What am I going to do now?

Mary Beth, the owner, just got a call from her banker asking for more analysis behind some of the finished goods inventories shown on the financial statements. Her banker is constantly asking for more reports and more details.

Does this signal trouble? Is she in danger of losing of their line of credit, which could sink the company?

Her company, Specialty Controls, is a small family-owned business engaged in the design and manufacture of push-button control devices. Her father started it 30 years ago and she took over five years ago. Other than introductory business course prerequisites needed to earn a law degree, Mary Beth has had no formal training in accounting. She remembers how her father often struggled with financial statements and anything “accounting.”

The business grew steadily and now occupies a 60,000 sq ft. facility, employing up to 75 people when orders are strong. However, despite steady growth, the business has been adversely impacted by competition from off-shore manufacturers and the shift from electromechanical to digital-based controls.

While catching up over lunch with a former partner in the real estate law firm where she worked before, Mary Beth shared her financial concerns. She said she wonders if her bookkeeper, who was hired by her dad about 15 years ago, can keep up with the demands from bankers and the company’s CPA.

As they continued discussing the subject, their conversation uncovered some big reasons why Mary Beth should hire a CFO:

  1. The bookkeeper use to prepare financial statements within five days after the month ended. Now it is taking up to 30 days and the bank is increasingly impatient. The credit facility that Specialty Controls has with their bank stipulates those financials should be submitted within 15 days after the month closes.
  1. When the financials are finally ready, they don’t seem logical and her bookkeeper has difficulty explaining what just happened over last month or quarter. For example, a new digital control product was launched six months ago, but Mary Beth cannot find sales of these new products when she reviews the financials.
  1. Specialty Controls’ CPA is frustrated because he has not been receiving timely financial data from the bookkeeper, either. An important tax credit of over $25,000, offered by the state, was missed because the financial statements and key supporting data were not provided before the filing deadline.
  1. Her former colleague reminded Mary Beth that her bookkeeper tells her that the business is “making money,” but at the same time, the business seems woefully short on cash. She now understands why her dad would tell her he practiced “survival accounting,” i.e., would there be money left over at the end of a month after employees and suppliers had been paid?

Mary Beth reflects on the banker’s request for finished goods inventory and wonders if unsold inventories might be what is tying up cash.

  1. With inflation at a 40-year high, Mary Beth’s margins have been squeezed to their lowest levels since she took over the business. Her circuit board supplier has raised prices five time in the last 18 months and no one seems to be doing anything about it.
  1. Specialty Controls has had two requests to produce a customized control product. Mary Beth believes this might be a viable initiative, however she feels it will require new injection molding equipment. She asked her bookkeeper for a cost-benefit analysis three months ago but has not seen a thing. She now believes this kind of analysis is beyond her bookkeeper’s skills.
  1. Specialties Controls’ business system software is a patchwork of separate systems that don’t talk to each other. For example, their sales manager would like reports indicating sales by customer for this year, with comparisons to prior years. He is hoping to set sales targets by the customer for the upcoming year. The present system does not easily do this, and the bookkeeper is spending weekends trying to provide the proper data.
  1. Mary Beth heard that one of her competitors may be up for sale and she would like to make an offer, but she is not sure where to start. She doubts the bank would be willing to provide additional loans given their impatience with her late reports and financial statement questions.
  1. Mary Beth does not want to run Specialty Controls forever, and there is no one left in the family to take it over. She has no idea how much the business might fetch if she chooses to sell it over the next three to five years. And, she has no idea what a buyer might look at when buying her company.

“The business has grown over the past five years. Why don’t you just hire a Chief Financial Officer to oversee the bookkeeper and help provide the information requested by bankers, CPAs, and others? I think you need one,” advised her friend.

Mary Beth replied that the business couldn’t afford a CFO, plus she wanted to remain loyal to the bookkeeper her dad hired so long ago.

Mary Beth knows she needs more financial horsepower to help run her business and advise her. But, where can she find that expertise at a price she can afford?

Her friend suggested that a fractional CFO might be a good place to start.

What is a CFO and What Can They Do for You?

A CFO is a professional executive who will organize your accounting operation, strengthen financial routines and controls where needed, and improve financial reporting by:

  • Identifying an appropriate integrated business software package,
  • Managing cash flow, arranging for a proper bank credit facility,
  • Monitoring industry trends,
  • Managing your business structure,
  • Creating budget and forecasting models,
  • Providing analyses of the current operation,
  • Identifying opportunities and problems and providing analysis that leads to solutions and answers, and
  • Establishing key performance indicators that measure results, so your business continues to be a success.

A CFO will work with the other key leaders of your business and ensure they are all aligned and pulling together.

Can’t Afford Your Own CFO? Think again.

Today, it is a common practice by many smaller firms to hire a part-time, or fractional CFO, who can perform all the duties listed above, on a priority basis established by you, either from a task or time perspective. That might be 10 hours per week, 15 or 20 hours per month – whatever you believe will add value to your business.

A fractional CFO can provide you with an honest assessment of your current financial talent and provide solutions on where you should go from there. You can sleep better at night knowing the important tasks are being completed and not worry when your banker or CPA calls looking for additional information – your fractional CFO is handling it!

-Courtesy of North Georgia CFOs
Melanie Zeman, Founder and President

Tom K. Cook, Managing Partner