Small and Medium sized Businesses (SMB’s) can often substantially improve enterprise value by employing the financial management strategies that large companies use. SMB bookkeepers, controllers and most of their CFO’s without large corporate experience are not educated or trained on the use of these techniques. Note these strategies are much different than the CFO Services (accounting process and Controller services) offered by CPA firms and most part-time CFO’s. The advanced strategies primarily relate to gaining a much deeper understanding of Company financials and operations (product, service and customer margins, expenses, costing rates, pricing, KPI’s, etc.). They also include other financial management and growth strategy tools.

Following is the process to implement advanced financial management improvement strategies in SMB’s. Some companies may only need help with some of these steps, but all should experience better overall performance and bottom-line improvement that pays for the investment many times over.

  1. Initial meeting to gather information on financial and operational performance, KPI’s and reporting, and an understanding of current challenges, opportunities and goals. Develop a game plan and project plan with timeline and cost estimate. (There is no charge or obligation for this 4-8-hour discovery and GamePlan®.)
  2. Review and adjust accounting practices, as needed, to ensure accurate, timely, fully accrual-based books.
  3. Review and improve costing practices to accurately cost, and allocate overhead, to products and services.
  4. Review and improve the company’s quoting-pricing model and strategies for accurate and strategic pricing.
  5. Develop accurate product, line of business and customer margin reports that tie directly to the P&L.
  6. Develop a financial reporting system that analyzes all aspects of the company’s financial drivers, profitability and cash flow. Monthly reporting includes P&L’s, margin, expense, labor and material analyses, cash flow, KPI’s and financial trends. Data can be easily pulled directly from corporate systems.

Steps 1-6 provide a comprehensive package of information that highlights exactly where, how and why the company makes and loses money and details operational efficiencies and where improvements are needed.

  1. Develop detailed plans to correct problem areas and enhance the strong, profitable areas identified above.
  2. Develop (or review) and vet two aggressive growth strategies.
  3. Create a 12-month Profit Plan to achieve profitability substantially above the current level. This can be done any time during the year. It is a straightforward process and is integrated into the financial model.
  4. Identify the current value of the company and set goals to reach a new, much higher target.
  5. On-going, monthly 2-4-hour visits to:
    1. Review the financials for accuracy and mentor/support the bookkeeper/controller.
    2. Update the financial reports (if not done internally).
    3. Review financials, performance, pricing, strategy, new opportunities and challenges with the CEO/Owner.
    4. Provide a sounding board to the CEO/owner, management and controller/accounting staff as needed.

Steps 1-6 typically take a half-day, once per week, for four to sixteen weeks, depending on the size and complexity of the company. Management and accounting personnel time required is one to two hours per week. Month end management meetings are approximately one to two hours.

The Company will learn to use its financial information and other new techniques to greatly improve company profitability, growth, and its value for the life of the company.  Controllers, CFO’s, accounting staff and management are fully trained. Banking and borrowing relationships will be strengthened and valuation increased, benefitting all owners, especially those looking to sell.

Rick Perrin | Partner, B2B CFO®  | 608.576.3773  | |  | ©Rick Perrin 2019

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