Real-time CFO Services really begin from the "top down", not the "bottom up". Day-to-day accounting and month-end financial statements represent the "bottom up" and tell a business owner where they have been, assuming those statements are accurate. The "top down" approach, using the Real-time Cashfow Management System (RCMS) provides a business owner with a forward looking financial plan that demonstrates the financial feasibility of the owner's strategic plan. This forward looking ability allows the business owner to see where they are driving the company, as compared to using only financial statements, the equivalent of driving the business with just the use of the rearview mirror.
Every business owner has a vision of what they personally want to achieve from the business they own. That vision is normally reduced to goals, then strategies to achieve those goals. At the point the strategies are developed, a forward looking financial plan based on the company's "business formula" should be developed to see if the strategies are feasible and include ample cashflow. If not, then the strategies, whether related to financing, marketing, sales programs, buying offshore, opening a new office, etc., can be revised to give the business owner the best financial strategies to achieve their goals. It's better to learn on paper than only by trial and error!
The forward looking financial planning process should include both a short-term and long-term analysis of the business. First, a 6 to 18 month plan including income, cashflow and balance sheet statements is created. This plan is based on monthly budgets, working capital assumptions, asset acquisition, and financing assumptions. Second, a basic 3 to 5 year plan is created to determine long-term cashflow (EBITDA) and enterprise value. Here the key is to see if the company is headed toward the long-term financial goal of the owner, whether it is to spin-off cash or increase the value of the company for future sale.
Further, these plans are used to continually monitor where the company's performance is in relation to the owner's goals and to Drive the Business to profitability and positive cashflow monthly, quarterly, and annually. Business is constantly changing, therefore these plans must be dynamic and "real-time" to assist the owner in adjusting their plan as the economy, marketplace, and other business variables change. Real-time in that the forecast is updated as often as forecasting assumptions change, and monthly to historical as the monthly books are closed.
Finally, these financial plans should be used to communicate the company's plan, not only to the owner, but also to investors, the bank, and on a limited basis to company managers. The owner, together with the CFO, are usually the most effective members of the management team to deliver the strategic and financial plans to the necessary parties. Demonstrating a good executable plan will always instill confidence in both the owner's internal and external support groups. Even in the worst of conditions, a good turnaround plan will keep the banker on your side.
This financial planning process including the use of reliable financial statements is the main function of the CFO. Secondary functions include financing, both debt and equity, and merger and acquisition activity, at least in the form of the analysis of enterprise value as discussed above. M&A activities are discussed on the next page.
The CFO is usually versatile and capable of handling many other areas and functions such as those summarized on the home page. Please call or send an email to discuss where w may help to keep your company on sound financial footing, while attaining your financial goals.
