Make sure they know that if they work here, they do as they are told, and that they are
simply a replaceable set of hands to get the work done. Results: anxiety, depression, anger,
bitterness etc.
4. Instruct. Give your team brief instructions and an impossible deadline. Tell them it needs to be done in six weeks no matter what, and you’l want an update tomorrow. Results: Anger,
depression, confusion, hopelessness, low morale, minding…
5. Fire at will. One of your employees is not doing her job, being distracted and casting a black cloud upon the other employees. Don’t listen to excuses, or waste time in counseling a
previously good employee. Fire her. Don’t explain to your employees what happened –
they’l just know that you do not tolerate poor work and bad-mouthing and they’l never do
it because they fear getting fired. Results: Need you ask…
6. Conspicuously Consume. Have the repair bill for your Ferrari faxed to the office fax. Charge
the cigarette boat mooring fees to the company for entertainment. Have your book-keeper
take care of the Monte Carlo condo bookings. Results: Why do you need to ask…?
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It’s hard to be a boss, but even harder to be an encouraging leader. Many studies prove a
positive correlation between great business results, increasing company value and high
employee morale. What’s your choice, boss?
A CFO’s Advice for Managing Personal Finance
CFOs spend their time helping companies build value and there are many tried and tested ways
to build wealth in an organization. Here are 6 ideas from the world of Corporate Finance to
help build personal wealth.
1. Match your Loan to Asset Quality How can you build wealth? Take a look at your mortgage.
Most homeowners take out a 30 year mortgage, but the true cost of making payments over
that length of time can be paying nearly two-and-a-half times the purchase price of the
home. A 15-year mortgage instead of a 30-year mortgage can potentially save you large
sums of money and help you build wealth.
2. Maintain Internal Controls You have to be involved in your day-to-day family finances, or
you may be putting yourself at risk. If you let your spouse pay the bil s and manage the bank
accounts, what happens if your spouse dies or becomes seriously il or if you divorce? Don’t
turn financial affairs over to a broker or financial consultant without staying informed about
investment decisions.
3. Effective Cost Management All those coffees and lunches are like small leaks in your
wallet. If you’re ever going to accumulate wealth, you must control spending leaks. You
know what happens when small leaks are left to grow. Continuously review your expenses
for potential savings.
4. A Strategic Plan Building wealth requires a financial plan. Write down vivid goals like early
retirement, paying off your mortgage. You are far more likely to get there if you have a
map.
5. Debt Management Some debt can help you, but Credit cards are dangerous and you can
quickly end up running in place as you pay interest but never bite into principal. A $1200
wardrobe can end up costing you $2,400, but you’ll never realize it because the true cost is
hidden in your credit card payments. Try to pay cash and stay away from credit card debt if
you want to accumulate wealth. Have a 24 hour rule on major purchases – chances are you
will decide not to go ahead if you wait a day.
6. Having an Exit Strategy It’s easy to postpone saving for retirement, but the earlier you start the faster you will accumulate wealth and save for retirement. Consider that the amount
you need to save will be much lower if you start now and give your earnings time to
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compound. If you’re over 40 and you’re behind on your retirement savings, you’ll have to
save much larger sums to ever catch up to where you should be. Start saving early, and save
at least 10 to 15% of your income, and you’ll be well on your way to accumulating
wealth. More than half of all workers wil end up cashing out their 401Ks when they change
jobs. Stil others wil take out loans, permanently reducing the retirement fund they could
have built up.
Preventing Fraud in Small Companies
Embezzlement is not just happening to rich investors, and is arguably rife in small growth
companies. So how do you protect yourself against dishonest employees? If you ever read up
on fraud practices, which I do, then you know there are a dizzying array of potential ways you
can be ripped off. In turn, the professionals prescribe hundreds of “simple” procedures,
controls and protocols to help you head them off.
However, in the real world business owners have limited resources, they have to place trust in
individuals, and they need to devote the bulk of their time to growing and building value in
their business. So here’s a list of fraud checks you can work on right now.
1. Procedures Manual: Develop a simple accounting procedures manual that lays out duties,
responsibilities, and processes? It does not have to be elaborate, but a published policy
makes it harder for employees to disguise bad procedures, or hide transactions.
2. Oversight: Practice a regular oversight process to identify potential areas of fraud. Review
the customer and vendor lists to check for unknown or similarly listed names; review the
monthly payments register and check for large amounts, small regular amounts, unknown
vendors etc.: and insist on timely bank reconciliations.
3. Outsource Payrol : Use ADP, Paychex or others to do your payroll processing. There is more
opportunity for fraud with internal payroll – and it’s a waste of book-keeping time. Even
worse you wil be on the hook if the government goes short to pay for your accountant’s
second home.
4. Insist on timely and accurate financial statements, and have your accountant explain
monthly variances in profit margin and overhead amounts. Look at your balance sheet and
ask for explanation of Asset and Liability balances with generic names.
5. Observe the signs: It’s a cliché that the devoted employee who never takes a vacation is
likely on the take, but there are other signs you should look for. Signs such as extravagant
lifestyle, lots of pay advances, creditor calls at work, unusual changes in habits or behavior,
sloppy work habits, more sick time, lots of overtime, evidence of drug, alcohol or family
issues. These could all be evidence of personal turmoil leading to fraud.
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6. Credit checks: run occasional credit checks on key employees – permission should already
be on file – and look for changes indicating financial pressure.
7. HR Policies: Makes sure employees are aware that fraud is not tolerated and that guilty
parties will be prosecuted. Make employees aware that suspicious activity can and should
be reported.
If you have an inventory business then there are further measures you may need to take to
control high value merchandize and materials. Of course, one of the best investments you can
make in protecting your company is to consider hiring a B2B CFO®. We can help you quickly
build a more fraud-proof organization, and provide the oversight that can help prevent and
detect fraudulent activity. Many embezzlement schemes run for years and extort $10s and
even $100s of thousands from a company.
Your bank has requested audited financials, or you are seeking Venture Capital and the VC
wants to see audited statements. You have found a buyer for your company – or you are
starting to think about an Exit Plan – and need audited statements. So you are being audited
and need to know what to do next…
The purpose of an audit is to assess an organizations’ accounting practices, procedures, and
reporting. A strong audit record is invaluable in persuading organizations to invest funds, loan
money, and purchase companies. But audits are a disruptive process. Most smal business
accounting staffs are very limited, and now they’re asked to do more work.
Auditors will require a number of schedules to help confirm figures in the financial statements.
Preparing such schedules takes a lot of time because usual y it’s for areas you only think about
once a year, so you always have to stop and think about how you did it last year. Plus, the
burden of creating these schedules is on top of your extra workload. When audits exceed their
time budgets, tempers start to fray and it can be very stressful for employees unfamiliar with
the needs of the auditor. So how can you facilitate a smooth audit?
Preparing for an Audit
1. Preparation – preparing for the audit is a year round occupation. You can’t wait until
November to begin gathering all the information you’ll need for a year-end audit.
Developing reconciliation schedules for each major accounting balance will ensure you can
justify them at year end.
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2. Documentation – keeping reconciliation schedules, meticulous documentation of journal
entries, efficient record-keeping will all help speed the process. Making notes on key
decisions regarding financial issues is also helpful.
3. Fixed Asset Register – many small companies fail to keep a Fixed Asset register which may
involve painful sorting through records to put together a list of company assets and
determine correct depreciation schedules. Either make sure your CPA is keeping a record
and can give you up to date reports, or start to keep a register using a spreadsheet or
software. You wil need to identify each asset and the depreciation associated with it.
4. Having a monthly closing process is very helpful. Identify accounts that need to be
reconciled each month. For instance, your bank account needs to be reconciled every
month. You should be reconciling your salary expense with your payroll report, reconciling
your credit card statements to your general ledger account. These are examples of
reconciliation that, if done on a monthly basis, make your end-of-year so much easier.
5. First time audits can be especially time consuming. All opening balances will need to be
confirmed. Documentation – that may be quite old – wil need to be found and
researched. Do you have the closing documents for the owned real estate? What about
the 401K plan confirming documents? Are your credit rules documented? Do you have
evidence that Vendor A agreed to 65 day terms? What are those fixed assets on the
schedule called “No name”?
6. Have a planning meeting with your auditor at least six weeks out. Identify any problem
areas such as missing documentation, or hard to produce analysis and see if there are
alternatives. Review the engagement letter and understand timing and fees – and your
responsibilities. Review the client prep list to ensure you can produce the required
information. Discuss any changes that might impact the audit – new products, facilities,
major customers etc.
7. Immediately after closing the books, produce a comparative trial balance showing this year
vs. prior year. Identify variances over 5% and start documenting explanations. This will
help you anticipate those areas requiring more work.
8. Internal Controls – You will need to complete a series of checklists that document your
internal controls. Ideal y work on these a few months out, so that you can identify problem
areas. Make sure you have a Financial procedures manual, or bring your existing one up to
date.
Benefits of an Audit
Auditors spel out their findings in a report after the on-site audit has been completed. A ful
audit report contains three main components. It wil include an auditor’s opinion, then the
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financial statements, and final y the footnotes – basic information about the company, the
accounting principles used, and information a reader of the report wil need to understand the
financial statements.
The auditor’s opinion wil state that the financial statements the company is releasing have
been reviewed by a CPA and are deemed trustworthy. Along with the auditor’s opinion, the
auditors will also issue a management comment letter. This is the auditor’s recommendation to
management of areas of concern and things that could be done better, or which are out of
compliance, so they can avoid penalties or assessments. The company should set up a
procedure to address those comments or to understand the risk vs. costs of adopting them.
The costs of an audit – both CPA bills and internal time – are considerable. But the benefits of
an audit are numerous. Audits can improve a company’s efficiency and profitability by helping
the management better understand their own working and financial systems. The company’s
management, as well as shareholders, suppliers and financers, is also assured that the risks in
their organization are wel understood, and that effective systems are in place to handle them.
Audits can also identify areas in an organization’s financial structure that need improvement,
and how to implement the proper changes and adjustments. Having an audit also lessens
corporate risk and therefore can reduce the cost of capital and funding. An audit can uncover
inaccuracies and discrepancies within an organization’s records, which may be indications of
weak financial organization or even internal fraud, although fraud detection is not the main
purpose of an audit.
Bottom Line: as your company grows and becomes more complex, an audit may be required by
stakeholders, or may make solid business sense for value creation. Either way, it will involve a
lot of planning and cal upon skil s that may not exist in your company. Fortunately, a B2B CFO
has many years’ experience in this area and can help your company achieve a clean audit.
My top 5 predictions for business in 2011
It’s prediction time again and I am jumping into the crystal ball to see what the year will bring. I
have surveyed the web and the predictions of BIG thinkers so you don’t have to.
1. Social media will keep growing, following the same path that e-commerce and corporate web
sites did. You will no longer be able to say “What’s LinkedIn?” without shocking your younger
business col eagues.
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2. Cloud applications will move to the mainstream as better, more robust applications and
widespread web access converge. Small business will see new ERP applications delivered from
the cloud.
3. Mobile applications will grow rapidly as enterprises leverage these devices to power the
workforce, speed decision making and grow their revenue. More than 49% of small business
owners use smartphones, racing ahead of America in smartphone adoption, according to a
recent Forrester study. Business owners are tweeting, using GPS services and investing in
mobile advertising and texting. This year the wider availability of the iPhone on Verizon will continue to push the move.
4. Real-time business analytics will define and drive the real-time organization. As business
intelligence is layered onto the trends of cloud, mobile and social media, it will birth true real-
time businesses. Business Intel igence applications – formerly reserved for Fortune 500s – will
be available for Intuit Solution’s QuickBooks users, helping business owners to manage multiple
enterprises from anywhere.
5. Small businesses will increase online marketing spending, with websites taking the front seat,
according to a recent survey. Although nearly 60% of businesses have web sites, most are online brochures. Smart business owners recognize the need to be found on the web and SEO
spending will soar. Upgrades to online presence will increase capabilities for e-commerce,
reservation systems, corporate blogs and social media integration.
6. The Economy will not revert to the mid-2000s. Now is the new normal. Many companies will
continue to struggle as they try to identify and supply demand for products, Successful
companies will focus on cost management, niche markets, social media, government contracts,
alternative energy and outsourcing key positions such as part-time CFOs and whole functions such as inventory management.
7. Business Funding wil continue to be a struggle as banks recapitalize and focus on strong
balance sheet companies. Managing the working capital cycle will be as important as ever, with
savvy companies using trend analysis and dashboards to gain incremental improvements in
internal funding.
8. Venture Capital firms wil be hungry to invest in green business. This trend has the potential
to mirror the late 90s when anything “web”, no matter how silly, was ripe for investment.
So going green has one more benefit.
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Time for Change – Business Practices that no longer work
The US Army, in a series of measures aimed at improving troop fitness, has announced that
traditional Bayonet Practice will be dropped, to provide time for more modern exercise and
fitness regimes. According to Wikipedia, the advent of modern warfare in the 20th century
decreased the bayonet’s usefulness, and as early as the American Civil War in 1861 the bayonet
was ultimately responsible for less than one percent of battlefield casualties. So…it’s probably
about time for the US Army to modify its training process.
In business, it is easy to see the same sclerotic approach to time-tested procedures that may no
longer have a place in the modern world. It is sometimes easier to carry on doing things, even
when more modern, more efficient or cheaper ways of doing things have evolved. My favorite
list of activities that are, at least worth a review are:
Payrol – QuickBooks may “make it easy” but it’s generally a waste of clerical effort to do it in-house. Payroll is complex and often confusing, carries high risks if nor done correctly, is usually
delegated to a low level accounting employee, but it can be outsourced at minimal cost to a
range of companies competing for your business.
In House HR – There are various HR options available from PEOs, ASOs and other outsourcing
organizations. Sometimes they can save significantly on insurance costs through their bulk
purchasing power, but they may also be very useful to mitigate labor risks.
Technology Management – many companies delegate IT management to “Billy Bob” because
he is good with autos and really great with video games. Today’s complex and ever changing IT
environment requires a combination of skills that are not generally found in your average $20
an hour employee – or for that matter your $250 an hour executive who really should be
focused on billable work. Server management, firewalls, email directories, software updates
and licenses, data backups, web stores etc. are simply too important not to treat as mission
critical. The costs of down-time, lost data or security breaches are incalculable. Managed IT is
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a very competitive business, and such service companies can employ diverse staff with complex
skil sets to manage your IT needs. It’s worth getting a few quotes and seriously reviewing the
cost / benefits of outsourcing.
Accounting Software – Many companies start off with QuickBooks and get very comfortable
with its capabilities. Unfortunately, this can lead to inertia and failure to plan for growth. New
cloud based and easy set up ERP systems are starting to offer a safe, cost-effective path to next
generation accounting systems, and are worth exploring.
Exit Strategy – It’s a rare entrepreneur who has given much thought to an Exit Strategy. A
simple business sale may be costly, may fail and may damage business prospects if it goes
wrong. Exit Planning includes thinking about other options for Exit such as management
buyouts, employee shares, private equity purchases and taking the steps now to position the
company as an attractive investment.
Receivables Management – I am constantly seeing innovative ideas in this area. Col ections
automation can include various payment mechanisms, automated collections notices,
outsourced receivables management. Funding has gone beyond traditional factoring with a
number of new entities such as The Receivables Exchange, FTRANS etc. that combine funding
flexibility with management options.
Financial Management – Going beyond QuickBooks and a book-keeper, best of breed
companies are exploring new options – such as part-time CFOs to introduce better financial management, being more pro-active about working capital, profitability, planning and cash
management.
Space – Office space has never been more affordable, unless you are locked into a pre-
recession lease. At the same time the need for space has diminished significantly as options for
employees to work out of the office have mushroomed. I see many clients with huge offices,
while most of their staff is on the road. Its worth considering a permanent downsize in space
needs.
Leading edge business owners are constantly eliminating distractions and gearing up to deal
with the chal enges of faster change, global markets and fierce competition. Maybe it’s time to
review those business practices that are holding you back.
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Many established firms are still struggling with the economy and are not sure if they are
winning. Sales might be recovering, but profitability is still do