Financial Planning Archives

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

Posted on March 8, 2024 | by Renatta Luna | Leave a Comment

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.

Financial Fortitude: Your Guide to Small Business Financial Projections

Posted on January 19, 2024 | by David Worrell | Leave a Comment

Image: Freepik

Guest Written By: Kelvin Howell

Crafting realistic financial projections is critical for small business owners who aim to ensure the longevity and profitability of their ventures. These forecasts enable you to make informed decisions, allocate resources efficiently, and plan for future growth.

Establishing accurate business financial projections helps mitigate risks and prepares you to handle unexpected business fluctuations. In this article, we will explore practical strategies to create reliable projections that can guide your business toward sustained success.

Professional Advice for Business Financial Projections

Engage with finance professionals to obtain expert guidance on your financial planning. These professionals provide insights into tax strategies and compliance, essential for any small business owner. Customized advice tailored to your specific business needs can help streamline your operations and treasury management.

Leveraging expert advice ensures your business financial projections are not only realistic but also grounded in current financial law and best practices. Maximize your business’s monetary health with Fuse CFO—schedule a consultation today to explore our tailored financial solutions!

Digitizing Financial Documents

Digitizing important business financial documents is a key step toward modernizing your operations and enhancing data security. Saving these documents as PDFs is beneficial because it ensures compatibility across various platforms while preserving the original formatting and details.

Selecting a PDF maker allows you to easily create or convert any document into a PDF, offering a reliable and professional way to manage and share important financial information securely. This process not only improves organization but also streamlines access and retrieval, which is crucial for quick decision-making and compliance.

Tracking Return on Investment (ROI)

Monitor your investments meticulously to understand their impact on your business. Analyzing data related to ROI allows you to assess the effectiveness of each financial projection commitment you make.

This process enables you to make adjustments based on concrete evidence, improving future financial strategies. Effective ROI tracking is crucial for refining your business model and ensuring that each dollar spent is an investment toward your company’s growth.

Leveraging Technology Solutions

Adopt bookkeeping software to manage your finances with greater accuracy and efficiency. CRM systems can also streamline customer relations and enhance your business’s operational fluidity. Digital tools offer numerous benefits, including improved productivity and error reduction in financial records.

By harnessing these technologies, you can keep a more accurate track of your economic health and make quicker, more informed decisions.

Sharpening Finance Skills with a Degree

Pursuing further education, especially in advanced financial concepts, is essential for any business professional aiming to elevate their expertise. To achieve this, consider an online DBA program. Enhancing your acumen through an advanced degree like a Doctor of Business Administration can significantly improve your ability to navigate complex treasury landscapes.

Such programs provide the flexibility needed to balance educational pursuits with work and personal life, making it feasible for busy professionals. Ultimately, this investment in your education can lead to more sophisticated and accurate business financial projections, benefiting your overall career progression and business success.

Striving for Continuous Improvement

Continually benchmark your business’s data against past performance to identify growth trends and areas needing improvement. Adjust your financial projections based on historical analysis to better predict future conditions.

It’s crucial to implement strategies that encourage ongoing optimization and adaptation to changing market dynamics. This commitment to continuous improvement can dramatically enhance the accuracy of your financial forecasting.

Developing a Strict Budget

Establish a clear set of budgeting guidelines to manage your expenses effectively. Allocating resources wisely is vital for maximizing operational efficiency and achieving financial targets. It’s important to monitor your budget’s performance closely and make necessary adjustments to stay on track.

A disciplined approach to budgeting is fundamental to maintaining stability and achieving your business objectives. The significance of realistic financial projections for small business success cannot be overstated.

Alternatively, the strategies discussed provide a solid foundation for creating accurate and actionable forecasts. By prioritizing financial foresight and implementing the discussed techniques, you as a small business owner can pave the way for long-term success and stability.

Continue to refine these practices, and you’ll enhance your ability to anticipate financial challenges and capitalize on opportunities as they arise.

The Risks Of Commingling Personal Funds With Business

Posted on January 10, 2024 | by David Worrell | Leave a Comment

Commingling personal funds with business finances is a ticking time bomb. Before you get into trouble, we want to provide you with the dangers and practical steps for safeguarding your finances. This extends beyond basic bookkeeping; it’s about protecting you, your family and your business!

Legal Risks of Commingling Personal Funds

Commingling funds—mixing personal and business finances—can risk the corporate liability shield. This “shield” is a layer of legal protection that separates your assets from your business debts and liabilities. Legally speaking, the shield becomes weaker when personal and business finances are not separated.

In case of a lawsuit, owners who Commingle funds can become personally liable for the actions of the company. This is what is commonly referred to as “piercing the corporate veil.” If someone sues you and your business is not its entity, your assets may be used as payment for your business’s debts.

So, if an employee is driving a delivery truck and runs over a child, the parents sue the company AND the company’s owner(s). If the shield is strong, the owner might walk away. If the shield is weak, the owner could end up forfeiting cash and assets (like her house!) to make good on a legal judgment.

Impact on Financial Statements and Company Valuation

Besides creating a potential legal nightmare, commingling personal funds can also obscure the true health of your business. It complicates financial statements, making it challenging to assess and value the company’s performance accurately.

This lack of clarity makes business management more difficult, and could even impact the valuation of your company at a sale or exit. Why? Because a buyer is unlikely to give you credit for dozens of miscellaneous “personal” expenses. So by using the company’s coffers as your own, you’ve unwittingly lowered your profitability and thus your sale value.

Here are some ways to prevent this from happening.

Practical Steps For Separating Personal and Business Finances

Open a Separate Business Bank Account: This is the first and most important step in establishing a clear boundary between personal and business finances.
Implement Strict Expense Policies: Define and adhere to what qualifies as a business expense. Keep all of your expenses separate.
Use Dedicated Accounting Software: This helps in tracking business transactions efficiently. Also, accurate accounting is legally required.
Regular Financial Reviews: Conduct monthly or quarterly reviews to ensure no commingling has occurred.
Educate Yourself, Your Family and Staff: Awareness of the importance of financial separation is key.
Hire a Professional Bookkeeper: They can ensure adherence to best practices, and provide an important outsider’s perspective on your use of business funds.
Document All Transactions: Maintain detailed records, including receipts.
Establish a Regular Salary for Yourself: Avoid random withdrawals from the business by paying yourself regularly and evenly.
Separate Credit Cards and Loans: Use different credit accounts for personal and business needs.
Regularly Update Financial Statements: It’s crucial for accurate financial reporting.
Prepare for Taxes Efficiently: Having separate accounts simplifies tax planning and compliance.

To give you a better idea of the dangers of not taking these steps, let’s look at the following fictitious (but possible) scenario.

Case Study: ConstructRight, LLC

Consider the story of ConstructRight LLC, a successful home builder. John, the owner, regularly used his personal credit card for business expenses and used the business ATM card to withdraw cash for personal use. He drove a company car, even when not working, and had his crew perform maintenance on his personal property.

As ConstructRight expanded, these practices created significant problems.

John faced difficulties in securing loans. Lenders were hesitant due to the muddled financial statements that couldn’t clearly distinguish between personal and business expenditures. This ambiguity in financial reporting made it challenging for financial institutions to determine the company’s true financial health and creditworthiness.

The real impact of John’s financial practices hit hard when he decided to sell ConstructRight. The business valuation came in substantially lower than he expected. The reason? Potential buyers were deterred because they could not determine the business’s true profitability and operational efficiency.

But the consequences didn’t end there. John’s personal assets, including his home, were put at risk. Since he had misused company funds for personal purposes, this blurred the legal distinction between his personal and business “entities”.

When ConstructRight faced a lawsuit from a customer, John’s personal assets were no longer protected by the corporate liability shield. They became fair game in the legal battle, and when he lost the legal fight, he also lost his home and savings.

The example of ConstructRight LLC highlights the importance of maintaining a clear boundary between personal and business finances. Not only does this financial separation ensure legal protection and more accurate financial reporting; it also preserves the integrity and valuation of the business.

The Role of Professional Advice

Financial advisors possess in-depth knowledge of best practices in financial management. They can guide you through the intricacies of financial planning, helping you avoid common pitfalls like commingling funds. They provide an unbiased perspective on your business finances. This objectivity is crucial for making sound financial decisions untainted by personal bias or emotional attachment.

Companies like FuseCFO can provide a disciplined approach to your accounting and finance. Then, with an accurate and clear financial picture of your business, a great finance team can help you formulate strategic plans for your business’s future.

Importance of Separating Personal and Business Finances

Separating your personal finances from those of your business is a best practice and a form of protection. It isolates your personal and family assets while allowing your company to grow. To continue this conversation with a small business financial advisor, schedule a free business analysis with us.

How Much Cash Should I Keep in My Business Cash Reserves?

Posted on December 12, 2023 | by Renatta Luna | Leave a Comment

Too much cash in your business can be a waste; not enough can be downright dangerous. Striking the right balance in your business cash reserves is key, but it’s a delicate dance that requires careful consideration and strategic planning.

Rule of Thumb: The 2-Month Benchmark

A good rule of thumb is to keep the equivalent of two months’ worth of all expenses. This includes payroll, cost of goods sold (COGS), overhead, and debt payments. Why? Because running out of cash isn’t just inconvenient; it can be disastrous. To safeguard against this, having a credit card and arranging a line of credit is wise before you find yourself in a pinch.

Rationale Behind Having Two Months of Business Cash Reserves

We used to joke about “business just stopping one day,” but the pandemic made that a reality. Keeping two months’ business cash reserves on hand can help weather such unforeseen events.

Other potential disasters might include customers who default on payments, a bad batch of products leading to returns or discounts, or a PR mishap that slows down your sales (be careful what you say on TikTok!).

Why Not Keep More?

While having enough business cash reserves is crucial, holding onto too much cash can lead to problems. Employees might become careless with spending, and you may stop watching your money closely; this can lead to errors or even fraud. Additionally, excess cash can negatively impact your company’s valuation, particularly if you’re looking to sell.

A buyer may see how much cash you have in the bank and (mistakenly) assume that is how much cash your business needs to stay healthy. The more cash is needed to run the business (called “working capital”) the less a buyer is willing to pay you!

Too much cash does not add value

Cash sitting in the bank isn’t working for you. (Investing in growth would be an exception to this. To learn more about that, read our previously published article on Return on Invested Capital or ROIC.) Either take your excess capital home or invest it.

If you have a little extra, consider putting it in a CD or other safe investment, especially now when rates are over 5%. For those with more business cash reserves, consider distributing it to owners, investing in bonds, or getting creative by investing in your customers’ or vendors’ companies.

At Fuse, we’ve made over five private investments. We have invested extra cash into our customers, our vendors, and even a general “Angel Investment Fund.” Frankly, the results have been outstanding. We have better relationships with customers, better alignment with partners, and happier employees fully committed to their clients.

Advanced Tips for Cash Management

Want to increase your cash on hand? There are several tricks to keeping as much of it as possible. Here are a few tips:

Maintain a 13-Week Cash Forecast: Keep an eye on your future balance.
Measure Your Cash Cycle: Work to reduce the cycle days and free up more cash.
Evaluate ROIC (Return on Invested Capital): Decide where the best use of your cash is.
Always Have a Growth Plan: Even if it’s not actionable today, having a plan ensures you’re ready to maximize future investments.

Maximize Your Business’s Potential

No matter how much cash you keep in the company, Fuse can help you navigate your business’s financial journey. Our free, no-obligation business analysis focuses on enhancing your growth and profitability. We’ll assess your financial health, explore cash flow strategies, and ensure your accounting is on point.

Ready to unlock new opportunities for your business? Schedule your free analysis now.

How To Factor Corporate Philanthropic Efforts Into Your Business’s Finances

Posted on December 9, 2021 | by mpitre72 | Leave a Comment

Guest Post By Sam Bowman

Your business can simultaneously help a nonprofit, develop ties within its community, and extend its market reach. However, corporate philanthropy requires careful planning and attention to detail. With the right approach, your business can factor philanthropic efforts into your finances — and help your company and the community as a whole.

Why It Pays to Prioritize Corporate Philanthropy

Corporate philanthropy can provide a competitive advantage. It can serve as a form of public relations or advertising and allow a business to showcase its brand within its community. Meanwhile, it lets a company highlight its commitment to a cause. It can lead to high-profile sponsorships that help a business extend its reach, increase its earnings, and distinguish itself from rivals.

Thanks to corporate philanthropy, a business can improve employee morale as well. Giving workers opportunities to volunteer at a nonprofit can help a company engage with employees and keep them happy. These employees may be more prone than others to support their company in any way they can. The result: a business can use corporate philanthropy to help its employees feel and perform great.

How to Account for Corporate Philanthropy in Your Business’s Finances

Corporate philanthropy can help your company stand out from its competitors. It does not require you to break your budget, either. Now, let’s look at five tips to help you make room for corporate philanthropy in your business’s finances.

1. Compensate Your Employees

Let your employees perform their everyday duties at a nonprofit and compensate them accordingly. This enables a nonprofit to add temporary help to perform tasks across a wide range of areas. For instance, you can have your accountants help a nonprofit get its finances in order.

Or, you can offer human resources support, so a nonprofit can develop and implement effective HR policies. By compensating employees who work with a nonprofit, you can help your workers do good deeds with little to no impact on your finances.

Plus, you may be better equipped than ever before to encourage employees to commit time, energy, and resources to nonprofit work. The result: these employees will do their best to deliver outstanding results for a nonprofit.

2. Give Up Your Time

Set aside a work day for your employees to work at a nonprofit. Doing so enables your workers to commit their full attention to focus on what’s most important: helping a nonprofit.

Giving up time to help a nonprofit can help your business’s finances in several ways. First, your employees can take solace in the fact that they are contributing to a good cause. This can ultimately translate to superior productivity in the workplace going forward.

Also, your employees can promote your company during their nonprofit work. They can show your community what your company is all about, without putting a dent in your marketing budget.

3. Offer Seasonal Help

Allow employees to help a nonprofit at busy times throughout the year. For example, you can offer marketing support to a nonprofit that wants to promote special events around the holidays. Furthermore, you can provide access to your accountants if a nonprofit needs assistance during tax season. Tax season is tough for everyone, but it can be confusing for nonprofits that run with skeleton crews, especially if they generate significant revenue.

The seasonal help a nonprofit needs varies based on the organization. As such, learn about different nonprofits in your community and find out if certain seasons are busier for them than others. Next, you can offer assistance to myriad nonprofits at different points during the year.

4. Donate Goods and Services

Offer goods to a nonprofit instead of money. Product samples and other goods may be readily available to your business. You can donate these goods to a nonprofit, so the organization and its stakeholders can use them. In addition, if the products have your business’s logo or name on them, they can help you promote your brand in your community.

Along with goods, you can donate various services to a nonprofit. A business’s expert web developers, for example, can help a nonprofit build, launch, and maintain a website. Provide services that a nonprofit can use, free of charge. This can help your business foster goodwill with a nonprofit. It can lay the groundwork for a long-lasting partnership with a nonprofit and its stakeholders, too.

5. Establish Partnerships

Seek out nonprofits in your community and partner with them. Over time, you can foster partnerships that help your business thrive. As you develop nonprofit partnerships, continue to explore ways to grow these relationships.

Your company can work with a nonprofit to find opportunities to spread the word about your respective goals and missions. That way, both organizations can get the most value out of these partnerships.

Use Corporate Philanthropy to Gain a Competitive Edge

Corporate philanthropy can benefit your business, employees, and community. With the right approach, your business can empower its employees to support a nonprofit. Moreover, your philanthropic efforts can help your company grow.

Get started with corporate philanthropy and account for it as part of your business’s finances. Then, your company can use philanthropy to help a nonprofit, make a difference in its community, and gain a competitive advantage over its industry rivals.

6 Mistakes To Avoid When Selling Your Business

Posted on September 24, 2021 | by David Worrell | Leave a Comment

Are you building your business to sell?

For most entrepreneurs, the business is the single largest source of non-cash wealth, and at some point, you’ll want to harvest that wealth by selling. Done correctly, selling your business can be life-changing. Done wrong, watch out!

A botched sale will leave money on the table, and bring big headaches down the line. If you want to enjoy the moment you finally sell your company, here are 6 traps you need to avoid:

6 Mistakes To Avoid When Selling Your Business

1. Not Selling Soon Enough

Did you know that most businesses up for sale will never sell? 80% of companies will never be sold. So, one of the biggest mistakes you can make is missing an opportunity to sell.

If you’re thinking about selling a company, don’t wait until you think you’ve reached your peak profit margin to sell. Investors want something with room to grow, not a finished product that’s almost past its prime.

2. Overvaluation When Selling Your Business

Do not try to value your business yourself when selling a business. You’re much better off hiring someone who knows how to value a business. There tends to be a ton of personal pride involved from the owner’s perspective, so much so that it often leads to overvaluation.

While you don’t want to get lowballed, you also need to know when and where to concede on price. It all comes down to the numbers, so find someone who knows how to check them properly.

3. Letting Off the Gas Pedal After a Sale

Hardly any sale is done and finished once the initial paperwork has been signed and agreed upon. There is usually some type of monitoring period up to a year after a company has been sold.

If the company starts to go downhill after the initial sale has been agreed upon, the sale might have to be renegotiated or might even be voided completely. Continue running your business at full speed until you are 100% free of responsibility.

4. Neglecting Forecasts of Future Growth

Especially if your potential buyer is financed by a bank, future business growth projections could play into the sale big-time. Don’t stop generating projections of your future growth during the “due diligence” phase mentioned above. These projections need to stay up-to-date and optimistic if you don’t want a buyer to back out.

5. Letting Deal Fatigue Discourage You

Use a selling a business checklist to avoid “deal fatigue”. These deals take over a year to complete in many cases, with many ups and downs as you go. Keep to your business checklist and don’t let the process run you ragged. Use personal stress management techniques to mitigate fatigue.

6. Not Vetting a Buyer

Not every buyer is operating on the up and up. Make sure yours is properly financed, with a paper trail to prove it. You don’t want to get stuck waiting for money that’s never going to come. An inept buyer could run your company into the ground and expect you to cover the losses before a deal is dead and done.

Avoid these Mistakes Like the Plague When Selling a Business

Avoid making any of the mistakes listed here if you want to complete a successful, wealth-building sale of your business. Any one of these mistakes could leave you empty-handed, so plan ahead and stay focused on the goal!

Guest Blogger Marla DiCarlo is an accomplished business consultant with more than 28 years of professional accounting experience. As CEO of Raincatcher, she helps business owners learn how to sell a business so they can get paid the maximum value for their company.”