Tag: Cash Flow Management

Financial Model

Forecasting The Future: How Small Businesses Can Build A Powerful Predictive Financial Model

Posted on | by Renatta Luna | Leave a Comment on Forecasting The Future: How Small Businesses Can Build A Powerful Predictive Financial Model
Financial Model

Predicting your future financial performance is invaluable but a major challenge for many small businesses. Start by building a simple yet powerful spreadsheet model for revenues, expenses, and cash flow. 

Even a simple model can be a strategic advantage and essential for making great decisions. Here are some ideas for the tools you can use, and how to work with a Fractional CFO to create a flexible model that allows you to play ‘What-If’ games and make informed decisions for growth.

Why Bother?

Imagine that you need to decide whether to hire new talent, expand your office space, or invest in new technology. These decisions hinge on their financial impact and your company’s ability to afford them in the future.  How can you be sure you’ll make the right choice?

A predictive model that considers key variables and KPIs can give you clarity and confidence to allocate resources for growth and stability.

Basics of Building a Predictive Financial Model

You don’t need an overly complex system. Any small business can chart its financial future with tools as accessible as Excel or Google Sheets. The key is to ground your financial model in historical data, ensuring it reflects the reality of your business’s past performance. This is your foundation for future predictions.

Key Components

What drives your business? These variables have the most significant impact on your revenue and expenses. Identifying these drivers requires an understanding of your business’s operations and market. Incorporating scenario analysis into your model allows you to prepare for various possibilities. It gives you the agility to respond to internal and external changes confidently.

Advanced Tools Beyond Spreadsheets

Advanced software options like PlanGuru, Fathom, and Float offer sophisticated features for businesses ready to move beyond the basics of the financial model. Leverage these tools to provide insights that make your strategic decisions more manageable.

  • PlanGuru includes tools for income statements, balance sheets, and cash flow statements. It can integrate more than 20 forecasting methods. PlanGuru allows you to create custom financial analyses and reports. Additionally, it supports scenario planning and what-if analysis. You can use it to explore different financial outcomes based on varying assumptions.
  • Fathom: Fathom gives you access to dashboards and performance metrics that can be customized to suit different stakeholders. Fathom is excellent for consolidating data from multiple sources, making it ideal for businesses with several entities. It also supports benchmarking, trend analysis, and goal-setting, facilitating strategic planning and decision-making.
  • Float: Float provides detailed cash flow forecasting, allowing users to see what their daily, weekly, and monthly cash positions are. It enables scenario planning, where users can test different financial assumptions and see their potential impact on cash flow. It also includes budgeting features, which can help you track spending against forecasts.

Working with a Fractional CFO

For small businesses, having the added support of a Fractional CFO is transformative. These part-time financial strategists refine your financial model, offer insights, and guide your company through complex financial decisions. Their experience and knowledge can differentiate between a good and a great model.

Using the Model for Strategic Decisions

A predictive financial model is not just a planning tool; it’s a strategic asset. It can indicate the most opportune moments for investments, hiring, and expansion. You can steer your business towards sustainable growth by aligning your business strategy with the insights derived from your model.

Regular Review and Adaptation

The only constant in business is change. Your predictive financial model should be a living document, regularly updated to reflect new data and market trends. This adaptability ensures that your model remains a reliable tool for decision-making.

A well-constructed financial model is a powerful tool for any small business. It provides clarity, supports strategic decision-making, and helps identify the optimal timing for investments and growth.

You can navigate your business toward success by focusing on key drivers, integrating with tools like QuickBooks Online, and regularly updating your model. To continue this conversation with us, contact FuseCFO to schedule a free business analysis.

Why Do I Owe More in Taxes Than I Took Home in Cash?

Posted on | by Renatta Luna | Leave a Comment on Why Do I Owe More in Taxes Than I Took Home in Cash?
Tax Bill

As tax bill season approaches, many business owners face a frightening scenario: owing more taxes than they have in cash. It’s a daunting thought, but don’t panic. Here’s how you can see it coming and, more importantly, avoid it.

What Is “Taxable Profit” for a Small Business?

Small businesses are taxed on their “Cash Basis Profits.” In theory, this is to your benefit because it means that your taxable profit should equal the actual cash left over after you pay all your business expenses. 

But the theory won’t protect you if you aren’t careful. Five dangers will misalign your cash on hand and your taxable profit.  Doing any of these things might make paying taxes more painful — now or in the future.

  1. Loans: If you borrowed money during the tax year, ensure the loan is not treated as taxable income.  Don’t pay tax on money you did not earn!  Likewise, don’t mistake a loan for cash you can take home.  Loans should be used in the company to produce more profits.  Taking out a loan so you can pay yourself is a slippery slope!
  2. Equity: If you put additional personal cash into the company, sold stock, or converted a loan to equity, ensure it is not categorized as income. Equity contributions are not earned and are not taxable.
  3. Loan Payments: Paying back a loan is never considered a tax-deductible expense and will not reduce the tax you owe. So if you have profits, and owe taxes, be careful that your loan payments do not overwhelm you and prevent you from having cash on hand at tax time! Too much debt will eventually catch up with you and overwhelm your ability to keep enough cash on hand for taxes and other things.
  4. Owner Draws: Also called “distributions”, payments made to the owner (or expenses paid on behalf of the owner) are not tax deductible.  So taking draws will leave you with a higher tax burden and a lower cash balance to pay the tax.  Watch out that Owner Draws don’t drain the company’s ability to make tax payments.
  5. Timing: Excess cash is not always associated with strong profits.  Sometimes having cash means you’re doing a better job managing cash flow. Be careful not to drain the bank in a good cash year and then run into a big tax bill the next year.

How to Avoid a Cash Crunch

All of the above items can put your cash balance out of synch with the taxes due.  To avoid getting stuck with too little cash at tax time, try these tips:

  • Always Save for Taxes: Regularly set aside a portion of your earnings in a separate account for tax purposes.
  • Make Estimated Payments: The IRS loves to hear from you quarterly and may even penalize you for not paying income taxes quarterly. Generally, the non-payment penalty is small, but it is not zero. Quarterly estimated taxes are due on the 15th of January, April, July, and October. 
  • Or…Keep Estimated Taxes On Hand: If your business is variable (and you can afford the non-payment penalties), consider keeping the estimated taxes on hand. Business is unpredictable, and profits early in the year might be offset by losses later on.  If you’ve sent the cash to the IRS, you may have paid tax on profits that never materialize and you won’t get your cash back until the next spring.  
  • Consider the Long Term: Save extra for taxes in bad years in anticipation of more profitable years when cash may be tight. It’s true that strong growth typically leads to poor cash flow, so having a tax fund tucked away can save the day!
  • Engage in Proactive Tax Planning: Regularly consult with a tax preparer or CPA and explore tax-saving strategies. (We will happily refer you to a good tax preparer.) 
  • Stay Informed: Keep accurate books to estimate taxes and manage cash flow effectively. Professional services from companies like FuseCFO can be invaluable in this regard.

Understanding and planning for your tax liabilities as a small business owner is vital to avoid the surprise of a large tax bill without the cash to cover it. Proactive planning and consultation with tax professionals can significantly ease this burden. Schedule your free business analysis with us today. 

How to Leverage Customer Credit and Improve Cash Flow with Accounts Receivable Financing

Posted on | by David Worrell | 1 Comment on How to Leverage Customer Credit and Improve Cash Flow with Accounts Receivable Financing

Employees won’t wait for payroll and landlords don’t want to hear about your cash flow when rent is due. Sure, cash is a problem. Accounts receivable financing can be a path to unlocking more cash. Here’s how you can get the cash when you need it the most:

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