Natural Entrepreneur: Top Ten Financial Lessons for CEO's and Business Owners

this is a layer

Home

About us

sponsored by:

Important:
Our Privacy Policy

Finance

Top Ten Financial Lessons for CEO's and Business Owners

by Helen Dutton, A vision of Your Own, LLC, Weare, NH

Editors Note: This is the first of a series of articles by Ms. Dutton

As a former Chief Financial Officer (CFO), I have joined a number of companies following their initial start-up phases. What I often found was a business enterprise intently focused on the day-to-day operations of sales and R&D, with management paying limited attention to the financial status and health of the company. .

For example, there was a small company in New Hampshire where the CEO was primarily concerned with his top line - revenue, and the bottom line – net income, and that’s about it. It is hard to blame him – he had a lot on his plate, as do all CEO's, and understanding where expenditures were recorded was not a priority. If the bank was happy, well, that was enough for him.

When I set to work reviewing their accounting records, I gained a clear understanding of the phrase “creative accounting”! It took a month or so, but the financial statements showed a different story once all the corrections were made. As you might imagine, the banks were furious and the CEO was in a panic to generate sales that would change the financial outlook. Luckily, the banks stuck with us, and we were able to correct for the shortfalls and improve the financial picture over time.

Through experiences such as this, I have noticed a pattern of behaviors that, if corrected, will go a long way in avoiding financial mistakes that can come back to bite you. Here is my Top Ten List of what non-financial CEO’s and business owners need to know about finance.

1. Do it right the first time. It is essential to maintain your financial records from the very beginning. This means recording all income and expenditures in near real time and in accordance with proper accounting practices. Always believe that a very lucrative acquisition is waiting for you, right after a thorough due diligence on your books.

2. Know your exit strategy from the beginning. If you expect to liquidate your business after years of pulling out cash, then plan your business to be extremely cash rich. If you think the best deal is for you to be acquired, think of possible suitors and attract them. While execution of your exit strategy may not work out exactly as planned, knowing where you are headed can mean all the difference.

3. Look at your financials the way a publicly held company analyzes its statements. Review them on a quarter-to-quarter basis and year-over-year looking for trends and consistency. When confronted with critical financial questions, this analysis will help in making the smartest long-term decisions, and avoid those with the greatest impact on your short-term numbers. Do not necessarily look for the biggest short-term gain, to the detriment of the bigger financial picture.

4. Cash is cash; income is income. They are not the same, and you need to track both carefully. Learn how to increase and expedite both.

5. Your balance sheet and cash flow statement tell you everything you need to know. While they may not be as easy to understand as an income statement, the balance sheet and cash flow statements tell you the health of your business. Ask a member of your financial staff or your CPA to teach you.

6. Debt for expenses or projects for which you have already received the benefit is never a good idea. Debt should be used for products or infrastructure that is bringing cash in the door or that will bring future benefits to your business. For example, purchasing technology that will enhance your customer service and cut costs makes sense. However, using existing technology as collateral on a general business loan may not make sense. If your business is not generating the cash to cover cash requirements, look at reducing your cash needs not increasing your debt.

7. Manage your physical and intellectual assets. Understand what your needs are with respect to intellectual property and design an appropriate strategy to attain them. Ask an intellectual property attorney to educate you about what possible intellectual assets you may develop and what records you will need to protect them. Keep track of your physical assets, as well. Attaching tags and keeping a spreadsheet is the simplest and least costly method. It’s especially easy to lose track of electronic equipment. And tracking these assets is an important step in keeping them from walking out the door.

8. Shorten your payback period on projects and debt. Consider all of the economic risks over the payback period for a project or capital purchase. For example, you may believe that the development of a new product will take 15 months, enabling you to secure the market and pay back the debt over the following 24 months. Consider possible economic risks: a downturn in the general economy, loss of a key employee, or a natural event. A conservative plan would involve cutting your payback period in half and then evaluating the viability of the opportunity.

9. Hire the best that you can; know what skills and attributes you need. In Finance, understand the difference between a bookkeeper and a financial person. You will most likely need both but at different business stages.

10. Your accountant, attorney, investors and banker can all be your allies. Use their expertise, experience, and contacts for the success of your business. Understand their roles; they do want your success but they are also beholden to their own bottom line and interests.

Perhaps you understand each of these points. But in case it’s not clear, in future articles I will go into more depth and give examples for each item.

Helen Dutton is a national business coach for fast growing and entrepreneurial businesses and principal of A Vision of Your Own, LLC in Weare, NH. She can be reached at (603)529-2345 or Helen@avisionofyourown.com. Also, visit www.avisionofyourown.com

Upcoming Events

Feb 21 (8-9:30a): NH Forum on the Future, NHHTC, CR Sparks, Bedford, NH

March 1 (6:30-8:30p): Women's Business Center and MicroCredit-NH Networking Event, Bank of America, Portsmouth, NH

March 6 (10a-noon): Growth Capital Resources in New Hampshire, City of Nashua, Office of Economic Development, Daniel Webster College, Nashua, NH

March 8: (12pm -1pm) Break the Rules and Close More Sales, Amoskeag Business Incubator, Manchester, NH

March 16: Peak Pitch (pitch your plan to invstors on the chairlift), Mt. Sunapee, NH ($)

March 22: Breaking Trends in Web Develoment, UVCIA, Hanover, NH ($)

View Ads