chesson-solutions

Press release

admin@aisellsystems.com (Joel Phillips) — Fri, 27 Jun 2025 17:26:55 GMT

Imperial Advisory Acquires “CFO4VETS” To Provide Fractional CFO Services to Veteran-Owned Businesses

WEST HEMPSTEAD, NEW YORK – May 1, 2025 -- Imperial Advisory , a fractional CFO and C-suite advisory firm, and CFO4Vets , a veteran-owned CFO services firm targeting the veteran community, today announced that Imperial has acquired CFO4VETS. Effective immediately, CFO4VETS will operate as a subsidiary of Imperial Advisory focused on providing exemplary CFO and financial expertise to the veteran community. Imperial CFOs who also served in the armed forces will take the lead on servicing the CFO4VETS line of business.

Since 2020, CFO4VETS has provided part-time CFO services to veteran-owned small businesses. Founded by Scott Chesson , who graduated from the U.S. Naval Academy and spent eight years in the U.S. Navy, CFO4VETS helps founders and other small business executives with diverse corporate finance services, including cash flow optimization, profitability analysis and valuation. With Chesson stepping back from CFO4VETS, the firm will now be helmed by Brittney Taylor and Gershon Morgulis , both of whom will retain their positions at Imperial Advisory.

“As I move toward retirement, I’m excited to be able to hand off CFO4VETS to a talented advisory firm that will continue our mission of helping veteran-owned businesses enhance their financial operations,” said Chesson. “Moving forward, CFO4VETS will operate under the Imperial Advisory umbrella, while remaining majority veteran owned. Creating a vehicle through which veterans can help other veterans succeed in business is one of my proudest career achievements, and I’m glad that Brittney, Gershon and the rest of the Imperial team are carrying the CFO4VETS torch forward.”

Imperial Advisory launched in 2014 as a fractional CFO firm for small and mid-sized businesses. Over the past few years, the company has grown markedly, and its team of six seasoned CFOs provides counsel to regional and national businesses in retail, healthcare, manufacturing and other industries.

“Having served in the Navy for almost a decade, I identify strongly with Scott’s vision,” said Taylor. “Veterans tend to be excellent entrepreneurs, because of their discipline and resilience, but – as with so many small business owners – it’s often hard for them to juggle complex financial decisions along with running daily business operations. I’m excited to work with Gershon to continue the legacy of CFO4VETS and help unlock the business dreams of our veterans.”

Morgulis added: “Military veterans have put their lives on the line for all Americans, and it’s meaningful for the entire Imperial team to join forces with CFO4VETS. I’m grateful that Scott has chosen us to continue the legacy of working with the veteran community and we’re glad to welcome CFO4VETS into the Imperial family. There is an elevated level of trust between military veterans, and we’re proud to have several veterans on our team of amazing CFOs who will be the perfect voices to counsel and partner with veteran-led companies.”

About Imperial Advisory

Imperial Advisory is an award-winning CFO firm serving companies with $5 million – $250 million in revenue. Founded in 2014 as a boutique consultancy, Imperial now boasts a team of seasoned CFOs who provide CFO advisory, Fractional CFO, FP&A outsourcing and augmentation, and acquisition/divestiture advisory and due diligence. Imperial supports in-house CFOs with an extra set of hands to help them meet pressing deadlines and gives CEOs of smaller companies access to expert CFO leadership for help with financial strategy and FP&A. Imperial’s CFOs typically have 30+ years of corporate finance experience, ensuring clients benefit from deep expertise and collaborative problem-solving.
For more information, visit our website, www.imperialgrp.com

Exit Strategy Alert: Does Your Business Have the Right Protection?

Sat, 09 Mar 2024 15:29:13 GMT

Every business owner will exit their business at some point – whether voluntarily or involuntarily – yet only about 50% of business owners have a buy-sell agreement in place to govern the terms and process of the exit.

For this reason, it’s crucial to know about buy-sell agreements, which are legally binding contracts between co-owners of a business that determines the actions if a co-owner chooses or is forced to depart a company and the process of purchasing that person's share.

I’ve compiled a list of the most commonly asked questions about buy-sells:

How would a business owner benefit from a buy-sell agreement?

In many cases, the business owner's largest and most significant asset is the business itself. Suppose something happened to one of the primary owners. In that situation, it is crucial to ask how the owner’s demise or departure would affect the lifestyle and exit plans of the other owners, the business, and the other interested parties. Are you willing to share your business with your deceased partner's heir?

The demise of a primary owner is an excellent example of where buy-sell agreements come into play. They can remove the speculation regarding the future of your business. Furthermore, a buy-sell can reduce the stress and turmoil of an emotional situation.

Do you need a business valuation when implementing a buy-sell agreement?

The short answer is yes. A business valuation can be critical when contemplating a buy-sell. Valuations help you understand your business's worth and determine your action path after a buy-sell is activated due to a triggering event, such as when a primary business owner becomes disabled, leaves the company, or passes away.

Suppose a buy-sell agreement does not require an updated company valuation after a triggering event. In that case, the surviving owner may be required to pay the amount stated in the original buy-sell, even if that amount no longer accurately reflects the company's actual worth.

Similarly, a company's valuation may differ after a primary owner leaves the business. As you can see, knowing how much your company's value depends on its current organizational structure and staying ahead of the game in your forecasting is essential.

Who does a business owner work with to implement a buy-sell agreement?

A Certified Valuation Analyst is a professional business valuator who, along with a trusted attorney, is a must-have in establishing a proper buy-sell agreement. Because buy-sell arrangements can be challenging to discuss with a business partner and require much organization and implementation, a trusted attorney can steer and mediate those difficult conversations.

Protect your business – and yourself – by being prepared for the difficult transition when an owner exits the business. Buy-sell agreements help pave the way for smoother transitions.

Avoid These Two Mistakes in Your Business

Thu, 15 Feb 2024 22:20:46 GMT

I’ve seen so much in my twenty-five years as a CFO, and though I’ve worked in many sectors, the area where I’ve observed the most financial pitfalls has been for small businesses. I want to share two of my most common observations so that you can avoid making the same mistakes if you’re currently in any of these situations as a business owner. All you need is a bit of flexibility, foresight, and innovation.

1) Impulsive Cost Cutting Measures

The knee-jerk reaction for most folks in challenging economic times is a tendency to focus on cutting costs while losing sight of how important it is to optimize and innovate your revenue streams. I’m not saying that cost reduction isn’t essential, or even mandatory, during an economic downturn. Still, I will stress that reducing your costs cannot replace a concerted strategy to optimize your existing revenue streams while also exploring and building new revenue pathways. Perhaps a tactic you may want to consider is scrubbing your costs throughout the year rather than doing so dramatically during a moment of panic. It allows you to be more thoughtful in your approach. I’d also suggest you look at zero-based budgeting, which means annual expense budgets are not automatically renewed with a blanket percentage increase and, instead, each expense category is analyzed and justified based on a company’s requirements -- in concert with the overall cost structure. Even implementing zero-based budgeting on a limited basis will help avoid protracted cost-cutting during downturns. My final advice on this matter is to not be too hard on yourself! It’s easy to lose sight of growing the top line when your business is fighting for survival on the bottom line.

2) Getting Attached to Something that Isn’t Working

Another common pitfall I’ve seen repeatedly is when business owners are wedded to a product, service, or strategy that is unsuccessful. Instead of bringing in revenue, it is harming their business’s financial health. Passionate and committed entrepreneurs often take on the idea that they can make something work – even if it’s not meant to be and falsely believe that admitting defeat or giving in to the notion that if a product, service, or strategy goes away means they have failed. It’s also hard because they have almost always dedicated so many resources to their efforts that they must continue trying. However, a small business has many advantages over a large, bureaucratic entity. One advantage is flexibility. They can move quickly to take advantage of opportunities or pivot away from unsuccessful undertakings (like poorly performing products, services, or strategies) before too much financial damage is inflicted on the business. The damage is generally manifested as negative cash flows or declining profits. Still, the effects are much more far-reaching and less clear, but they impact the most finite of resources, time, and energy. I recommend having a timeline and specific goals to chart the progress of a new product or service. Then, your company has guidelines that can prevent devoting unwarranted time, money, and energy to unsuccessful projects. There is no shame in experimenting and adapting your business and acknowledging that some ideas failed. You are still doing a great job and learning with every experience, becoming more substantial and more valuable in the marketplace.

The Economics of High-Profile Love

Thu, 18 Jan 2024 23:27:19 GMT

First, I am indifferent to following celebrity relationships. Yet, I root for high-profile people and all people to find happiness and contentment. Still, exploring the economics of public relationships related to pro football is intriguing. For context, I am a lifelong, long-suffering Miami Dolphins fan (since 1970), so another resounding defeat to end the season is painful but not unexpected. The latest defeat was at the hands of the Chiefs in frigid Kansas City.

The media furor started in September. After a win from the Kansas City Chiefs, where Taylor Swift was present, cheering on her boyfriend, Travis Kelce , it inspired me to analyze the logistics and economic impact of this very public relationship. Not only are we looking at how Taylor can find the time to travel from wherever she is on her world tour to wherever Kelce is during a game, or how Kelce can find a few days to escape his training before his next game to go to wherever Taylor is, I’m looking at the finances of this relationship.

When it comes to Relationship Math, there are many formulas we can use. Let’s start with how much it costs for two celebrities to fall in love while everyone is watching.

As might be expected with any high-profile romance where the literal world is watching, Front Office Sports confirmed some spectacular math was at play when they posted on Twitter that since Taylor first showed up to Kelce’s September 24, 2023, Chiefs-Bears game, there was a:

400% spike in Travis Kelce jersey sales
Kelce’s jersey sales moved from the 19th most popular to the 5th most popular
Kelce's podcast with his brother ranks #1 overall on Apple
Kelce adds 383K Instagram followers
24.3M viewers watched, making it the #1 game of the week
63% jump in female viewers aged 18-49
3x increase in 'Chiefs' searches on the web
3x increase in Chiefs sales on StubHub
Chiefs sold more tickets in a single day since the start of the season

The statistics are noteworthy, but was the spike in jersey sales sticky? For all of 2023, Kelce had the 9th best-selling jersey, so it seems the spike had staying power.

I’m not going to devote much time to researching and breaking down every cost, but it was enlightening to show these numbers to illustrate the grand scale of this situation. I want to break down something that’s not on the list: the cost of jet fuel. For the sake of simplicity, let’s examine one of Taylor’s flights. Countless sources talk about Taylor’s two jets - the Dassault Falcon 7x and the Dassault Falcon 900- which cost $40 million. According to Newscenter Maine, “the Dassault Falcon 7x jet flew from London to Bangor, using about 2,382 gallons of fuel amounting to about $13,300.” The outlet reported that the stopover was the first of her U.S. return, which took off to fly to Kansas City.

From Heathrow to Bangor, it’s 3,068 miles, so that’s $4.34 a mile. Bangor to Kansas City is 1,736 miles, which would cost $7,534. Combined from the UK to Maine to Kansas City, that’s around $20,834.

This September 2023 Variety magazine says: “After the pop star caused a media frenzy on Sunday when she was spotted cheering on Travis Kelce amid dating rumors, jersey sales for the Chiefs tight end reportedly spiked by nearly 400%.” On NFLshop.com , the jersey goes for $129.99, so while I don’t know how many were selling pre-Taylor, let’s say, for the sake of simplicity, that there were 50,000 Kelce jerseys sold between January 1 and September 23, 2023.

That translates to $12,999,000 or about $24,434 per day. A 400% spike in sales would be $122,171 per day or an increase of $98K daily or almost $3M monthly. Daily jersey sales would increase from 188 to 940 per day.

So, we’re already up to $120K in economic impact between two flights from the UK to Kansas City and a 400% spike in jerseys in one day.

My final calculation: High-profile love is expensive, and Zoom seems to be a highly underutilized resource in this scenario.

Photo credit: AP/ED ZURGA

A Very High-Priced Meal

Thu, 12 Oct 2023 23:43:03 GMT

Before we had kids, my wife and I would take turns asking, “Where do you want to go?” and we’d hop on a plane. Maybe it was Boston, New Orleans, Vegas, Minneapolis, Portland, or Memphis. We wanted to take advantage of our opportunity to be mobile. We got to see the country. We flew to Europe once – from San Francisco to London – and we flew first class. It’s no secret that the food is much better up front.

I knew it from firsthand experience, but I also knew it from number crunching behind the scenes. I used to work for a major airline, where part of my job was to perform an industry comparison for our food and beverage costs. We had to know how we were performing against the competitors in the industry.

➡ Were we more or less expensive than our competitors?
➡ How did our KPIs and financial metrics stack up with our competitors?
➡ If I’m way above, how do I keep it there?

Our budget for a year in all classes for domestic and international routes was close to 1 billion dollars. Yes, you heard correctly. That’s a lot of dollar signs. Most of the budget was devoted to feeding first and business-class passengers. I doubt that the current spending for any major airline approaches those lofty amounts in today’s austere flying environment. More than that, it was a monster analysis. Figuring out how much other airlines spent per year on food and beverage by class was challenging. The data wasn’t just sitting there for anyone to see. It required a lot of creative analysis, with some serious estimation (based on public data) thrown in the mix. We ultimately determined our catering costs were much higher than expected. But that experience taught me that even if numbers can paint a vivid picture of profit and loss, your path to the answer can be nonlinear and require some detective work. The time it takes for the route you need to get to where you want to be mirrors flying itself: sometimes, the flight is short, and sometimes, it requires lots of stops, delays, layovers, and jet lag.

Have you ever had an experience where the path wasn’t cut-and-dry?

Grow your Business Organically

Fri, 01 Sep 2023 23:55:25 GMT

Do you know what it means to expand your business based on organic growth? It’s an incredible way to increase revenue by maximizing your internal resources.

Some examples of organic growth include expanding your sales team, offering a more extensive menu of services, strategically increasing your prices, adding new clients, and developing business by drawing from your existing clients.

Here are some tips that help avoid common pitfalls that can hamper organic growth:

One common pitfall many client-driven businesses make is to pursue all potential new client opportunities with equal vigor. But the truth is, not all new business opportunities are created equal. For example, RFPs (Requests for Proposals) are often time-consuming and intrusive, with a low probability of turning into a win, and they’re often a necessary evil in drumming up new business. In order to deliver a knockout RFP, you would need to disclose a wealth of information that many private businesses would prefer not to reveal, hence the intrusive nature of the information gathering. Suppose the RFP is for a government entity. In that case, the RFP information is often disclosed publicly, and the probability of winning is usually low because it may be a "cattle call" or an RFP process that includes dozens of businesses and several rounds of new business pitches. In many cases, without you knowing, the outcome may already be preordained, thus making the RFP a formality only and a colossal waste of time for you. Before throwing your name in the hat for an RFP, gather as much intelligence as possible (qualify the opportunity) to ascertain whether the time and effort necessary for the application process are warranted.
A corollary to being judicious in pursuing new business prospects is to avoid giving away your firm's intellectual property during the pitch process. When pursuing a unique client opportunity, most firms provide a sample of their work or explain how to solve a client's challenges. I have firsthand experience with potential clients pilfering the playbook outlined during the pitch process and implementing it with their internal staff. It's neither ethical nor expected, but it does happen occasionally. Putting the firm's best foot forward is crucial to success, but a flavor of the firm's knowledge and the proprietary process is sufficient to whet a potential client's appetite.
You’re missing a massive opportunity by neglecting existing client expansion. While expanding business with existing clients is less glamorous than the thrill of the hunt when tracking a shiny new client, it can be a slam dunk in many instances. Existing clients know your firm well and are presumably pleased with your service. The effort required to grow existing clients is generally considerably less than bringing in a new client. Clients who are particularly delighted with your firm's performance will sometimes hand an incremental piece of business to your firm outright without the typical machinations. Moreover, loyal, existing clients are more likely to take a chance on a new service offering from your firm because of the synergistic relationship. During my twenty-four years as a CFO, the most significant revenue gains occurred when existing client growth was robust.

In summary, organic growth presents many opportunities for increasing your company's revenues. Beware of devoting your firm's time, energy, and money to prospects likely to usurp your resources excessively with a low probability of success. Protect your intellectual capital during the potential client pitch process. Only give away a sampling of your firm's genius before you win the business. Lastly, respect and exploit the underappreciated organic growth process of augmenting revenues with existing clients. The benefits will significantly outweigh the costs.

Diving into the Tank: A Shark Tank-inspired Guide for Entrepreneurs

Fri, 14 Jul 2023 00:07:22 GMT

I enjoy many things related to the exploration of the finance realm, but one of my guiltiest pleasures is watching Shark Tank. You can learn so much from the show if you’re an aspiring (or existing) entrepreneur, as it teaches you a lot about the most common valuation traps those seeking funds fall into. Though some very well-established, successful businesses seek capital, for the most part, you will find startups entirely different from well-established, high-profit enterprises.

�� Take the Washington Commanders , which sold for $6.05B last month. The Commanders were purchased for $800M in 1999.

�� Earlier this week, Apple ’s stock was trading at about $178 per share. $178 per share translates to a market capitalization of $2.78T ($178 x 15.8 billion shares outstanding= $2.78T). That is a staggering valuation ($2,780,000,000,000)!

Though the previous valuations are easy to understand, given the Commanders' fair market value sale and Apple's share value on the Nasdaq , the numbers are staggering to those just starting. They may only sometimes provide realistic learning opportunities. In truth, determining the value of a small, privately-owned business can be a tricky endeavor since the valuation estimate will always vary, depending on the rationale for appraising it. It is essential to comprehend the distinctions between the reasons for valuing the business, whether a company is being sold, valued for tax purposes, a buy-sell agreement, litigation, or raising capital.

When valuing privately owned and small private businesses specifically, a discount for lack of marketability is incorporated into the valuation estimate to compensate for the absence of a ready-made market for a privately-owned company. As risk increases, the valuation decreases.

On Shark Tank, business owners commonly get tripped up in their quest to raise capital by pitching using a bloated valuation.

�� For example, an owner requests a $1,000,000 investment for a 4% stake in a business.

�� Translation: Valuation = ($1,000,000/4%) = $25M!

As the Sharks dissect the valuation, they discover that the business is either a start-up with zero revenues, a product or service in a crowded, competitive industry, or a seemingly mediocre business plan and value proposition. Hence, no deal. It would behoove anyone hoping to pitch an idea to investors to comprehend the parameters of their company’s value, not just the financial metrics. Study successful enterprises in your industry and their valuations.

If it’s your business, approach any capital raise with an aggressive realism in your projections that more closely matches your company's value plus growth potential. Then, if you are ever on the hot seat with potential investors, you can avoid one of those cringeworthy moments endemic to many Shark Tank episodes!

Business Cash Flow Primer Updated for 2022

Tue, 05 Apr 2022 12:00:05 GMT

Cash is oxygen to your business. All businesses need it to breathe, and mastery of cash management principles will benefit your business immensely.
82% of the time, businesses fail due to cash flow shortfalls.
80% of businesses fail within the first five years!
Build 3-6 months of working capital reserve to sustain the business through difficult times. Building a cash reserve and maintaining it isn't easy but a worthwhile undertaking if your business can make it happen.
Monitor cash conversion cycle constantly – How long does it take to convert sales to cash? The metric that measures the cash conversion cycle is the average collection period. The calculation follows:

Measure how close your cash conversion cycle is to your payment terms. Example: If your cash conversion cycle is 45 days and your payment terms are 30 days, your cash conversion rate requires some optimization.

Build a cash flow forecast for at least 6-12 months in advance. The cash flow forecast will allow you to preview the peaks and valleys of your cash position.
Monitor and update the cash flow forecast weekly and monthly.
Monitor and follow up on Accounts Receivable with ruthless consistency.
Beware of being a line of credit (a bank) for your clients. Some large businesses will take advantage of their size and the “honor” of doing business with them to mandate unfavorable payment terms.
Start-ups may need 2-4 times more cash than initial projections.
A cash flow statement should be part of your monthly financial statements (beyond the income statement and the balance sheet).
A cash flow statement shows a breakdown of your cash flow from operations, investing, and financing your business. Cash flow statements translate GAAP earnings into cash flow.
Bill customers a portion of fees upfront. This tactic will depend on your industry and business type, but collecting a part of your fees in advance will boost cash flow.
Have access to a revolving line of credit to help fund cash flow shortfalls. Interest rates are still relatively cheap, although rising.
Obtain credit when your business does not require it (See # 14). Then, your business will have access to it before a crisis or significant downturn.
Credit cards, if appropriately managed, help by providing your business with float.
Pay close attention to credit card close dates and defer expenditures to maximize float.
Practice zero-based budgeting. Build your budget every year with the idea that you are starting from scratch. Then, incumbent expenses are not automatically renewed in your budget. Even if your business can apply zero-based budgeting to the most significant components of your annual budget, it will help prevent guaranteed ratification of incumbent spending.
Make purchases using economies of scale to save dollars if feasible. Buy in bulk.
Lease computer equipment instead of buying equipment to spread out the payments to boost cash flow.
Accept only electronic payments. The time for accepting snail-mailed checks has passed.

IT Investments

Tue, 15 Mar 2022 16:00:06 GMT

Information Technology (IT) falls into the triad of often underinvested disciplines in small businesses. Finance and HR are the other two areas. The risks for underinvesting in IT manifest themselves in various costly, inconvenient ways, not to mention the emotional rollercoaster ride you will experience. Let’s explore two common issues with underinvestment.

One risk that is an ever-present threat and receiving considerable notoriety (deservedly so) is cybersecurity risk. The possibility of being hacked is much more likely for a large, prominent entity than a small, less conspicuous business. Yet, a smaller company is not immune from hacking.

I once worked for a company whose email system was penetrated by a foreign entity. We were not aware of the cyber breach until a federal agency visited our office to inform us about the infiltration. Although we were not a large business, our company was well-known in Washington, DC. Additionally, we fit the profile of underinvestment in IT infrastructure. Our company grew rapidly over several years with minimal IT investment. We did not have a robust firewall, intrusion prevention system (IPS), modern servers, software, or an updated Microsoft exchange system to help forestall infiltrations.

After the meeting with the federal agency, we resisted the urge to panic. Having some nation-state trolling around in your email system left us on edge. We quickly overhauled the IT infrastructure, including new servers, switches, firewalls, IPS, virus/spam/malware protection, while hiring more knowledgeable consultants to provide us with sophisticated IT strategies. The investment was significant and akin to spending five or more years of budget in one year. We started to feel better about our security. Still, before implementing the IPS, I received a call from the same federal agency notifying me that the foreign intruders were still camped out in our email system.

We were flabbergasted. How are they still in our system, and what will they do with the intelligence gathered? The potential for reputational damage to the business was palpable, coupled with the accompanying potential for financial damage placed us in a precarious position. Fortunately, after the IPS was in place and we scrubbed our email system again of unverified users, the cyber hackers were ejected from the system. We did not experience any direct fallout that we were aware of, but that does not mean we were immune from business development losses, client attrition, or other issues we could not explain. The hazards associated with underinvestment in IT infrastructure can be debilitating at best and catastrophic at worst if your business experiences an extended systems failure.

Beyond cyber risks that may also include ransomware, there is the most significant IT risk of all: your critical system(s) going down. Unique to each business, critical systems include email, financial systems, collaboration software, e-commerce platforms, etc. Redundancy and automatic failover are two key IT terms/strategies to keep your critical systems running in the event of a systems outage. Think of your IT system as your company’s engineering plant. An engineering plant on a Navy ship or a power plant has automatic failovers and redundant equipment to prevent a complete power outage. Automatic failovers of the company’s servers, internet connections, and other critical IT systems are necessary for maintaining 24/7 business operations and communications.

The good news is there are many options available to outsource your IT management to competent firms capable of minimizing downtime and maximizing security and system reliability at an affordable cost. Always ask for referrals from your network when seeking skilled IT services providers and interview/benchmark several providers before pulling the trigger. Engage a business that can handle more complex IT strategies as your business grows. I have included a link below to a comprehensive article that discusses choosing the best IT support for your needs.

https://www.businesspundit.com/best-it-support-companies-small-business/

To secure your remote users, an immediate step is to ensure all remote access is controlled by a secure, encrypted connection called a Virtual Private Network (VPN). The security of remote access is crucial now because of the proliferation of virtual workers over the last two years.

In summary, investing in IT infrastructure as your company grows helps prevent catastrophic failures such as critical systems outages and cybersecurity breaches. Moreover, investing consistently in IT can help avoid the fallout of reputational damage and financial losses to your business. Then you can sleep well at night knowing your company’s intellectual capital and “secret sauce” are secure.

Why I Started CFO4VETS

Tue, 01 Mar 2022 13:51:43 GMT

I have loved numbers since I was very young. They constantly flow in my mind like a rapid river. I find the way they interrelate fascinating. This love of numbers led me to pursue a mathematics degree in college. There I enjoyed applying the connectedness of numbers to solve complex problems. After serving in the U.S. Navy for six years, I pursued a master’s in accounting and a career in finance. I worked my way up the ranks to Chief Financial Officer (CFO) and served multiple companies in this role for over twenty years. A few years ago, I decided I wanted to transition to having my own business where I could help small business owners.

This began a period of self-discovery as I was determined to build a business on the foundation of being a trusted, ethical advisor. I crystalized my beliefs, values, functional and emotional benefits, core message, and brand promise. I also clarified who I wanted to help, their core problem, and why I was the best person to solve it. With my background as a veteran, the son of veterans, and a brother who is a veteran, my mission is to support veterans and their spouses who are business owners struggling with strategic financial challenges. As their part-time CFO, I can free up their precious time so they can focus on running their business. Together, we can empower their businesses to grow and flourish.

Are you in need of a part-time CFO or know a veteran or military spouse entrepreneur who is? Explore how I can help. Explore CFO4VETS. https://www.cfo4vets.com/

Profitable Growth

Fri, 11 Feb 2022 02:27:06 GMT

2022 has arrived. Small businesses should prepare and implement a plan to achieve financial success. One measurement of financial success is profitable growth. Let us examine why profitable growth matters.

First, what does profitable growth mean? It means your business grows both revenues and profits, with your profit growth surpassing your revenue growth. In other words, your company's profit margin expands. Let us consider the example below:

The good news is that the generic business in the example above doubled its revenues. The unwelcome news is that despite the company increasing its profits (EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization) by 80%, its profit margin declined by 10%. Every incremental dollar of revenue earned in 2021 compared to 2020 costs an additional $0.84, so the profit margin shrunk from 20% to 18%

Final Score: Revenue Growth 100%, Profit Growth 80%, Margin Growth -10%

The company's spectacular growth was marred by its regression in profit margin. Furthermore, even if there was an active investment plan to achieve rapid growth, margin expansion should still transpire with 100% topline growth, especially for a small, rapidly growing business. Growing revenues absent profit margin expansion is referred to as "hollow" growth.

Fortunately, profit margin decline is an atypical outcome after doubling revenues. Let us consider a more optimistic yet realistic example, again, assuming 100% revenue growth.

In contrast with the previous example, doubling revenues from 2020 to 2021 resulted in 240% profit growth and 70% margin growth. Every incremental dollar of revenue earned in 2021 costs an additional $0.52, so the profit margin rose from 20% to 34%. This is an excellent illustration of profitable growth. Moreover, consistent profitable growth increases the market value of your business.

Final Score: Revenue Growth 100%, Profit Growth 240%, Margin Growth 70%.

So, as your business brainstorms regarding both its strategy and financial goals for 2022 strive mightily for profitable growth such that your company is pursuing the most efficient way to utilize its resources to expand revenues while generating more significant profit margins.

Financial Systems Implementation Tips

Sun, 30 Jan 2022 22:17:14 GMT

Your company is embarking on a new financial systems implementation. The expectations are lofty for the new system as the investment by your business will be significant. Improved efficiencies translating into time savings for your staff. Faster cash conversion. Seamless integration potentially with HR, Payroll and CRM systems. The new system may make it easier to scale the business and not impair growth. So, the following are some tips to help the implementation go smoother.

1. Assign a competent, engaged, willing person or team to manage the project full-time to prevent scope creep and overengineering/excess complexity.

2. Scope creep, and the desire to perfect the system from inception are harbingers of both cost overruns and project delays.

3. If your business does not have the internal staff with either the time or know-how to manage the project, find a knowledgeable consultant with expertise in the specific financial system and a track record of successful implementations.

4. The commencement of implementing a new system is the perfect time to critically review your processes and make changes/improve efficiencies without overengineering.

5. Corollary to 4, build your financial processes around the new system’s functionality instead of forcing the new system to submit to your current processes. Your company is upgrading the system because the incumbent system is not meeting your needs.

6. Beware of overzealous internal control design. Too much internal control with single points of failure related to approvals may paralyze your company’s financial processes.

7. Build a detailed implementation project plan with specific milestones.

8. Be wary of overpromising and underdelivering by software vendors, especially regarding automation.

9. Map out and document any process automation in detail with the developers and leave nothing to interpretation.

10. Remember that developers are not financial systems users and will not always fully grasp the fundamentals of your financial processes.

11. Bring your users along for the ride. Handpick savvy engaged users to test and provide feedback on the user-friendliness and efficiency of the system throughout the implementation.

12. Your savvy users can help train others and be “apostles” for the new system.

13. Communicate the benefits of switching systems to all users regularly throughout the project.

14. Run an internal “PR” campaign to help overcome the fear of change and new technology. It does not have to be elaborate; build it into your project plan.

15. Project manage the heck out of your implementation.

16. Test your financial system thoroughly and try to “break it” to flush out glitches before going live.

17. Implement 80% of your system's wish list out of the gate. Please keep it simple.

18. Add the bells and whistles after a fully operational system is implemented and running efficiently.

19. Best of luck. The preceding tips apply to any systems implementation, not just financial systems.

Jumpstarting Revenue Stagnation

Sun, 23 Jan 2022 13:27:34 GMT

Small businesses periodically experience revenue stagnation due to the absence of professional financial skills, reports, and processes. Finance is not an asset to your company but simply a backward-looking scorekeeper.

Why? Because small businesses are calibrated to minimize “overhead” costs. Moreover, minimizing overhead costs is a sound business finance doctrine. As companies progress in size, CPAs and bookkeepers handle basic accounting. CPAs are responsible for preparing the tax returns and minimizing the corporate tax liability. Bookkeepers maintain a simple, retrospective financial scorecard. Both CPAs and bookkeepers are employed part-time to keep the finance ship afloat. Minimal finance staffing is ok up to a point.

Then, the business struggles or fails to progress further. The rationale for a simplistic approach to finance must be reconsidered. Why? Because the absence of in-house finance knowledge and process is often one of the key impediments to the growth of the business.

Let’s consider the example of a company with fifty employees. The company has been a successful privately-owned business for fifteen years. Then, after fifteen years, the company’s revenue stagnates. The finance staff is barebones with minimal infrastructure. The company grew considerably over its history. Now, for three consecutive years, revenues are flat. One of the reasons for flat revenues stemmed from the sales teams performing a host of accounting functions, including billing and collecting receivables. Consequently, ancillary accounting tasks partly usurped the sales team’s valuable selling time. The diminishment in sales effort detracted from the team’s ability to both sell and nurture client relationships.

This situation is a familiar refrain for small businesses that have plateaued. The fear of introducing too much overhead into the profit mix results in a stalemate. The traditional finance functions are dispersed throughout the company to the detriment of other parts of the business. Finance keeps score because that is the extent of its capability.

How Best to Remedy this Dilemma?

1. Augment junior finance staff to offload the basic billing and collections from sales or other departments. In addition to handing the essential functions to accounting professionals, the rest of the company experiences time liberation, and thus productivity increases.

2. Hire a part-time (fractional) CFO to aid the company in elevating revenues surpassing the plateau.

3. A skilled fractional CFO will devise relevant financial analysis, key performance indicators (KPIs), and comparative industry metrics to clarify the business’s financial strengths and weaknesses.

4. The insight gained from the cogent financial analysis will provide fuel for bursting through the artificial revenue barrier.

5. The right fractional CFO will transform finance from a retroactive scorekeeper to a forward-looking, analytical, strategic asset.

Variables In Business Valuations

Sun, 23 Jan 2022 04:09:04 GMT

It is often tricky to determine the actual value of a small privately-owned business. The valuation estimate will vary depending on the rationale for appraising the company. It is critical to comprehend the distinctions among the reasons for valuing the business, whether a company is being sold, valued for tax purposes, a buy-sell agreement, litigation purposes, or other reasons. Let’s explore the variability of select valuation amounts and how best to interpret the results.

A professional business valuation is one lens for understanding the value of a small privately-held business. Professional business valuations are performed for various reasons, including buy-sell agreements and many of the abovementioned reasons.

A professional valuation process entails a thorough analysis of a company’s operational dynamics and its financial health. A Certified Valuation Analyst (CVA) performs a professional valuation. The CVA selects the most appropriate methodology from among the many accepted by the valuation industry and applies a series of calculations and formulas to ascertain the business’s value. Within the valuation process, discounts for lack of marketability and control (DLOM and DLOC, respectively) are incorporated into the calculation as appropriate to compensate for the absence of a ready-made market for a privately-owned business and the lack of control when valuing a minority interest in a company. A professional business valuation is an excellent benchmark, yet the valuation amount may be lesser than other methodologies we will discuss subsequently. The professional valuation amount may represent the “floor” of the valuation estimates.

Second, similar to real estate “comps,” a business owner can consult completed sale databases for small privately-owned companies like BizComps and ValuSource Market Comps. The market comparison of relevant, completed sales transactions is a subset of a professional valuation engagement as market comparisons are one of the methodologies applied when performing a professional valuation. Thus, a CVA generally performs a standalone market comparison as well.

BizComps and ValuSource Market Comps databases are considered the primary sources for sales transactions involving small privately-owned businesses. ValuSource Market Comps has over 35,000 transactions in its database, while BizComps has more than 15,000 transactions involving small “main street” businesses. The “main street” businesses in BizComps’ database include restaurants, small retailers, and other difficult-to-find business sales. Both databases provide the following information on private company transactions:

• Annual Sales

• Sales Price

• Sales Date

• Price/Sales Ratio

• Business Description

• Business Location – State

Yet, accessing these databases is not free. Furthermore, it is essential to find comparable businesses within the same size and industry when searching for “comps.” Optimizing and interpreting the search results for similar companies requires knowledge of valuations and financial information. Thus, if an owner seeks a more comprehensive understanding of its’ business worth, it is best to engage a CVA to interpret the results and maximize comparability.

Before discussing small privately-owned business values relative to the sale of a business, let’s define the earnings metric commonly utilized to determine value. Earnings Before Interest Taxes, Depreciation, and Amortization (EBITDA) is a profit metric often employed to determine earnings, and subsequently, multiplied by a factor (5 Times EBITDA, for example ) to value businesses.

Let’s consider the case of a company that generates $2,500,000 in revenues and $500,000 in EBITDA in 2021 with zero debt. The company is in the environmental services industry. Environmental services businesses with less than $10,000,000 in revenues are generally valued at around five times EBITDA. Then, a rule of thumb valuation estimate for the company is $500,000 in EBITDA times 5 = $2,500,000.

EBITDA profit lends itself to comparability within an industry and across industries. Earnings multiples are regularly used to calculate rule of thumb valuation amounts or actual valuations related to the acquisitions of businesses.

The third lens of valuation is the sale of a business. A business sold establishes a market value for other comparable companies within its industry and size strata. Business buyers will use a variety of metrics, including multiples of EBITDA, market comparisons, future cash flows, tax benefits, return on investment, and a host of other financial indicators to establish a market value for a business. Will the company be accretive(additive) to earnings?

Beyond the numerous economic factors in valuing a business for sale, other factors are often considered, such as vertical integration, geographic footprint, talent acquisition, product expansion, and technology upgrades, to name a few. With good timing and stable economic conditions, the market value when selling a business may represent the apex of value unless it’s a distressed or liquidation sale.

In summary, when understanding the value of your small privately-owned business, be mindful of the various factors, rationale, and methods applied in defining your company’s valuation. Lastly, be sure to consult with valuation professionals to gain a comprehensive yet realistic insight into the best estimate of the value of your business.

Small Business Efficiency And Risk Reduction

Sat, 22 Jan 2022 17:18:45 GMT

How does a small business owner reduce the compliance risk associated with payroll and 401K plans? Let’s discuss some ideas to both reduce risk and increase efficiency.

First, be sure to outsource the compliance aspects of payroll to a third-party provider such as ADP, Paychex, Paycom, Gusto, etc. Specifically, tax filings should be handled by a professional payroll provider. Why?

Even before the pandemic, the risks associated with handling the nuances of each state and municipalities’ tax reporting and compliance were abundant. Tax compliance is both complicated and time-consuming. Fast forward to the present and the proliferation of employees working remotely. The expansion of remote work translates to more tax jurisdictions, added compliance, and thus heightened complexity, reduced productivity, and mounting minutiae.

Furthermore, small businesses cannot afford to run afoul of the IRS by filing payroll taxes in an untimely, inaccurate manner. There is no reason to escalate risk by filing the taxes using ill-equipped internal staff.

Lastly, if your business is struggling with cash flow, the temptation to delay tax remittances to shore up cash will persist. An external payroll provider will immediately remit the taxes, sparing temptation and risk.

Second, 401K contributions from employees must be remitted promptly to avoid penalties, excise taxes, and a host of potential issues with the Department of Labor (DOL).

DOL guidelines state that employee 401K contributions must be deposited to the plan on the earliest date that they can be reasonably segregated from the employer's general assets, but in no event may they be deposited later than the 15th business day of the month following the month in which the participant contributions are deducted from their pay. The language above does not give an employer an out on the prompt deposit of 401K contributions. In most businesses, deposits can be made electronically within 1-5 business days after payroll.

Additionally, small employers (100 or fewer employees) are subject to a safe harbor rule. Small employers can automatically satisfy the DOL deadline requirement when employee contributions are deposited no later than the 7th business day following the payroll date. So, seven business days after the payroll date is the latest date an employer can remit 401K contributions to the plan for a small employer.

The best practice for both small and large businesses is to set up automatic remittances the week following payroll to avoid a host of fines, filings, and fiduciary violations of your plan responsibilities. Consider it from an employee’s perspective. They entrust your company (the employer) to remit timely deposits of their 401K contributions to maximize investment returns.

Like remitting taxes, cash flow struggles will escalate the temptation to forward employee 401K contributions after the deadline to conserve cash. Thus, as referenced above, set up automatic deposits with your 401K provider and plan the timely deposits into your cash flow projections.

In summary, use an external provider to perform your payroll tax filings and remittances. The result will be increased compliance and heightened efficiency. To be clear, having internal accounting staff process the payroll is acceptable. Outsource all of the increasingly complex tax filings and deposits. Second, be sure to comply with the timely transfer of employee 401K contributions. Seven business days is the ceiling for small employer 401K deposits. Yet, the best practice is to remit 401K deposits the week following the payroll date for businesses of all sizes. For the maximum efficiency and optimum compliance, set up automatic deposits of employee contributions. Lastly, plan for payroll taxes and 401K deposits in your cash flow projections. Cash flow struggles will heighten the temptation to delay deposits.

Small Business Cash Flow Primer

admin@aisellsystems.com (Joel Phillips) — Sat, 22 Jan 2022 16:43:30 GMT

Cash flow can make or break a small business especially in the early stages. Yet, smart cash flow management principles are relevant and essential to all businesses. The following outline twenty principles for navigating the peaks and valleys of your company's cash flows.

1. Cash is oxygen to your business. All businesses need it to breathe, and mastery of cash management principles will benefit your business immensely.

2. 82% of the time that businesses fail is due to cash flow shortfalls.

3. Build a reserve of 3-6 months of working capital to sustain the business through difficult times. Building a cash reserve and maintaining it isn't easy but a worthwhile undertaking if your business can make it happen.

4. Monitor cash conversion cycle constantly – How long does it take to convert sales to cash? The metric that measures the cash conversion cycle is the average collection period. The calculation follows:

Average Collection Period = (Average Accounts Receivable Balance)/(Total Sales) x 365

a. Measure how close your cash conversion cycle is to your payment terms. Example: If your cash conversion cycle is 25 days and your payment terms are 30 days, your cash conversion rate is respectable.

5. Build a cash flow forecast for at least 6-12 months in advance. The cash flow forecast will allow you to preview the peaks and valleys of your cash position.

6. Monitor and update the cash flow forecast weekly, monthly at a minimum.

7. Monitor and follow up on Accounts Receivable with ruthless consistency.

8. Beware of being a line of credit (a bank) for your clients.

9. Start-ups may need 2-3 times more cash than initial projections.

10. A cash flow statement should be part of your monthly financial statements (beyond the income statement and the balance sheet).

11. A cash flow statement shows a breakdown of your cash flow from operations, investing, and financing your business.

12. Bill customers a portion of fees upfront. This tactic will depend on your business, but collecting a part of your fees in advance will boost cash flow.

13. Have access to a revolving line of credit to help fund cash flow shortfalls. Interest rates are relatively cheap and will be low for the foreseeable future.

14. Obtain credit when your business does not require it. Then, your business will have access to it before a crisis or significant downturn.

15. Credit cards, if appropriately managed, help by providing your business with float.

16. Pay close attention to credit card close dates and defer expenditures to maximize float.

17. Practice zero-based budgeting. Build your budget every year with the idea that you are starting from scratch. Then, incumbent expenses are not automatically renewed in your budget. Even if your business can apply zero-based budgeting to a portion of your annual budget, it will help prevent guaranteed ratification of incumbent spending.

18. Make purchases using economies of scale to save dollars if feasible. Buy in bulk.

19. Lease computer equipment instead of buying equipment to spread out the payments to boost cash flow.

20. Accept only electronic payments. The time for accepting snail-mailed checks has passed.

Integrity Matters

Fri, 21 Jan 2022 20:46:04 GMT

I read the outcome of the Theranos trial with great interest. Theranos is yet another high-profile example of fraud and deception. Elizabeth Holmes, CEO of Theranos, was convicted on four counts of fraud. Fiduciary responsibility was violated repeatedly over a long period.

Experienced investors poured $1.4 billion in capital into the company based on what was supposed to be an ingenious device that reliably and accurately tested for a wide assortment of conditions based on a few drops of blood.

In hindsight, there were a variety of red flags that should have given investors pause. One red flag was the absence of a Chief Financial Officer (CFO) for most of the time that Theranos was in business. Theranos had a CFO for only eight months out of fifteen years. The CFO was let go by Holmes after expressing concern that Theranos faked test results.

It isn’t easy to comprehend how a business receiving $1.4 billion in funding was without a CFO for most of its existence. The CFO is expected to be the truth-teller, the reality check to balance out unfettered optimism, the enforcer of financial and operational discipline, and the conscience of the business. In the absence of a CFO, Theranos’ finances became utterly disconnected from reality and the company’s external facade.

The financial fiction reached a crescendo in 2014 when Theranos issued a projection claiming $1 billion in revenue in 2015, even though its revenue in 2014 was around $100,000 and its contracts were shrinking rather than expanding.

Integrity matters significantly in life and business. We must trust the people we work with closely inside and outside our company. Fraud in any form is deplorable and serves to chip away at our faith in those charged with fiduciary responsibility.

Thus, when your business needs a full-time or part-time finance chief, take a long, hard look at the character and trustworthiness of your candidates. Your CFO must have impeccable integrity to oversee your business’ finances and tell you the truth about your company.

Key Performance Indicators (KPIs)

Mon, 25 Oct 2021 22:26:12 GMT

What Gets Measured, Gets Managed and Improved

Measuring what matters to both monitor and enhance the financial health of your business is first and foremost. So, what matters to your small business? Three Key Performance Indicators (KPIs) that are relevant to small businesses are described below. We start with an excellent productivity indicator.

Revenue Per Employee

Revenue per employee (RPE) is a meaningful metric to measure how efficiently a firm utilizes its employees. This metric is unique to each industry and varies by company size, so it is particularly important to understand your industry’s benchmarks stratified by size if available. However, the higher the ratio of revenue per employee, the greater the productivity of your staff. For example, revenue per employee for a successful professional services firm is generally $250,000 or more per employee. On the other hand, Apple’s revenue per employee is about $2 million per employee while Expensify’s revenue per employee is about $750,000. The wide variations by industry further illustrate the importance of understanding your company’s industry benchmarks.

Revenue Per Employee = Revenues/# of Employees

After measuring the efficiency of your staff, we shift our focus to profitability and how your business transforms revenues into profits.

EBITDA Margin

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin is a vital measure of operating profitability calculated by dividing EBITDA (also referred to as operating income) by annual revenues. EBITDA is calculated by subtracting employee costs, sales and marketing costs, legal and professional fees, and all other operating expenses from revenues. The greater the EBITDA margin, the more financially successful the business. Additionally, EBITDA margin lends itself to a more seamless comparison of profit margins between businesses in the same industry because the metric excludes non-operating revenues and expenses. As alluded to previously, it is essential to have a firm grasp on your industry’s metrics, preferably parsed by firm size. For example, the median EBITDA margin for Architectural, Engineering and Consulting (AEC) firms with annual revenues less than $25M is 13.6%. For AEC firms with $25M - $100M in revenues, the median EBITDA margin is about 15%.

Lastly, as your business grows, your EBITDA margin growth rate should exceed your revenue growth rate. For example, if your business grows revenues by 20%, then profit growth should exceed 20% by a healthy ratio even when funding investments to fuel future growth. Growing your business profitably is essential to long term financial success.

EBITDA MARGIN = EBITDA/REVENUES

Thus far, we have discussed efficiency and profitability metrics. Our third universal KPI relates to the rapidity of collecting cash. 80% of the time businesses fail is due to cash shortfalls. Consequently, cash is oxygen to your business so measuring the speed of converting sales to cash is an imperative metric to both monitor and optimize.

Average Collection Period

The average collection period measures how long it takes to convert sales into cash. The lesser the average collection period, the greater the speed of your cash conversion cycle. Start by comparing how close your average collection period is to your payment terms. For example: If your average collection period is 50 days and your payment terms are 30 days, then your cash conversion rate is problematic and likely contributing to avoidable cash shortfalls. If your business is indeed paid after services or products are provided, speeding up your cash conversion rate also helps reduce the amount of time your business acts like a bank by subsidizing cash outflows. The average collection period is calculated as follows:

AVERAGE COLLECTION PERIOD = ACCOUNTS RECEIVABLE BALANCE/TOTAL NET SALES X 365

In summary, monitoring and optimizing KPIs is an invaluable undertaking for small businesses aspiring to scale and grow profitably. The three KPIs alluded to above are universal to all businesses and provide a sound baseline for scrutinizing the financial health of your business.

Written By - Scott Chesson / SAB Strategic Partner / Fractional CFO Services

https://chessolutionsllc.com/ - https://www.linkedin.com/in/scottchesson/

www.strategicadvisorboard.com / info@strategicadvisorboard.com

Annual Budget Primer

Mon, 25 Oct 2021 22:20:55 GMT

Preparing for 2022. It's Right Around the Corner!

As your business begins contemplating 2022, devote ample time and energy to preparing for financial success during the fall of 2021. How best to gear up for a profitable outcome in 2022? Start by building a budget and scrutinizing your most recent twelve months of financial results. Let’s examine some essential steps in creating an annual plan.

First, perform a retrospective analysis of your company’s trailing twelve-month (TTM) financial performance. In effect, an after-action report of the prior twelve months. Examine the following questions/tasks:

1. How do your Year-To-Date (YTD) financial results compare to the original budget?

2. How do your TTM financial results compare to the prior twelve months?

3. What products or service revenues grew the fastest?

4. How do your profit margins compare to businesses your size in the same industry?

5. What financial anomalies (detrimental and positive) occurred during the last 12 months that are unlikely to recur in the following year?

6. Analyze your organic growth initiatives and determine the most successful and least successful initiatives.

7. Be sure to analyze cash flow efficiency and the relevant metrics to assess shortfalls, proficiency, and windfalls.

Second, perform a SWOT (Strengths, Weaknesses, Opportunities, and Threats) of your business. Brainstorm regarding the most urgent requirements of your business in 2022 as part of the SWOT. Then, incorporate the most pressing needs into your strategic plan and budget. What are some examples of pressing needs?

1. What new products or services need to be launched in 2022 to overcome weaknesses, address competitive threats, or capitalize on opportunities?

2. Are there any products or services that must be eliminated because of poor historical performance or minimal market opportunity?

3. Are there imperative staffing requirements that will strengthen weaknesses, counterbalance threats or create new opportunities?

4. What other resources besides staffing must your company acquire to address the results of the SWOT? Equipment, Subscriptions, Systems?

Third, establish revenue goals for 2022 . Incorporate the intelligence gleaned from performing the TTM retrospective financial analysis and the SWOT. Start by building an inventory of revenues expected to recur in 2022. Two examples of cataloging expected revenues follow:

1. SAAS (Software as a Service) firms will use MRR (Monthly Recurring Revenues) and ARR (Annual Recurring Revenues) to calculate a baseline of subscription revenue.

2. To determine a baseline, professional services firms build a revenue forecast based on expected client revenues and contract dates with services detail by month.

The two examples of inventorying revenues are by no means all-inclusive but proxies for projecting recurring revenues. Once the expected baseline projection is complete, then the next step is to establish some revenue goals. I recommend setting three separate topline goals:

· First, establish an achievable goal that reflects modest growth over 2021. Why? The attainable goal gives your company a revenue floor in the event of unexpected economic, staffing, industry, or environmental (COVID) conditions. Let’s say your business has grown 10% over the last three years. Then, the floor would likely be 10% or less growth depending on the whole spectrum of circumstances. If your expected recurring revenues going into 2022 are 90% of 2021 revenues, then your gap to achieve 10% growth is only 18% of your achievable goal. This goal exemplifies “prepare for the worst, hope for the best.”

· The second goal is the stretch goal. This goal pushes your company to exceed your 2021 growth by a respectable margin. Instead of 10% growth as alluded to previously, plan for 20% growth. If your expected recurring revenues going into 2022 are 90% of 2021 revenues, then your gap to achieve 20% growth is 25% of your achievable goal, or your business starts the year with 75% of budgeted revenues identified. I recommend building your 2022 budget based on the stretch goal.

· Finally, the third goal is the “stars are aligned” goal. This goal pushes your company to exceed your 2021 growth by a wide margin. Instead of 20% growth for a stretch goal, plan for 50% growth. If your expected recurring revenues going into 2022 are 90% of 2021 revenues, then your gap to achieve 50% growth is 40% of your achievable goal, or your business starts the year with 60% of budgeted revenues identified.

Once you have established an achievable, stretch and “stars are aligned goal,” then construct a budget based on your stretch goal, including profit margin growth. After completing your stretch budget, develop contingency budgets for both the achievable and “stars are aligned” goals by adjusting your stretch budget components. Individual business circumstances may dictate altering this methodology.

In summary, prepare for financial success in 2022 by devoting ample time and energy in the fall of 2021 to performing an honest, comprehensive assessment of your business. After completing a thorough review, create a budget followed by contingent scenarios to prepare for the worst and reach for the stars.

Written By - Scott Chesson / SAB Strategic Partner / Fractional CFO Services

https://chessolutionsllc.com/ - https://www.linkedin.com/in/scottchesson/

www.strategicadvisorboard.com / info@strategicadvisorboard.com

Incentive Optimization

Sat, 25 Sep 2021 00:04:02 GMT

All businesses design incentive plans with the best of intentions. Whether the incentive plans are devised to increase sales, reduce client attrition, elevate profitability, retain key employees, expand existing clients, improve customer service, or encourage esprit-de-corps, the objective is to promote behaviors that better the business. The challenge in designing an incentive plan is to analyze the potential outcomes thoroughly before implementing a plan. Why? The result of ill-conceived inducements is often unintended consequences that have the opposite effect of the desired outcome. Additionally, once misaligned incentives are in place, it is difficult and often controversial to scale back or eliminate the program. Let’s look at some examples of incentives with unintended consequences.

An unfortunate example of unintended consequences is the case of Wells Fargo. Wells incentivized its sales staff based on the number of consumer banking accounts cross-sold. Cross-selling refers to the process of selling multiple products to banking clients. So, the unintended consequence of the plan was the pressure brought to bear on the staff to cross-sell products to achieve the incentive guidelines. The burden to attain the incentives led to the creation of fake client accounts and additional fees levied on its existing client base without the client’s consent. Clearly, not the intent of the plan when implemented by Wells! The discovery of the fake account scam occurred in 2016 but continues to reverberate negative publicity and fines into the present day. The Wells’ example is about considerably more than misaligned incentives, but the genesis of the problem was the ill-conceived incentive plan.

Before we move on to the next example, let’s contemplate Well’s original intent of the incentive plan. The likely intent of Well’s plan initially was to grow their consumer client revenues organically by offering additional relevant products to existing clients. The notion of growing business organically is a sound one. The plan objective failed because it spawned a numbers game to earn incentives instead of a plan to increase client satisfaction, grow organic revenues and improve client retention. This further illustrates the virtue of thoroughly analyzing the potential outcomes of an incentive plan before putting it into action. Let’s examine another example of ill-conceived incentives with unintended consequences:

I once worked for a professional services firm that offered 20% commissions on all client sales. Anyone on the staff originating a client would receive an incentive equal to 20% of the net client revenues. The incentive plan was very lucrative for the staff so there was no lack of motivation to generate sales. The average client retainer for the firm was about $15,000 per month. The company was a major player in its industry with a premium service offering and did not want to take on “commodity” clients. Commodity clients were miserly, overworked the staff, switched firms frequently, and did not value the firm’s premium service offering.

So, the firm’s incentive plan inadvertently created a sales atmosphere without quality or dollar constraints to qualify new clients. The race was on for the staff to bring in a new client and be rewarded with a 20% commission. We engaged commodity clients to our detriment at times when we would have benefitted from better qualifying the clients and fully maintaining our premium reputation. One $15,000 per month client trumps three $5,000 per month clients without question. The incentive plan was subsequently modified to be consistent with our underlying vision of solely engaging quality clients. Additionally, the 20% commission proved to be too expensive for the firm’s cost structure so it was reduced to a more appropriate percentage.

In summary, be exceptionally thorough when designing an incentive plan for your business. Brainstorm about all possible outcomes. Does the incentive plan promote the desired behaviors/actions that are consistent with your company’s goals and mission? If implementing a new incentive plan, review it every six months to ascertain whether it's helping to engender the desired outcomes. Modify the plan as necessary to better optimize the outcomes. Remember, incentives drive behaviors.

Professional Services Organic Growth Tips

Fri, 24 Sep 2021 23:58:26 GMT

How best to increase revenues in your professional services firm? The two primary ways to expand revenues are organic growth and acquisitions. We're going to focus on expansion via organic growth.

Organic growth refers to growing revenues by maximizing the productivity of your internal resources. Some examples of organic growth include expanding your sales team, offering more services, increasing prices strategically, adding new clients, and expanding business with existing clients. Let's explore some tips to avoid common pitfalls that hamper organic growth.

One common pitfall for professional services businesses is to pursue all potential new client opportunities with equal vigor. Not all new business opportunities are created equal. For example, RFPs (Request for Proposals) are often time-consuming and intrusive with a low probability of winning. Intrusive refers to the depth of information requested about the company that most private businesses do not wish to disclose. If the RFP is for a government entity, then the RFP information is often disclosed publicly. The probability of winning is usually low because it may be a "cattle call" or an RFP process that includes 20 businesses and three rounds of new business pitches. Lastly, the outcome may be preordained before the RFP process, making the RFP a formality only. Before considering an RFP, gather as much intelligence as possible (qualify the opportunity) to ascertain whether the time and effort necessary for the application process are warranted. One cannot reclaim the time, money, and energy devoted to low-probability opportunities. A corollary to being judicious in pursuing new business prospects is to avoid giving away your firm's intellectual property during the pitch process.

When pursuing a new client opportunity, most firms provide a sample of their work or explain how to solve a client's challenges. I have firsthand experience with potential clients pilfering the playbook outlined during the pitch process and implementing it with their internal staff. It's neither ethical nor expected, but it does happen occasionally. Putting the firm's best foot forward is crucial to success, but a flavor of the firm's knowledge and proprietary process is sufficient to whet a potential client's appetite. Let's shift gears and examine the pitfalls of neglecting existing client expansion.

First, expanding business with existing clients is often undervalued. It's not as glamorous as the thrill of the hunt when tracking a shiny new client. Yet, existing clients already know your firm well and presumably are pleased with your service. The effort required to grow existing clients is generally considerably less than bringing in a brand new client. If clients are particularly delighted with your firm's performance, they will sometimes hand an incremental piece of business to your firm outright without the typical machinations. Moreover, loyal, existing clients are more likely to take a chance on a new service offering from your firm because of the synergistic relationship. During my twenty-one years as a CFO, the most significant revenue gains occurred when existing client growth was robust.

In summary, organic growth presents a wealth of opportunities for increasing your company's revenues. Beware of devoting your firm's time, energy, and money to prospects that are likely to usurp your resources excessively with a low probability of success. Protect your intellectual capital during the potential client pitch process. Avoid giving away too much of your firm's genius before you win the business.

Lastly, respect and exploit the under-appreciated organic growth process of augmenting revenues with existing clients. The benefits will significantly outweigh the costs.

Small Business Financial Pitfalls

Fri, 24 Sep 2021 23:53:11 GMT

After twenty-two years as a CFO, I have observed a wide variety of small business financial pitfalls. Most of the hazards are avoidable or can be readily overcome with flexibility, foresight, and innovation. Let’s discuss some common financial pitfalls that can be detrimental to your company if left unchecked.

First, in challenging economic times such as the last 18 months, there is a tendency to focus excessively on cutting costs while losing sight of the imperative to optimize and innovate revenue streams. During downturns, cost reduction is a mandatory tactic but cannot replace a concerted strategy to dissect existing revenues while simultaneously exploring and building new revenue pathways. A shrewder tactic is to scrub costs throughout the year, especially during periodic forecasts or, at a minimum, during the annual budget process. Furthermore, practicing a technique called zero-based budgeting facilitates the yearly recalibration of costs. Zero-based budgeting means that expense budgets are not automatically renewed annually with a blanket percentage increase. Instead, each expense category must be analyzed and justified based on the company’s requirements and in concert with the overall cost structure. Even implementing zero-based budgeting on a limited basis will help avoid protracted cost-cutting during downturns. Lastly, beware because it is easy to lose sight of growing the top line when your business is fighting for survival on the bottom line. Let’s examine another common financial pitfall.

Another common pitfall is being wedded to a product, service, or strategy that is not flourishing and is harmful to your business’s financial health. The prevailing thought process is often we can make it work, or what happens if we admit failure relative to the product, service, or strategy in question? A small business has many advantages over a large, bureaucratic entity. One advantage is flexibility. In other words, the ability to move quickly to take advantage of opportunities or pivot away from failed undertakings (like poorly performing products, services, or strategies) before too much financial damage is inflicted on the business. The damage is generally manifested as negative cash flows or declining profits. I recommend having a timeline and specific goals to chart the progress of a new product or service. Then, your company has guidelines to preclude devoting unwarranted time, money, and energy to futile projects. There is no shame in experimenting and adapting your business and admitting that some ideas did not succeed as expected. Let’s discuss one more common financial pitfall.

A third common hazard to small business financial success is discounting the advantages of both budgeting and regular financial reporting. Why? Because small business owners can become so engrossed in running their companies that they don’t always value the benefits of knowing their numbers. Yet, a monthly or quarterly scorecard displaying your company’s financial health will help forestall surprises like cash shortfalls while positioning your business for growth. Moreover, how do you measure your fiscal progress without a budget for a baseline, comparisons to the prior year’s performance, metrics, and cash flow analysis? The corollary to solid financial reporting is the prompt identification of essentials like a bank line of credit to boost cash during lulls in the business cycle, the insight to reduce unfettered spending, or the knowledge to act on market opportunities through expansion of the sales staff. Knowing your numbers helps you both prepare for financial success and avoid unwelcome shocks.

In conclusion, there are several avoidable financial pitfalls for small businesses. One pitfall is the overemphasis of tactical cost-cutting to the impairment of revenue optimization. Cost-cutting can be accomplished regularly using zero-based budgeting and other techniques. Be wary of being wedded to a failing product, service, or process. It is okay to pull the plug on futile undertakings that drain cash and resources from your company. Lastly, implement a disciplined financial reporting routine that delivers financial insight into your business. Know your numbers. Good luck.