledge on the responsibilities of a higher level and strategic financial position, like a CFO, they won’t be able to provide you with accurate and relevant information on time, if they do this at all. You, therefore, won’t likely get the accurate or deep visibility and analysis needed to understand how well your business is performing financially.

So, does that mean your Bookkeeper will be unable to perform the tasks of a CFO because they are incompetent? Not at all. While this person may be a stellar Bookkeeper or Staff Accountant, performing the tasks of a senior financial officer such as a financial Controller or a CFO is a different beast altogether. Sure, they all perform the accounting and financial functions for the company, but that doesn’t mean that a Bookkeeper’s experience prepares them for senior financial position rigors, challenges, and responsibilities.

That said, there are instances when you can promote your Bookkeeper to a CFO or a financial Controller. You should only take that step if they have the specific accounting, management, finance experience, and applicable degrees needed to be a CFO. Tasking them with the CFO job with limited or no qualifications is unfair to them and puts your company’s future in jeopardy.

In What Ways Can Your Business Benefit from Hiring a CFO?

While most small businesses benefit from having a CFO or Controller on their accounting and financial management team, not all of them need those roles on a full-time basis. Moreover, hiring a CFO on a full-time basis is costly. According to Salary.com, hiring a full-time CFO or Controller employee costs $170-$350K per year in California. As such, fractional CFO services is a more cost-friendly option for small businesses that need strategic financial guidance on a part-time basis. Opting for fractional services ensures that you avoid hefty salaries, bonuses, benefits, and employers’ taxes that accrue from hiring a full-time CFO.

Most business leaders usually question whether they need one or the other, or both a CFO and a bookkeeper? Well, the question you should be asking yourself is how much your business is suffering or open to unforeseen risks because of not having a proper financial management team?

It would be best if you had a bookkeeper if you’re questioning the quality and meaning of numbers in your QuickBooks. That way, you get to have more time focusing on the core functions of your business. However, if you and your management team are looking at your numbers and using those figures to make data-driven business decisions, yet you’re not sure whether your operations are running well, then you need a CFO.

Whatever your answers are, you have plenty of options to choose from. One excellent choice you can make is partnering with an outsourced accounting and finance team that has the mindset of solving your pain points while helping you meet your current and future accounting and financial objectives. They can also support you in building a roadmap to reach big business goals, taking your business from point A to point B and beyond.

There are numerous reasons to hire a comprehensive accounting and finance team. Some of the reasons why many businesses come to us include the fact that they are experiencing exponential growth, rapid change, preparing for a significant transactional event, or need better management, reporting, and improved visibility in their businesses. They may realize that maintaining the status quo or operating on gut feelings without access to solid, reliable data hasn’t allowed them to grow and improve their businesses, and this is where we swoop in.

Our comprehensive solutions allow for greater scalability and flexibility while your company is experiencing periods of growth or change. Working with Signature Analytics provides all clients with full access to your immediate team and anyone on our staff or within our partner network who can add value or solve problems for your business. Your staff gets the benefit of having the additional support and training they might need, and you reap the rewards of having excellent accounting and financial leadership and expertise joining you at the table. Book a consultation to learn more about our services.

The Effects of Inflation and Roaring Economy On Businesses

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As the world seemingly gets the coronavirus problem under control, the United States is at the front line of anticipating a new post-pandemic future. With the lockdowns and business shutdowns being a thing of the past, the next problem we have to deal with is nurturing the economy back up.

Everyone is excited that the cases of COVID-19 are coming to a stop. According to an analysis by Deloitte, the next phase in this recovery is the gross domestic product, which is poised to boom beyond the pre-pandemic period.

However, despite the expectations, inflation is real, and it is coming at the US and global economy fast. The cost of goods and services has gone up and has stayed there, and it may worsen before it gets better. There will be a lull before the storm, and small businesses are presently weathering its greatest brunt.

If you run a business, you must anticipate the economy’s performance and appreciate the long-term effects of inflation and a roaring economy. This post will dive deep to analyze the most likely long-term effects of the post-pandemic economy and how your business can manage through it. Read on to discover.

What is Inflation?

Inflation is a period when the cost of goods and services shoot up. Inflation often begins with a shortage of service or product, leading to businesses increasing their prices and overall costs of the product. This upward price adjustment triggers a cycle of rising costs, in the process making it harder for businesses to reach their margins and profitability over time.

Forbes has the most straightforward clear definition of inflation. It defines inflation as a rise in prices and a decline in the currency’s purchasing power over time. Therefore, if you feel like your dollar does not take you as far as it used to before the pandemic, you are not imagining it. The effect of inflation on small to medium-sized businesses may seem somewhat insignificant in the short term but can quickly make an impact.

Reduced purchasing power means that businesses will sell less and potentially lower profits. Lower profits mean decreased ability to grow or invest in the business. Since most companies with fewer than 500 employees are started with the owner’s savings, it puts them at significant financial risk as inflation rises.

Effects of Inflation on SMEs

Here are the three most notable effects of the post-pandemic economy on US businesses every entrepreneur should expect.

Erosion of Purchasing Power

We have already noted it, but it is worth repeating: the first effect of inflation is often just a different way of describing inflation. Inflation hurts the purchasing power of a currency as prices of goods and services go up. Interestingly, prices go up fast during inflation but are gradual in coming back down, if ever.

Shortages of Finished Products in the Market

You may already feel the pressure of inflation as an entrepreneur, but its full impact is yet to be felt. Inflation is not linear; it ripples through an economy differently, at different times, and affects businesses differently. One of the most immediate impacts is a shortage of supplies that may prevent the completion of production goods.

When manufacturers cannot get all the raw materials they need to produce finished products, the entire market hurts. While Just In Time (JIT) manufacturing was developed to address such a potential problem, the inter-connected market leaves many entrepreneur’s funds tied up in inventory-in-process, accumulating losses and driving demand and prices higher.

Inflation Raises the Cost of Borrowing

So the economy isn’t doing so well. But optimists paint a rosy and colorful picture of the economy once the pandemic problems are dealt with. If your business is hurting financially, why not just take a small loan to insulate it in these challenging times? During inflation, the cost and availability of loans can cause major problems down the road. This may not be an issue today, but it could be a bigger issue in the future.

How SMEs Can Manage Post-Pandemic Inflation

No matter what industry you do business in, your business must make the right strategic decisions in a time of inflation. The decisions that you make to manage inflation may determine whether the business sees its next anniversary or not. Here are five steps your business can take to forestall the effects of inflation in 2022.

Evaluate Product or Revenue Mix

There is never a better time to scrutinize and optimize the products your business deals in than during inflation.. The most effective approach is to analyze product or service streams, compare performance over time, and get a good picture of the business and available options in different geographical markets, client types, and distribution channels.

The whole idea behind streamlining your business during inflation is to cut costs and maintain profitability in a slowing market. To this end, a business may shift its production to focus on higher-margin products and services and protect the business’ bottom line. Analyze potential short and long-term effects of the shift and understand how it will affect the future of the business before implementing it.

Strengthen Your Products’ Pricing

The prices of almost every product go up during inflation. Your business, too, will have to consider price hikes to stay in alignment with the rising costs in the market. Even if economic inflation does not immediately impact your industry, it pays to be proactive by strengthening your product’s pricing and improve your business’ competitive market position.

Before increasing prices, analyze the competition and let their prices be one of your guiding points. You will also need to be upfront with customers about the price increases and why they are necessary. Transparency will help customers adapt to the new situation, and it helps them prepare for higher costs without compromising their loyalty to the business.

Evaluate Risks to Your Supply Chain

A modern business supply chain can be long and complex. Contrary to popular belief, the process by which a product moves from raw materials through manufacture to retail is riddled with risks. One effective way to prepare your business for inflation is to protect the supply chain, especially if you deal in physical goods.

The most common risks to small business’ supply chains are:

Over-dependence on a single supplier
Using long-lead-time suppliers such as imports
Heavy, bulky, hazardous, or perishable products that are hard to store
Materials that are passed through a JIT supply chain

There are many steps you can take to mitigate supply chain-related risks in your business in a time of inflation. Some of these steps may include:

Setting up an alternate supply chain – not merely finding an alternate supplier
Stockpiling critical supplies that have a low holding cost
Putting in place an expedited supply strategy
Reviewing stock levels at every stage of the JIT supply chain

Each business has different supply chain risks and now is the time to critically look at yours. What changes can impact the near-term and long-term health of your supply chain?

Understand Your Inventory

When prices start going up, a healthy inventory can be a competitive advantage. By the same principle, it is more profitable to keep a minimum inventory when prices are going down. Understanding your inventory levels and keeping them in line with market demand will help you make better decisions to maximize profitability. It also helps to improve internal accounting control, business oversight, and inventory management processes and accuracy while you’re at it.

Cash is King; Keep It

Proactive entrepreneurs take the time to anticipate potential scenarios of inflation. You can use the ‘What If’ technique to consider various possible scenarios that will affect your business. For instance, you can anticipate wage increases, higher material prices, and disruptions in the supply chain. Any time you forecast a scenario make sure to consider the amount of money your business needs to get through each scenario.

Cash is always king. More than ever, in inflationary times, you should not let your customers use your business as a bank. A high inflation rate will pile risks on a business, and it hurts more when its receivables become uncollectible.

Prepare your Business for Inflation

During inflationary times, you need efficient systems and processes to drive greater visibility into your business, so you can act fast and stay ahead of the competition. The real question is, do you know your numbers?

Post-pandemic inflation is already with us, and businesses are taking a hit. No matter your industry, you need a solid financial and operational strategy to evaluate the risks to your business and put measures in place to minimize them. Contact Signature Analytics and let us help you get visibility into your financial performance so that you can achieve your goals.

3 Ways Outsourcing Accounting Can Improve Your Business

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Few people have the accountant’s touch when it comes to handling a business’s finances, and that’s okay. While you, as the executive, have likely spearheaded aspects of your accounting strategy out of pure necessity at this point, it may be time to update your processes and hand the strategy over to the experts.

Instead of scrambling to tackle finances in-house, consider outsourcing. You’ll receive unparalleled accounting support and strategy while gaining a flexible team of accounting experts so you can go back to focusing on your business growth.

Before focusing your attention on growth, let’s cover the three main benefits of accounting outsourcing for your business so you can make an informed decision.

Some main benefits we’ll cover in more detail below, include:

Letting your outsourced team own the accounting process
Having the right, qualified people on your side & managing through turnover
Gaining access to an entire team and extended network of experts

Let’s dive in.

#1 Owning the entire accounting process

While your business expertise is valuable to inform financial decisions, one of the benefits of outsourcing accounting is that the experts provide you with the best and latest processes and technologies to help you efficiently and effectively accomplish your goals.

First, the experts will evaluate your processes. Understanding your current processes is an essential part of your accounting strategy. By outsourcing, your new partner isn’t trying to reinvent the wheel or overhaul your operations.

Outsourced accountants will come in with a fresh set of eyes and use their expertise and experience to offer suggestions on ways to update and improve your processes. They are looking to make things better by adding efficiencies and ensuring new processes and workflows remain scalable to fit your company’s needs as it changes or grows.

They’ll likely evaluate:

The current team and their skill sets
Information and structure
Current processes and technology uses
Data cleanup protocols

Next, the team will evaluate your current technology in the same way. Since automating manual processes is imperative to time-saving, updating your technology may be the key to saving valuable time and money.

By eliminating manual processes and implementing automated solutions, you take the hours of manual (typically low-level work) work off your employees’ plate, giving them more time to work on goal-oriented tasks that add value to the business.

Automation also takes human error out of the equation, which reduces the risk or the possibility of fraud.

From there, it’s time to implement the new processes and technology. Your outsourced experts will document all new processes and provide training to your existing employees. They continue to be accountable for maintaining those processes and managing the team, taking the burden of management off the CEO or Owner’s shoulders while also empowering the current team to stay accountable and perform at their best.

After your processes and technology are optimized, it’s important to hire the right people in the right roles to drive your business into the future.

#2 Hire qualified people & reduce turnover

Turnover is inevitable at any company and is even more common at a rapidly growing company.

Common mistakes we see are:

Companies hire lower-level employees and expect high-level output
Companies hire high-level employees with high pay but they focus on low-level work
Companies do not know how to manage or structure an accounting department

In all scenarios, both lead to frustrated employees and subpar results – which frustrates executive management and leaves employees feeling dissatisfied. Employees feel blamed, and oftentimes, you have good people already; they likely need a little training oversight to be more effective in their role.

So do you hire more people? Can you commit to affording to hire more people or the people you need full-time?

With growth or change, outsourcing becomes an ideal solution. One reason is that an outsourced team can provide scalability and flexibility as you grow and provide continuity if you experience turnover.

If you experience internal turnover, the outsourced team is there to fill those gaps temporarily or permanently. If you’re looking to hire for the internal role, your accounting experts can support you with the hiring, onboarding, and training process.

Suppose you experience turnover within your outsourced team. In that case, the good news is that multiple positions are supporting your company within the outsourced team. And there’s always someone who is being training by your outsourced team before the departure. This is why continuity is such a big deal for many.

Overall, your company will experience lower turnover even in times of high demand, cash flow problems, or special projects with an outsourced partner by your side who is helping to manage this process.

#3 Direct access to a team of experts

Another benefit of outsourcing to an accounting firm is that you gain an immediate team of trusted experts but also have access to the entire team within the company – should you need it.

What’s important is that your outsourced team will integrate themselves into the fabric of your business. They are always looking for new ways to help, offer ideas and insights they’ve seen in the market, and keep you posted on the latest trends, strategies, and technologies.

Since they are always thinking about your business’s well-being and future direction, if they should ever need to bring in another in-house export or provide an introduction to an outside one, you can bet they’ll do it helps your business. They are well connected with many experts outside of accounting, such as advisors in HR, marketing, banking, and various other reliable partners to support you.

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Ultimately, the level of sophistication a team of outsourced experts can bring to your business is unmatched. With a plethora of experts acting as part of your team and sitting in the driver’s seat of your strategy, problem solvers are consistently a phone call away. Plus, they’re committed to helping your company grow.

Take the burden of accounting off your shoulders and let your outsourced accounting team manage the process for you. You’ll gain a fantastic partnership, improve your business, and gain better insights than you were likely previously capable of doing alone.

What is Outsourced Accounting?

Managing the accounting function and financial reporting in a small or medium-sized business is an enormous undertaking for a growing team. Outsourcing your accounting needs gives you expert-level financial service and support to achieve your business goals.

When you identify the need for a partner in your financial department and begin the accounting outsourcing process, your business agrees to let a team of trusted experts come in and help you evaluate everything you currently do. Doing this can maximize your company’s potential whether you’re in a growth or transition period.

What does an outsourced accounting team do?

The experts you outsource should help you define, develop, and achieve your business goals. To begin that process, some firms will assess your current situation. For instance, we like to review four major pillars of your business which are your people, processes, technology, and reporting.

We’ll also take some time to outline your business goals. If you haven’t gone through this process before, a good financial expert can help guide you through various Q&A sessions with the company stakeholders.

From there, it’s essential you bring all of those elements together and design not only a roadmap for improving your accounting function, processes, and financial reporting but ensure that the right metrics, analysis, and KPIs are developed in relationship to the overall business goals. Whether that be raising capital, improving profitability, scenario planning, or managing hypergrowth. This is really bridging the gap between the day-to-day and the big picture stuff.

The onboarding approach your outsourced accountants use may include:

Structuring goal development and building a roadmap
Validating your information and process optimization
Structuring your financial reporting and conducting deep analysis
Managing the day-to-day accounting function
Focusing on business advisory & forward-looking activities

Structuring your company’s financial and overall business goals is an essential first step in creating alignment between your business and your outsourced experts.

Goal development and building a roadmap to achieve them

Although your outsourced experts are accounting and financial gurus, they are new to your business even if they have previous industry experience. To develop business goals, they’ll start by reviewing and understanding your business by doing an assessment.

This may be looking into your:

Industry
Business goals and major drivers
Current business concerns
Immediate needs and priorities

With the combined industry and business knowledge under your outsourced team’s belt, they can begin gathering information and validating your current processes.

Understanding your information and processes

One of the advantages of accounting experts at your business is evaluating all of your current accounting processes and your financial reporting (including accuracy and consistency), so you and your team don’t have to think about it. Additionally, this allows a new team to come in and see things from a fresh, unbiased perspective and make an impact.

The reason they do this is to:

Understand your team’s roles, current capabilities and skills, and development goals
Review and validate your existing information and structure
Perform data clean up to ensure historical accuracy
Validate processes, make recommendations for optimization, and implementing new ones where needed
Refine how they integrate with your existing team and where they need to fill the gaps

After this evaluation, the experts can seamlessly integrate into your company, your current team structure and are then able to set a foundation for accurate, relevant, and timely reporting.

Delivering sound financial reports and analysis

Now that your business leaders have had an opportunity to build trust with the experts and have reviewed their recommendations, the next step is to give you the information you need to make sound financial decisions.

That information is typically provided in the form of:

Expense management
P&L statements
Accounts receivables and payables
Cash flow management and reporting
Month-end closing
Financial metrics, reporting, and KPIs
Business and financial analysis
Board meeting support

Not only will your outsourced experts provide the above reports regularly, but they may also take this reporting one step further by providing business modeling and deeper financial analysis to help you reach your business goals.

This reporting may include:

Utilization analysis
Breakeven analysis
Margin analysis
Client profitability
Annual budgeting & benchmark reporting
Business-specific metrics & KPIs

With this measurable data provided consistently, you will create additional value by taking actionable steps to improve your business.

Supporting your day-to-day needs

Not only do your outsourced experts help you achieve your financial business goals, but they also support your day-to-day accounting and financial operations.

Some of that support includes:

Payroll processing
Manage A/R and A/P
Month-end close
Workflow documentation
Staff mentoring and supervision
Inventory process development and setup
Bank and credit card reconciliations

Whatever daily accounting operations help your business desires, your outsourced experts are there to ensure everything is getting done on time and there’s a clear delegation of duties and responsibilities, so you don’t have to.

Why would you need to outsource?

Outsourcing your accounting may be a need because of:

rapid company growth
cashflow has become a challenge
you’re not getting the reporting you need
you may have just lost a valuable member(s) of your financial department
you’re not quite ready to take on the financial risk of employing a full-time accountant
you’re having issues getting financial backing from a bank or investor

These are all valid reasons. Whatever the case is, enabling expert accounting, financial, and advisory help in your business – takes some of this burden off your plate. This team truly partners with you and your business leaders so you can focus on other areas of your business.

It’s a classic case of allowing you to start working on your business again instead of working in it.

Outsourcing for growth

As your revenue increase, so do your daily business demands. As a result, your financial needs or the complexities of your finances will also increase. When you’re scaling your business, it’s often helpful to outsource specific back-office operations, such as your finance and accounting department.

Doing so allows you to hire a team of consultants who specialize in going beyond the numbers and meet your growth needs. As a result, this may include implementing new processes, reporting methods, or technology to match your scaling business needs.

Outsourcing due to turnover

When a prominent part of your financial team, like a senior accountant, controller, or CFO, leaves your business, it can be challenging to fill their shoes immediately, and doing their work on top of your own in the interim could lead to burnout.

Additionally, hiring a replacement may not solve the issues that ultimately led to them leaving the company. Many common reasons we see:

they feel unsupported by management and have no career path
they tend to have too much on their plates and are feeling burned out
they are constantly burdened by either doing too low level or work or even too high-level beyond their skillset

By outsourcing, you’re able to fill these gaps with vetted experts who are in the right role because financial experts hired them.

Even if these employees haven’t left your company, we’re able to come in and provide supplemental support, oversight, training, and career path development for your team.

And as you grow, you may eventually need to hire more in-house employees full-time, and your outsource team will still be to support the onboarding or transition of duties when necessary.

Outsourcing because you desire flexibility

If your accounting needs are becoming more complex, you might find yourself spending a lot of time managing them, taking away from other parts of your business. You may also feel uneasy about taking on the financial risk of building out a finance team or are unsure if it’s the right time to do so or who you should hire next.

By outsourcing to a team of experts, you gain the same benefits of having a full finance and accounting team that you usually see are a larger company; however, you pay for fractional support instead of paying for full-time salaries.

And as the business grows or contracts, so can the flexibility of your team. The model is designed to work for your business based on its needs, unlike a full-time staff or staffing agency.

If your business needs accounting and financial expertise and could use a trusted partner as an advisor, consider outsourcing an ideal solution.

Over the years, we’ve worked with several types and sizes of businesses and have seen so much success using this model – that, in many cases, we’ve made lasting relationships as a result.

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Your Guide To Financial Modeling And Scenario Planning

Accounting & Financial Analysis, Managing Market Uncertainty During COVID-19, News

Strong leaders are always thinking about the future. Forward-thinking is an essential part of business leadership to guide your employees and steer your company in the right direction.

In uncertain times, it is important to understand many different outcomes that could take place. Trying to build a model based on multiple possible outcomes is challenging. You may find that you need help.

Finance and accounting leaders within an organization frequently need assistance predicting their cash needs, drawing a mental picture of potential profitability, and learning how to make better data-based decisions for the company.

To plan for the future effectively, a leader must develop a financial model whose aim is to forecast a business’s results over a set time frame.

Read More: Financial Tips From Successful Leaders

Given the current environment, we recommend creating a nine-month cash flow forecast to support your business through whatever comes your way.

We recommend keeping three possible business scenarios in mind:

Your original plan
A probable case based on current data
The worst case

To help you, we suggest brushing up on those Excel skills to create more elaborate and complex financial models. These models will enable you to modify assumptions giving you the ability to see the outcomes immediately. If you are not an Excel guru, don’t worry, even a simple financial model will provide you with better insights into your business.

3 Scenarios And What They Tell You

The original plan scenario should be your current strategic business plan and budget for the year. If you do not have a budget, you can create this model, as outlined below. This scenario acts as the baseline for the other two scenarios.
The probable case scenario is what you expect to happen based on current information. For some businesses, this could mean growth, and for others, it may mean a reduction in revenue.
The worst-case scenario should depict what the business would look like if revenues drop, are delayed, and/or unforeseen expenses occur. This scenario reflects the most serious or severe outcome. In this scenario, forecasting in this way is critical, so preparations can be made to ensure the business can still operate under adverse circumstances.

Original Plan Scenario

The best approach to building these scenarios is to start with the original plan. Your original plan scenario should be the easiest to forecast, and you might already have it if you created a strategic business budget for the year ahead. The numbers used in the original business plan will act as the baseline for creating the other two scenarios.

A quick way to get started building the financial model is to calculate a monthly average of the last 12 months for each expense category. At Signature Analytics, we recommend companies break down their expenses into categories or buckets to understand their business expenses better.

Once you have that data, use this average as the baseline amount for each expense account. Then ask yourself, is this baseline still a reasonable estimate to help forecast for the next nine months?

Depending on your income channels, revenue can be forecasted using the 12-month average. If you have more accurate data, then, by all means, use it. For both revenues and expenses, look back at the same months in the previous year to see if any seasonal patterns or trends should be reflected in the forecast and make adjustments where necessary.

Lastly, if you never created a strategic business plan and budget for the year, there’s no time like the present to get that started, so you are not flying blind over the next several months.

Probable Case Scenario

Once the Original Plan has been created, determine what percentages (these would be increases or decreases) of revenue and expenses should be applied.

Manual adjustments can be made to any of the monthly numbers based on knowing future activities within the business. Think through possible disruptions to your employees, your supply chain, and your clients.

Worst Case Scenario

The final scenario is weighing in the negative impact of disruptions to your employees, your supply chain, and your clients. You might approach this as a broad decrease in revenue (15%, 25%, or even higher) to understand how that would affect your business and your liquidity.

Scenario planning should bring to light any warning signs that can trigger major strategic pivots to decrease a company’s risk.

One other helpful tool in scenario planning is to utilize storytelling. The Wall Street Journal reports that “data-driven stories enable a team to picture the various futures the organization might face; strong narratives challenge conventional wisdom and management’s assumptions, but should be logical and plausible.”

Remember, forecasts by nature are not factual; but, having the ability to use available forecasts to develop scenarios can provide some relief.

Final Thoughts:

Simple scenario analysis allows you, as the business leader, to work through the assumptions and influences that directly affect your business. This creative and focused thought process can support you in times of high stress when making thoughtful, yet data-driven decisions for your business beyond that “gut feeling.”

If you need help with creating different financial models to support various scenarios, Signature Analytics has a full staff of CFOs and accounting experts to support you and your business. When you are ready, contact us to get started.

Analyzing Employee Utilization Rates to Drive Profitability for Professional Services Firms

Accounting & Financial Analysis, Cash Management & Forecasting, News

How utilized are your employees? What percent of their time is being spent working on projects that are not billable to the client? How much is that costing your company in productive capacity? If you do not know the answer to these questions, you could be missing out on potential revenue benefits.

For service-based organizations, analyzing employee utilization is imperative. Knowing where and how employees are spending their time enables professional services firms to:

Appropriately set their rates
Properly assess how much to invoice clients accounts
Decide what to pay their employees
Determine if they are over or understaffed

Calculating Employee Utilization Rates

The resource utilization rate is a balanced relationship between billable hours and working hours available and is a key metric of employee productivity.

For example, if there are 168 eligible working hours in the month of May and Penny spends 100.80 hours on billable client projects then Penny’s utilization rate is 60%.

Billable Hours / Eligible Working Hours = Utilization Rate

Now let’s say that Penny’s annual salary is $50,000, or $4,167 per month. In the month of May, she spends the remaining 40% of her productivity time on business development efforts (10%) and general and administrative (G&A) tasks (30%). That would mean the company is paying Penny $1,250 in May to work on non-revenue generating processes.

Monthly Salary x Time Spent on G&A (%) = Employee Cost

If this general and administrative time is benefiting the company then it may be worthwhile. Otherwise, this time could be used for other work, clients, or spent attending networking and other events to help grow the productive capacity of the business.

If Penny were to increase her utilization from 60% to 80%, her general and administrative employee cost would decrease to $417 per month – increasing efficiencies AND generating additional revenue.

Improving Employee Utilization Increases Profitability

From a revenue perspective, let’s assume that clients are billed at an hourly rate of $150. At 60% utilization the company is making $15,120 in May; however, 80% utilization would bring in $20,160, or $5,040 of additional revenue. Furthermore, if you have 5 employees who can each increase their employee utilization rate from 60% to 80%, you could generate an additional $25,020 of revenue per month.

Higher Utilization = Increased Profitability

Using Utilization Rates to Guide Business Decisions, A Case Study

Earlier this year, Signature Analytics was hired by a professional services firm in San Diego to provide outsourced accounting services. In addition to performing monthly accounting maintenance and bookkeeping services (preparing financial statements, balance sheets, income statements, cash flow statements, etc.), we put together a Utilization Summary Report so the client would have visibility into their employee utilization rates month over month.

The metrics report revealed that in the month of January the company’s average utilization rate for billable employees was 60% resulting in a $95k loss for the month. In February, average utilization was 63% indicating a consistent low utilization rate for the company. To show how utilization rates impacted the bottom line, we also compiled an “if-then” summary report which revealed that increasing average utilization to 75% would generate a profit of $130k for the month.

Using this utilization percentage information, the company decided to make personnel changes in the month of March that would increase their profitability. This included letting go of an underperforming non-billable sales associate. They also replaced a billable-time employee with consistently low utilization with a new billable employee whose skills capacity could be better utilized by the company. Additionally, the firm set personal billable utilization goals for every employee to help encourage the staff to improve productivity and maximize billable projects and hours.

Following the changes, average employee utilization increased to 76%, resulting in a profit increase of $230k for the month of March.

Read another case study: Unknown employee utilization causing unknown or inaccurate client profitability.

Improve Your Firm’s Utilization

At Signature Analytics, we have helped several professional services firms use utilization rates to make key strategic decisions that drive profitability. Preparing utilization summary reports and “if-then” analyses are one way we enable our clients to visualize the effect of increased utilization rates. We are also able to show the company key metrics for unbilled general & administrative time by applying utilization rates to salaries and separating these wages on the financial statements. Furthermore, we have helped clients implement time tracking systems – which is the first step in determining utilization rates – and assisted with the development of company policies to ensure time is accurately entered by employees.

Want to learn more about using utilization rates to drive profitability for your firm? Contact us for a free consultation.

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10 Tips to Help Improve Your Company’s Cash Flow

As a business owner, you run the risk of bankruptcy if you’re not on top of cash flow management. A full 82 percent of business failures are caused by poor cash management, according to a US Bank study.

So, is it easy enough to bring in more money than your business is spending? Although it sounds simple in theory, having a positive cash flow encompasses much more than profitability. Even if your company is currently profitable, it is still at risk for negative cash flow. One common example of this is if you have obligations for future payments that you cannot meet because you’ve mistimed incoming funds.

By maximizing your company’s cash flow, you can help your company receive profits faster, meet targets in a shorter time frame, and lower your operating expenses. Wondering how to improve cash flow in your small business? These 10 tips can help you improve cash flow for your company.

1. Anticipate and Plan for Future Cash Needs

Keeping accurate, timely, and relevant (ART) accounting records allows you to build a forecast for your business based on historical results. At the very least, businesses should be reviewing their cash flow monthly.

Being proactive with your cash flow enables you to forecast your anticipated funds and help prepare for historically painful periods or seasonal trends.

For example, if you find that you are anticipating a future need for extra cash, you may want to start talking to lenders about a bridge loan to help pave the way for future financing. Similarly, if you can anticipate large expenses ahead of payout, you’ll be able to plan your other obligations accordingly to avoid cash flow surprises.

2. Improve your Accounts Receivable

By actively managing your accounts receivable, you can stay on top of outstanding invoices and decrease the time it takes to get paid.

One way you can do this is by encouraging customers to pay early. For example, if your payment terms are net 30 days, consider offering a slight discount for customers paying net 10 days.

Are you currently waiting for checks to arrive? Offering a variety of payment options will make it as easy as possible for a customer to pay you, such as ACH or credit card payments. While these options may come with processing fees, getting money faster is better for your business if cash flow is tight and eliminates time & labor spent on collection. These options can help prevent you from stacking up credit card debt to cover expenses.

3. Manage your Accounts Payable Process

Establishing and organizing your accounts payable process will be essential to improving your company’s cash flow. If your accounting department doesn’t already use software to help manage your accounts, it is a good idea to invest in one. Next, you should communicate with your team which invoices are most important so they can be paid first. Remember, do not let unpaid invoices slip through the cracks.

Another tip? Try to get to know your vendors and extend payment terms as long as possible. Most vendors will ask businesses for net 30, but once you build up a positive relationship, they may be more inclined to offer net 45 or net 60. After all, the longer you have to pay, the more time you have to get money in. You can use a simple payment agreement template to help you when creating your financial contracts.

4. Put Idle Cash to Work

Another way to improve business cash flow is by putting idle cash to work. Your idle cash is money that is not earning any income.

Chances are if you have large balances sitting in non-interest-bearing accounts, you can find a better place for them to live. You could consider moving them to an interest-bearing account that may earn .5% or 1% APY. Another option is to invest the money in expanding your business, use it to decrease your debts and lower your interest payments, invest in new technology, or prepay some expenses.

5. Utilize a Sweep Account

Most commercial banks offer a sweep account, a type of account to help maximize earnings on your income by automatically transferring money from your business checking account to your savings account. The sweeps happen at the close of business each day, and you can set the amount, typically in $500 increments.

Should your checking account dip below your minimum requirement, the funds will be automatically transferred back into your checking account to cover the outlay. This risk-free option makes it easy to build your savings for a rainy day or your next major investment.

6. Utilize Cheap and/or Free Financing Options

If you are looking to invest in your company through low to medium-cost purchases such as upgrading your computer system, buying new furniture, or replacing your company vehicles, you should take advantage of financing options that have low or no interest for the initial period of the loan.

Using this strategy for a business loan will help you save money by cushioning the cash hit to your business. If you pay off the full loan upfront before the interest rates kick in, you will save even more, therefore, making the most of your investment.

7. Control Access to Bank Accounts

To maintain positive cash flow, it is crucial to protect your assets. The best way to eliminate fraud and unauthorized use of your company bank accounts is to make sure the proper safeguards are in place.

Common safeguards include keeping the number of people who can access these accounts to a minimum, securing your IT infrastructure, frequently updating passwords, protecting your credit and debit card information and bank accounts, and using a dedicated computer for banking.

8. Outsource Certain Business Functions

It’s not necessary to hire full-time employees for every business function. You should evaluate your business needs and identify areas where it may be more cost-effective to outsource. IT management, human resources, accounting, payroll, and marketing are all functions that could be outsourced.

There are many firms, including Signature Analytics, that specialize in providing experienced professionals to handle specific business functions and manage cash flow issues. Outsourcing can save your business money, offers a flexible staffing model during the ebbs and flows of your business cycle, and it can also increase your efficiency.

9. Renegotiate Existing Service Contracts

Another tip to increase business cash flow is to review service plans and contracts regularly. Start by looking at your internet, phone bills, copiers, software support, and janitorial/building maintenance contracts to pinpoint opportunities to save.

Improved technologies and increased market competition have driven prices down on many services, so it’s worth taking the time to shop around for a better deal.

10. Maintain a Weekly Rolling Cash Forecast

A rolling cash forecast is a good practice for improving cash flow overall. You don’t need expensive programs to do this; Excel will easily allow you to project a weekly rolling cash forecast. You should include all estimated inflows, such as customer receipts, and outflows, such as vendor payments and payroll. Record this data on a weekly basis at least.

Your rolling cash forecast will help you plan staffing needs, commit to new vendors, and ensure funds will always be available to make payroll and vendor payments. As a bonus, your forecasting will help you estimate and understand your company’s sales cycle.

How Signature Analytics Can Help Your Company

By implementing these strategies when managing cash flow, you will quickly get the upper hand on your company’s finances and learn how to increase cash flow within your business — so you will soon reap the benefits.

At Signature Analytics, we have a team of expert accounting and financial professionals including accountants, controllers, financial analysts, and CFOs; all dedicated to providing the best level of service at a price that makes sense for your business.

For additional assistance with cash flow management, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

When Should You Consider Outsourcing Your Accounting Operations?

Accounting & Financial Analysis, Managing Market Uncertainty During COVID-19, News

Do you spend late nights and weekends struggling to keep up with your company’s accounting records? Or worse, does this time intervene with the time spent running the operations of your business?
Are you unable to assess the profitability of your business or perhaps have difficulty understanding the cash requirements for the next 60, 90, or 365 days?
Do you feel your margins could be improved but aren’t sure how to evaluate them when looking at your financial statements?
Would some assistance in projecting your business operations over the next few years help you establish priorities with your employees?

If you answered yes to any of these questions, then you are in good company. Many business owners and executives feel the same way and there are ways you can get the support you need to move your business ahead.

The first step is acknowledging that, although operations are the most key aspect of any business, accurate financial information is vital to making important business decisions. Having visibility into cash flow and knowing where your margins can be improved will enable you to take your company to the next level.

Now the next step is determining if hiring a full-time accounting resource to get your company’s financials in order makes sense from a cost and expertise standpoint.

Is there enough work for a full-time accountant? For many companies, a 40-hour a week accountant would be in excess of the time required to perform the basic accounting functions they may need, e.g., monthly close process, issuing invoices, entering and paying bills, performing payroll, etc.
Is there too much work for your current full-time resource? And are you asking them to do things beyond or below their skill set? This is a very common occurrence with any role in a growing business. This is a lose-lose situation for everyone involved and can lead to internal turnover.
What level of experience will they need to have – CFO, controller, staff accountant? If you are not in a position to support the costs of more than one accounting resource, will you hire a CFO and then over-pay them to do basic staff-level accounting? Alternatively, you could hire a staff accountant and task them with CFO responsibilities; however, both of these options can cost your company significantly and lead to ineffective decision-making.

If your company needs the resources of a complete accounting team but is not in a position to support the costs and management time of that entire, full-time team, then outsourcing your accounting functions is a very viable, flexible, and turn-key option for your business.

Outsourced accounting companies such as Signature Analytics provide you with flexibility in terms of the number of hours of service to receive, provide a higher level of experience through oversight by more senior-level individuals, and ensure efficient service by experienced accountants (staff accountants through CFO level expertise). The accounting teams at outsourced accounting companies work with multiple clients so they have identified time-saving methods that allow them to complete challenging tasks in significantly less time than a typical bookkeeper.

In addition to acting as the financial arm of your business by providing the resources of a highly experienced accounting department on an outsourced basis, there are a number of other situations in which hiring an outsourced accounting company to handle your financial information might make sense for your business:

Preparing for a financial statement audit or review

Many business owners believe that a financial statement audit is a healthy process for their business and provides confidence to their investors in the financial information; however, most do not realize the resource drain that an audit can have on their business due to the significant number of requests for supporting information and the technical accounting expertise which must be applied to the financial statements. Due to independence restrictions, audit firms cannot assist in performing the accounting functions at the companies they audit and therefore must rely on management to determine proper accounting rules. These issues tend to cause significant overrun bills from the audit firm due to the inefficiencies experienced and can be extremely costly for a business. Engaging an outsourced accounting company can provide management with the peace of mind that they have a team of accounting experts – most of which have previous experience performing audits – that understand what audit firms are asking for and know how to produce that information in a timely manner.

Investors requesting financial projections

Investors love to see what the future of their capital will produce so that they can assist in both financial and operational decisions; however, many business owners do not have the expertise to prepare financial projections and therefore may provide information at a level not detailed enough for the purpose or may be missing significant costs which need to be considered. Outsourced accounting firms that provide support with cash flow management and projections have CFO-level experts who are experienced in understanding a business operation in a very timely fashion and can translate such information into the future potential results of the organization.

Missing out on potential tax savings

When a tax provider receives your financial information they may not search into all of the accounts to find tax deductions. If transactions have been classified to incorrect accounts, tax preparers may not be aware of their existence and therefore not consider simple deductions. A simple example would be meals & entertainment expenses, often a deductible expense, in which some transactions may end up recorded in office expense categories or supplies or miscellaneous. Unless the tax preparer knows that such expenses may be improperly classified, the deduction will go unreported resulting in higher income tax. An outsourced accounting company can organize accounting information and work directly with tax professionals to help identify as many tax savings as possible.

Looking for capital investment from financial institutions

Perhaps you have a capital requirement in the near future and plan to approach different financial institutions. Providing financial information with obvious errors, inconsistencies, or lack of organization could severely impact your ability to raise capital as it may be challenging for the lenders to truly understand the results of the business without transparent financial information. When hiring an outsourced accounting company, you can be confident that the financial statements are timely and accurate. Furthermore, they will provide you with a high-level financial resource that can assist in preparing analyses of the financial information in a professional manner making the lender proposal process less arduous. These statements may be used as a resource to assist in conversations with those providing capital assistance to ensure a complete understanding of the business’s results of operations.

If you think your company could benefit from outsourcing your accounting services, contact Signature Analytics for a free consultation.

PPP Loans: A Second Wave of Relief

Businesses still seeking relief from the impact of COVID-19 may be able to find it in the second round of PPP loan legislation passed by Congress in late December of 2020. The Consolidated Appropriations Act, 2021 seeks to overcome some flaws of the first round of the Paycheck Protection Program (PPP) while providing additional assistance to businesses still suffering in the wake of the COVID-19 pandemic.

Even those who were unable to get funding during the first round of PPP loans can apply for their first-draw under the new guidance. With relaxed rules on which expenses are eligible for forgiveness and specific funding set aside for lenders who operate in lower-income areas, businesses owned by POC, and small businesses, this round of PPP loans is better suited to serve the American population as a whole equally.

Since the program’s initial launch, our team of experts have had a chance to review the program in greater detail and want to provide our findings below. We know navigating through this legislation can be tricky, just know we are here to provide support and guidance to business leaders in need.

Quick Overview of Changes:

Dramatically expanded payroll and non-payroll expenses eligible for forgiveness
Additional clarity on loan terms
Updated limits on loan amounts
Clarity on forgiveness and tax savings opportunities
Flexibility on the covered period of the loan
Revenue reduction proof requirements
PPP Loans: The Changes for Round 2

Covered Expenses

To be eligible for PPP loan forgiveness, borrowers must use the funds on approved, covered expenses. Under the new legislation, the 40/60 split is still required: borrowers must use 60% of the funds on payroll expenses and can use up to 40% on approved, non-payroll expenses.

However, covered expenses in both categories have been expanded. Existing payroll costs included:

Salary, wages, commissions, tips
State and local payroll taxes
Paid leave
Healthcare payments
Retirement plan contributions

Expanded payroll costs now include:

Group life insurance
Group disability insurance
Group vision insurance
Group dental insurance

Existing covered non-payroll expenses included:

Interest on mortgage payments, excluding prepayments
Rent
Utilities
Interest on debt obligations incurred before the covered period

Additionally, the new legislation expanded forgivable non-payroll expenses to include:

Certain operational expenditures like software and cloud computing service payments used to facilitate business operations, accounting, service or product delivery, payroll processing, billing, inventory, and HR functions
Property damage costs incurred during public disturbances that happened in 2020 and were not covered by insurance
Select supplier costs including payments to suppliers of goods that are essential to operations
PPE equipment and other worker protection expenses incurred to comply with CDC, HHS, OSHA, or state and local government authority after March 1, 2020, until the president’s national emergency declaration expires

Note that expenses for HSAs, QSEHRA, and Commuter Benefits like mileage reimbursement are still not covered under the new PPP guidance.

PPP Loan Terms

The new legislation brings additional clarity to the terms of PPP loans. Here are some of the highlights:

Interest rates are fixed at 1%
Interest is non-compounding and non-adjustable
No yearly fees
No guaranteed fees
No prepayment penalty
Borrowers are not required to provide collateral or a personal guarantee

Providing this guidance ensures that lenders cannot take advantage of borrowers seeking PPP loans. Additionally, while the maturity for PPP loans is five years, payments aren’t required until borrowers know how much of the loan will be forgiven.

Borrowers who do not apply for PPP loan forgiveness, however, will have to make payments within 10 months of the last day of their covered period.

Loan Funding Limitations

For first-draw borrowers, there is a limit of $10 million or 2.5 times the average monthly payroll and healthcare costs; whichever is less. Some exceptions may exist for restaurants and other hospitality businesses.

The loan limit for second-draw borrowers is $2 million and includes a stricter method of calculation, which is:

2.5 times the average monthly payroll and healthcare costs in the year prior to when the loan was received or the 12-month period prior to when the loan was made
Most hospitality and entertainment businesses, including hotels and restaurants, are eligible for up to 3.5 times the average monthly payroll and healthcare costs using the same methodology as above

If borrowers with an outstanding, unforgiven PPP loan would have been eligible for more resources under the new, expanded covered costs, they may amend their loan application and request a higher amount. Loans that have already been forgiven are not eligible to be amended.

Forgiveness and Tax Deductibility

With the expanded eligible expenses, forgiveness is much easier to receive. Additionally, the SBA has simplified the forgiveness process so that borrowers with loans of $150,000 or less may utilize a one-page application.

Tax benefits also exist for PPP loans. The funds are not included in any gross income that a business is required to report. Better yet, expenses that are paid for using the funding from a PPP loan are tax-deductible. That creates a double tax benefit as no taxes are due on the amount received and business can deduct expenses paid using the funds.

The Covered Period

New legislation has provided additional flexibility as to when borrowers use their PPP loan funds. While the covered period for the first-draw remains unchanged, second-draw borrowers can choose a covered period anywhere between 8 to 24 weeks after receiving the loan. This provides much-needed freedom to utilize the funds as necessary and eliminates the restrictions faced during the first-draw covered period.

Updated Eligibility Requirements

First- and second-draw loan recipients each have specific eligibility requirements. Both types of applications require that a business was operational before February 15, 2020, and remains operational. The first difference occurs in the required number of full-time, part-time, or seasonal employees:

First-draw applicants: Must have less than 500 employees
Second-draw applicants: Must have less than 300 employees or less than 300 employees per business location

Additional Eligibility Requirements for Second-Draw PPP Loans

Proof of 25% Revenue Reduction
One of the more stringent expectations of second-draw borrowers is the required proof of revenue reduction. In order to qualify, borrowers must show a revenue reduction of at least 25% in the first, second, or third quarter of 2020 when compared to that same quarter in 2019. The following are all required to be included in the revenue calculation:

Fees
Dividends
Commissions
Sales of products or services
All revenue from every source in whatever form received or accrued by the borrower and any affiliates

The funding from first-draw PPP loans is, however, excluded from this revenue calculation.

Only loans totaling over $150,000 will require borrowers to submit documentation to prove revenue decline during the application process. However, all borrowers will need to submit this information when applying for forgiveness. Here are some forms that will help provide the proper documentation:

Relevant tax forms
Quarterly financial statements
Bank statements

Fully Used First-Draw PPP Loan
In order to be eligible for a second-draw PPP loan, borrowers must have already used or will use their entire first-draw PPP loan.

Eligible Businesses

The following are eligible businesses for both first- and second-draw PPP loans:

Sole proprietors
Independent contractors
Self-employed individuals
Certain 501(c)(6) non-profit organizations
Seasonal employers
Faith-based organizations that have less than 150 employees
Housing cooperatives that employ less than 300 people

For further information on which businesses are eligible, visit the SBA website.

Ready to Apply?

Applications are ready for borrowers now and will remain live until March 31, 2021. Funds are first come, first serve so it’s best to apply as soon as possible. Finding lenders is easier than ever using the SBA’s Lender Match website.

Before applying, it’s best to gather these documents for both 2019 and 2020:

Tax returns, if available
Financial statements, including profit & loss
Bank statements
Payroll records and reports

Borrowers can also review the first-draw application and second-draw application when preparing to apply. When in doubt, hiring a professional accountant can help borrowers get the maximum amount from their PPP loans.

How To Protect Your Small Business From Employee Fraud

Whenever a high-ranking executive from a prominent organization gets involved in a case of embezzlement or employee fraud, it makes headlines around the world.

These are a few more well-known examples of fraud:

Dane Cook, an American comedian, whose brother who was his business manager and took advantage of him for about $12 million
Girl Scout parents who were caught stealing money from their daughter’s cookie sales (average estimates of $10,000)
Bernie Madoff, an American market maker, investor, and financial advisor, who committed the highest financial fraud in US history worth almost $65 billion

These examples might seem unlikely to happen to your company, and as a small business owner, you may believe your organization is immune to theft and fraud.

After all, who else knows and understands their employees best if not for you? In your heart of hearts, you likely believe they would never do something like embezzling money. If anything, you have a rigorous hiring manager who conducts thorough background checks, so, therefore, no potentially malicious individual could be brought on to your team.

Unfortunately, your thinking would be flawed.

What Advice Do Fraud Experts Give?

Any employee, when presented with the right set of circumstances, is capable of committing fraud.

According to the Association of Certified Fraud Examiners’ (ACFE) 2018 Report to the Nations, asset misappropriation was by far the most common form of occupational fraud, occurring in more than 89% of cases and leading to losses upwards of $110,000.

Small businesses can be especially devastated by fraud, as these companies often have fewer resources to prevent and recover from malicious acts.

Organizations with less than 100 people often must trust their employees with more information compared to businesses with many more workers with the ability to have anti-fraud controls in place.

While employee fraud prevention may not be top of mind for you, consider that the median loss for small organizations was almost twice as high as those incurred by organizations with more than 100 employees.

The ACFE reports two key reasons why small businesses have an increased risk of employee fraud:

a lack of basic accounting controls
a higher degree of misplaced or assumed trust

In a small to medium-sized business, the employee handling the bookkeeping is most likely to be the one to commit a crime as they can see all of the numbers, and they have your trust. However, in small businesses, there is a 29% chance that the owner or executive is the one who will commit fraud.

Read More: How To Spot Employee Fraud

How Basic Accounting Controls Can Make A Difference

Often, company leaders believe that spending an excessive amount of money on implementing complex systems of controls will save their company from employee fraud. This is not the case.

Complex controls can surely make a positive impact, but most often, starting with the basics can set you ahead of the curve.

In the ACFE 2018 report, it was noted that internal control weaknesses were responsible for nearly half of all frauds committed. Businesses that had implemented anti-fraud controls had lower losses overall, which means that these controls are working to keep the company safe.

The report also found that when businesses routinely monitor and audit their back-office functions, fraud is reduced. Even with the information found on how these controls can make a difference, only 37 percent of businesses polled had these internal controls in place.

If you would like help implementing internal controls, even at the most basic level, you can reach our team of experts at any time. Our experienced team can make recommendations based on the industry you are in, the size of your company, and the budget you have in place. Protecting your business from fraud is imperative.

What Can You Do To Protect Your Business From Employee Fraud?

Don’t wait for a fraud to occur. It is essential to be proactive and preventative and put processes in place.

Studies show that the more employees believe they will get caught, the less likely they are to commit fraud. Below we have outlined some practical tips for small business owners to reduce the risk of loss due to employee fraud:

Don’t depend solely on external audits: External audits are usually performed once per year and months after the year ends. Even if the audit uncovers fraudulent activity, it may have been occurring for 12 months or longer before being discovered.
Segregate accounting duties: Avoid allowing the accounting function to be controlled by a single individual and segregate accounting duties in key areas instead. Such duties and responsibilities may include:
-Recording and processing transactions
-Sending out invoices
-Collecting cash
-Making deposits
Routinely review financial information: If you have a small team and complete segregation is not possible, the business owner or an outside accounting firm should review the bank statements (preferably online or before the accountant has opened them) and bank reconciliations every month. Vendor payments should also be periodically reviewed. A common scheme is to set up fictitious vendors and manipulate bank statements with photo editing software before printing and filing them for review.
Ensure accounting oversight: Hire an outsourced accounting firm to provide oversight, support, and possibly management of the in-house staff. They will start by reviewing your current accounting controls, workflows, and processes to make recommendations for improvements, implementing best practices, or even take on some of the accounting activities.
Get fraud insurance: Purchase a bond or fraud insurance to protect your business if a theft does occur and/or have trusted employees who handle the finances bonded.
Require your bookkeeper to take a vacation: Embezzlement and other types of fraud require a constant paper trail to go undetected. Therefore, business owners should insist that employees who perform the company’s accounting/bookkeeping duties take a vacation every year and designate a backup person to cover their responsibilities during that leave. Ideally, the vacation should be at least a week-long and occur over a month-end when the books are being closed. Assuming your books are closed monthly, this is not an easy request with a small team and another reason to build a trusted relationship with an outside firm.

According to the ACFE’s 2019 Benchmarking Report, 58% of organizations have inadequate levels of anti-fraud staffing and resources. For your company, this may mean conducting background checks will not be enough to protect your company from in-house fraud.

How Can I Protect My Company?

By partnering with the Signature Analytics team, we can recommend industry-specific suggestions for your company. We help our clients put preventative controls in place and provide an appropriate level of oversight of their financial books and records to ensure accuracy.

Signature Analytics provides small and mid-sized businesses with the resources of a full finance and accounting team. We utilize a fractional accounting model so clients can effectively segregate accounting duties without having to hire additional full-time accounting staff.

To learn more about how we can help ensure your business has fraud prevention, contact us for a free consultation.

A Summary: Coronavirus Aid, Relief, and Economic Security (CARES) Act

https://www.forbes.com/sites/leonlabrecque/2020/03/29/the-cares-act-has-passed-here-are-the-highlights/#c2e55d268cd2
https://www.reuters.com/article/us-health-coronavirus-usa-bill-contents-idUSKBN21D2CQ
https://www.cpapracticeadvisor.com/tax-compliance/news/21131709/summary-of-the-coronavirus-aid-relief-and-economic-security-cares-act
https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/
https://www.congress.gov/bill/116th-congress/senate-bill/3548/text
https://www.cohnreznick.com/insights/sba-amends-requirements-for-its-paycheck-protection-program

This article was originally written on April 8 and portions have been updated on July 7, 2020. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.

On March 27, 2020, S.3548 the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law to give emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.

As the most massive stimulus bill in American history ($2.2 trillion), it includes several relief areas for individuals and businesses including:

Direct payments to tax-paying Americans
Enhanced unemployment aid
Small business loans and grants
Loans for the airline industry and other big businesses
Money for individual states, hospitals, and education systems
Tax cuts
An increase in safety net spending
A temporary ban on foreclosures

Read the entire bill in all of its detail here.

There are some aspects of this bill that will directly affect our customers and their businesses, which we have broken down in detail below.

Direct Payments To Tax Paying Americans

Part of the $2.2 trillion of aid this bill brings includes an estimated $290 billion set aside for payments to the American people. Citizens who pay taxes are reported to receive a direct payment from the U.S. government. The amounts of those direct payments vary based on household size and income level. These figures are represented below:

Single individuals are expected to receive a one-time payment of $1,200
Married couples are expected to receive a one-time payment of $2,400
Families with children under the age of 17 are expected to receive an extra $500 per child.

There are some stipulations for these monetary amounts. Those are for Americans earning more than $75,000 per year, the number of direct payments may be lower. Individuals earning more than $99,000 per year are not eligible for these payments. Another important note is one that affects child support payments. If an individual is behind on child support payments, they will not be eligible for this direct payment.

Small Business Payroll Protection Program

The CARES Act should also help many small companies and 501(c)(3) nonprofits who have suffered from little-to-no business during the COVID-19 pandemic.

Through the Payroll Protection Program (PPP), businesses with less than 500 employees have the ability to secure loans up to 2.5 times the average months of its payroll costs or up to $10,000,000.

If a small business, with employees located in the United States, were to secure this loan, they could use it to help cover some of the following needs:

Salaries
Rent
Healthcare benefits
Debt obligations
Mortgage interest
Utility costs

It should be noted that securing a loan under the PPP can only cover expenses from February 15 to June 30. There is an estimated allocation of $350 billion set aside for loans and emergency grants.

If you think your small business or nonprofit organization could capitalize on this opportunity, call your Small Business Administration lender to begin the process as soon as possible. If you are not sure who your SBA lender is, start by contacting your local banks within your area or try the SBA Eligible Lender locator found here.

It might take some time to organize essential information like tax records and other important documents. The sooner all of these items are organized, the sooner the loan will come through. Be aware the first day to apply for these loans is April 3, 2020.

To help you get started, here are some great resources from the U.S. Treasury office:

For more information and details on the PPP (there are a lot of them), but the above resources can help you get started right away. Continue checking our internal resource center under the “Employer Resources” tab. Additionally, there are many on-demand webinars that can provide additional insight.

As always, do not hesitate to reach out to us for assistance.

Read More: COVID-19 Resource Center

Paycheck Protection Program Flexibility Act of 2020: Amendments to the PPP

On June 5, 2020, President Trump signed into law the PPP Flexibility Act, with amendments to the previous PPP.

Below we have outlined the main takeaways to help you understand the most significant changes.

The new legislation alters the existing PPP, giving borrowers more time to spend loan funds with the ability to obtain forgiveness.
Loan borrowers now have 24 weeks to spend their loans.
There is a reduction in mandatory payroll spending from a previous 75% down to 60%.
Businesses can now delay paying payroll taxes even if they took a PPP loan.
Borrows can now receive full loan forgiveness if they have yet to restore their workforce fully.
The loan repayment schedule extends from two years to five years.

New updates 07.07.20:

The original (but newly released) PPP Loan Forgiveness Form was a little too complicated for smaller business owners that may not have immediate access to an accountant or lawyer, therefore, the SBA released the Paycheck Protection Program Loan Forgiveness Application Form 3508EZ. The 3508EZ Form can also be ideal for:

the self-employed or businesses that have no employees OR
businesses that did no reduce the salaries or wages of their employee by more than 25%; and did not reduce the number of hours of their employees OR
businesses that experienced reductions in business activity as a result of health directives related to COVID-19 and did no reduce the salaries or wages of their employees by more than 25%.

Also, the payroll calculation used in the loan application still applies to the forgivable amount, meaning the employee compensation eligible for forgiveness is capped at $100,000. However, they are increasing the max forgiveness per employee (non-owners):

Originally $15,384.61 for the eight-week period ($100,000 pro-rated)
It is now $46,153.85 for the 25-week period.

For Owners, Sole Proprietors, Independent Contractors, or General Partners:

For the 8-week period, forgiveness for owner compensation is calculated as 8 / 25 X 2019 compensation, up to a maximum of $15,385 in total for all businesses.
For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 / 12) of 2019 compensation, up to $20,833, also in total for all businesses.

The final day to apply for the PPP loan has been extended to August 8, 2020, allowing eligible small businesses more time to apply for the remaining $130 million of PPP lending capacity.

PPP recipients can apply early for forgiveness? We’ve had many clients ask us whether they can apply for PPP loan forgiveness before their covered period expires. By doing so, they forfeit a safe-harbor provision allowing them to restore salaries or wages by Dec. 31st and avoid reductions in the loan forgiveness they receive. So for now as things are evolving, we say hold off on doing this. Most banks will start accepting loan forgiveness applications in mid-August.

There is still much to learn about relaxing guidelines, we will do our best to keep this updated.

More Time to Spend Loan

One of the most significant changes with the PPP Flexibility Act is now borrowers have more time to spend the amount of their loan. Previously, only eight weeks were allotted to spend this money, which put a considerable amount of pressure on the borrower to ensure the funds were spent on forgivable expenditures. The time frame has been increased to 24 weeks after the origination of the loan or to December 31, 2020, whichever is earlier.

Payroll Spending

A reduction has been made to the mandatory payroll spending. This means the amount of money from the loan that was required to go toward payroll costs has been reduced from 75% to 60%.

What this change allows is for forgivable non-payroll expenses to be as high as 40%, enabling small business owners to put that money toward other costs they were struggling to pay. For example, for businesses that covered their payroll costs but still didn’t have enough to pay bills like rent, this helps free up some of the money for this purpose.

Repayment Period

The repayment period has been extended. Previously, the repayment period was for two years, and now the extension goes to five years while retaining a 1% interest rate. Ultimately, this allows borrowers extra time to pay off the unforgiven portion of their loan.

If a borrower received their loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity.

Would you like to read the new law? You can access it through congress.gov here.

Tax Cuts For Businesses

One of the other significant aspects of the CARES Act is the tax cuts for businesses. There have been modifications made to the Tax Cuts and Jobs Act (TCJA) of 2017. These modifications directly affect the net operating loss rule, lifting the 80% rule, and ensuring losses are carried back five years.

There is other positive news for businesses and their payroll. A refundable 50 percent payroll tax credit for businesses directly affected by the novel Coronavirus is available to help employee retention.

A few other areas of significance include:

Any distilleries who are helping to create hand sanitizer in their facilities will have federal tax waived
Businesses are able to write off donations of goodwill and student loan payments for their employees
Suspension of penalties for those who must tap into their retirement funds

Every business finds itself in a unique situation during this time; therefore, if you are not already partnered with us, we recommend that you work with a tax CPA or Small Business Administration lender on how to navigate this bill and how it impacts your company.

Signature Analytics is here to support you and can provide references to our partner network upon request. Feel free to contact us to get started.

New Updates For Consideration

It is important to understand the CARES Act is on a “first-come, first-serve” basis, so if your organization needs funding, we urge you to get your paperwork submitted as quickly as possible.

Based on how many employees you have, the limit used when calculating payroll costs is $100,000 and includes insurance, benefits, and taxes.
Eligibility for PPP for self-employed or independent contractors is based on self-employment net income, but cannot be counted for payroll costs.
Any federally illegal businesses will not receive funding and cannot participate in this program.

*updated 06.08.20

Nearly $500 Billion More In Aid

As of the evening of April 21, the Senate has approved $484 billion in aid for the stimulus package. On April 23, the bill will go to the House to pass as a complete package and make this funding available.

This additional funding is to support the small businesses, hospitals, and many other businesses negatively impacted by the coronavirus. However, $310 billion of this aid is considered being allocated for the Paycheck Protection Program, $60 billion of which will likely be set aside for smaller lending facilities and credit unions.

Under the emergency Economic Injury Disaster Loan program, there should be roughly $410 billion in grants, $50 billion for disaster recovery loans, and 42.1 billion for salaries and other expenses for the SBA.

Hospitals and health care providers are looking at a likely $75 billion and an additional $25 billion for COVID-19 testing.

All of these amounts are part of what the House will take into consideration later this week.

Resources:

What Should Your Next Steps Be When Applying for the PPP?

Cash Management & Forecasting, Managing Market Uncertainty During COVID-19, News

This article was originally written on May 1 and portions have been updated on July 7, 2020, in accordance with the PPP Flexibility Act signed into law on June 5 by President Trump. Additionally, the PPP application extension period being moved to August 8, 2020, for small businesses to apply for the remaining $130 billion of PPP lending capacity. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.

Many business owners are feeling the pressure the coronavirus has put on the market and their companies. Many have their workforce operating remotely, some with only a skeleton staff, and others having to layoff their workers due to the impact of COVID-19.

In response to the economic hit many business owners are currently facing, the U.S. government responded with the CARES Act, a bill designed to bring health care assistance and financial aid to those individuals, families, and businesses hit hardest by the pandemic.

One of the significant benefits of the CARES Act for business owners to take advantage of to protect their workforce is the Payment Protection Program (or PPP). With the chaotic rollout of the Payment Protection Program (PPP), many business owners have already scrambled to file the necessary paperwork with their banks, credit unions, and other financial institutions to secure funding. All of which are all backed by the Small Business Administration (SBA). This aid will be critical in helping owners pay their employee’s salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Despite the initial rush to submit the necessary paperwork, there is a waiting period that takes place once all the required documents are filed to when the aid finally comes through. Some owners have already received their funding, while others are still in that waiting period fueling more feelings of uncertainty.

Millions of companies are applying for this aid and loan forgiveness all once. As a result, funding approval is taking much longer than initially anticipated. Not only is the sheer volume of applicants incredibly high, but the process for going through each application is quite lengthy. We recommend being prepared for a waiting period of 90 days or longer.

No matter which scenario an establishment is facing, this growing uncertainty is leaving many business owners wondering what additional steps they should be preparing to take next to solidify the future of their companies while maximizing the benefits of the PPP program.

While millions of eligible companies are applying for forgiveness on their loans during this time, in the meantime, they must utilize these funds the correct way so these companies can maximize forgiveness.

If at any point during this process you have questions or would like to speak to an expert, please don’t hesitate to reach out. Our CFO task force, a highly skilled team comprised of accounting and finance experts, is working diligently to help small to medium-sized businesses navigate their way successfully through this process.

The Signature Analytics promise is to manage your accounting and financial reporting, so you don’t have to. However, during this confusing and stressful time, we are going beyond the numbers to help improve your business performance and help drive strategy and direction.

Critical Next Steps

The experts at Signature Analytics are recommending the following next steps to help comply with the PPP and obtain the most significant company benefits:

1. Have a plan. The 24-week clock will start ticking as soon as those funds are received. What you do with the money during these weeks determines your loan forgiveness, so it’s best to come prepared with a spend-down plan for the PPP funds. Signature Analytics has developed a template to help you plan and track funds used.

2. Documentation. Your lender will require documentation to apply for loan forgiveness, so it will be imperative that you carefully track using the funds for qualified expenses. The better documentation and support, the easier the process will be for forgiveness. There are several methods you can use to track your funds. Some recommended ideas include:

Creating a separate class in your Quickbooks file
Creating a separate balance sheet to track the use of the PPP loan
Opening a dedicated bank account used solely for eligible expenses
Review and update cashflow scenarios to ensure they are still valid

The Signature Analytics team can discuss which options will be best for your situation to maintain records to substantiate expenses.

3. Monitor. During the 24 weeks, the actual use of the funds must be carefully monitored. In order to qualify for loan forgiveness, at least 60% of the loan must be used for payroll costs. Keeping in mind that various restrictions need to be considered here for highly compensated employees. It is important to stay diligent on the rules for forgiveness and the tracking of the proceeds of the loan.

4. Be cautious. Loan forgiveness can be reduced if either of the following occurs:

a. Employees who make less than $100,000 (annualize) have their comp reduced by 25% or more may cause a dollar for dollar reduction in your forgiveness amount.

– OR –

b. If the number of full-time employees is equal to or less than the same number from February 14, 2019 to June 30, 2019, or January 1, 2020 to February 29, 2020, among other criteria. The Treasury website has the most current information regarding these criteria.

5. Avoid other CARES Programs. Some programs may nullify participating in the PPP, including the Employee Retention Credit and Deferral of Payroll Taxes. It is essential to get guidance from your tax and HR professional in regards to all areas of the CARES ACT.

6. Consider timing. You will want to maximize the payment of qualifying expenses during the eight-week loan forgiveness window. For strategies on how best to pay your bills, please reach out to the Signature Analytics team for guidance.

7. Don’t misuse the funds. While specific guidelines for misappropriation of funds are not currently available, we do know that business owners using the funds for fraudulent purposes will be subject to criminal charges. Additionally, businesses that misrepresent or do not accurately portray their information submitted may be subject to criminal penalties.

8. Even if it’s not forgiven. You are still left with a reasonably good loan. If you received the loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity. Both options come with a 1% interest with no prepayment penalty. Keep in mind that even though interest and principal payments are deferred for six months, the interest will still need to be accrued during the deferral period for any portion of the loan not forgiven.

9. Contact your lender. Communicating with your lender during this time is a critical step, to ensure both parties understand all of the forgiveness guidelines. Ideally, you will complete the loan forgiveness application found here and submit it to your lender before the October 31, 2020 deadline.

10. Consider the MSLP. The Main Street Lending Program is another new program available for small and medium-sized businesses that were financially stable before COVID-19 took effect. A few of the eligibility requirements include being a U.S. based business with an establishment date before March 13, 2020. You can read more about the criteria through the link below.

Final Thoughts

It is valuable to note that since the PPP was initially launched, guidance from the Treasury Department has continued to evolve, including signing the PPP Flexibility Act on June 5. This is a very fast-paced pandemic and is requiring government agencies and those who support it to think on their feet and provide businesses with relief fast.

For this reason, the information outlined above may change in response to additional guidance. We will do our best to keep you up to date, and you can always contact us at any time for support.

Related Resources:

Most up-to-date resources as of 05-27-2020:

Your Guide To The Main Street Lending Program

This article was originally published on 6.11.20 and contains the new program guidelines that were released on 6.8.20. We will continue updating as new information becomes available.

During the last few months, the Coronavirus has created an incredible impact on the world. As a result of this unforeseen occurrence, many individuals and businesses were negatively affected and continue to struggle today.

The Federal Reserve announced in April that a new lending program was in the process of being established for small and medium-sized businesses that were financially stable pre-pandemic. The creation was a result that stemmed from the CARES Act as an avenue to make $600 billion accessible in aid. It complements the aid available through the Small Business Association and other funding options.

Below, we breakdown the essential facts of the program, as well as answer some commonly asked questions our team of experts is receiving. This breakdown includes the newly released guidelines from the Federal Reserve that were announced on 6.8.20.

“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Powell said in Monday’s announcement. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period,” Fed Chairman Jerome Powell recently said of the revamped program.

We hope this will serve as a starting point to understanding the plan, but in no way should one financial leader opt to manage all of this information for their business on their own. You can call our expert financial team at any time so we can help you throughout this process. Continue reading for all of the insights.

What Is The Main Street Lending Program?

As mentioned above, the Main Street Lending program is the government’s additional solution to providing funding for small and mid-sized businesses.

The program operates through three facilities:

Main Street New Loan Facility (MSNLF) (link to 6.8.20 term sheet)
Main Street Priority Loan Facility (MSPLF) (link to 6.8.20 term sheet)
Main Street Expanded Loan Facility (MSELF) (link to 6.8.20 term sheet)

For information regarding each of these facilities and answers to questions on the terms and conditions, please visit the Federal Reserve resource here.

Other key takeaways from the Main Street Loan Program update:

The federal research expanded its Main Street Loan Program with a few major changes to allow more small and medium-sized businesses to be able to receive support. The changes include:

Lowering the minimum loan size for certain loans to $250,000 from $500,000.
Increasing the maximin loan size for all facilities (Maximums for each type will be $35 million, $50 million, and $300 million). Loan caps are based on outstanding credit and adjusted EBITDA of the borrower.
Increasing the term of the loan option to 5 years, from 4 years.
Extending the repayment period for all loans by delaying principal payment for 2 years, rather than 1 year.
Raising the Reserve Bank’s participation to 95% for all loans.

The Fed says the facility will open registration to potential lenders “soon.” More details can be found on the Federal Reserve website.

How Do I Know If I Am Eligible?

To participate in the Main Street Lending Program, a borrower must meet the list of criteria below. Most importantly, the business that is attempting to securing the loan must have an establishment date before March 13, 2020, and be based within the United States.

Secondly, eligibility requirements also include having either:

less than $5 billion in 2019 revenues or
less than 15,000 employees.

Non-profit applications should note that a separate program is in the works for their unique circumstances.

A few more eligibility details of importance include:

being a partnership, limited liability company, corporation, association, trust, cooperative, a joint venture (with no more than 49 percent participation by foreign entities); or a tribal business concern
not being an “Ineligible Business” under the Small Business Administration (SBA) definition, as applied to the Paycheck Protection Program (PPP)
not participating in the Primary Market Corporate Credit Facility or receive specific support provided by the CARES Act made available to air carriers and businesses critical to national security

If your business has applied for or already received Paycheck Protection Program (PPP) funds, the Federal Reserve has made it clear these do not make a business ineligible for a loan from the Main Street Lending Program.

How Do I Apply For The Program?

Business leaders can visit or call any U.S. bank to apply for a Main Street Lending program loan. It may be easiest to select where you already have established your banking relationship; however, there are no restrictions.

The bank you choose to work with will first assess the risks and then will offer you an interest rate. Our recommendation is to apply with two separate banks and make your selection based on the most competitive interest rate you are offered. Since bank lenders are now only required to take on 5% of the loan, more competitive rates will become available.

It is important to note that there will be fees associated with your loan, so understanding this upfront can help you make your final decision.

Is There A Limit or Minimum To How Much Aid I Can Borrow?

Yes, there are restraints on how much a business can borrow. Loans offered through the Main Street Lending Program range from $250,000 to $300 million.

Depending on the type of loan, each will have a 5% to 15% risk retention rate. What this means is that for banks, they are guaranteed in this amount by the federal government.

What Else Should I Know About The Program?

We cannot stress this enough, but once you receive your funding and in your account, there is no separation between those funds and your other finances. With that, it is critical to use a tracking method, so you have documentation of where the funds are allocated.

Two Tips From Our Expert CFO’s

Here are two questions to ask yourself or your company’s financial leaders:

Have you developed a 13-week cash flow plan? Even better if you can create a plan through the end of the year. Having this type of cash flow forecast will allow you to plan for all revenue and expenses while still providing visibility to make strategic decisions.
Read More: Actionable Advice from Our Founder to Improve Your Cash Flow
Have you gone through the appropriate steps for scenario planning? You likely need assistance projecting your cash needs, figuring out potential profitability, and determining how best to make data-driven decisions. Using the scenario planning model, you can forecast your business results over an extended period.
Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

If the answer to either of these questions is no, now is the time to get started. We are asking our clients to develop and execute these plans to help them plan for their future as much as possible.

Our CFO team is already supporting these initiatives and are happy to help you dive deeper into the best decisions for your company using limited resources.

Do Not Navigate This Alone

There are many programs designed to help businesses impacted by COVID-19, and this is only one of them. As a business leader, you are a decision-maker in your company, and you must be armed with accurate information to lead your company to success.

You can call us with any questions you have or advice you are looking for while navigating the Main Street Lending program or other programs out there. We also work with a number of banks that are part of the lending program. It is our promise to go beyond the numbers to help improve your business performance and achieve your goals. Our team of experts is ready to help you lead your business into the new normal with funding in your bank account.

Important Resources:

Federal Reserve Bank of Boston’s Website
MSLP Frequently Asked Questions (June 8, 2020) (PDF)
Federal Reserve Policy Tools Page (catch-all links to resources)
MSLP Lender Registration (create lender account)

Reducing Your Cost Structure

“It’s not what you pay a man, but what he costs you that counts.” —Will Rogers

Good business leaders understand that having insight and control over the company costs is vital. Low overhead and a surplus of cash is a recipe for a financially successful business, but when an unforeseen global pandemic steals customers away from your business model, what is your response?

If you are like J.Crew, Neiman Marcus, or Souplantation, the solution is to cut employees loose, shut your doors, and hope that the financial aid from the federal government is enough to pay your essentials bills until the mess dies down.

However, if you are a smarter leader with an insightful team by your side, you can reduce your cost structure and keep your business alive during the midst of it all.

We want to take some time to be that insightful team for you. Below, we highlight the key ways you can proactively reduce and control overhead rather than making severe deep cuts.

During the uncertainty of this current economic environment, there is no better time to address leaning your company. Taking an intellectual dive into the inner workings of your company using the following ideas is one way to evaluate what is working and what is not.

Idea 1: Speak With Lenders

Fostering a better relationship with each of your lenders is one of the first steps we recommend taking during this time. A simple phone call to your banks, credit unions, and other money lenders will help to keep lines of communication open.

Not only that, but it will help you establish a relationship of trust if you initiation the call. When you have the lender on the phone, also be sure to ask about some of the following:

A detailed review of the terms for all your business loan agreements and lines of credit
The option of refinancing debt to extend terms and reduce payments
Ask about reducing interest rates on loans and credit cards
Try requesting a credit line increase for credit cards
Consider negotiating a way to pay only interest on the debt if finances become too tight

You don’t know what the lenders will say until you ask, so try and negotiate the best terms for your business and see what options are presented to you.

Idea 2: Seek Financial Aid

The federal government has been rolling out a variety of financial aid packages for businesses to choose from during the COVID-19 pandemic.

The three large government options available include PPP, EIDL, and Main Street Lending program.

The Paycheck Protection Program stems from the CARES Act as a way for business owners to help pay employee salaries, benefits, company bills, and make other vital financial payments to keep afloat.

The Economic Injury Disaster Loan Program is part of the Small Business Administration’s federal assistance for the private sector. It can provide up to $2 million to small or private businesses and non-profit organizations regardless of whether the applicant sustained physical damage from the pandemic.

The Main Street Lending Program is the newest program announced by the federal reserve and was specifically established for small and mid-sized businesses that were financially stable before the coronavirus pandemic. Roughly $600 billion of aid is accessible for these companies.

Another option is to seek private grants from big organizations. Please do some research on grants.gov or reach out to our team for a few suggestions.

Idea 3: Review Your Contracts

This might be one of the easier ideas on our list! With that, you should make efforts to understand how your business is using the space you are in and how it might need to expand or trim in the future.

If your lease is nearing its end, consider this as an ideal time to renegotiate on the original terms. Some options include subleasing the space, taking over a new and less expensive commercial real estate location, or taking advantage of a shorter-term lease from your landlord.

Idea 4: Boost Incentives

Now more than ever, your customers have a reason to zip up their wallets and pour over their credit card billing statements. The best thing you can do to ensure your services are billed continuously is to show their value. If your customers understand why they need your products or services, then you are appealing to the financial side of their rationale.

Once you feel you have established a customer relationship based on trust and necessity, consider rewarding or incentivizing them by discounting early payments, offering special pricing on new product launches, or giving coupons to loyal customers.

You can expect that each of your customers is struggling in their own way, and so your overall goal is to ensure they feel valued and that you are continually providing real value. Take this time to look beyond the numbers and understand your customer’s business strategy and how you can further support them in reaching their goals. Need more help in this area? Call our team of experts for even more advice.

Idea 5: Look Beyond The Obvious

Unfortunately, one of the first places scared leaders will choose to cut back is by way of their employees. We don’t believe this action is the ideal way to reduce your cost structure.

Layoffs are harmful to the remaining employee’s morale and productivity. They are working in fear rather than working to continue the mission of the company.

While there are times when addressing your labor force is a crucial factor for your business’ survival, it is crucial to look beyond that channel at the beginning. Before heading down the path of layoffs, consider these other roads first:

-a reduction to working hours
-furloughs
-decrease or eliminate bonuses and performance pay

Consider modifying the benefits and compensation plans as a way to minimize costs. Ultimately, many of these considerations will positively or negatively impact your business. Think through your plan and communicate your strategy with your other business leaders before taking action.

Final Thoughts

With the right information, leadership, and choices, reducing your business’s cost structure doesn’t have to be incredibly painful. The best outcome is when you can lean out, keep your incredible team, and envision a successful future.

Remember, communication is essential during this time. Answer all the questions, quell all the fears, boost everyone’s morale, and be as proactive and transparent as possible.

If you are looking for more ideas on how to trim down the excess costs of your company and how to recession-proof your business, you can read one of our most successful blogs linked below.

Call us for help taking these ideas and putting them into action. Our team of experts has helped countless businesses trim down their costs and can answer any questions you have about this process.

How to Effectively Communicate Your Company’s Financials with External Stakeholders

Managing Market Uncertainty During COVID-19, News, Planning for success

Presenting financial information in an easily digestible format is essential when communicating with external stakeholders such as lenders, investors, and other strategic partners. These communications are vital to the long-term success of a business; however, it can be a struggle for many small and mid-size businesses. To help, below are three keys to successfully communicating the financial state of your business with external stakeholders.

#1 Be Concise

The easier it is for an external stakeholder to interpret results, the easier it will be for the company to achieve its desires from that stakeholder.

Banks. If you’re seeking a line of credit from a bank, it is important to distill the financial results of the company into a simple format that shows them they should lend to you. They want to know you have the cash to pay your bills. They want to know you have proven you can collect from customers. They want to see profitability that is consistent and stable. If any of these things require explanation, provide it.
Investors. Investors want to understand why and how your business can generate a return for them and provide comfort that their capital is reasonably safe.
Strategic Partners. A key strategic partner will want an understanding that they can commit resources to work with you in a manner that will be fruitful.

These stakeholders do not want to weed through a book. Furthermore, simply exporting your income statement and balance sheet directly from your accounting software is not enough. Summary narratives, graphs, charts, and reports can be very effective as they will enable the stakeholder to better interpret the financials of the business, as opposed to allowing them to develop their own conclusions.

At the same time, you do not want to show too much or too little financial information. Voluminous information will likely go unread. While not providing enough information can result in the investor or lender making incorrect assumptions about the business. If more detail is sought, it can be provided.

By making it easier to understand your business on paper, you are far more likely to get the answer that you want.

Case Study: How we improved investor reporting for a biotech client to increase board meeting efficiency.

#2 Clearly State Objectives

What is the business is trying to accomplish with the external stakeholder? You will have a higher rate of success if you anticipate and address the stakeholder’s questions upfront.

For banks, you need to clearly communicate why the money is being sought from the bank. What are the uses of the funds? For example, oftentimes an expansion won’t just require capital to purchase equipment, but could also necessitate additional staff, office space, etc.

The same applies to investors. Can an investor interpret in a quick read the high-level goal(s) the business is trying to achieve? Also, what are the risks involved for the business?

It is also best to take objections off the table proactively. If new competition is coming to the market, what is your plan to combat it? If opening a new market, what makes you think you can be successful there? Laying out potential obstacles tells the stakeholder that you have thought about them and gives them confidence in your business.

#3 Be Honest and Direct

This can often be the toughest of all. No one likes to share bad news. Far too many businesses choose not to communicate at all when this happens; however, when things are not going as well as planned, this is perhaps the most important time to communicate with external stakeholders. Don’t hide a bad quarter; explain what happened and what you are doing about it. Again, this demonstrates that you have a handle on the business and that there is no cause for undue worry. Every business will experience some hard times, but having your key allies informed and confident in your abilities will greatly enhance your ability to weather the storm.

We Can Help

Presenting financial information in an easily digestible format is essential in communicating with external and internal stakeholders. If you’re seeking an increased line of credit, looking for potential investors or strategic partners, or want to improve your internal reporting to management and/or board members, Signature Analytics can help. Contact us today for a free consultation with one of our CFOs.

This Is How A Business Can Thrive During Times of Economic Hardship

As a business owner, if you are asking yourself, “when is the best time to prepare my business for a negative economic impact?” the answer is now.

The coronavirus pandemic has made an incredible impact across our world over the last few months and has caused many U.S. business leaders to wonder this very question. Once the second quarter of economic decline is reported, our country will technically be inside of a recession.

The good news is that you can take steps now as a business leader that will make a positive impact on where to lead your company and weather the storm ahead.

If you sell products like hand sanitizer, toilet paper, and various other home goods, you may be experiencing a record quarter in sales. If your company books travel experiences, however, you might be concerned about paying your bills. No matter which camp you find yourself in, know that almost every company can find a way to be successful and maybe even thrive inside a recession—it just might take some creativity and critical thinking.

Where Do I Start?

When considering what your next steps should be, start asking questions. Consider how your business could benefit from the current market based on the services or products you sell.

The best place to start this process is to review the expert tips below so that you can confidently make decisions that will affect your company.

Mind Over Matter

This saying might be a bit cliche, but having the right mindset when it comes to challenging and difficult times is an essential starting place. It allows you to see the good in situations, find the best in people, and put trust in the decisions you make.

The power of positive thinking isn’t entirely new; Norman Vincent Peale wrote a book about it in the 1950s, and it’s a message that is frequently circulated today. The idea is that by thinking positively, you can achieve a permanent and optimistic attitude.

With this positive attitude, you can be forward-thinking and envision how you want to come out on the other side of the recession. The mindset that you cultivate for yourself today will very likely be adopted by your employees who will take actions to define your company’s future.

Leading your staff with a positive focus on the future can help you make decisions to keep your business alive and maybe even turn a profit.

If you think that your staff is struggling with the work and personal life adjustment COVID-19 is requiring of us, consider establishing an internal mentorship team. Ask for a volunteer to head up this kind of team and try out check-in conversations, productivity task lists, and a lightened workload for those who are struggling. You can read more ideas here.

Liquidity

After you have mentally armed yourself for the road ahead, the first place to look inside of your business is at your finances.

Without cash, it will be impossible to run your business. During a crisis, access to cash will be the most critical aspect of not only surviving but thriving through the recession.

After reviewing your savings and cash flow, you will need to determine if you have enough savings on hand for the next several months. If not, do not shy away from liquidating some of your assets. You can speak with an expert from the Signature Analytics team if you need advice here, but the key will be ensuring you have enough accessible funds to make payments on the unexpected.

There are plenty of other tangible ways to free up cash, such as:

building up cash reserves
refinancing loans or lease terms
looking into private equity or outside investment

If you’d like to dive deeper into this area, be sure to read our blog which covers a variety of liquidity options for your business and do your research to ensure you understand the terms before signing any contracts.

Break Into New Markets

It may be that your financials and cash flow are already in a great position. If that is the case, our experts recommend looking to other markets to break into as a next tangible step.

Host a Zoom meeting with your team to discuss any product or service expansion areas. If you already have a concrete understanding of your current market, why not expand your visionary thinking? Once you have a list of ideas, go through the following questions to gain a better understanding of the right opportunities for your business:

Where does it make sense for your business to head to next?
Is there a need for those products and services in a recession?
Will it be something customers will want to spend their money on?
Who are the direct and indirect competitors?
What advantages do you have over them?
Could you potentially acquire a company already doing this idea?

These are just a handful of questions to use as a starting place. We encourage you to conduct as much market research as possible during this exploratory phase to see what makes the most sense for the future of your business.

If you have mentors, you can reach out to those who have weathered an economic storm before, ask them for advice based on their knowledge of your business.

Who Is On Your Team?

If you don’t have anyone to reach out to bounce ideas off of or ask questions to, the team of experts at Signature Analytics is here. Every day we are helping our clients make critical business decisions like these.

While you may have an internal team working diligently to review your finances and accounting, we can work alongside them and aid in supporting your business to flush out any inconsistencies and help drive strategy beyond the numbers. .

This is also an excellent opportunity to look to leadership within your company and ask them to weigh in on the direction you are considering. They will have much insight into if the decision not only makes sense for the future of the company, but if prospective clients will utilize and pay for this service or product.

Final Thoughts

Remember, the goal isn’t just to get through this time, but to come out the other side with something to show for it. We are looking forward to hearing about how your company not only survived the coming recession, the lessons you learned along the way, and how you hopefully thrived through it.

At Signature Analytics, our company promise is to go beyond the numbers to improve business strategy and help you reach your goals. We encourage you to reach out to us with any questions you have as you navigate this challenging process.

Important Questions To Ask When Planning and Testing A Business Strategy

Accounting & Financial Analysis, Managing Market Uncertainty During COVID-19, News

As any good business leader knows, planning for the future is a necessary step to help ensure the company heads in the right direction and reaches success along the way. Now more than ever before, this practice is a necessary step to even ensure its survival. Part of forward-thinking is reasoning through different paths your company could take and visualizing what outcomes would come from those directions.

Being able to draw up a mental picture of this future can enable a leader to make the right choices without spending unnecessary time or money going in the wrong direction. To plan effectively, the best place to start is by creating a plan, a type of financial model, to make predictions on your business’s results over a specific period.

This strategic thinking is what the industry refers to as scenario planning, as Forbes defines “alternate futures in which today’s decisions may play out.” By planning through your scenarios and stress-testing them, you should ultimately end with a clear direction that is best for your business to take. Below, we will walk you through how to scenario plan and then how to effectively stress test your scenarios.

How To Start Scenario Planning

To effectively navigate the scenario planning process, you must first create a cash flow forecast to support your business. With your numbers in place, you will be better able to make accurate predictions to take your company in the right direction. We suggest starting here or here to learn more about this process. Once you have a better understanding of your business financials, then you can dive into the three types of models for scenario planning explained below.

Here Are 3 Models For Scenario Planning

Original plan – This should be the most straightforward scenario to create, and it utilizes your strategic business plan and budget for the year. The original plan scenario is a jumping-off point for the two scenario types below.
Probable case – Given the information you currently have, you should have an expectation for your business’s future. Your expectations could be positive or negative, depending on how you are fairing the current economic climate. Companies with more seasonality should refer to the quarters in the past to draw up a better picture.
Worst-case – As the company leader, you know your business better than anyone else. If revenues were to decline and unexpected expenses were to arise, how would those happenings affect your company? The worst-case scenario takes all of the “bad things” that could happen into account, so there are no surprises. Forecasting in this way allows you to take action now so your business can survive later.

Once you have developed each of these scenarios, the next step in the process is to stress-test them to ensure you know what will or won’t work for your company. If you are looking to first dive deeper into each of the individual scenarios, you can read the blog linked below.

5 Questions To Stress Test Your Scenarios

Knowledge is power, and with your scenarios mapped out, you can feel more confident as to the direction your business is headed. However, what happens when the unexpected happens? When what you planned for and accounted for may no longer be valid options? By stress-testing with a few proven fundamentals, you can discover any shortcomings or weak points in your business strategy to ensure it is executed to the best possible ability no matter the pulse of the economic climate. Ask yourself and other company leaders involved in this process the following questions:

1. Who Is Your Ideal Customer?

Knowing your primary customer will allow you to allocate resources the right way without being sidetracked. Earmarking funds to multiple types of customers or clients will result in underperformance and less than ideal service. Your ideal customer may change over time, which is ok, but recognize that it may take restructuring to make this happen. For now, focus on one customer and ensure your scenarios cater to them.

2. Who Do Your Core Values Speak To?

Every company is different, and its core values may speak to clients, employees, or investors. Knowing who your values speak to will be necessary when making one business decision over another and having clear company messaging and direction.

3. Are You Tracking Key Performance Indicators?

Not only is it essential to track KPIs, but knowing which KPIs to follow is also critical. Creating a company scorecard is helpful so long as there are specific variables you are reviewing consistently. We recommend tracking six key performance indicators which you can read more about here. Remember, tracking too many variables will drive out innovation, so go with a less is more mentality here.

4. Are Employees Willing To Help One Another?

To effectively build an organization like a well-oiled machine, all the parts need to work well together. In business, this means that while your employees will have individual goals, they must be willing to help one another to drive strategy, collaboration, and communication, all while working toward reaching company goals.

5. What Unknowns Keep You Awake At Night?

Being scared or worried about the unknown is nothing new—as every business leader experiences these feelings. Take a tip from other failed business strategies, as those leaders made assumptions about the future and were wrong. The business strategy you are working so hard to create will not be a blanket strategy you can use for the lifetime of your business. To be successful, you must continually monitor the uncertainties that you are accounting for in your scenarios. Try and stress-test your scenarios annually to address changes and ensure you are successful in any economic climate. Depending on the industry your business is in, you may need to adjust this timeline more frequently.

Final Thoughts

Remember, scenario planning alone will not help you find an effective strategy for your business. Strategically thinking through and testing your plan to see where the weaknesses and strengths lie will be vital to come to the right decision. Even after all this planning, remember that life can still throw some unexpected curveballs (COVID-19 anyone?), and adjusting to those unforeseen circumstances will be necessary. While this may feel like a lot of information, this is just a starting point.

If, at any point in the process, you or your team feel overwhelmed with financial reporting, business strategy, defining your KPIs, or need some guidance when facing the difficult business decisions that lie ahead – please reach out to our team of experts.

The Signature Analytics promise is to help with all of these areas and go beyond the numbers to improve your business performance and assist you in achieving your goals. Contact our team of experts for business and financial analysis and any other questions you may have during this challenging time.

Resources: https://www.smestrategy.net/blog/what-is-scenario-planning-and-how-to-use-it https://hbr.org/2010/11/stress-test-your-strategy-the-7-questions-to-ask

Internal Controls That Protect Your Business From Fraud

News, Technical Accounting & Reporting

News headlines involving embezzlement, fraud, data breaches, and other scandals may have you nervous, especially during the current economic climate. “What is happening within my organization?” might be a thought regularly occurring in your head. After all, fraud is one of the most common ways that companies lose money.

To protect your business from fraud, you must continually evaluate internal controls. These protocols help keep a business safe from specific types of company risk.

Incorporating internal controls can ensure the effectiveness and efficiency of operations and support reliable reporting.

These Internal Controls Can Protect Your Company

According to the Association of Certified Fraud Examiners (ACFE), organizations can reduce the impact of fraud by pursuing internal controls and policies that actively detect fraud. Some examples may include management review, account reconciliation, and surveillance/monitoring.

Here are four other simple and straightforward internal controls for your company to consider:

1. ACH Payments
Do you have a custom signature stamp for your office? If you do, we advise against this option. Even if you keep it locked up or only allowed specific employees to use it, there are still issues with this kind of system.

A better option is to implement an electronic system such as Automated Clearing House (ACH) payments. By sending payments through ACH, businesses can use fewer resources than traditional paper checks, and they can more easily track income and expenses with electronic records.

2. Separation of Powers
Separation of powers is as crucial to your business as it is to the government. When one person has all the power, the system is likely to fail. Just like a system of checks and balances, having dual control in place is ideal for any business.

One employee can be responsible for setting up ACH payments and wire transfers, while another employee can be responsible for approving these numbers.

Reviewing and catching critical errors is a vital part of this process. If there is oversight by more than one person, the possibility of theft and fraud significantly decreases. When dual control is in place, the system can often be effective in combating asset misappropriation.

By practicing the separation of powers, three main functions are able to occur:

1. Custody of assets
2. Authorized use of assets
3. Record keeping of these assets

It might seem that having two employees dedicated to managing assets is overkill for your small business. While it might be challenging to achieve, it should be implemented whenever possible to improve the overall performance of the organization.

3. Single User/Password
Every day you and your employees access websites to conduct business as usual. Many companies share one login to their bank, accounting software, credit card, and other financial accounts. Where do you store your vital login information? In a spreadsheet? On your phone? Printed out and next to your computer?

Either way, these are not secure ways to save your password information. These logins are so easy to hack and steal that it is up to your company to protect itself.

Make sure each user/employee is set up as an authorized user, and you can set the rights for each person. You can also research inexpensive and secure apps or websites to hold your logins, ensuring that the hacking rate drops significantly. When people leave the organization, make sure to delete the username and change common passwords.

4. Expense Reimbursement
Implement a process for all employees to follow regardless of hierarchy. Make sure to have an annually updated policy and require receipts/invoices over a certain dollar amount.

If you have corporate credit cards, you can utilize merchant category codes to restrict the types of goods/services for which they are used. For more information on this process, you can reach out to your card company for assistance.

How Should Internal Controls Be Implemented?

Has your business ever completed an internal control audit? If not, this is a great place to start. By completing an audit, the effectiveness of any current controls is tested, and the audit can also highlight weak points for the company.

When your organization takes part in an audit, there are essential processes and paperwork that need to be reviewed by a CPA. Having a set of eyes outside of your organization can be vital to the success of this audit.

While it might require preparation and a lot of documentation, the result will provide your organization with information that is consolidated all in one place, making it easy to access financial reports and statements in the future.

The implementation process itself can be quite an undertaking for a company to manage itself. For this reason, we recommend you find an expert to take on and manage this audit.

How Often Should Internal Controls Be Updated?

All of your company’s internal controls should be updated yearly. One easy way to remember to do this is to make it part of your annual shareholder meeting where the control details can be documented and voted on.

While these are examples of simple internal controls to implement, the Signature Analytics team of experts can make recommendations based on your industry and the nuances of your business.

If you need assistance, please contact us to have internal controls set in place or feel free to ask us any other accounting and finance questions.

How to Proactively Recession-Proof Your Business

Accounting News & Guidance Updates, Managing Market Uncertainty During COVID-19, News

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

As COVID-19 continues to impact the global economy for the second month, we still have more questions than answers.

We still don’t know how long we’ll need to maintain social distancing to halt the spread of the virus, nor how long entire industries will be shut down. We also don’t know how the actions we take to preserve public health will impact the global economy in the months — and perhaps years — to come.

What we do know is that taking control of your company’s cash flow is more important than ever to ensure your business survives the storm. Whether your business is currently in crisis-mode or has a large rainy day fund, we recommend all companies review their financial situation and make strategic adjustments to navigate the rough waters ahead.

In Part 1 of this series, we explored why your cash flow is even more critical now, and strategies you can take if you lack the cash flow to minimize the damage to your business. If you missed it, you can read it here.

For Part 2, we’re sharing how the Signature Analytics team is working with our clients to be sure they have full visibility into their financial situation, spot any risks, understand all available options and make strategic plans for the future. Read on for actionable advice your business can use to take control of your cash flow and position yourself for future success.

Develop a 13-Week Cash Flow Forecast

The first step in facing an uncertain future is creating a plan. You’ll need a thorough understanding of how much incoming cash you can expect for your business, and how much your organization is spending. You’ll also want to prioritize your accounts payable in case of an emergency.

We recommend that every business immediately create and follow a strict 13-week plan — regardless of your current financial situation. This 13-week cash flow forecast will account for all expected revenue and expenses for the next quarter, and give your company’s leadership the visibility it needs to make strategic decisions. Your team should review the forecast weekly and make adjustments as necessary.

Even if you intend to apply for a disaster relief program, your expenses are continuing to build daily. You might also find yourself waiting several weeks until those funds become available. Having that critical visibility into your cash flow situation empowers you to make the strategic decisions necessary to keep your company in the best possible shape through this uncertain time.

Plan for Various Scenarios

Just as it’s critical to understand your company’s cash flow situation, it’s just as important to understand what to do with that information. Scenario planning is exactly what it sounds like — a detailed gameplan for what to do, should your circumstances change.

As you create your plan, we recommend focusing on each of these scenarios:

Your original plan – This is the plan you sketched out in advance, based on your anticipated revenue and budget.
A probable case based on current data – Based on the information you have today, this scenario represents what’s most likely to happen to your company
The worst-case – Should your company face an extreme disruption to revenue, this plan will guide you through the challenge.

When you’re determining how your business will operate through COVID-19, your plan should consider both near-term and longer-term responses. Forbes notes that this crisis will have four distinct phases: Awaiting the impact, withstanding the impact, returning to normal, and sorting out the new industry dynamics. As you create your gameplan, consider each phase of the cycle.

In the weeks to come, as your company awaits and withstands the impact of COVID-19, you may need to implement layoffs or furloughs or consider any tax credits available. How will each option impact your cash flow in the short-term?

If those weeks turn to months, you’ll need to consider how each of those options will impact your business beyond the balance sheet, and adjust your plans accordingly. You’ll also need to think about how much of the pent-up demand will return, and how your industry might change as companies get back to business as usual.

Communicate With Your Bank

We cannot stress the importance of proactive communication enough. Regular updates build trust in your organization and keep your employees, customers, and strategic partners in the loop on what to expect from you.

While you’ve probably already crafted a plan to communicate with your employees, customers, and vendors, there’s one strategic partner you might have overlooked — your bank.

Proving your business is reliable will cement your bank’s trust in your organization, which can help you gain their support in this time of crisis. Craft your communication plan by thinking of these four key areas:

Stay informed – Understanding the issues your bank may be facing will give you a stronger perspective into how the institution will react.
Keep your paperwork up-to-date – Being transparent with your bank, even if your financials are not where you’d like them to be, will build trust in your company. As you review your 13-week cash flow forecast, consider sharing this with your bank to show your company has a plan to navigate the crisis.
Proactive communication – Most business loans have a default clause that allows banks to consider insecurity to be an event of default. This means that if your bank has any doubts about your ability to repay your loans, it can demand immediate repayment. Keeping your bank informed about your situation and operating with transparency will keep your financial institution from becoming insecure about your ability to repay loans.
Modify existing finance terms – If your business is facing a cash flow crunch, you may benefit from modifying your existing payment agreements. Be prepared to present your case, show documentation to show your financial situation, and provide a 12-month budget to show how your company will continue to pay its obligation.

Review Any Government Relief Programs Related to COVID-19

As a response to the crisis posed by COVID-19, the federal government implemented new programs aimed at cushioning the virus’s impact on businesses and workers. If your business needs support, consider the following programs.

CARES Act

The CARES Act is probably the most well-known piece of legislation in response to COVID-19. While the details of how relief funds are still being worked out, here are a few key highlights of the bill:

Direct payments to American who pay taxes
Unemployment program increases and expansion
Use of retirement funds without penalty up to 100,000
401k loan limit increase from $50k to $100k
IRAs and 401ks required minimum distribution suspended

For businesses, the CARES Act includes the following key provisions:

Payroll tax deferment – Under this law, employers can delay paying their 2020 payroll taxes, and instead opt to pay over the next two years.
Small business relief – This law dedicates $350 billion to prevent business closures and layoffs during the social distancing period. The federal government will provide up to eight weeks of cash flow assistance to help companies with less than 500 employees keep their workers. If companies meet the requirement by maintaining their payroll, portions of this loan would be forgiven.
Large corporation relief – For companies with more than 500 employees, the federal government will dedicate $500 billion to provide loans, loan guarantees, and other strategic investments with oversight from the Treasury Department. Unlike loans available to small businesses, these loans will not be forgiven and repayment cannot last longer than five years.

Small Business Association Disaster Relief

The CARES Act includes $350 billion dedicated to helping small businesses mitigate the effects of COVID-19, which makes it worthy of detailing further. We know that at least 220,000 applications have already been submitted just days after the program launched. Now, Treasury Secretary Mnuchin has requested another $250 billion to be dedicated to the program to help support the growing demand. If that additional money is granted, businesses must meet the following criteria to be eligible:

Small businesses with less than 500 employees affected by COVID-19
Companies larger than 500 employees that meet the Small Business Association’s industry-specific size standards
Hospitality and food-industry businesses that have multiple locations may also be eligible if individual locations employ less than 500 people.

This federal program provides four critical areas of relief:

Paycheck protection – Designed to help companies keep their employees on the payroll, this program offers loan forgiveness if all employees are on the payroll for eight weeks, and the money is used for payroll, rent, mortgage interest, or utilities.
Emergency cash advance – For companies experiencing temporary difficulties, this program will provide up to $10,000 of funding that won’t have to be repaid.
SBA bridge loans – This provision provides up to $25,000 for small businesses that have an existing relationship with an SBA Express Lender.
SBA debt relief – Businesses that have existing SBA loans are eligible for automatic deferral and/or payment of principal, interest, and fees for eligible loans.

Specific eligibility requirements for each of these areas is available on the U.S. Small Business Association website.

To apply for these programs, visit the SBA website and check the requirements. Some require you to fill out an application directly from the website, while other programs will refer you to specific lenders for assistance.

For applications on the SBA’s website, you’ll need to provide detailed information on your company, including revenue, losses due to COVID-19, and bank information on where to send the funds.

As the COVID-19 crisis continues to unfold, new support is becoming available daily. Even if you’re not sure that your business has suffered “substantial economic injury,” we recommend applying proactively to ensure those funds are available to you when and if you need them.

Analyze Operations for Risks and Cash Impact

Once you have a thorough understanding of your business’s cash flow situation, it’s time to take a closer look at any potential risks and how they may impact your cash flow. We recommend starting by focusing on these three areas: revenue and expenses, supply chain, and employees.

Supply Chain Risks and Cash Impact

As businesses and governments look to mitigate the economic impact of COVID-19, analyzing your supply chain has never been more important. To make sure you’re delivering the best possible product or service to your customers, you’ll need to know how reliable your supply chain is.

For example, consider how the crisis impacts your key suppliers. Will they be able to reliably supply the resources your company needs? Are any of your suppliers at risk of disruption — or worse?

To mitigate any potential supply chain disruptions, we recommend communicating with your partners early and plan for any cash flow impacts.

Employee Risks and the Cash Impact

For many companies, their most significant expenses are tied to employees. Whether it’s payroll, office perks, or discretionary spending, expenses related to labor are often the first to cut when times get tough. Of course, this doesn’t mean you necessarily need to reduce staff right away. Consider these tips to cut costs:

Reduce travel costs and non-essential meetings
Impose hiring freezes
Cut discretionary spending, like happy hours or training conferences
Shift work from contractors to permanent employees
Implement furloughs or voluntary unpaid leave

Revenue and Expenses

If you’re not already creating detailed revenue and expense reports, now is the time to start. As you review your reports, pay special attention to customers who may stop using your product or service. We also recommend looking for other expenses you can defer in the event of a cash flow crunch.

If you need additional support in this area, Signature Analytics can help your team by providing:

Operational Accounting Support
Technical Accounting & Reporting
Actionable Financial Analysis
Financial Consulting
Cash Management and Forecasting

Whether you need help with basic accounting or higher-level analysis and strategic planning, our expert-level team will look beyond the numbers and provide the support you need to navigate the current period of economic uncertainty. Reach out today to discover how Signature Analytics can position your company for brighter days ahead.

Part 1: Why Cash Flow Is More Important Than Ever Before

As COVID-19 rampages through the global economy, many businesses are trying to weather the storm. Several businesses have shut their doors in the name of public health, and others that remain open have seen a staggering drop in revenue as their former customers stay home. For others, some businesses have been able to quickly adapt and are even booming.

Nobody knows just yet how long this crisis will last, which leaves many businesses vulnerable. Even companies with solid disaster plans are finding themselves caught off-guard by the sudden and massive economic disruption. For business owners looking for guidance, the best thing you can do to survive a crisis is to take control of your cash flow — if you run out of cash, your business fails. It’s that simple.

If you find your business in crisis, there are steps you can take to minimize the damage. Analyzing your current situation, optimizing your payments, and reducing your cash to conversion cycle are three ways you can help your company make it through this uncertain business cycle.

Know Where You Stand

Understanding the full picture of your current situation is critical for managing your company’s cash flow. Start by reviewing your expenses, such as payroll and benefits, marketing costs, research and development, cost of goods sold, and any other general expenses.

Next, track the timing and amounts of cash inflows and outflows. Cash inflow happens when you get paid from customers purchasing your product or service, loans and borrowing, and asset sales. Cash outflows are payments you make, such as payroll, facilities expenses, and payments on debts.

Then, take a look at your bank balance and get the answers to the following:

How much cash is in your account?
Are you expecting any accounts receivable in the next week?
How much is due for accounts payable?
Are there any outstanding payments that haven’t cleared?

Conversely, if you are one of the businesses is weathering the storm successfully and experiencing high growth as a result, we still can’t stress the importance of knowing and understanding where your cash is flowing in and out of your business. If this goes unmanaged properly with the right processes and controls, you can find yourself in a challenging situation, especially as the banks become more conservative.

Review Reports Weekly

After you know your company’s cash status, the next step is keeping tabs on your financial situation with regular reporting. Consistent and accurate reporting gives you visibility to forecast future revenue and ultimately improve profitability.

If you typically generate monthly reports, consider shortening the duration to weekly during a crisis. The more often you review the numbers, the faster you can react to any swings in the market.

Look at your income and cash flow statements to create a projection, and combine this with key metrics from your balance sheet, such as:

DIO (days inventory on-hand)
DSO (days sales outstanding)
DPO (days payables outstanding)

Next, take a look at your expenditures. Record the amount your company pays for capital expenditures, debt repayments, and other operating expenses. As you’re recording this information weekly, pay special attention to how actual results differ from your projections. Analyze the differences and use your findings to refine and improve the accuracy of your forecasts.

Get a Handle on Payments

Your business has both short-term and long-term obligations that impact your cash flow. Short-term commitments are what keep you operating each day, such as payroll and inventory. Long-term commitments are typically capital investments and debts.

As you review your weekly reports, make sure your incoming funds exceed your outgoing obligations. If they don’t, look for ways to cut your expenses. Having funds that exceed expenses will ensure your otherwise profitable business has the cash on hand it needs to handle this and future crises.

Triage Accounts Payable

If you’re struggling with cash flow, the first order of business is to limit the amount of cash that goes out the door. Review your accounts payable and determine which invoices are most important.

Pay your invoices in order of priority, with the most critical payments going out first. Next, communicate with your vendors and try to negotiate new payment terms. If you’ve been a loyal client, you may find your vendors are willing to extend some flexibility.

Maximize Accounts Receivable

In addition to increasing sales, you can optimize your accounts receivable to boost your short-term cash flow. If you send out invoices on a set day each month, try sending them out early. Even if your payment deadline remains the same, your customers may wish to send in their payments in advance — adding an infusion of cash.

Another option is to encourage your customers to pay early. Consider creating incentives for early payment, such as a credit for future months or extra services.

You could also turn to technology for help. By delivering invoices electronically, you can shorten the time between billing and collection. You may also want to implement a vendor portal, which gives your vendors electronic access to view their invoices, make payments, and it streamlines communication.

As a bonus, new technology solutions also typically provide timely and robust reporting that arms you with the information you need to proactively resolve delinquent accounts or take full advantage of any discounts.

Optimize Operations

After reviewing your accounts payable and accounts receivable, look for efficiencies within your finance department. Implement new practices to reduce error rates on invoices and make sure collections are followed up upon promptly. Your team should also make sure you’re receiving all available volume rebates and trade spend initiatives.

Regularly review your supplier contracts and look for opportunities to negotiate more favorable terms and rebates. Benchmark your agreements against others in the industry and make sure they meet established standards.

Streamline Your Cash Conversion Cycle

Businesses with strong cash flow management policies and procedures in place typically have a shorter cash conversion cycle (CCC). The longer your CCC, the more working capital you’ll need to manage your operations. The shorter the CCC, the more manageable your cash flow through current operations.

Knowing this number will help you understand how long it takes to bring in cash. Knowing where you stand is the first step to improving your situation.

To calculate your CCC, use this equation:
Cash Conversion Cycle (CCC) = DIO (Days Inventory Outstanding) – DPO (Days Payable Outstanding) + DSO (Days Sales Outstanding)

One of the fastest ways a company can reduce its cash conversion cycle is to turn over inventory faster. It’s simple math. The quicker a business sells goods, the sooner it receives the cash influx from sales. Analyze your accounts and product offerings to identify products and services that aren’t profitable and reduce any slow-moving or obsolete profits so you can reduce your inventory.

For items you plan to discontinue, consider cutting your losses — even if it means selling them at a substantial discount. Selling these items at a loss will still bring in cash that can help you through a disruption.

You may also consider adopting a just-in-time strategy for inventory management. With this approach, supplies are delivered as they’re needed, instead of weeks, or even months, in advance.

One word of caution: If you’re adjusting your supply chain strategy, consider the cash-flow implications before making any changes.

For example, if your company sources products from low-cost countries, your price may be lower on a per-unit basis. But, you may also need to purchase a higher volume or stock up earlier to account for longer shipping time.

If you switch to a more local supplier, you may pay more on a per-unit basis, but you can purchase a lower volume of product on an as-needed basis. The ideal strategy depends on your company’s unique product mix, clientele, and financial situation. Make sure you understand the implications of each approach to make a more informed decision.

Make It Through Uncertain Times

How your business makes it through the COVID-19 crisis depends directly on your cash flow. Understanding where your business stands, streamlining your accounts payable and receivable, and reducing your order to cash cycle will give you the best possible chance you have to make it through these uncertain times.

If you need additional help with cash flow management, including developing detailed financial projections, reducing your order-to-cash cycle, or strategic disaster planning, contact Signature Analytics.

Our team of accounting and finance experts has a wealth of knowledge and experience in a variety of industries so that we can provide the best level of expertise and service to support your business during these trying times.

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

As COVID-19 spreads across the globe, bringing with it shelter-in-place orders, shuttered businesses, and widespread economic uncertainty, many businesses are operating in crisis mode.

Nobody knows whether we’ll be back to business as usual by summer, or if the effects will ripple through the economy for a year or more. But there are steps you can take to keep your business solvent in the coming weeks and months.

Step 1: The first step to weathering the storm is to take control of your cash-flow situation. And do it now. After all, if you don’t have enough cash to maintain your operations, your business fails.
Step 2: Ask yourself, but what happens after that? Not only are businesses unsure of their day-to-day operations, but it’s also unclear how their supply chains and clients are handling the disruption.
Step 3: Find out if will you still be able to receive the supplies you need for your operations. Are your customers cutting back on your product or service as they create their crisis plans?

The only way to gain a better understanding is through proactive communication. Reach out to your vendors and customers to understand the issues they’re facing. Knowing the effects on your partners will help you get ahead of problems, understand the impact on your market and supply chain, and position your business to alleviate some of their challenges.

Here we have created a tangible guide on what to ask your vendors and customers, and what steps you should take to preserve your cash flow and secure your business.

Review Vendors and Contracts

The first thing to do is to review your vendors and take action to preserve your cash flow. Make a list of each vendor you work with and determine which partners are essential — and which are not. Next, review all of your contracts and agreements to find the payment terms for your major vendors, suppliers, and other expenses.

Once you know which vendors are essential and the payment terms of your contracts, it’s time to make a plan. If you’re amid a cash flow crunch, use the list you created to determine how you’ll manage your accounts payable.

From there, prioritize payments to your major suppliers and vendors, because these people will keep your business open. For non-essential vendors, slow payments to prevent valuable cash from going out the door. If you’re struggling to pay vendors, the next step is to negotiate payment terms. Talk to your key vendors and explain your situation. If you’ve been a long-term partner, you might find that they’ll offer you flexibility. If your vendors are struggling with their cash flow crisis, they may be willing to take partial payments or negotiate another arrangement to bring cash in the door.

When it comes to expenses such as office leases and facilities, reach out to your building’s owner or property manager to proactively offer a payment plan that aligns with your adjusted cash flow. By communicating potential issues in advance, your landlord will be more confident that they will continue to receive payments — and preserve their cash flow. If you need help structuring a payment plan or working with property managers, a real estate broker can assist.

Learn How COVID-19 Impacts Your Vendors

As you talk to your vendors and make plans to preserve your cash flow, find out how the virus is impacting their businesses. To minimize disruption, assess whether your vendors can continue to provide service, at what level, and for how long. If you’re not entirely confident that your vendors can continue to supply critical goods or services, it’s time to create a contingency plan.

If your business is in a strong position to endure the economic downturn, look for opportunities to increase your revenue after the crisis. A profitable acquisition for your company could be subcontractors or other partners who are struggling to make it through.

In addition to understanding how Coronavirus is impacting your vendors, be proactive about the effects your business is facing. Tell them how your company is handling the virus, how you’re affected, and any other relevant information. Just as your vendors impact your cash flow, your business impacts their cash flow. Being proactive and upfront with your status creates goodwill, but more importantly, gives your partners information to forecast their revenue and devise contingency plans.

Know Your Market: Talk to Clients and Customers

Your vendors are not your only priority. Reviewing your clients and customers is critical to find potential risks to your cash flow. Evaluate your key accounts and determine who may be likely to cancel or delay their orders or service contracts. For those who may be at risk of cancelation, reach out to those clients about delaying or pausing service. While your cash flow will still be impacted in the short-term, delaying contracts makes it more likely your business will recover in the long-term.

Additionally, consider restructuring the payment terms of your contracts or working with your clients to create other short-term solutions. When it comes to maximizing your emergency cash flow, maintaining some level of accounts receivable is still preferable to none at all. When business returns to normal, it will be easier to resume payment from clients who pause or modify their payments than it would be to repeat the sales process.

Learn How COVID-19 Impacts Your Clients

After you’ve analyzed which clients are the most affected, learn how the virus is affecting the rest of your customers. In particular, determine which clients may struggle to make on-time payments. Proactively work with them to create a plan that benefits both of you. Negotiate payment plans that encourage payment instead of default — even if that means a short-term delay.

For those clients who are in a strong position to navigate the crisis, take advantage of their position to bolster your cash flow. Send invoices earlier than you typically do to encourage early payment. Consider offering discounts to those who pay in advance, so your business can benefit from the infusion of cash.

Don’t forget to update your clients on how Coronavirus impacts your business. Provide transparency on what changes will affect their service, communicate flexibility with payment terms, and speak to other ways your business can help them navigate through this period. This information will give your clients peace of mind while building long-term goodwill that will last long after this pandemic.

Minimize Disruption With Proactive Communication

The sudden, drastic disruption to daily life caused by the COVID-19 pandemic is unlike anything most of us have ever seen. By proactively communicating with vendors and customers, you’ll have a clearer picture of how their business is affected, and in turn, how your business will be affected. Having a full understanding of the effects will give you the information you need to create a strategic plan, maintain positive cash flow, and weather the storm.

If you need help analyzing the risk to your business, improving your cash flow, or disaster planning, contact Signature Analytics for a free consultation. Our expert team of finance and accounting professionals has experience with a wide variety of industries and business sizes, providing us the expertise to guide your business through these challenging times.

10 Liquidity Options for Businesses During COVID-19 Outbreak

Liquidity is one of the most important factors in your business. It means whether you can pay your current obligations using your existing assets. In simpler terms, can you pay your bills and make payroll this month? It’s easy to see that liquidity is a key factor in keeping your doors open over the next few months of uncertainty.

Even if you aren’t worried about making your payments in the short-term, should you be looking into liquidity options now?

The short answer is: yes, especially if you’re conducting some scenario analysis to help with decision making. We’ve gathered 10 great ways to increase your liquidity and cover expenses during the current economic conditions. Whether you need them today or may need them in the future, it’s a great idea to freshen up on your options.

1. Reduce Overhead

Reducing overhead can help get your business through tough times. It’s best to be proactive with this and begin taking steps to reduce costs before you’re faced with financial trouble. Here are some ways you can start:

Eliminate non-essential expenses
Freeze hiring for open positions
Cancel business travel and opt for video conferencing
Reduce hours of part-time staff where possible
Eliminate non-essential part-time and salaried workers as a last resort

2. Negotiate with Lenders

As the COVID-19 outbreak continues, it’s important to nurture your relationship with your current bank and credit card companies to strengthen their trust in your business. Remember that everything is negotiable. Here are some things you can consider:

Review the terms for all business loan agreements and revolving lines of credit (RLOC)
Consider refinancing debt to extend terms and reduce payments
Negotiate reduced interest rates on loans and credit cards
Request a credit line increase for credit cards and ROLC
Negotiate to pay only interest on the debt if finances become tight

The best way to start this is to request a meeting with your banker and the decision-maker at your bank. A face-to-face meeting is ideal, but with the COVID-19 restrictions, you’ll need to stay 6-ft apart. Or, opt for a video conference as a last resort.

Plan ahead and make sure to have up-to-date financials ready to present to them. Outline your plan to pay back the debt and steps you’re taking to reduce costs in the immediate future. All of this will help build the bank’s confidence in your business.

You should be prepared to offer a personal guarantee or additional collateral in order to secure additional financing. This will show that you’re committed to the business and are stepping up as an owner.

3. Special Government Programs for COVID-19

There are special programs being developed through the government for COVID-19. It could take a while to receive funds because the programs are still being created, but it’s good to start the process now.

We’ll be posting government programs as they become available in our: Coronavirus Business Resource Center.

Business owners can apply directly to the SBA for an economic injury loan. You will need to document the loss of revenue from the COVID-19 disaster, which your representative at Signature Analytics can help with.

Check out additional information here: https://business.ca.gov/coronavirus-2019/.

In the meantime, you should prepare for submitting a full lending package to the SBA, including all the information listed here:

3-year federal business tax returns
Current interim (end of last month)
AR & AP agings (end of last month)
12-month projection prior to COVID-19
Reforecasted 12-month projections
Spreadsheet of the loss of revenues calculation along with fixed expenses for the same period
Updated Personal Financial statement for all owners, greater than 20%
3-years federal personal tax returns

All of the above items will be required. The SBA will make credit decisions based on a complete package for each and every business. Get a head start gathering these items and put them in a secure drop-box or data room (current best practice)

If you need help putting your lending package together for the SBA, Signature Analytics can help. We have experts available to help you get the funding your business deserves. Contact us today to get started on this process.

4. Financing Options

Check your terms with current vendors and negotiate an extended payment period. Increasing your payable terms out to 30-180 days, depending on your relationship with the suppliers, can help you cover urgent invoices.

You can also look at financing companies to secure additional funding. They may offer more flexible terms than traditional lending sources, but they’ll also look at your collateral in much greater detail. Consider some of these options:

If you choose to use a financing company, make sure you look at the total cost of the funds. They will have more fees and higher rates to offset the increased risk.

5. Use Business Assets

Your accounts receivable and equipment can help you get cash in a pinch.

An asset-based lender will provide your financing based on your monthly AR. This is a great option for businesses with creditworthy customers. Furthermore, factoring your accounts receivable might be a solution too. Selling your accounts receivable can increase your cash fast, but you won’t receive as much as if you were to collect the invoices in full yourself. You’ll incur a fee, plus the receivables you sell will only be sold at a percentage of their full value. Make sure you know the down-side to each available solution.

In addition, you can use existing equipment as collateral for loans. Companies like Ford Financial and LendSpark will arrange an appraisal of the equipment and could grant you a loan based on its value. Always, understand the full cost of this type of financing before committing.

6. Use Real Estate

Real estate is one of the best forms of collateral that a business owner may have available. Know that the process could take a while, so try to prepare in advance as best as you can. Here are some things to know:

Underwriting, appraisals, environmental reporting, and other due diligence can take 30-60 days
Loan-to-value (LTV) ratio is generally less than 85% of the appraised value, meaning you can’t count on the full value of the real estate
Some SBA lending programs allow an LTV ratio of up to 90%

If you choose SBA options, make sure you’re working directly with someone who has done hundreds of SBA loans in their career. There are lots of requirements and specific paperwork to complete because SBA is a government guarantee of the loan. The process will take quite a bit of time and having the help of an expert is crucial. Harvest CRE is an option.

You can choose to work with banks. They may have more conservative terms and will likely want you to have a deposit account at the institution.

Non-bank lenders, such as Harvest Small Business Finance, may be more flexible with terms. Plus, you will not have to move your deposits to them in order to receive the loan. However, they can be more expensive. Just check your options before you commit to anything.

What about home equity?

Home equity is another great option to add liquidity if your owners have this option available. Owners can refinance their personal properties for potentially lower rates right now.

7. Friends and Family

Your friends and family know you and understand your business. You can lean on your existing relationship with them to secure funds. Be transparent with them and provide a solid plan on repayment, including a return on their investment. Sign and document the terms of the loan just like you were dealing with a bank or private equity.

Mixing personal and business relationships, especially with money involved, can be tricky. Be prepared for this to affect your personal relationship, whether for better or worse.

8. Merchant Card Advance

(Warning Read the Details) A merchant card advance can be helpful in a pinch. If you receive most of your revenues by credit card payment, you can secure an advance from the merchant card. In return, the merchant will take a percentage of your future sales until the loan is paid, or you can arrange daily or weekly payments instead. It’s an easy way to get money, but it also comes with higher rates and fees, so look closely at the repayment plan. Make sure you have a dedicated way and plan to pay this debt off.

9. Mezzanine Finance

Mezzanine financing is an industry-specific, strategic capital that can be used for growth. This unsecured debt is usually subordinate to senior lenders. HCAP Partners is a solid option.

10. Private Equity

Private equity can give you cash in return for a stake in your business. Beware of investors who are looking to take advantage of the current situation. On option during this pandemic, ask for convertible note terms so you can refinance the note and protect your ownership position.

Final Thoughts

As you navigate through the COVID-19 outbreak, you can think outside the box for ideas on liquidity. Remember that everything is negotiable. With the uncertainty ahead, make sure you’re asking questions and preparing your financials. When you do need financing, you’ll want to let your numbers tell your story and show how your business is performing.

And if you want a trusted advisory by your side to help guide you along the way, contact us today.

Planning and Managing Your Banking Relationship During COVID-19

The recent outbreak of COVID-19 has drummed up feelings of uncertainty among individuals and businesses alike. With each passing day, new developments paint bleak pictures of future finances on both personal and organizational levels. We can all agree that everyone has more questions than answers about the best way to move forward into the uncharted waters ahead.

However, there are plenty of actions that you can take today that will help relieve financial stress and set you on a path to continued success. Most of these require very little extra effort on your part, but the payoff can be tremendous. In fact, whether you take action on your finances now could mean the difference between your business thriving into this next decade or closing its doors by the end of the year.

We’ve gathered some of the best ways to ensure your business stays successful through this difficult time and we’re ready to share them with you today.

Our biggest piece of advice to you: be proactive and drive the communication with your banking relationships starting today. You may need to lean on your bank through this time. As you move through these next few months, show your bank that you are prepared by keeping up-to-date with your business finances. You’ll gain the bank’s confidence and prove that your business is reliable, which will help you gain their support during the crisis.

Stay Informed

The best way to start managing your banking relationships right now is to stay informed on what’s happening. You can take some steps to learn how your business appears in the eyes of the bank. That will help you anticipate what the bank may do with your financing in the future.

Ask About Problem Loans in Your Industry

Ask your bank if there are loans in their portfolio that have been downgraded. What industries are being impacted? If other businesses in your industry are at risk of defaulting on loans, your bank may take extra precautions with any/all clients who touch that industry.

The bank could evaluate all the loans from businesses in the “bad/tainted” industry. Unfortunately, this can mean that your business is asked to exit the bank entirely.

Check Risk Ratings on Loans

Every business and real estate loan with the bank has a risk rating. The risk rating determines how much capital the bank must allocate to its loan loss reserve in case the loan goes bad. For example, if a $1 million term loan is assigned a passing risk rating, the bank may only have to reserve 1% of the loan ($10,000). That means the bank would have $10,000 expensed on their income statement for that particular loan in the month the loan is funded.

If that same term loan is downgraded to a “Watch” risk rating, the bank would increase the loan loss reserve to 10%. In that case, the bank would have an additional $90,000 expensed through its income statement during the month of the downgrade.

Why is this important for you?

If the bank begins downgrading your loans and assigns them a higher risk rating, this means the loans are more expensive to the bank and greater risk of write-off. The bank will attempt to pass those costs onto you along with asking you to exit the bank.

Know What Assets are Worth

If you need to apply for additional financing, the bank most likely will ask for collateral. Each bank is different given their credit appetite, but here’s a quick look at what your assets could be worth:

Accounts Receivable: 60-80% advanced rate
Inventory: 15-50% advanced rate for raw materials and finished goods, though it’s tough to finance inventory unless it’s a commodity
Fixed Assets: 50-90% advanced rate, but will require an appraisal
New Equipment: 80-95% advanced rate based on the Purchase Order (hard costs)
Real Estate: 60-85% advanced rate

Proactive Communication

We can’t stress this enough. Most business loan agreements have a default clause regarding “Insecure” to be an Event of Default. If the bank considers your loan in default because of insecurity, they can demand immediate repayment.

How do you prevent this?

The best way to keep the bank from feeling insecure about your business is to communicate with them. You can request a one-on-one meeting with your banker and their supervisor. Under the current conditions, it may be best to use a video conference technology instead of having a face-to-face meeting.

Talk with your banker about the state of your industry, business and how you’re handling any financial changes. If you plan to draw on your revolving line of credit (RLOC), make sure you communicate your plans to your banker and explain your plan for repayment. Keeping them in the loop will help them feel more secure about your relationship and could prevent them from putting your loan(s) into default.

You may consider inviting your banker to a virtual meeting with some of your other trusted advisors. This could include your CPA, attorney, fractional CFO, and board members. If you work with us already, we should be included as well. If your banker is there, they will further understand what’s happening in your business and how your leadership is taking action.

Update Your Bank Often

Keeping your bank updated on your business financials can help them have confidence in your business. Even if your numbers aren’t where you’d like them to be, being upfront about where your business is can help ease any doubt that the bank has. If a business isn’t willing to share what’s happening, that could mean they’re in trouble.

As you move through uncertainty, continue reporting on a timely basis and within the financial covenant(s). Be proactive with your communication if something is going to be delayed. Instead of reporting information late, request a waiver from the bank ahead of time. It’s a simple step that can help improve the bank’s confidence in your business.

Here are some things you can consider updating with your bank as you move through the next several months:

Monthly financial statements, including balance sheets, income statements, inventory reports, budgets and forecasts, AR and AP aging reports
Weekly cash flow statements and forecasts
Updated personal financial statements on all owners with more than 20% stake in the business

Above all, make sure you’re providing any information that the bank requests in a timely manner.

Update Financing

The need for additional financing, or to modify existing terms, might arise as you move through the next several months. Even if you don’t believe it will, it can be a good idea to request extended loan terms now in order to prepare. The banks could get overwhelmed with requests over the next several months. If you can be proactive and start requesting amended loan terms or additional financing now, it can help you secure funds that may be unavailable to you later in the year.

What’s the best way to do this?

Before you approach your bank with the request, make sure you’ve built a strong case. Doing your homework and preparing for the meeting will help communicate that you are leading your business to your banker. You’ll build trust and credibility with the extra effort, which can increase your chances of being approved.

When you do have the meeting, request that the decision-maker attend the meeting. That may be the credit officer, bank president, or other executives at the bank. Present your case to them, including your cash flow and repayment sources. Explain your plan for debt servicing the additional debt and also provide a 12-month budget to further demonstrate how your business will be able to cover the financing.

Take Action and Plan for the Future

As you move through the next several months, there are a few things your business can do to keep things moving smoothly.

Rely on Owner(s)

The owner(s) of your business may have some personal funds/ assets available that they could loan the business in order to keep the doors open. You can either consider this as paid-in capital or subordinated debt (consultant your tax CPA).

If you choose to use the funds as a subordinated debt, make sure you properly document it. Allow the bank to subordinate it to the bank’s debt, which shows that your business is willing to do what it takes to strengthen your relationship with the bank.

Reduce Cash Outflows

This can seem like an obvious, yet difficult, solution to financing problems. Reducing cash flows should be done carefully and cautiously.

What’s the best place to start?

Determine how much cash your owner(s) need to live each month. Then, you can defer their salary and/or distributions until later in order to cover more urgent cash outflows today. Just make sure you have this properly documented on the balance sheet so there are no questions later. Don’t forget to communicate this plan of action with your lenders.

Reach Out for Help

If you feel uncertain during these times, you’re not alone. Know that you can enlist the help of a specialized business partner to get you through all of this. A business advisor can help guide your business on the right path and help you keep your doors open during this uncertain time.

What could Signature Analytics do for your business?

Evaluate your current financial state
Forecasting to understand future financing needs
Assistance with budgeting
Help secure additional financing
Negotiate loan terms
Strengthen your relationship with the bank

SA can help you understand what kind of changes you need to make today in order to stay ahead of the game. Having a team of strategic thinkers in your corner will help steer your business toward a path of success.

Final Thoughts

Being proactive is essential during uncertainty. Banking relationships will be crucial as you move through the next several months. In order to stay on good terms, you can take a few extra steps in order to strengthen trust with the bank.

Communicate with your bank often and update them on what’s happening in your business. Request extended terms or additional financing now to beat the rush in the coming months. As always, lean on experts when you feel unsure of what to do next.

If you need support getting your financial information in order, contact us right away. We can be your partner in communicating with your bank and other financial relationships ensuring the right information is provided when the bank needs it.

A Summary: Families First Coronavirus Response Act

Read the full summary of the Families First Coronavirus Response Act here

On March 18, 2020, H.R.6201 The Families First Coronavirus Response Act was signed into law to provide economic relief to businesses and individuals during the COVID-19 pandemic. The legislation provides paid sick leave, free coronavirus testing, expands food assistance programs, extends unemployment benefits, and requires employers to provide additional protections for health care workers. The law takes effect on April 2, 2020, and will remain effective until December 31, 2020.

The legislation is broad and includes relief acts in a number of areas including:

Supplemental appropriations to the Department of Agriculture (USDA) for nutrition and food assistance programs and appropriations to the Department of Health and Human Services for nutrition programs that assist the elderly
Requires the Occupational Safety and Health Administration (OSHA) to issue an emergency temporary standard for infectious disease exposure control plan to protect health care workers
Establishes a federal emergency paid leave benefits program to provide payments to employees taking unpaid leave due to the coronavirus outbreak
Expands unemployment benefits and provide grants to states for processing and paying claims
Requires employers to provide paid sick leave to employees
Establishes requirements for providing coronavirus diagnostic testing at no cost to consumers
Treats personal respiratory protective devices as covered countermeasures that are eligible for certain liability protections
Temporarily increases the Medicaid federal medical assistance percentage

The main changes that businesses should be aware of are the federal emergency paid leave benefits program and the requirement for employers to provide paid sick leave to employees.

Emergency Family and Medical Leave Expansion Act (the “FMLA Expansion Act”)

H.R. 6201 expands the existing Family and Medical Leave Act (FMLA) to include job-protected leave for employees that are unable to work due to child’s school or daycare closure due to COVID-19. Employers with less than 500 employees must offer up to 12 weeks of job-protected leave to employees unable to work (or telework) because they must care for a child (under 18 years old) whose school or care provider is closed due to COVID-19 emergency declared by a federal, state, or local authority. Employers can seek reimbursement for the wages paid to employees taking emergency family and medical leave through tax credits applicable to the employer’s portion of Social Security taxes.

Employees must have been working for the company for at least 30 days to be eligible. The first 10 days of leave may be unpaid. After 10 days of unpaid leave, employers are required to provide paid leave of not less than two-thirds of an employee’s regular rate up to $200 per day or $10,000 total. Pay for hourly employees whose schedules vary is calculated using the average number of hours worked for the prior six months, or the “reasonable expectation” of the number of hours when hired if they’ve been with the employer for less than six months. The employer can require the employee to utilize any accrued vacation leave, personal leave, or other medical or sick leave first.

Generally, after the leave period, the employee is eligible to return to the same or equivalent position with their employer. Certain exemptions to this requirement are available for employers with less than 25 employees.
Small businesses with less than 50 employees may be exempted from the leave requirement by the Secretary of Labor if the requirements would jeopardize the viability of the business.

Emergency Paid Sick Leave Act

This requires employers with fewer than 500 employees to provide paid sick leave to employees if they are unable to work (including telework) due to COVID-19. Employers can seek reimbursement for the wages paid to employees taking emergency paid sick leave through tax credits applicable to the employer’s portion of Social Security taxes.

Full-time employees are to receive 80 hours of paid sick leave. Part-time employees are to receive the equivalent of the number of hours they would work, on average, during a two-week period.

The requirement applies to all employees, regardless of their tenure with the employer and paid sick leave time does not carry over into the next year. The emergency paid sick leave is in addition to any other paid sick leave or PTO already offered by the employer and does not require other paid sick leave or PTO to be used first.

Emergency paid sick leave applies to employees who meet one of the following requirements:

The employee is subject to a quarantine or isolation order for COVID-19
A health care provider advised the employee to self-quarantine due to COVID-19
The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis
The employee is caring for an individual who is subject to quarantine or isolation order for COVID-19
The employee is caring for their child whose school has been closed or place of care is unavailable due to COVID-19 precautions
The employee is experiencing any other substantially similar condition (to be defined by the Secretary of Health and Human Services)

For reasons 1 – 3 above, employees will receive paid sick leave at their regular rate, not to exceed $511 per day and $5,110 total.

For reasons 4 – 6 above, employees will receive paid sick leave at two-thirds of their regular rate, not to exceed $200 per day and $2,000 total.

The Secretary of Labor is required to issue guidelines and additional clarification to assist employers in calculating leave benefits by April 2nd. Additionally, employers must post a notice to employees and The Secretary of Labor is required to create a notice by March 25th.

Small businesses with less than 50 employees may be exempted from the leave requirement by the Secretary of Labor if the requirements would jeopardize the viability of the business.

Employer Tax Credits

H.R. 6201 provides for employer tax credits to offset the costs associated with the new paid public health emergency leave and sick leave required for employees. Employers can seek reimbursement for the wages paid to employees for emergency paid leave and emergency paid sick leave through tax credits applicable to the employer’s portion of Social Security taxes. The amount of the paid sick leave credit that is allowed for any calendar quarter cannot exceed the total employer payroll tax obligations on all wages for all employees. The amount over this limitation is refundable to the employer.

Final Thoughts

We recommend that you work with your employment lawyer and tax CPA on the implications applicable to your unique situation. Signature Analytics is here to support you and can provide references to our partner network of legal and tax experts.

A Summary: Federal Income Tax Payment Deadline Extended to July 15, 2020

Cash Management & Forecasting, Managing Market Uncertainty During COVID-19, News

What you need to know

Income Tax Filing and Payment Deadline Extended to July 15, 2020

On March 18, 2020 the U.S. Treasury Department and Internal Revenue Service (IRS) issued guidance that will allow most individuals and businesses to delay federal income tax filing and payments due on April 15, 2020, until July 15, 2020, without penalties or interest. This emergency declaration will allow more liquidity for individuals and businesses during the COVID-19 pandemic.

How the guidance applies:

Individuals and other non-corporate tax filers

May defer up to $1 million of federal income tax (including self-employment tax) payments due on April 15, 2020, until July 15, 2020, without penalties or interest

Corporate tax filers

May defer of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest

If you will be receiving a refund, it is in your interest to file as soon as possible to get your refund sooner. The guidance is unclear if the deferment applies to trusts or upcoming quarterly tax payments.

On March 18, 2020 the California Franchise Tax Board (FTB) also announced that it will be postponing the filing and payment deadlines for all individuals and business entities until July 15, 2020. The change in deadline applies to the following California state returns and payments:

2019 tax returns
2019 tax return payments
2020 1st and 2nd quarter estimate payments
2020 LLC taxes and fees
2020 Non-wage withholding payments

Final Thoughts

We recommend that you consult with your tax CPA on how the guidance applies to your unique situation. Signature Analytics is here to support you and can provide references to our partner network of tax experts.

Resources:

View the IRS Notice
View the California FTB Notice

The Importance of Cash Flow Management for Small and Mid-size Businesses

“Cash is King.” We hear this phrase time and time again, but why is it so important for small and mid-size businesses? The short answer – if you run out of cash, your business fails. Seems obvious, right? However, what may not be as obvious is that being profitable is not the same thing as being cash flow positive. In fact, many businesses that show profitability within their financial statements have ended up in bankruptcy because the amount of cash coming in does not exceed the amount of cash going out.

As an example, consider a service company that just started with a new customer. In January, the company provides the service and invoices the customer on January 31st. The company recognizes the revenue from that customer in January, but probably does not collect the cash until February or March. Meanwhile the company had to pay its’ employees on January 15th and the 31st. Thus cash outflow exceeded cash inflow in January. When you multiply this scenario by hundreds of customers, or consider a month with significant customer growth, you can see how the company could run into cash flow issues.

If a company cannot balance the cash inflows with the proper cash outflows then their profits on paper or supposed net-income are meaningless. Firms must exercise good cash management otherwise they may not be able to make the investments needed to compete, or might have to pay more to borrow the money they need to function.

What the Experts Say About Cash Management

Several industry leaders and associations have all found that cash flow problems can be one of the leading causes of failure for businesses…

82% of businesses fail due to poor cash flow management / poor understanding of cash flow.
— Jessie Hagen of US Bank

Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow. Poor cash flow management is causing more business failures today than ever before.
— Philip Campbell, author of Never Run Out of Cash (Grow & Succeed Publishing 2004)

Insufficient capital is one of the main reasons for small business failure, coupled with lack of experience, poor location, poor inventory management and over-investment in fixed assets.
— U.S. Small Business Association (SBA)

A Case Study: Importance of Monitoring & Analyzing Cash Flow

One of our clients, a media company, believed they needed a significant capital infusion to support their growth plans, but were uncertain when and how much capital would be required. So we generated a detailed five year cash flow projection to forecast and identify all the time periods in which the company’s cash balance would become negative.

Analyzing the company’s cash flow projections revealed that they would require additional capital even after reaching profitability which is actually typical for early-stage companies, or companies in a high-growth mode. The projections also revealed that the amount of capital required to remain cash flow positive was 50 percent higher than they had initially anticipated.

Knowing their true capital needs allowed the company to raise the appropriate amount of capital required to support their growth plans and, more importantly, ensured they would not run out of cash.

Read the full case study here.

Monitoring Cash Flow for Your Business

Achieving a positive cash flow does not come by chance. You have to work at it. Companies need to analyze and manage their cash flow to more effectively control the inflow and outflow of cash. The Small Business Association recommends monitoring cash flow on a monthly basis to make sure you have enough cash to cover your obligations in the coming month.

By proactively getting in front of your future cash needs, you can make the right business decisions to solidify your cash position, and establish a foundation for growth.

We Can Help

The process of creating and managing to an operating cash flow budget is not intuitive or easy for most small and mid-size business owners. If you need assistance managing your company’s cash flows, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

Download our latest e-book:

Why You Need Financial Scenario Planning for What Ifs

Accounting & Financial Analysis, Managing Market Uncertainty During COVID-19, News

If you’re not familiar with “what-if” scenario analysis, it’s time you familiarize yourself and jump on board. This type of planning can reveal unanticipated difficulties that can destabilize a project, making it a valuable analytical tool.

By helping you prepare for such adversities, financial scenario planning gives you a proactive edge on the situation. What-if analysis might seem like a daunting process, but it will help you make decisions to help your company thrive – or become more prepared – especially during more undesirable times.

Why You Need To Plan For What Ifs

What-if scenario planning can give you a distinct edge over the competition because your company will be prepared for a quick response and viable solution for problematic situations.

Once you incorporate scenario planning into your operations, you will have strategies on hand for virtually any situation.

For example, let’s say you want to see how a supply delivery at a later date will affect your project costs. You create a scenario around this idea and add in the appropriate circumstances that could impact your business, whether positive or negative. Running through the scenario will show you the potential outcome, and help you determine the best course of action.

Financial scenario planning is also a vital part of the business decision-making process. It helps you figure out the best and worst-case scenarios so you can anticipate possible profits or losses.

What are the Three Stages of Scenario Planning?

When you’re planning for various financial scenarios, you will generate several probable future contexts for your company, the industry you are in, and also the economy. These possibilities will include individual scenarios, like variables such as operating costs, product pricing, inflation, customer metrics, and interest rates.

Typically, you will begin with three separate scenarios:

Base case scenario: You can use your data from the previous year in this situation, as this is a good predictor for the next twelve months. If you saw growth within your company during the last year, say 10%, you can assume the same growth rate will follow in the next year.
Best-case scenario: The best-case is to think outside the box and try to imagine a situation in which your sales projections turn out as you hope over the next year. For example, holding onto your current customers, adding new ones, or making an acquisition. Although you are creating a best-case scenario, the data you use should still be realistic. For example, if your company is experiencing an 85% monthly retention rate, you could increase it to 90% for the sake of this scenario.
Worst-case scenario: The worst-case will prepare you for potential problems. It can help you avoid issues or at least prepare for them by creating an action plan.

How to do Financial Scenario Planning

It’s crucial that you build scenarios into your company’s financial model so you have a full understanding of how different variables can impact your company. Here are some steps you can follow to get started with financial scenario planning:

Make a list of all the potential occurrences you want to develop scenarios for
Flesh out the details for each scenario
Make sure to include the three stages for each scenario: average case, best case, and worst case
Make sure you are consistent throughout the planning of each scenario

What are the Benefits of Scenario Planning?

Analyzing your company and predicting its future is a risky business. Financial scenario planning can give you the edge on different possibilities and you and your company can benefit in many ways, including:

Planning for the future: Scenario planning allows you to give investors a preview of the potential returns and risks involved in future investments. Your goal is to increase your company’s revenue, and the best way to do so is by using up-to-date calculations.
Avoiding risks and failures: Financial scenario planning can help you avoid making poor investment decisions. As you are taking the best and worst possible case scenarios into account, you can make more informed decisions.
Keeping you proactive: By being proactive and staying on your toes, you can minimize potential losses from factors beyond your control. Creating worst-case scenarios allows you to assess possible damage and avoid these circumstances, or at least prepare for them.
Enabling you to project investment returns or losses: Financial scenario planning gives you the tools to calculate potential investment gains and losses and provides you with measurable data. You can use this data to maximize the outcome.

Who Can Help With Financial Scenario Planning

A CFO is an ideal person to help with financial scenario planning. They can play an important part in this process because they are a successful executive who is an expert in strategic financial management. As an expert, they are responsible for managing short-term assets and available resources and developing strategies to leverage these resources.

Furthermore, a CFO should be able to maintain the company’s long-term financial health and profitability. A good CFO will analyze the cash flow, income statements, and balance sheet to monitor the company’s well-being while simultaneously making the most of the assets.

To do this, they need to have certain information at hand. Financial scenario planning can help them acquire this information by answering the following questions:

How can the company combine short and long-term assets to maximize profitability?
How can the company best finance upcoming projects?
How can the company maintain a healthy balance between debt and equity?
How can older assets generate future revenue?

What are the Benefits of a Fractional CFO

If you’re running a small- to medium-sized company, you may believe hiring a CFO is out of the realm of your budget. However, this is not the case. If you hire a fractional CFO, you can reap all the benefits of their financial expertise without it costing a small fortune. Here are a few of the benefits:

You’ll save money because you won’t have to pay a salary or benefits
You’ll save time because you won’t have to advertise, interview, or train
You can ensure that you have a CFO who is qualified and experienced

No matter how effective your company is, it won’t be able to maintain steady growth phases if future projections and developed strategies are not made for when issues arise. Your business potential relies on your ability to evaluate your company honestly daily. This ability includes the evaluation for ways to improve efficiency, minimize waste, boost performance, and develop solutions for how your company can succeed through positive and negative economic conditions.

Hiring an outsourced CFO can make a big difference to your company when it comes to these endeavors and securing a financial plan to ensure you’re making the right business decisions.

Having an experienced financial business advisor to run through scenario planning and caution you of the possible outcomes can make the difference between a successful organization and a failing business.

If you are considering hiring a fractional CFO, contact Signature Analytics today. We can provide you with qualified and experienced CFOs, regardless of your industry.

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.

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?

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.

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.

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.

5. Board & Investor Communications

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

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.

A Solution That’s Right For You

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

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

The 3 Financial Statements Every Leader Needs

News, Technical Accounting & Reporting

As a business owner, financial data is critical to your success — but only if you know how to interpret the meaning behind the numbers correctly. Most owners or leaders within an organization rely on the aid of an accounting team to accurately analyze and organize financial data. Still, when it comes time to make a big decision, it’s up to you to do so based on the gathered information.

There are at least three primary financial statements your accounting team will (read: most definitely should) be presenting to you regularly: income statements, balance sheets, and statements of cash flow.

With a solid understanding of each financial statement, you can unlock powerful insights to help you compete more effectively in the marketplace, achieve better terms from vendors and suppliers, and offer accurate projections to both internal stakeholders and lending companies alike.

Income Statement

The income statement (also called a profit and loss statement or P&L statement) measures the profitability of your business during a specified accounting period. This statement assesses all of your business’ revenue and expenses, and then reports a net profit or net loss.

By industry standards, this is the most influential of the three significant statements. This report shows where the money is allocated and breaks down business costs into categories.

Importantly notated are costs directly related to goods and services. It also calculates your company’s earnings from multiple viewpoints, reporting not only the net earnings (your bottom line) but also an assessment of the business’ productive efficiency before the impact of taxes and financing.

It’s helpful to compare multiple income statements from different accounting periods to monitor whether your business is becoming more or less profitable over time — allowing you to adjust your spending and production processes accordingly.

Balance Sheet

The information on the balance sheet is monumentally more valuable when viewed in conjunction with your income statement. For instance, you can use the data from the balance sheet to determine how many investments are required to support the bottom line shown on your income statement.

While the income statement focuses on one specific accounting period, the balance sheet shows a snapshot of your overall financial health on a particular day by using a simple equation: liabilities + equity = assets.

These factors give you an idea of what the business owns (assets), what it owes (liabilities, including short-term expenses and long-term debt), and how much capital shareholders have invested (equity). As the name suggests, the two sides of the equation in your balance sheet should balance out.

Statement of Cash Flows

The cash flow statement does just what the name implies — it reports on the flow of cash into and out of your business. Unlike the income statement, which breaks down earnings and expenses into more specific categories, the statement of cash flows focuses on the overall amount of money coming in (inflow), compared to the amount of money going out (outflow).

To find this data, it takes precise calculations using the following equation: starting cash balance + cash inflows – cash outflows = ending cash balance.

Cash inflows include sales, loans, and accounts receivable collections. Alternatively, cash outflows include equipment costs, inventory, and expenses paid. The statement of cash flows presents the most transparent view of a company’s cash variation. In other words, what caused the balance in your bank account to increase or decrease.

Even Harvard Business School agrees that the number one finance skill a leader needs is an understanding of their financial statements and you can’t argue with Harvard right?

Once you have an understanding of these top three financial reports, we encourage you to have your accounting team run the Accounts Receivable and Accounts Payable, as well as Net Profit Margin Over Time.

Comprehensive knowledge of the financial side of your company will be incredibly helpful when it comes to making smart business decisions.

If your accounting team needs help or are not sure how to gather the information for these reports, have them contact us. Our expert team of accountants and business advisors are here for help in situations just like these.

Top 10 Things Every Business Needs to Know About Sales Tax

As a business owner, you are used to facing never-ending checklists to help get your new ventures up and running. Before the first customer walks through the door, the new owner has already tackled seller’s permits, licensing, zoning, and registration, among other hurdles. Even after these boxes have been meticulously checked, businesses selling tangible personal property, and even some providing services, have another primary consideration – sales tax.

Depending on your business model, the idea of staying compliant with sales tax regulations can be overwhelming; however, if you get your shop set up correctly, compliance is relatively simple.

The following are answers to the most common questions business owners have about sales tax.

1. What is sales tax?

Typically, sales tax is an amount of money that is calculated as a percentage and added to the cost of a product or service. Retail sales receive tax, and 45 of the 50 United States enforce this rule.

2. Do I have to collect sales tax on all of my sales?

Not necessarily. If you make a sale to a customer to resides in the same state as your business, you collect sales tax. If the customer purchases from outside the state, you do not collect sales tax. For example, if your California business makes sales to California residents, you would need to collect sales tax.

Deliveries made to a state in which you do not have a physical location are generally not subject to state sales tax. However, the purchased product must be shipped directly to the purchaser’s out-of-state location and must be intended to be used outside the state. In this case, neither the purchaser nor its agent may pick up the purchased property within the state.

Read more: Top 10 IRS Tax Issues

3. What rate do I charge my customers?

The state or other governing municipality determines the rate.

For example, California’s sales tax varies depending on the district. It can range from as little as 7.25% (the statewide minimum) to as much as 10.5% in the Los Angeles County suburb of Santa Fe Springs.

4. Am I supposed to charge a rate based on where the customer is located?

When determining the rate to charge, you must first learn whether you are operating in an origin- or destination-based state. California is a hybrid, modified-origin-based state where taxes of the state, county, and city are based on the source of the sale, while district taxes are based on the destination of the sale. California gives you two options in applying this; both are acceptable.

The first option is to charge the state rate plus your district rate on sales shipped within your district. For sales shipped outside your district, collect the state rate only. If you choose this option, the customer is technically liable to remit the omitted district tax to the state.
The second option is to charge the state plus the district rate for every single sale shipped to a customer in California. This process ensures that the local district tax always gets collected.
It is worth noting that collecting the same sales tax rate from every customer in California is technically wrong. If you do this, you are most likely not collecting the correct rate on every sale.

5. If the customer does not pay the sales tax, do I still have a liability?

Yes. The seller is responsible for the sales tax, not the purchaser. The law allows that the retailer may be reimbursed by charging the sales tax to their customer. However, even if the customer does not give an extra amount of money intended as “sales tax,” you are still liable for remitting the full amount of the tax.

6. If the tax I withhold is higher than the tax owed, what do I do with the difference?

Technically, if you collect more than the amount of tax due, you must either return the excess amount to the customer or pay it to the state.

7. What if the customer does not ultimately pay for the product provided?

Sales tax is imposed on completed sales, not collections. Even if the customer account becomes uncollectible, the retailer is still responsible for tax on that sale. Keep this in mind when preparing sales tax returns. If an account is not yet collected, gross receipts from the sale must be included in the tax base for sales tax purposes.

8. Are any sales exempt from sales tax?

Yes. Some common examples of exemptions and deductions include:

Sales for Resale (if supported by resale certificate or purchase order)
Some Food Products (for example, cold food sold to-go)
Labor (Repair and installation)
Sales of prescription medication
Sales to the U.S. Government

9. When are my taxes due?

Businesses are assigned a filing frequency based on the total sales tax collected. Your business may need to file monthly, quarterly, or yearly.

10. Is a sales tax return required even if my liability for the period is zero?

Yes. Every business with a sales tax license is required to file a return even though no sales were made during the period covered by the return. However, if you have seasonal sales or your sales tax liability has declined, you may request less frequent filing from the state.

Read more: How To Reduce Your Tax Liability

This Is The Bottom Line

Sales tax is an essential source of revenue for the state, and you should strive for full compliance in this area to avoid costly penalties and fees that result from a sales tax audit. By setting up your business early with a system that ensures correct collection and remittance of sales tax, you can avoid unnecessary expenses and fees in the future. Contact us if you need help.

How To Reduce Your Business Tax Liability

News, Planning for success

Are you running a business that is earning a profit this year? If this sounds like you, you’re likely pretty happy with the financials of your company. After all, being profitable means you have created a thriving entity and are doing well. But don’t kid yourself if you think you are the only one excited about the performance of your business.

Enter in, the IRS. Owning and operating a profitable business means that you must pay taxes. And no one likes your tax dollars more than the IRS—no one except you.

So unless you like the idea of the IRS doing a Scrooge McDuck dive into the tax dollars you have to pay out, it’s in your financial interest to take advantage of the tax breaks that are available to reduce the amount of taxes your business owes.

This Is How Tax Credits And Tax Deductions Are Different

While both tax credits and tax deductions can help minimize a company’s income tax liability, there are differences between the two. Tax credits are 1:1 reduction of taxes, whereas tax deductions are a percentage of dollars spent based on the tax rates and cut down your taxable income.

There are many tax credits your businesses may be able to take advantage of, below we have selected a handful you might not know about:

1. Federal Research and Design Tax Credit

Your business may be performing research and design (R&D) qualifying activities without you realizing it. The R&D tax credit (not to be mistaken with the R&D Tax Deduction) is a 1:1 reduction against taxes owed or paid.

Nearly every state also has its own R&D credit programs, most resemble federal rules and come in varying incentive amounts. So if your company is developing new or improved products or technologies, you could qualify for substantial tax savings.

Common industries we see qualify for these types of credits include manufacturing, engineering, IT, medical device, biotechnology, software development, and more. Reach out to us if you want to know if your business qualifies.

2. Alternative Motor Vehicle Credit

If your business has purchased vehicles with fuel cells (e.g., electric cars that use fuel cells with, or instead of, a battery), you could qualify for this tax credit. Many of these credits have been reduced since their initial rollout, with phase-out rules based upon the vehicle’s model and year. So even if your business has purchased alternative fuel vehicles, automatic eligibility for this credit is not guaranteed. Keep in mind, there are a many other benefits to driving clean in CA.

3. Employer-Provided Child Care Facilities and Services

Did your company acquire, construct, rehabilitate, or expand property that is used as part of a qualified childcare facility for your employees? Or maybe you chose to begin a scholarship program or provide employees with higher levels of childcare training some kind of compensation. If any of these circumstances sound like something your business was part of this year, be sure to check out the Form 8882 or ask your tax advisor about the rules for claiming this credit.

What Deductions Are Right For My Business?

Like tax credits, there are various tax deductions available for small and midsize businesses to claim. The key is to research which ones your company is eligible for to ensure you take full advantage of them.

Tax deductions help to lower your taxable income and then can reduce your taxable liability. These activities can be anything from purchasing new assets or having various benefits to offer employees. The amount of the tax deduction will be taken from your income, therefore lowering your taxable income, and in turn, lowering your tax bill.

Tax deductions your business could be able to take advantage of:

Employee benefit programs and retirement contributions

Setting up your employees with retirement accounts is a great way to maximize tax savings for your company. Other qualifying employee benefits include education assistance and dependent care assistance programs.

Make charitable contributions

Any individual or company can make a charitable contribution, but there may be limitations on these deductions under the Tax Cuts and Jobs Act (TCJA). Your business can still deduct cash contributions and gifts, but can no longer deduct the time spent volunteering.

Hire contract (or fractional) employees

If your company hires contract labor (1099 employees), this cost could be deductible for your business.

Not only can contract, or fractional employees, reduce your tax liability, it can also reduce overhead costs for things like payroll, benefits, training, and other additional employee expenses. Hiring fractional employees also offers your company flexibility and greater cost control during slow months or ramping up staff during times of growth.

Save by spending

The cost of business-related supplies such as new equipment, software, and technologies, or furniture for the office, are deductible expenses that can reduce your company’s tax liability.

Business interest expenses

If your business makes a profit, there are expenses you may be able to write off. For an expense to qualify as a deductible, your business expenses must be ordinary and necessary, as defined by the IRS. Meaning, if the expense applies directly to running your business, it may be ordinary and necessary. In any case, it’s best to save your receipts for every expense you deduct on your taxes.

As a business owner, it benefits you to see what you can do to reduce your potential tax liability now instead of waiting until the end of the year when it may be too late to do anything. For instance, how much money will your company bring in at the beginning of the year? Forecasting can help your company develop a tentative plan to maximize your expenses, which can be adjusted as the year progresses.

Your taxes can have a severe financial impact on your business – but with some proactive planning – they shouldn’t. Contact us today to find out how our services can help your team reduce your tax liability for your business.

This Is What You Should Expect From Your Tax Advisor

Accounting News & Guidance Updates, News, Planning for success

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.

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.

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.

Tips And Tricks For Filing 1099s: The Deadline Is In January

Accounting & Financial Analysis, News, Technical Accounting & Reporting

The beginning of the year is anything but dull, but after the holiday celebrations, it’s time to settle down and get organized for tax season. While employees might not have taxes on the brain until April, businesses, and employers are busy preparing early on. It’s crucial to start this process sooner rather than later, so no paperwork is forgotten. One essential form to remember is 1099.

What Is A 1099 IRS Form?

A 1099 IRS form is a record of a person or an entity providing payment to someone. There are several types of IRS 1099 forms, such as 1099-MISC, 1099-INT, 1099-CAP, and more. These informational returns are used to record payments to individuals or partnerships for interest, services, bonuses, and other types of income paid during the year.

Please note that business owners must file 1099 forms with the IRS and send a copy to the individual each year by January 31st, the same as the W2 filing deadline.

What Are Examples Of The 1099 Form?

If you paid more than $600 to a freelance website designer, you must file Form 1099-MISC
If you have convertible notes payable that accrue interest during the year, you must file Form 1099-INT
If you paid dividends to inventors, you must file Form 1099-DIV
If you forgave an outstanding debt during the year, you must submit form 1099-C
All amounts paid to law firms must be reported on a 1099, regardless if the law firm is categorized as a corporation and even if the amounts are less than $600

Here Are The Accounting Best Practices for 1099s

Good recordkeeping is key to fulfilling this requirement and meeting the January 31st deadline:
Payments to vendors should be categorized in your books and records by vendor and not merely by category or expense line item.
Small businesses should always request a form W9 from any vendor with whom they conduct business. A W9 will tell you if the vendor is a Corporation (excluded from 1099 requirement) and what their federal tax ID number is (needed for the 1099).
Read More: Financial Tips From Successful Leaders

These Are Common Mistakes To Avoid

Below are some examples of mistakes commonly made by small business owners when it comes to 1099 rules:

Classifying employees as a 1099 vendor when they meet the IRS definition of a W2 full-time employee.
Giving expensive gifts or prizes to sales representatives or others without issuing a 1099 for the value of the gift.
Not filing a 1099 for interest accrued on convertible notes or other bonds.
Not keeping proper records or requiring a W9, so when it comes time to prepare the 1099s they are filed late due to trying to collect all the necessary data from each vendor.

Get Started On The Forms Today

Do not wait until the last minute. Reduce the January time crunch by reviewing your vendor list with your accountant in December if you can remember. Find and address issues early and make sure you have a plan to get the 1099s filed by the January 31st deadline.

Signature Analytics Can Help

If you need help preparing the data necessary to complete your 1099s, have questions about who you should be sending this form to, or any other financial paperwork inquiries, please contact us today.

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.

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

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.

How To Increase Profits With A CFO

You might have wondered how to increase profits by adding a CFO to your C-Suite. First off, you likely view your business as your baby. It doesn’t matter how you acquired it, whether you built the company from the ground up or purchased it after it was making some profit. You have spent countless hours training employees, improving processes, and making adjustments to keep your customers happy. And as your company grows and matures, you realize it has many needs such as new skills, resources, and roles to make it the best it can be.

What if after putting in all the hard work, your business doesn’t perform as well as you would like? What if profits aren’t where they should be? What if you don’t have the leadership that the company requires?

A chief financial officer (CFO) might be the person you consider bringing on to your team. This role can help turn your company around and make other significantly impactful changes. Below, we break down how a CFO can add value, provide leadership, and ways to increase profits doing all this at your company.

1. CFOs Can Offer Value to Your Team

If this is the first time you have considered adding a CFO to your leadership team, you should know they can provide immense value. If the CFO has been successful in previous financial or leadership roles within your industry or using similar technologies, then they are likely an ideal candidate to help your business. You should expect the CFO’s daily tasks to improve cash flow and the balance sheet. As a bonus, if they make all of these improvements, the amount of money they save the company should cover the cost of their salary and more.

The following are just a few ways that a well-versed CFO can add value to your company:

Cash Flow and Management: Every business has cash flow and needs to understand how to manage it. A CFO can assist in this area by making recommendations and putting in place an effective system. The management of cash flow ultimately means the company will be able to make improvements to all-cash resources and increase liquidity. Now you no longer need to worry about who is overseeing the management of capital, debt obligations, and the opportunities to invest in new projects.

Restore Order to the Balance Sheet: The balance sheet is the number one indicator of a business’s health. This critical part of the CFO’s role will essentially allow other company leaders, as well as bankers and investors, to understand how the liabilities and equity compare to the assets. If the balance sheet isn’t balanced (and a strategic CFO will know), then likely there are specific areas causing inconsistencies. For example, these areas may include retained earnings, loan amortization issues, paid capital, and inventory changes.

Read More: Operational or Strategic CFO

2. CFOs Provide Financial Leadership

When a CFO comes into a new business environment, they often face numerous challenges. Deciding what red flags to tackle first is a critical component of their daily tasks.

Often, sales and operations departments distance themselves from company finances. But, an effective CFO will bring financial insight and leadership to help maximize profits through the increase of cash flow and minimization of costs.

These are a few ways that a CFO will provide financial leadership to the company:

Act as a Liaison: The knowledge and experience a CFO will bring to your business can be incredibly valuable. It means they have credibility within the finance community and may be able to act as a liaison with the bank to secure funding for your growing company. Not only will a CFOs expertise help them make financial decisions for the company, but it will help them give insight into the advantages or disadvantages of operational and capital expenditures. Mostly, they will have a stronger position when negotiating with vendors, which at the end of the day, is an asset for your business.

Implement New Technology: The main difference between a CFO today and 20 years ago is the amount of technology that is available. By adopting new platforms, the company will be more streamlined, reach higher levels of success, and upskill team members to take on new roles. If automated financial technology is available, why not use it? Work smarter, not harder.

3. CFOs Can Increase Profit Margins at the Company

There are proven and dependable ways a CFO can increase profit margins at a company by improving productivity and analyzing pricing strategies. Not only can these strategies affect the bottom line, but they provide oversight for the CFO and allows them to manage critical roles within the financial department.

Improve Productivity: There are a few ways that a CFO can improve and hopefully increase productivity. By executing an initial review of employees and their job descriptions, the CFO can tell if everyone is in the role that will be most beneficial to the company. If not, they may put training sessions in place to ensure all employees are up-to-date on best practices and information systems. Another standard process for a CFO to implement is working with other team members to come up with Key Performance Indicators. These can help the company to measure and track KPIs through reports and set goals based around these company-specific metrics.

Read More: Understanding Key Performance Indicators: KPI Examples & Their Importance

Analyze Pricing Strategies: Improving a pricing strategy is much more than tracking the pricing performance at a 10,000-foot view. An effective CFO will be able to evaluate the current pricing strategies and couple that with their knowledge of both the customer and product at an economical value. With this information, the CFO can then propose an updated plan (cost-based, value pricing, teaser pricing, strategic pricing, or other kinds) for the business. Remember, the pricing strategy may change more than once, which is normal and expected as the market also makes changes.

If you are looking for a gross profit increase at your company, a CFO will be able to help. Today, the role of the CFO is so much more than a number cruncher. While their experience in the books will be beneficial, their financial vision and strategic advice can benefit the business as well. These traits, alongside their ability to work with the operations team, will have an enormous impact on the business’ profitability.

While you may believe that a CFO is out of your company’s budget, there are options like outsourced accounting services and fractional CFOs through Signature Analytics. Not only can you get your company back on track, but you won’t be paying a full-time salary either.

Read More: Benefits of a Part-Time CFO

If you are interested in hearing more about either of these services, please contact our team today.

How CFOs Add Value To Your Business

As a leader within your organization, you may have found yourself thinking of ways to make your company more valuable. If you thought that bringing on a chief financial officer (CFO) might be a good decision, we are here to validate this thought process.

While this leadership role may not have been on the top of your list (due to budgeting and other financial reasons) a CFO can help your company grow and improve in numerous ways. Below we outline how a CFO adds value to a company.

1. With Their Background

A CFO will add value based on their type of background. Most commonly, a traditional CFO will have an accounting or finance education, which sets them up to be extremely numbers-oriented. This type of training will save you big bucks on when it comes to your books, as the CFO will be overseeing record keeping, reporting, and financial planning.

Not only will these skills be necessary for the company’s health, but they will lend themselves well to improving the cash flow of the business. As the CFO manages the cash conversion cycle, the business will ultimately improve its collections, pricing, and terms. Through this cycle, the company will be able to increase liquid assets, making it possible for the CFO to make financial projections that will be imperative to the companies growth.

2. With Their Strong Leadership

CFO’s can add value to a company with their leadership skills. When looking for the right CFO candidate, the candidate will likely need a wide range of skills and capabilities to prepare for the opportunities and challenges ahead in relation to your business. Whether you are a current CFO or a future finance leader, continuing your personal and professional development will be critical for continued success.

While not every CFO will be able to bring this trait to the table, it is crucial to find one who can. During the interview process, you will want to ask questions to discover if this individual has what it takes to lead the company. Some of these topics could include:

What tangible operational experience they have
How they have thought strategically in the past
Teaching you something you don’t know
How they reached their long-term goals in a previous position
How they would pitch the company if they were in a sales meeting

You will also want to be on the lookout on their resume for broader business acumen (even beyond finance), leadership roles and qualities, and strong and effective communication skills. Having all of this knowledge will help you determine if this candidate has what it takes to be a leader in your company.

Bonus Tip: If you can find a CFO with experience in the finance community, chances are they have connections that can be beneficial to the company. If you have a larger company, the CFO will be maintaining the relationship between the business and the various departments within the company. It will be necessary for the individual in this role to be able to communicate the business’s finances with the banks effectively and efficiently. By keeping the lines of communication open between the two entities, the company’s chances of accessing funds to grow will be more significant. Ask the CFO candidate if they’ve acted as a liaison between a company and a bank during the interview process.

3. With Their Ability to Increase Profits

Timing is everything when it comes to hiring a CFO. If your company is going through growing pains and is looking to increase profits to make the changes necessary for success, hiring a CFO could be a great decision. There are numerous ways that a CFO can help increase gross profits, but the most common is by managing the cash flow.

By handling the cash flow of the company, a CFO can boost profits. It’s possible your company has never had a CFO. Therefore, the individual in this role would need to establish processes and put effective procedures into place for collecting payments as well as paying vendors.

What is most important to understand is that cash and liquid assets are going to be the most valuable to your business. With this knowledge, a CFO will oversee the operating cycle to understand better how long it takes for the thing being sold to convert to cash in the bank. Once this financial leader can see the sore points in the cycle, they can make suggestions on how to collect cash quicker, to increase company profits.

If you are looking for a way to add value to your business, employing a CFO is an ideal solution. How a CFO can add value is one of the many questions our team receives from prospective clients. What do we tell them? The role of the CFO encompasses more than the finances of the company, but they must be a leader with the experience and foresight to help add the most value.

If you think a CFO would be beneficial to your company but are concerned about budgeting for their salary and benefits, consider fractional hiring before making that major investment. At Signature Analytics, we can help place fractional, part-time employees that work in or outside of your office. This is a great solution to get the benefits of a CFO without the price point of a full-time role.

To hear more about this kind of service, please contact our team today.

Tax Planning Strategies: What You Need To Know For 2020

The dreaded word “taxes” conjures up images of bottomless piles of paperwork, lengthy meetings with tax professionals, and sending hard-earned money off to the government. While it’s not possible to escape taxes (that would be fraud), this season can be much more bearable with some tax planning strategies.

Ever heard the phrase, “the sooner, the better?” This phrase applies directly to tax preparation, and what we mean is that the sooner you can begin this process, the better it will be for you later in the year. Remember, it is never too early to implement tax planning strategies to set you up for a successful end of the year.

It doesn’t matter if you are part of a small business or a large corporation; every company is responsible for filing taxes each year.

With this in mind, tax planning can help you avoid stress when the deadline comes around to file your taxes. If you have a plan in place and the help of a trusted and experienced advisor, you can file your business taxes with confidence.

This is a year-round process of tax preparation and can be segmented into manageable steps. Let’s breakdown how taxes affect businesses and what benefits may apply to your company.

What Is New For 2020 & Beyond

For the past two years, the IRS worked to implement the Tax Cuts and Jobs Act (TCJA), and now it is in full effect. Therefore, it is crucial for business professionals to understand how this tax legislation can impact their companies.

If you own a service business or employ consultants who travel to clients, these work-related expenses are no longer deductible. Since the implementation of TCJA, there has been a loss of miscellaneous itemized deductions like home office costs, work-related legal fees, and business expenses such as travel costs. These changes may negatively impact small businesses, as employees migrate to more prominent companies who can afford to cover these expenses.

In Sec. 199A business income deduction which provides business owners, other than C-corporations, with a 20 percent deduction on qualified business income. Exclusions include wage-earning, investment income, and guaranteed payments. However, this could be a large deduction for many business owners.

By starting your tax planning now, you have ample time to find tax credits and deductions for your business.

What You Need To Know: Tax Planning Tips For 2020

Apart from the obvious (aka tax returns due in April 2020), there are a few other key points to remember:

Arm yourself with good information. A business may be required to pay several types of taxes depending on the industry they are in and what specifics apply to their company.
Money in the bank. It is crucial to understand that having money in the business account is imperative when it comes time to pay taxes. Insufficient funds will be penalized by the IRS.
Have the appropriate paperwork. This paperwork should include the proper reports that have been analyzed by an advisor. All of this should be organized so that in the chance of an audit, everything is easily accessible for reference.
Ask for help. If any of this advice seems daunting, there are qualified professionals, like those at Signature Analytics, who can help in the tax planning and execution process.

According to Fundera, in 2019, the small business tax rate is a flat 21% for a C-corporation, down from a schedule in when the highest corporate tax rate was 39.6%. The average small business tax rate is 19.8%. Based on their entities, businesses will pay different amounts in taxes. Here is a sample breakdown:

Sole proprietorships pay a 13.3% tax rate
Small partnerships pay a 23.6% tax rate
Small S corporations pay a 26.9% tax rate
C corporations pay 17.5%

The IRS has stated there are other changes to tax law, including standard mileage rate. In 2019, each mile of business use is 58 cents per mile to operate a car, van, pickup, or panel truck.

There are a few different small business taxes that will vary based on the structure of your business.

What types of taxes that will need to be paid
The amount of money to be paid to these taxes
When the payment for these taxes is due
How you will pay the taxes

You have time to plan and research all of the details or reach out for professional guidance as well.

Tax Planning Strategies: What To Know And What To Avoid

Not only is it essential to have tax planning strategies in place, but it’s vital to have a trusted advisor to turn to for questions, accurate reporting, and detailed information on tax laws. This will be different for every person based on their business and goals, so make sure to have a good idea of what yours are.

Part of planning out your strategy should include knowing what your tax deductions, what taxes are due quarterly, and mistakes to avoid.

The most common tax deductions include vehicle expenses, insurance, and rent. If you are a new company, you may also qualify for a startup cost deduction. Depending on the accounting system your company has in place, you may also be eligible for inventory or business loan interest deductions. Arm yourself with information so you can capitalize on any deductions possible.

Read More: End of Year Checklist

Knowing what strategies are to avoid is just as, if not more, knowledgeable that knowing what to execute. Below are some tax planning mistakes to steer clear from:

Failing to have enough cash
One of the most common mistakes we see businesses make is not having enough cash in the bank to cover their taxes when they are due. The company may then be assessed penalties, resulting in owing more than your business initially planned for and tapping further into your well.

Failing to report trackable income
Companies that employ or operate as independent contractors must report trackable income. If you have done more than $600 in business for a client, they are obligated to send you a 1099. And since this number also gets sent to the IRS, you are obligated to report it when filing your taxes. Don’t try to fudge numbers on how much you’ve made – the IRS takes this seriously.

Missing deductions
There is a fine line between maximizing your deductions and going overboard. With the Tax Cuts and Jobs Act, fringe benefits like team outgoings, travel, and work-related entertainment are 100 percent non-deductible. The last thing you want is to owe the IRS more money or pay the penalty for any mistakes.

While claiming too many expenses can signal a red flag to the IRS, you don’t want to miss deductions that you are entitled to claiming. Here are some common examples of deductions that you don’t want to miss out on:

Startup costs: You can claim up to $5,000 for expenses related to getting the business up and running.
Lifetime Learning Credit: This allows you to deduct up to $2,000 a year based on 20% off the first
Education: $10,000 spent on education after high school. You don’t have to be working on a degree to claim a deduction – it can be for classes related to your business.
Business services: Anything that helps your business run, from PayPal to your Wi-Fi plan can be deducted.
Inventory: Owners can claim deductions for unpaid goods. This does not apply to services, unfortunately.
Loans and credit cards: If you rack up interest for business purposes, it can be deducted.

Get In Touch With A Professional Tax Advisor

Getting to the tax planning party early is recommended. The more mindful you are throughout the year will reduce your stress and help keep your business organized. We highly suggest this to all of our partners.

If your company does not currently have a tax advisor and trusted CPA, now is the time to find one who is well-versed in your industry. Since your taxes can make a financial impact on your business, it’s critical to go to someone with experience.

If you have any questions or uncertainties regarding what you should expect from your tax advisor, you should read our guide.

Sources: Harvard Business Review. (2018). End the Corporate Health Care Tax.

The CFO of the Future: Why You Need One On Your Team

The chief financial officer (CFO) is an executive role that oversees or executes cash flow and financial planning, among a myriad of other financial efforts within an organization. While a CFO of the future has multiple duties, it is imperative to the company’s health that the person within this role reports accurate and up-to-date figures.

While the role of CFO arrived during the early 1960s, it’s clear there is incredible value in position and therefore isn’t going away anytime soon. There are noticeable trends within the role’s evolution, enforcing the importance of understanding the nuances of expectations in decades past.

The Traditional CFO

In the past, the CFO role was very technical and somewhat isolated from the rest of the company. The path of becoming a CFO typically began with an accounting or finance background. Typically, requirements would include an MBA, MFA, CFA, or experience as a CPA. From there, it would have required working up the corporate structure and serving long periods at the desk. This numbers-only role required the chief financial officer to manage financial planning, risks, and reporting, along with record keeping. Likely, they would report directly to the CEO but may have assisted the chief operating officer (COO) with matters relating to the company’s budget.

However, there has been an increasing amount of pressure put on the CFO due to a competitive and continuously changing business world. Just a few examples of these pressures include new technologies, globalization, emerging markets, and business models – all that affect how to reach customers and win deals. Amid streams of corporate scandals and continued backlash from the Great Recession, these instances have caused the role of the CFO to evolve, requiring a brand new set of skills.

Evolution of the CFO

The CFO role has continued to change, especially in the last few years. More and more companies want to add broader skill sets and leadership abilities to their management teams and are looking to future CFOs to help. As the financial gatekeeper at the company, they are being asked to evolve and expand whether they have been in this C-suite level role for years or are newly appointed. Meaning any aspiring CFO should expect to add some new tools to their belt to get the job done right.

It is imperative to have the unmatched financial expertise to rise to the executive level within an organization as a CFO. This expertise can aid in the company’s success in sales, technology, marketing, and operations.

Depending on the breadth of the business, the CFO may also be required to oversee particular functions that generally may have landed outside of their scope. Such duties include IT and legal. Therefore, the expansion of the role requires the CFO to be financially savvy, but it also means they will need to tap into their operational and visionary sides as well. More on that to come.

Why a Business Needs a CFO

Naturally, a valid question is why a business needs this kind of role. Well, bringing on a CFO at the right time can elevate a business’ profits and, ultimately, its success. As they champion the most up-to-date financial information for the company, they are an incredibly powerful asset to have on any team. By having the most accurate information at the right moment, a decision-maker can feel confident in making better business decisions. These choices include investment type decisions around such things as increasing staff, budgets, acquisitions, or even purchase or leasing of new equipment.

There is an incredible value of having a CFO who truly understands the ins and outs of the business. It is with this depth of knowledge that they can make a difference and hopefully enact positive change and growth within the company.

Finding the Modern CFO

The importance and breadth of the CFO’s role continues to grow, shaping a future CFO looks very different from that of years past. Meaning, the Chief Financial Officer [of the Future] will need a wide range of skills and capabilities to prepare for the opportunities and challenges ahead. Whether you are a current CFO or a future finance leader, continuing your personal and professional development will be critical for success.

Most importantly, you don’t need to let go of your current CFO to attain the CFO of the future. If they are willing and eager to learn the tools required to take your business into the future, then train them. However, if your company has yet to hire a CFO or has been looking to replace the current employee, then be sure to look for these qualifications in your applicants:

Broad business knowledge
Operational experience
Leadership qualities
Strategic mindset
Strong communication skills…and all the traits mentioned earlier!

Remember, for a CFO to be successful in the future, they will need to be a leader in a workplace that is continuously changing. They must be more than “the finance guy,” “the numbers gal,” or “the Excel wizard.” As technology grows and cybersecurity becomes more of a threat, the CFO must be adaptable and utilize the technologies that will help their company to grow. If the company’s CFO can understand that communication will get them farther than keeping their nose in the books, you may have a modern CFO on your team.

If your company is searching for a CFO, Signature Analytics can provide part-time CFO’s of the future at a fraction of the cost of hiring a full-time CFO. Not only is this a budget-friendly option for any company, but a part-time CFO can help to refine policies and procedures, and even implement better tech tools for the accounting department to utilize. To find out more about our fractional modern CFO services contact us today.

Do You Need a Controller or a CFO?

Many people often think that the Chief Financial Officer (CFO) and controller are the same. However, these two roles have different expectations and responsibilities.

Financial controllers and financial executives tend to work with similar types of companies. However, smaller businesses often will only hire one of these roles. To determine if your company would benefit from a controller, CFO, or both, here are a few things to consider.

Let’s start by taking a look at exactly what the different roles entail with a brief, high-level overview.

A CFO’s role includes:

Predicting future scenarios and identifying risks
Finding areas where money can be saved
Sourcing the best investments for the company
Overseeing the company’s treasury responsibilities
Forecasting the company’s financial future

A controller’s role includes:

Implementing and supervising all accounting operations
Supervising payroll
Managing bank reconciliations and company budgets
Preparing financial reports

When is it Time to Hire a Controller?

It’s a good idea to bring a controller to your team if your company is expanding quickly. This rapid growth likely means you have reached the level where your business requires accounting records based on Generally Accepted Accounting Principles (GAAP).

Hiring a controller is usually necessary when your company has a revenue of $10 million and above. At this point, you need more advanced accounting strategies than basic bookkeeping. As your company continues to grow, it’s worth maintaining the controller function because he or she will be an invaluable asset for reporting to the CEO.

The complexity of your company may have increased due to expanded lines of business or from opening new locations. Despite the reason, your operations are likely to become more isolated, but a controller can prevent this from happening.

They will be able to generate data and interpret it so you have a clear understanding of how and why business changes have occurred over time. The controller can also help you make decisions on saving money and using capital.

When do you need a CFO?

There will come a time when you need better accounting records which are based on past actions and previous cash flow. At this point, you should consider hiring a CFO.

You will benefit from a CFO because they will be able to analyze past accounting reports and use this data to forecast future revenue and cash flow.

If you are in a transitory growth stage, such as mergers and acquisitions or managing debt covenants, a CFO can provide a deeper understanding of capital structure management and financial statements. They will also play a valuable role in liaising with banks and investors to make your company public.

When you are making the transition from a small or medium-sized business to a large organization, you need a financial professional who has the experience of a CFO. However, you may not have the budget to hire one full-time.

This situation is when a fractional CFO makes sense. Before hiring a part-time executive, make sure you complete your due diligence. As the demand for CFOs has become increasingly popular, it has created a market in which many people have entered without any authentic experience. This common scenario is possible as individuals do not need a degree or license to call themselves a CFO.

To avoid pitfalls such as these, we recommend hiring a fractional CFO from a reputable company – such as Signature Analytics. As a service provider, we only employ qualified and experienced CFOs and Controllers as well as other financial and accounting services.

What are the Benefits of Outsourcing Financial Experts?

It’s easy to see that there are numerous benefits to outsourcing a controller or CFO. These include:

Saving money: Hiring new staff members can be expensive, and your company budget may not have the room for a full-time controller or CFO. Regardless of your budget, your company still needs financial expertise. Hiring a fractional controller or CFO gives you much more flexibility with costs. You can hire a financial expert for as much time as required, without having to worry about paying a full-time salary or the additional costs of benefits and vacation time.
Reducing complexity: Don’t underestimate the complexity of in-house financial management as most CEOs are not financial experts. Furthermore, a business owner who tries to take on these financial tasks may simply be wasting time and money. You are much better off hiring a fractional CFO or Controller and spending your valuable time doing what you do best – such as growing your business. Outsourcing financial experts can reduce the complexity of your internal finances and giving you back the time you once spent worrying.
Accessing professional services: One of the benefits of outsourcing your financial services is that you can feel confident your candidate is qualified, professional, and experienced. Fractional CFOs, Controllers, and supporting staff have already been vetted, and their credentials have been checked. Meaning they can efficiently take care of your financial needs. Not only that, these financial experts keep their fingers on the pulse of the latest financial industry trends, so you are getting experts in the field.
Improving internal controls: By outsourcing, you will have professionals on your team who are equipped to improve internal controls by applying better practices. Doing this is important because if you have in-house financial procedures that are less than 100% effective, you are putting yourself at financial risks for costly errors and employee fraud. Outsourced professionals can look at a company with fresh eyes and train your existing employees to do their jobs effectively and efficiently.

What are the Qualities to Look for in a CFO?

If you’re going to outsource a CFO, here are some of the key qualities you should look for:

Strong communication skills: Your CFO needs to be able to communicate with people on all levels, from in-house employees to investors. This skill is essential so that they can supervise and negotiate as needed.
Flexibility and versatility: A top-notch CFO is always prepared to push for change that will boost company growth. This skill will prevent you from missing out on opportunities for expansion, growth, or change.
The ability to influence: A CFO must be both a team player and an enforcer to help everyone understand the implications of their decisions for the company. This skill will prevent any animosity or reluctance towards changes within the company.
Financial strategies: Your CFO must be an expert financial strategist who can create a vision for your company. Without the ability to strategize, your CFO will be unable to help you plan for the future of your business.
A good cultural fit: Even if you found the most proficient CFO in the world, but they do not match the company culture, they won’t work out. Like any employee, a CFO must be able to adopt the company culture to avoid clashes with other staff members.

What are the Qualities to Look for in a Controller?

If you’re going to outsource a controller, here are a few key qualities you should look for:

Industry experience: It may seem obvious, but it can be essential to find a controller who has experience within your specific industry. Reason being, is some verticals experience unique challenges. For example, if your company is in the healthcare industry, you will have to deal with particular accounting rules. If your controller does not have healthcare experience, they may not be aware of all these nuances.
Technical accounting: Your controller will be managing your accounting team. To do this adequately, they need a strong background in technical accounting and a firm grounding in GAAP.
Functional knowledge: Your controller has to be more than just a number cruncher. They must have expertise in all functions of finance. These include insurance policies, financial contracts, invoicing, as well as tax and auditing.
A passion for detail: A successful controller must have the ability to stay organized. They are responsible for keeping up-to-date with a lot of information and must be able to live and breathe the financial details of your company. Your controller must also be able to relay complex information to upper management in an easy-to-understand way.
An amenable personality: While it’s important to consider all of the technical skills don’t discount personality requirements. If your controller is unable to work with a team and get along with the rest of your staff, then likely they will not last long. Your controller has a lot of responsibility, and they must be able to collaborate with many departments throughout the company, including employees of all levels and upper management.

When it’s time to look for a quality controller or CFO, you don’t have to compromise your budget. You can have the benefit of this type of financial expertise by hiring outsourced staff. Doing so will save you time and money. You can also rest assured you will have authentic financial experts on your team that have access to a wider network of knowledge when necessary.

Contact Signature Analytics today to find out more about our fractional financial services. Our fractional CFOs and controllers are talented and experienced and can complement your existing accounting team or be your F&A team.

What CEOs Need from Their CFO

CEOs don’t have many people they can turn to when they need advice with financial management, honest answers, and space to discuss doubts about their company. That’s why they need a good chief financial officer on hand.

Just like a quarterback directs his team to score as many points as they possibly can, a CFO guides the CEO to make the most revenue from the company.

Of course, not all CFOs are created equal. The right person must earn the trust of their CEO for the relationship to work both ways. To do that, a CEO must look for certain skills and competencies when they’re hiring a financial executive.

What Key Skills Do CEOs Need from Their CFO?

A CEO needs a CFO who has many vital skills to help grow the company. When it comes to breaking down the skills and abilities that CEOs require most from their CFOs, they generally fall into two categories. Those categories are hard and soft skills, both of which we will outline below.

Hard Skills

Hard skills come directly from years of training and experience with business finances and strategic planning.

Tracking and analyzing cash flow management: This is one of the CFO’s most important roles, and it is essential for the CEO. A CFO is trained to assess cash flow and monitor the company’s finance and accounting department to instantly spot — and fix — any problems.
Data and analytics management: Gathering and interpreting the company’s financial data raises the CFO from an accountant to an analytical strategist. Strategic use of financial data enables the CFO to keep the CEO informed of the viability of current and future business strategies. The CFO’s strategic ability will transform analytics-based insights into measurable results.
Risk management: The CFO should be highly skilled at risk management to prevent the company from the influence of outside forces such as competitors or inside forces such as bad business decisions. The CFO should make sure that the business model is strong and resilient enough to withstand predictable threats.
Technological expertise: The CFO must be tech-savvy to push business performance to new levels. According to Gartner, global IT spending within the business industry is set to reach $3.8 trillion this year. Meaning the CFO must recognize their role as an agent who drives technological transformation throughout their company.
Financial planning and budgeting: A good CFO has the company’s most current financial data ready to create realistic budgets and short and long-term financial plans. The CFO must also keep abreast of continuous budgeting to stay ahead of changes within the company.
Management of finance, HR, and IT procedures: The CFO should not only be in tune with the management of these procedures, but he or she should also be fully up-to-date with the technologies they are using. Access to this information gives the CFO the tools he or she needs to work across departments and divisions. For example, many CFOs take on budgeting for compensation and benefits as well as IT expenditure.

Soft Skills

In today’s business environment, CFOs need more than financial and analytical skills. They also need to excel at forming and maintaining business partnerships.

Management and leadership of the finance/accounting team: Leadership and people skills are integral parts of the CFO’s function. Leading CFOs have the soft skills required to drive creative thinking and engagement. For this reason, excellent communication skills are a top priority if they’re going to be leaders in a company.
A strategic relationship with the CEO: The CFO needs to be a strategic partner but also a reliable accountability partner to the CEO. Meaning, they continually help the CEO drive progress for the company. The CFO must continually bring reality to the company’s management team, identify and measure the risks of their decision-making, and ultimately make sure that the CEO is accountable for meeting company goals and objectives.
A deep understanding of company strategy: Each company has a unique business strategy based on the size of the business, budget, industry, and goals. An efficient CFO will know the company’s strategy inside and out. This strategic understanding allows him or her to prioritize business tasks and processes for the CEO and advise the CEO on strategies to get their goals while hopefully getting the best return on investment.
An effective decision maker: A top-line CFO has the skills and experience to develop strategic planning and forward-thinking. The CFO must always be ready to implement changes within the company to prevent loss and produce growth. Adaptability is key to good decision making and will build trust with the CEO. At the end of the day, a strategic CFO plays a very crucial role in the CEO’s ability to make more informed and insightful [read: better] decisions, which is crucial during times of economic strain and uncertainty.

If you’re looking for a top-performing CFO but don’t have the time, budget, or desire to hire in-house, Signature Analytics is the go-to resource for outsourced CFOs. We provide professional, part-time CFO services, supplying your company with a Chief Financial Officer who is a leading expert in their field. We’ll match you with a CFO you can trust to provide the following: actionable financial analysis, cash management, forecasting, accurate reporting, high-quality business advice, and company risk management.

How a Controller Can Grow Your Business