Steve Mangelsen, B2B CFO®
Providing B2B CFO® services in Santa Cruz, CA and surrounding areas

How does any organization know if the CFO is doing a good job?  How do you measure that performance?

Do you know if your financial health is improving?  Do you know what you should be managing to strengthen your financial health? Are you generating cash fast enough for your growth?  Or are you worried you may run out of cash?

You have probably thought about these questions, but you are losing sleep because you do not know the answers.

I have developed a simple finance model that answers these questions.  This model has been implemented in multiple organizations, both profit and not-for-profit, successfully over the past 25 years.  And a PhD thesis was written to validate this model.

All of my clients are introduced to this model, and I am currently taking on new clients in an expanded geographic area.

If you are looking to reduce your worries over not having answers to these questions, I would be glad to help you answer them.

Silicon Valley Accountancy Corporation is a national tax expert in this act. They perform all of the analyses necessary to insure proper tax compliance with this act.

George Pinto and Milan Kojnok are experts in employee benefits’ accounting and tax.

A CFO will keep your business healthy and will maximize its value.

So, when do you need a CFO?  You need it from the time you start your business.

But, it will probably not be a full time job then.

The solution is a part time CFO that only bills for the time you need.

Better still is one that bills part time and does not require a contract.

Feel free to contact me.

How do you, as CEO, know when your CFO has closed the books that the statements you are provided are correct?  Or as CFO, how can you certify that the statements are not misstated?

The answer is cash.  At the end of the day, cash is either right or wrong.  Cash does not lie.  And the bank provides you, daily if you wish, what your cash is.

When you have an audit performed, the auditors substantiate the balance sheet.  The reconciling item in equity is the current net income.

But, as a CEO or CFO, you can do exactly the opposite.  Assume your net income is correct, review all of your balance sheet changes, and the reconciling item is cash.

If the cash you is the same as the cash provided by your bank, the net income is correct.  Of course, you must confirm that all is categorized properly.  But, your management team will help here.  They do not want to be explaining unnecessary variances.  But, the bottom line net income is correct.

A $10Million company was able to increase cash flow by $1 Million by eliminating their stockroom and workorder accounting.

The company collapsed raw material and work in process inventory to raw material in process. Component parts were received directly to the production floor.  Using the 80-20 rule, 80% of the parts were expensed when they were received and reordered using a 2 bag system. Component parts not expensed were added to raw material in process inventory. Component parts in finished goods were backflushed via a bill of material consisting of the 20% expensive components to relieve inventory when finished product shipped.  Accurate inventory was maintained through normal cycle counting, but only on the 20%.

The company worked with all of its suppliers to become a just in time company.  Product was assembled and shipped the same day.  Finished goods were then reduced to zero and overhead expensed as a period cost.

The result of these management decisions was the reduction of $1 Million of inventory control and work order accounting expenses.  And a big bonus was the elimination of the closed order variance time bomb.

Cash is the life of the organization.  Without it, you will go bankrupt.  In every organization, cash should be the number one priority, followed by customers.

You need to understand your terms of sale and your customers need to understand your terms of sale.  Those terms are determined based on the margin that you want to earn.  If your terms are net 30, your customer is late on day 31 and your margin begins to go down.  It is costing you money to finance your customer.

Insist when you establish a new customer that you know how they are setting you up in their computer to be paid.  It must be in accordance with your terms.  You now can set up your known daily cash collections, and you monitor and manage it daily so you know that it happens.

Since you know the purchase commitments you are making, you know exactly what your daily cash flow is.

Cash is your most important asset.  Make it your number one priority.

Good customers are customers who pay you on time in accordance with the terms with which you have both mutually agreed.  So, how do you determine if a potential customer will be a good customer?

The proper use of a credit application is one tool that can aid in this evaluation process.  A good credit application generally asks for one bank reference and three trade references.  The bank reference is the most important, particularly if the potential customer has a line of credit.

There are two tests that both must be passed to give a potential customer credit: the willingness to pay and the ability to pay.  Without both, you may not be paid on time.

The willingness test is generally passed by the potential customer’s willingness to provide the credit application.  The ability to pay can be estimated as a percent of the line of credit or as a percent of the average daily balance.  The potential customer, of course, must be willing to have the bank release this information for your evaluation.

With these tests passed, the final step is to contact the potential customer’s accounts payable department to confirm you are set up for payment in accordance with the terms of sale.

Now you have a customer and you can authorize the order to be entered.  Add this sale to your daily cash flow projections and manage this customer so you are paid properly.

My philosophies of business and management of cash flow have been largely formed from my experiences as an air force electronic warfare officer in B-52s.  We were trained to stay ahead of the airplane.

I learned very quickly that if you flew your flight plan, you would never get to your destination.  You had to constantly adjust for the prevailing weather conditions.  Your flight plan for average winds was only a guide since nothing is average.  You adjusted for prevailing conditions.

Similarly, you put a plan together for your business knowing what your destination is.  But keeping your eye on your destination, you continually adjust for prevailing conditions.  My focus for destination has always been the profit and cash flow.

Similarly, we would always ground fly our mission the day before the flight.  We would review every possible contingency to insure we, as a crew, knew how we would collectively respond.

Similarly, a management team puts together a plan, and they must ground fly their plan to insure that it is not just numbers on a piece of paper.  This means reviewing every possible contingency in the business and how they are going to respond.  The plan is then the actions, not the numbers, as so often is the case.

Plans are action driven and not numbers driven.  Delivering on a plan is not an accident.  Successful delivery on a plan results from deliberate actions of a competent management team.

When I think back to my college days and reflect on what I was not taught, 3 things come to my mind: my courses did not teach me the “how” of making money and maximizing cash flow; my courses did not teach me that administration is a cost that must add value; and my courses did not teach me the value of information.

To make money and maximize cash flow, the CFO must understand the management of the business and how that management is held accountable for delivering results.  The CFO must also understand how to “make it happen”.

Secondly, administration is a cost and must contribute results to the organization.  I have often said that I would rather hire a salesman to sell or an engineer to design new products to sell than an accountant.  The point is that organizations must be results oriented, and that includes the finance department.

Lastly, we need to understand the value of information.  I always ask the question      ” what decision is going to be made?”.  Information that does not lead to decision making should not be generated.  This is a cost that can be eliminated.

While the CFO has oversight of finances, the cash flow, P&L and balance sheet, and custodial responsibility of assets, this is a moot point if the CEO fails. The CFO makes the CEO succeed. The CFO makes things happen, must be forward looking, and must be results oriented.

The CFO is first a trusted advisor followed by a successful implementor. The CFO should put a financial spin on everything and move the company in the right direction.

A good CFO understands every discipline in the business, which tasks are necessary and which are not, and drives only those tasks to optimize organizational performance.

The CFO is not a “bean counter”. The CFO is a leader in managing the business. The metrics are merely the scorecard that drives decision making.