Saturday, 19 January 2013

5 Tips from a casual CFO to a start up CEO

Congratulations!  You recently launched your business.  You have sales.  You have employee(s).  You love your logo.  And customer feedback is fantastic!

At the risk of raining on your parade, how are you performing financially?  Of course a new business can’t be expected to thrive immediately.  Nobody expects profits in the first year right?!  For most startups it can takes 2-3 years, doesn’t it?  Although often true, don’t let statistics impede your drive to reach greater financial results sooner.  

Let’s face it, as a passionate entrepreneur; you likely did not start your business with a CFO as your corporate wingman.  After all, an anal accountant might rain on your parade, kill momentum, and frankly cost the business cash that could otherwise be going to ‘more important things’.   I get it.  But if you don’t have financial guidance, you might as well be flying a plane without instruments and yet expecting to safely land at your destination. 

So – until you can afford to hire a fulltime (or even part-time) CFO, let me give you 5 financial tips as your ‘casual CFO’ that should help keep things on track (at least until I release my next 5 tips).

1.     Separate business money from personal money.  Use separate credit cards to make purchases, and when you have to contribute cash into the business – do so in lump sums into the corporate bank account rather than paying directly from your personal debit/credit cards for individual transactions.  It might not seem important at the checkout, but it will save a lot of admin pain in the future when you are truly trying to get a handle on profitability, cash flow and you need to provide support to CRA when filing corporate income taxes.

2.     Take out a bank loan right away, and make sure it is double what you think you will need.    Entrepreneurs underestimate cash flow requirements as frequently as home owners underestimate the costs of kitchen renovations.  The reality is it is far easier to get a loan when you don’t actually need one.  By the time you do, you have an uphill battle explaining why you have missed targets and convincing a credit analyst why your current forecasts are now more credible than your original plan.   I have never heard of a business failing because they had a surplus of cash.   Plus the steps required to secure a loan will help you refine your business strategy – just try it and see.

3.     Review your financials at least quarterly.  Standard financial reporting is like navigating through traffic by watching your rear view mirror.   It tells you where you have been and what you have done – in the past tense. But until you have a financial advisor by your side, reviewing your financial statements is still likely your biggest predictor of future performance.  At a minimum, comparing sales and expense trends over time can help you at least understand if you are heading in the right direction.  And to do this comparison, you must ensure someone is entering all transactions into your accounting software in a timely fashion.

4.     Focus!  Decide how you will compete in the market by choosing only one of the 3 following options:
a.     Product Leadership (best in class, R&D focus)
b.     Operational Efficiency (lowest cost provider, best value for money)
c.      Customer intimacy (relationship focus, trust, loyalty).   
Again, you can only pick one.  So think hard and commit to it.   You must still perform well in the other two to be successful, but you must commit to lead with only one or you will waste resources and undermine your financial potential.  Once you have made your choice – write it down and talk about it endlessly to make sure it sticks hard to everyone who can influence your business.

5.     Be obsessed about aligning your image to your chosen focus.  Entrepreneurs often complain to their CFOs/controllers/bookkeepers about the money “wasted” on things like interest rates, service fees, exchange rates, accounting and legal service rates – all the while spending much larger amounts of money every day on building an image that is not consistent with the one chosen focus.  Ego can be the biggest influencer.  Think about “needs” versus “wants” for your organization.  Do you need a fancy office or big signage or do you want these things because they represent success in our society or from your business history.  To help – ask yourself ‘Does this spend align to …’ and complete with your chosen focus.  If you and 1-2 peers can’t agree it’s a ‘yes’, then it likely isn’t.

Susan Richards, FCMA has over 15 years experience helping Entrepreneurs with Financial Analysis, Business Planning, Business Strategy, and Financial Reporting.  In 2009, Susan received a CMA Creative Leadership award for ‘Intuition’ and in 2010 awarded the distinguished title of ‘Fellow’ from the Society of Management Accountants of Ontario.  

Susan Richards has recently launched Givopoly, Ottawa’s exclusive gift concierge service, with business partner Craig Hung.   Givopoly aims to satisfy thoughtful but busy professionals by bringing great products and services from locally owned businesses to your fingertips with fast and friendly service.

If you are an entrepreneur who would like to engage ‘casual CFO’ services please email Susan Richards at