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Your Business’ Cash is Not Your Cash

We’ve all watched old TV programs featuring a small business owner.  At some point someone needs cash for ice cream and old dad, the proprietor, hits the “No Sale” key on the upright NCR cash register, the drawer dings open and he takes out some bills for the kids.

Sure, this is (or was) real life.  But if you are raiding the till of your family-owned business for personal spending money, you might be in or are in more trouble than you know.

Treating your company’s cash as your own is financial suicide. By removing cash in an unaccountable fashion, you are setting yourself up for an accounting and bookkeeping Armageddon.

Whether you are a sole proprietorship, an LLC, or an S- or C-Corp, accountability for expenses, particularly cash, is critical.  Especially in the last three types: you have to answer to either yourself, your partners and/or your CFO.

For more on how to develop and implement an overall financial strategy, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

The TFO Team

(photos courtesy of Upsplash)

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Can You Bank on Your A/R?

While accounts receivable (A/R) is a mystery to many, it shouldn’t be.  It really is the script your banker will be reading from so she knows your story.

Let’s face it, knowing who you owe and who owes you money is critical to the operation of your enterprise.  That second part is especially important as if you don’t have income you can’t pay the outgo.

Your banker wants to know several things that they can discover from you’re A/R sheet:

  • Who owes
  • For what
  • How much they owe
  • How frequently or faithfully they pay
  • The last time they paid
  • How many customers
  • How long you’ve been in business

This record of payment reassures the banker that you are a good risk as well as have the resources to repay your line of credit or outstanding loans.

For more on how to develop and implement an overall financial strategy, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

The TFO Team

(photos courtesy of Upsplash)

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Don’t Expand Without a Plan

“A man, a plan, a canal, panama” might be one the world’s longest palindromes, but it also makes a point.

Theodore Roosevelt undertook one of the largest and most ambitious projects in world history by starting with a plan. Key to the completion of the connecting waterway between two oceans was a vision.  A plan.

So it is with any business. To get where you are going you need a roadmap, a plan.  Behind every successful business is a plan.

Typically outlined in any business plan are three things:

  • Scope
  • Schedule
  • Finances

That last one is just as important, if not more so, than the first two.  “Money makes the world go ‘round” as the song goes, but that’s adding too many metaphors into this story.

As we’ve covered in another post, cash management is critical, especially to the new enterprise.  Having cash to operate and expand is part of that planning.  If you don’t have a plan for that incoming investor’s cash, then it is just going to leave as fast as it arrived, and without accountability. To be able to account for that incoming and where it is going and what it is being applied to (what it is doing) can only come with a plan.  And when the bank or the investor comes calling, you best be able to answer (and show them) where the infusion went, for what and what the potential return with be and when they can expect it.

Built in parallel and as a part of the overall business plan, the finance plan should do the following:

  • Outline how much cash is needed
  • Where it will be going
  • The expected return

Be able to answer anticipated questions from your investors.  In the long run, it will save you pain and suffering as well as cash.  And that takes a plan.

The TFO Team

(* photos courtesy of the National Constitution Center and Upsplash)

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Don’t Jump to the Tactic

You can be strategic. Or you can be tactical.

If you are tactical, you think of the things that you need to get done: accounting, bookkeeping, bill paying, HR.  Sure, they are important things.  But they are just that:

Things.  Tactics.

Your business will survive if you do those things.  However, companies typically don’t grow or thrive unless the leadership of those companies take a bigger picture and understand how those tactics play into a bigger strategy.

A strategy that also fits with the overall mission and objectives of the company. With that link, all of the components of the company from operations to marketing to sales function together with a common mission.

Think of it: a company that has a strong understanding of its finances means that it knows how much cash it will have to spend on R&D, marketing and can allocate for payroll and materials. The functions of the tactics can be driven by the larger strategy and give the whole enterprise a direction

For more on how to develop and implement an overall financial strategy, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

The TFO Team

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Let’s Not Be Negative When it Comes to Cash

Lots of things can go negative in a business.  But the one thing you can’t let go negative for long is cash.

Cash is the life blood of a company and needs your full attention.  Keep in mind you can’t do anything without cash. The amount of cash or a cash equivalent that a company gives out by way of payments to creditors is known as cash flow.  It can be either positive or negative.

Positive cash flow means you have more cash at the end of a given period than at the start. Negative cash flow means you have less than you had at the start.

Oops.

If your cash flow has gone negative it means somewhere in the three types of cash (operating, investing and financing) something is not tracking. Maybe cash has been spent to pay down debt.  That, however, means there is little to no cash for investment or financing.

It’s a balancing act between the three cash types.  And when it is out of whack, the company isn’t flying straight.

While it isn’t the only metric you should use to measure a company’s value, it is critically important. The balance sheet can also play a key role in helping you analyze the value of a company.  More on that later or in this previous blog post.

Whatever you do, pay attention to your cash flow.  Positive is good, negative, not so good.

A successful, profitable, well-run company should pay attention to metrics including cash flow.  We are here to help.

 The TFO Solutions Team

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balance sheets

The Hidden Gems in Balance Sheets

If you read no other document associated with your business, be sure and read the balance sheet.

What’s a balance sheet?  It’s a business’ statement of assets, liabilities, owners equity, and retained earnings at a given point in time.

Does that sound like something you’d like to read if you were buying a business or playing a key role in a company or if you owned a company?

Besides the obvious reasons to want to see this document, did you know there are some “hidden gems” contained in it?  Let’s sample a few of the details you could find:

  • What the company is owed by customers (accounts receivable).
  • How much debt the company owes (short- and long-term debt).
  • The value of the fixed assets (tangible and intangible) of the company.
    • This is determined by looking at the accumulated depreciation.
  • How quickly a company can settle their debt.
    • This is determined by using a formula called quick ratio.
    • It is a measurement of current assets (such as cash and receivables) divided by current liability.
    • If greater than 1, the ability to quickly pay off current debt and payables is covered.

At the end of the day, you are looking for a complete picture of the value of the company.  The simple equation is this:

  • Assets = liabilities + shareholder’s equity

The more you know more about that liabilities component, the more you’ll be able to judge the true value of the company.  By looking for and evaluating the “hidden gems” you’ll see the depth and complexity of the assets and liabilities.

For more on how to evaluate a company’s value, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

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