A Story of Cash Flow
“A frustrating roller coaster of uncertainty.” That’s how one CEO described their business to us. The reference is not unfamiliar to our team. One month you’re flush and the next you’re strapped for cash.
In this particular instance, the CEO, an avid golfer, was overwhelmed with multiple discouraging signs. These factors were taking the joy out of the business and making for long, stress-filled days:
- Aging accounts receivables (beyond terms)
- Increasing interest expense and growing debt
- Funds not on hand for payroll
How did we help?
- By establishing a more frequent invoicing schedule and implementing a proactive collections program for the client, we were able to eliminate late-paying customers completely within 90 days.
- Shopping for lower interest rates on bank/credit cards, shifting debt to the lowest interest options available, and recommending/executing a debt reduction plan drastically reduced the expenses and stress of the company.
- Negotiating extended terms with vendors and securing a revolving line of credit proved to be instrumental in maintaining minimum cash balances to assure payroll commitments each month.
With increased confidence in the predictability of the cash flow and a lot less stress, where do you suppose this CEO spends more time now?
A Story of Visibility
The economy took a turn for the worse and this company was forced to cut back – on marketing, human capital, and expenses in general. The owner of the business became increasingly concerned about being blindsided by any further disruptions to their operations. Creating a reliable forecast seemed impossible.
How did we help?
- By categorizing his revenue streams, it became clear which ones were declining, holding steady and showing growth. He was able to close down those with little future, maintain those holding their own, and focus support on the emerging products.
- Further analysis of profit margins by product gave him solid data from which he could adjust pricing, cost of sales, and marketing expenses to insure each line of business was contributing to the company’s overall success.
- The intelligence gained in the exercises above provided the structure for a Forecast model to represent the gross profits he could expect to achieve. From that basic model, we extended the formulas to build out the Balance Sheet and resulting Cash Flow so he could see the ebb and flow of resources for future periods. This model also gave him the ability to modify variables and see the impact they would have on Net Income and Cash balances by month.
Now this company has a clearer view of the future.
A Story of Communication
Internal accounting departments can sometimes function like a clogged drain. This revelation came as a complete shock to one of our clients. Dismayed that she had to make multiple requests through various channels to get accurate financial data from her own team, this CEO finally had enough and knew that she needed help. With no previous experience outsourcing any functions of her company, and clearly exhausted, she engaged our team.
What did this CEO want? It was summed up in this quote from her during our initial meeting. “I want someone to bring me the critical financial information that I need, when I need it. I don’t want to have to ask for it. I don’t want to have to track it down. I want it to be timely, accurate, and delivered to me in a manner that’s easy to digest.” It was also clear that she didn’t want to replace her team, just make it more effective.
How did we help?
- We prepared a simple data flow diagram indicating the programs and personnel involved in all stages of the company’s current accounting activities and indicated the purpose and timing of each. In this way everyone gained clarity on what they were to do, who it was for, and why it was important. Any peripheral activities were discarded.
- The processes were then reviewed for data integrity. Control points were identified and verification steps added to insure that information was not passed forward until it had been audited.
- From this accurate data, we developed the business information flow in the form of regular analysis delivered to key executives every month. We included reports on product cost and contribution margins, Sales by territory, Marketing campaign results, and overhead by category. A financial reporting calendar was devised and all levels of staff trained to produce their reports in accordance with the content and timing listed.
- We worked directly with the CEO to identify key metrics she needed to follow closely. We created a weekly snapshot monitoring those metrics as well as a monthly Performance Dashboard for her to use in her staff meetings to keep everyone focused on reaching company goals. Her senior staff was able to maintain these reports and she found her entire department performed as a much more cohesive team in light of all these changes.
The company is now unclogged, running smoother, and breathing easier.
A Story of Funding
Entrepreneurs often approach us to help prepare them for a funding event. Here in the heart of Silicon Valley, we’re surrounded by brilliant technologists, engineers, and scientists. When finance is outside of their comfort zone, it’s understandable that they might seek assistance in readying the appropriate materials for prospective investors.
A recent example had a pair of founders from a technology startup turn to us to educate them in the process and help assemble credible documentation for them to do the “Sand Hill Shuffle” (an affectionate reference to pitching their business plan to various venture capital firms prominently located on a stretch of Sand Hill Road in Menlo Park, California.) The business model was sound and their expertise in the industry was outstanding. The only question they had was, “What do investors want to see from us from a financial perspective?”
How did we help?
- Since continuity between the written plan and the financial projections is crucial to the credibility of the overall plan, we began with a comprehensive read-through of their full plan. As their vision was presented, we extracted key elements, knowing they would play a part in the financial model. These included revenue sources, method of delivering their services, location and staffing of the organization, plant and equipment required, how they would attract and retain customers, and key drivers of growth. This exercise got them to think about just how much was going to be involved in building a company.
- From the answers found in the exercise above, we built a financial model to represent their business, being careful to formulate as many aspects as we could into ‘variables’ which could be modified later when more accurate data was available. The financial results were projected by month for a period of 3-4 years, to the point when the new company would be both profitable and cash flow positive.
- Armed with the fully developed financial model, we read through the plan again with an eye toward those areas that would be enhanced with the inclusion of summary data or graphs. Select outcomes of the financial plan were sprinkled throughout the written document as well as summary financial statement pages attached as addendums.
- A single page of “Assumptions” was extracted for use in the funding presentation to demonstrate to the investor audience the level of detail that was driving the projections. The full detail of the model was kept in reserve with the intention of only using it if investors took discussions to the next level.
For more than fifteen years, our team members have worked with startups and emerging companies. If you’re looking for investors, we can make you “funding-ready.”