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The Good, the Bad, and the Fed: How Higher Interest Rates Impact Small Businesses

Higher interest rates can significantly impact the finances of your small or mid-size business. If you’ve been paying attention to the news, you’ve heard that the Fed has been raising the federal funds rate.

What’s the federal funds rate? It’s the interest rate at which banks lend money to each other overnight. When the Federal Reserve increases the federal funds rate, it has a significant impact on the cost of borrowing for individuals, businesses, and the government. In this blog post, we’ll explore how an increase in the federal funds rate hurts and helps small and mid-size businesses.

The Good: How Higher Interest Rates Help Small Businesses

What’s good about higher interest rates? Interest rate increases benefit small and mid-size business owners by increasing interest rates on savings, strengthening the dollar, and reducing inflation.

Higher interest rates on savings: After the Fed raises the federal funds rate, banks often pay more interest on savings accounts to stay competitive with other banks and attract deposits. If you maintain a healthy account balance, you could earn thousands of dollars per year on your savings. Are you tired of your large, national bank paying you next to nothing on your savings? Momentum CFO recommends checking Bankrate.com to find out which banks are offering the highest interest rates.

Stronger dollar: An increase in the federal funds rate can strengthen the dollar’s value relative to other currencies, which can benefit small and mid-size businesses that import goods or rely on foreign suppliers. Stronger currency means you can buy more with $1 today than you could when it was weaker.

Reduced inflation: A higher federal funds rate can reduce inflation, which leads to a more stable business environment. Taming inflation is the primary reason the Fed has raised rates in recent months.

The Bad: How Higher Interest Rates Hurt Small Businesses

There are several ways higher interest rates hurt small businesses. Rising interest rates impact you by increasing your borrowing costs, reducing access to credit, reducing profit margins, and reducing consumer demand.

Higher cost of borrowing: Small and mid-size businesses may face higher borrowing costs when the federal funds rate increases. Small businesses that have variable-rate sources of financing will undoubtedly face higher monthly payments. Higher monthly payments deplete cash, which could result in a cash deficit. If you rely on a line of credit, consult your CFO for assistance. A fractional CFO carefully monitors changes in interest rates and will partner with you to manage the financial impact of increased interest expense.

Reduced access to credit: As interest rates rise, banks may become more selective about which small and mid-size business they approve for a loan or line of credit. This can make it more difficult for you to finance operations or invest in growth opportunities. If your small businesses has less than stellar credit, it will be even more difficult to qualify for financing. The bank may also offer you less favorable terms, such as lower credit limits.

Reduced profit margins: Your profit margins may shrink as the interest expense on debt increases. In some cases, you may need to raise prices to compensate for the increased costs, which can make your business less competitive in the marketplace.

Reduced consumer demand: When the federal funds rate increases, consumers may have less disposable income to spend on goods and services. This can reduce demand for your products and services.

The Bottom Line

In conclusion, higher interest rates have both good and bad impacts on small and mid-size businesses’ finances. While higher interest rates on savings, a stronger dollar, and reduced inflation can be beneficial, businesses may also face higher borrowing costs, and reduced access to credit, lower profit margins, and lower demand. Small business owners must carefully monitor their finances and adjust their strategies accordingly.

Are interest rates negatively impacting your small business? Momentum CFO can help. Schedule a free consultation to learn how we can help you navigate increasing interest rates.

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Why should you hire a Fractional CFO? 

Business owners who are operating mid-sized businesses without a CFO might feel that they don’t need this crucial role. Or, in many cases the idea of bringing in a C-Suite stakeholder who would require either a hefty salary or equity is unappealing.  At Momentum CFO we’d like to take a moment to outline some of the benefits of choosing to work with an outsourced CFO.  

We know that growing a company is a complex balance of many factors: Many entrepreneurial CEO/ Founders shoulder multiple roles of not only CEO but also COO and CFO.  As companies grow, however, bringing in a fractional CFO with years of experience can make the difference in how quickly and efficiently your business can scale. 

For businesses that are in growth mode, a solid financial strategy is essential to prepare for the next phase of business growth while continuing to be profitable in the present. A fractional CFO is part of the C-Suite decision-making team and can help guide your business to profitability and long-term stability. 

Some of the aspects of finance and accounting that a fractional CFO provides are: 

Expertise:

An outsourced CFO will be highly skilled with years of professional experience. Their expertise will bring an invaluable new perspective to your business. They can review company performance and provide a detailed analysis and plan to address any existing financial issues. 

Strategic planning: 

Outsourced CFOs can analyze your business’s financial picture and provide high-level strategic guidance that will optimize revenue growth.

Exit strategy: 

If your business is planning for an exit, an outsourced CFO can help you package your business’s finances attractively and prepare all the necessary documents to get the best possible sale price.

Transparency in reporting: 

Many business owners don’t have the clarity they need to grow their business because they either don’t receive or can’t interpret their financial reports on a regular basis. Fractional CFOs help interpret the company’s information and work with their management team to create a strategy that succeeds. 

Meaningful insight: 

Are you using the insights you receive from your financial reports to affect the day-to-day decisions you make as a business owner? Momentum CFO believes that all reports should be timely, accurate, and provide meaningful information on which to base decisions. Some business owners receive extensive reporting, and their financial understanding is deep enough to know what the reports say about profitability, productivity, and cash flow. However, even with this level of understanding, often the CEO does not change strategies based on the numbers in their reports. 

A fractional CFO will look at the reporting and not only interpret the data into practical insights, but also suggest strategic changes that the business can implement to improve operations and increase profitability.

Benefits of working with a fractional CFO include: 

Reduction of overhead costs. Costs associated with hiring full-time high-level employees can be high. With outsourcing, companies only pay for the actual services being rendered. Business owners are able to eliminate costly benefits packages, payroll costs, paid time off, retirement, vacation, sick days, and workers’ compensation. When you hire a fractional CFO, you can save up to 40% of the monthly costs associated with hiring a highly skilled employee.

Having the best numbers in play. When you choose to outsource, you can access a higher caliber of employees with more years of experience than you would otherwise be able to afford. When it comes to outsourced accounting, having accurate numbers not only gives you insight into where your company stands in the present but allows you to forecast where your organization is headed.

Save time so you can focus on running your business. When you bring on a fractional CFO, you get leadership focused on a specific deliverable.  This frees up time for your business’ stakeholders to manage other pressing issues around business operations. By delegating responsibilities, you are able to direct your focus toward the growth of your business.

Detecting and preventing fraud. Hiring an outside team of accounting professionals can help to detect discrepancies in your books. Outside CFOs and Controllers can also implement the proper protective procedures to protect your business from potential threats in the future. This can help save your business thousands of dollars. The majority of fraud in accounting comes from lax controls in middle management. 

From the visionary role of the CEO to the operational granularity of the COO to the technical insights of a CTO to the strategic financial acumen of a CFO, the C-suite is important to growth-oriented mid-sized companies. Momentum CFO’s clients have seen, hands-on, the difference that CFO insights make in a company’s ability to pivot, manage growth and prepare for exit. A fractional CFO is the ideal stepping stone for many mid-sized businesses who need the insights a CFO can provide but are not ready to commit to a full-time C-Suite stakeholder.  

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Tips to Improve Cash Flow for Business Owners

Tips for Improving Cash Flow

Cash flow is one of the biggest sources of stress for business owners. While cash management is essential to a healthy business, it is only one of the aspects business owners need to address to have a healthy and profitable business. From getting a loan to collecting aging accounts receivable, there are many ways to improve cash flow.  Here are a few that any business can incorporate, even when they’re flush with cash. Need to hire? Add inventory? Move? Cash is king. Healthy cash flow will put you in the driver’s seat to make strategic moves, and be a stronger negotiator. Best of all, more cash reduces stress.

Let’s examine some easy-to-implement strategies for improving cash flow:

Stay on top of what you are owed

  • Can you invoice sooner to better match the timing of work performed?
  • What about the invoice cadence?  Consider invoicing semi–monthly versus monthly.
  • Make it hurt for them to pay you late.  It hurts you, be clear about penalties for late payments.
  • On large projects, ask for a deposit for materials.
  • Require payment in full before you release the final product.
  • Be precise with billing.  If you’re not keeping track, you may be missing out on the money you are owed.
  • Set up ACH, and take the thought out of bill pay by having your customers on an autopay option (incentivize this!)

Put off paying others until the last minute

  • Who needs to be paid first and why? Be sure you’re paying the accounts with penalties first and putting off more lenient ones until your cash flow recovers.
  • Ask for an early pay discount wherever you can.
  • Use online bill pay to pay at the 11th hour.

Use debt to your advantage

  • Refinance old debt.
  • Look at alternative lending options.  Consider factoring, or accounts receivable loans.
  • Pay as many vendors on a credit card as possible. Bonus: You’ll get an extra month to pay and points for flights!

Look at expenses and prices

  • It may be time to increase pricing.  Have your costs gone up? When was the last time you increased prices? 
  • Ask vendors what you can do for a discount. Recurring payments? ACH? a longer contract? You’ve gotta give to get.
  • Partner with others in your industry. Volume purchases or referring companies can get you favorable discounts.

Get the whole company on board

  • From the assistant to the CFO, get the whole team on board with a rolling 12-month cash flow forecast. Many small businesses fail due to a lack of planning and control over cash resources.  Having a more detailed 13-week cash flow plan can give you a heads up before you’re really strapped for cash. 
  • Segment suppliers, customers, and inventory. Don’t try to tackle your cash flow as a whole. Do you have too much cash tied up in products that sell seasonally?
  • Enlist the help of an experienced CFO to set you up for success so you can have more time to focus on running your business. Enlisting an outside expert will generate much more cash than it will cost.
  • Ask everyone for ideas on where you can cut back.  You may be spending on software that everyone hates or a retreat no one wants to go on.  Ask and listen.
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Productivity vs Profitability

Every business owner wants their business to be profitable. 

Productivity and profitability go hand in hand in the business world. There are many factors that lead to a profitable business, including employee productivity. Naturally, profitability will increase when your employees are more productive. Let’s explore controllable factors that influence productivity and positively impact profitability.

Defining Productivity and Profitability 

Productivity is defined as the relationship between output and input needed to create a product. Profitability is determined by how much money is left over after a product or service is sold and all expenses have been paid.

·                Productivity is the best way to measure efficiency. A productive team maximizes their output with less effort. Productivity is often confused with effort. While they are related, they are not the same. 

·                Profitability is a measurement of income compared to expenses. As it relates to productivity, profitability can be measured in part by observing the ratio between what you are paying your employees in relation to the amount of work they generate. 

Profitability and productivity work in a symbiotic relationship. As you work to run a successful business, these two factors are essential to your success. 

Practical steps to increase productivity can include:

·        Training Programs: As a business owner, you must ensure your employees are equipped to perform their job to the best of their ability. Begin with training programs and initiatives to improve operations within your business. Often this means leadership training for middle management.  Great managers are the key to profitability. 

·        Practice, Practice, Practice: Once your employees have been adequately trained they should practice their new skills. The more your employees practice these skills, the more second-nature they will become. Then, your employees will perform their tasks faster and more efficiently. Think about ways to encourage the habits you want to foster. 

·        Encourage constructive feedback: Implementing training programs and leading a team can be challenging. The best way to improve your programs and leadership is to allow your employees to provide feedback. What’s working? What’s not? Where can you improve? Ensure the feedback system gives your employees a sense of safety and that it comes without repercussions. Being heard and being loved are almost indistinguishable for most of us.  So give a little love and let your employees be heard. 

·        Implement follow-up activities: Training and education will not be effectively retained if you do not give your employees the opportunity to continue to use their new skills. As you continue educating your workforce, offer opportunities for them to train newer managers, invite their expertise into the company-wide conversation and remember to reward, reward reward.  

Once you have implemented proper productivity training programs for your employees, you can begin to focus on profitability. How can your employees advance your business’ profitability goals? When your employees feel as though they’re contributing to the greater success of the organization they will work harder to see profits increase. 

Profitability is what keeps your business running. When you inspire your workforce to be more productive, you will likely see an increase in profit margins.

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8 Essential Components of a Successful Business Plan

Today we are talking about the 8 components of creating a business plan. Starting a business is both exciting and challenging. You can design your own career, be your own boss, and pursue your passion. But, according to the Small Business Administration, only two-thirds of businesses survive at least two years. About half survive at least five years.

Want to know the secret to start off on the right foot?  It’s a killer business plan. You need to define your strategy and tactics for establishing a business with a strong financial foundation.

Are you feeling unsure or overwhelmed about how to get started? Don’t worry. Momentum CFO can help. Let’s start by learning the 8 essential components of a killer business plan. 

1 | Executive Summary

The Executive Summary is the first section of your business plan. It’s a concise and compelling summary of all the other  sections of your plan. It’s the first content section of your business plan, but it should be the last thing you write. Make it short and sweet. Give the reader the big picture of what your business is all about.

2 | Business Description and Mission

Second, describe your business and its mission. Why are you starting the business? When will you launch it? What is your mission? Your vision? Describe your business goals. Make sure your goals are SMART: specific, measurable, achievable, realistic, and time bound.

Provide this information, along with facts about where your business is located, how it’s organized as a legal entity, and your contact information.

3 | Products and Services

Third, the Products and Services section is where you describe the products and/or services you’ll sell. What is their purpose? Why are they unique? How will you price them? 

New business owners often initially set their prices by “gut feel”.  They don’t do the research and analysis required to ensure that their pricing is profitable. Pricing analysis is complex. But, it’s also crucial to the success of your business. Engage an experienced CFO to develop a profitable pricing framework.

4 | Market Research and Competitive Analysis

Fourth, use the Market Research section to describe a problem or need exists in your industry and how your business addresses it. What are the key attributes of your ideal customer? Be specific. The more specific you are, the easier it will be to design a targeted marketing and sales strategy.

Analyze your main competitors. How long have they been in business? What is their market share? What advantages do they have over your business and vice versa?

5 | Marketing and Sales Strategy

Fifth, the Marketing and Sales Strategy section details your plan for acquiring new customers. New business owners are often overly optimistic about how many customers they can bring on in their first year. That’s why is vital to develop a comprehensive sales and marketing strategy.

In this section, describe your overall marketing strategy. Explain the specific tactics you’ll use to drive brand awareness and sales.  How will you reach your target customers? What advertising and promotion channels will you use? Will you develop an awesome website? Ensure it’s optimized for search? Run social media marketing campaigns? Use print or online ads? 

Think about this carefully. You need enough customers to have a viable business.

6 | Organization and Management

The Organization and Management section is up next. Provide information about yourself and your leadership team here. Lenders and investors want to be assured that leadership is competent.

Describe your education and experience. What are your notable achievements? Are you a member of relevant professional organizations? What makes you suited to run this business? Highlight your accomplishments. Next, do the same for other key leaders in your organization.

7 | Financials

The Financials section is an extremely important part of your business plan. How will you fund your business? 

Some business owners “bootstrap”, putting their own money into the business. Others seek funds from friends and family. Business owners with larger capital requirements may seek angel or private equity investment. Still others will apply for small business or personal loans.

Are you seeking capital from outside sources? Know that lenders and investors will scrutinize the Financials section. It helps them decide whether to lend to you or invest in your business. Include schedules such as a profit and loss projection and a cash flow projection.

There are several important parts of the Financials section. Don’t have a financial background? Engage a CFO to help. It’s important to get this section right. You can’t run a profitable business without a detailed financial plan.

8 | Finishing Touches: Table of Contents and Appendix

The final subject in our 8 components of a business plan: include a Table of Contents at the beginning of your business plan. Add an Appendix section at the end. Next, include important supporting documents. These may include your financial projections, business licenses, the resumes of you and your leadership team, etc.

Final Thoughts

In conclusion, starting a new business is exciting! It takes careful planning to do it well. Momentum CFO’s startup planning and implementation services put you on the path to achieving long-term success. 

Our Smart Start Strategy service includes a tailor-made road map for successfully starting your business. It covers:

  • Smart Start checklist of crucial startup tasks
  • One-on-one financial strategy sessions 
  • A comprehensive written business plan 
  • Financial projections for your first year in business
  • Recommendations for financing your business

Ready to get started? Book a free consultation today!BOOK YOUR CONSULTATION

Be sure to check out our other resources for small business: https://momentumcfo.com/cfo-resources/embed/#?secret=DrIUkEHE8W

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Six Signs of Scary Financial Management for Small Businesses

Financial management for small businesses can seem like a daunting, scary endeavor. However, if you hide from it, your finances will haunt you for years to come. 

Therefore, today we’ll explore 6 signs of scary finances that small business owners might face. With Halloween just around the corner, we want to turn your financial planning into a sweet treat!

1 | No Cash Reserves

Nothing scares small business owners more than concerns about running out of cash. Will you have enough cash to pay your employees and bills during a frightening financial time? The hardest lesson many small business owners learned during the COVID-19 pandemic is the importance of having cash reserves for an emergency.

To build a strong financial management plan for your small business, you must incorporate saving enough to cover at least three months’ worth of operating expenses. Keep in mind, it may take time to build your reserves. Therefore, set aside a little each month. You can also explore a line of credit as an alternate source of funds. Do not procrastinate. The best time to apply for a line of credit is when you don’t need it.

2 | Insufficient Insurance Coverage for Your Small Business

It’s scary to think about the financial risks you are taking by starting your own business or scaling up a small business. Therefore, insurance policies are meant to protect what you’re working so hard to build. They hedge the risk of financial loss.

In addition, common business insurance policies include general liability, professional liability, property insurance, and workers’ compensation.

Make a practice of reviewing your insurance policies each year. If your business has changed significantly, your coverage might not be sufficient anymore. Need help reviewing your finances and determining what type of insurance policy is best? Let Momentum CFO help you review your policy options to ensure that you don’t experience financial hardship in the event of a loss.  Let’s chat!

3 | Highly-Aged Accounts Receivable

Are your customers tricking you by not paying your invoices on time? If you offer your customers payment terms of 30 days, 45 days, or even longer, keep an eye on whether they’re paying you by the due date. 

Are a large percentage of your accounts receivable over 60 days past due? If so, follow up with those customers ASAP. The longer an invoice goes unpaid, the lower your chances of collecting. Plus, late customer payments put you in the scary situation of potentially not having enough cash to pay for your own expenses. 

4 | Signing Loan Agreements without Reading the Fine Print

Ready to sign that loan agreement for your small business?  Be sure to read it thoroughly to avoid frightening financial surprises. Are there hidden fees somewhere in the fine print? Penalties for early payoff? What is the APR on the loan?

In addition, the lender may present you with what seems like an affordable monthly payment. But, be sure to do the math. Do you have sufficient cash flow to afford that payment for an extended period of time?

We get it. These documents can be tricky. Need help?  Engage Momentum CFO to review your loan document, and create a cash forecast that accounts for all your expenses, including debt payments.

5 | Too Much Debt

Excessive debt can make you feel buried alive.  How do you know if you have too much debt? Ask your CFO to calculate your debt to equity ratio. Debt to equity ratios indicates how leveraged your business is.

What is a good debt to equity ratio? They vary widely by industry. Industries such as manufacturing are more capital-intensive than others. However, a good rule of thumb is a debt to equity ratio of between 1 and 1.5. Ratios over 2 signal that you may have trouble repaying your debts if the business were to decline. Don’t have a CFO in place yet to help?  Check out our services to see if they are a good fit for your small business!

6 | No Internal Financial Controls

Internal financial controls are designed to prevent fraud and ensure the accuracy of financial processes. A key element of financial controls is the segregation of duties. Segregation of duties involves giving multiple people responsibility for the separate parts of a financial task. 

Let’s use check-writing as an example. There should be at least two people involved. One person should write the check and another person should sign it. If only one person is responsible for this task, he or she could, in theory, write checks to whomever they choose. The inappropriate check payment might go unnoticed, or you might not catch it until it’s already been cashed. At that point, there’s not much you can do about it.

Therefore, ensure that part of your financial management includes setting financial controls to prevent scary financial situations. 

The Bottom Line on Financial Management for Small Businesses

Small business owners sometimes face scary financial situations. The sweet news is that they don’t need to frighten you. 

Let Momentum CFO conduct a financial health check and create a solid financial management plan for your small business.We’ll identify tricky financial situations that may be hiding in plain sight. Then, we’ll show you how to tweak them to keep your business cash positive with a solid financial strategy. 

Book your free consultation today and let’s work together to ensure your finances aren’t frightening. 

Thanks for reading and have a Happy Halloween!

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Key Differences Among a Bookkeeper, CFO, & CPA

Bookkeeper vs CPA vs CFO , which one to choose? As a small business owner, it’s wise to engage a team of professionals who will help you manage your finances. However, who should be on your team? And how do their roles differ? 

Before we dive into the details, here’s the big picture:

  • A bookkeeper processes and records financial transactions in accounting software.
  • A CFO is a highly experienced finance professional who’s responsible for your business’s overall financial strategy and management. Momentum CFO specializes in providing outsourced CFO services. 
  • A CPA is a licensed accounting professional who generally focuses more narrowly on accounting and tax matters.

1 | Bookkeeper

A bookkeeper is usually the first professional that a small business owner will engage with to assist with their finances. Generally, bookkeepers process and record financial transactions in accounting software such as QuickBooks Online. Typical bookkeeping tasks include:

  • Recording sales, expenses, accounts receivable and accounts payable
  • Reconciling bank statements to records in your accounting system
  • Paying bills
  • Sending invoices
  • Tracking inventory
  • Organizing and maintaining documents such as purchase receipts


A good bookkeeper will provide a few basic monthly financial reports. At a minimum, you should receive a profit and loss statement (P&L), balance sheet, and statement of cash flows. Keep in mind that bookkeepers often will not: 

  • Analyze your financial results
  • Provide guidance on how to improve your numbers
  • Create financial projections of profit or cash
  • Make decisions about the financial direction of a business. 

Making these decisions is where a CFO comes in.

 2 | CFO

A CFO is the Chief Financial Officer of a business. Therefore, a CFO will focus on your financial strategy and overall financial management.  A CFO’s role typically includes:

  • Developing a strategy and detailed plans for achieving your business’s financial objectives
  • Providing comprehensive guidance to help you make important financial decisions
  • Preparing annual budgets and financial forecasts (projections)
  • Measuring and improving financial performance
  • Maximizing profit 
  • Assessing and minimizing financial risks
  • Managing cash
  • Establishing policies and procedures to ensure smooth financial operations
  • Raising capital
  • Handling mergers and acquisitions
  • Managing relationships with shareholders, investors, and lenders
  • Overseeing all other accounting and finance staff and coordinating activities among them


At Momentum CFO, we offer outsourced CFO services for small business owners. In addition, the term ‘outsourced CFO services’ may also be referred to as fractional CFO services, part-time CFO services, or CFO consulting services.

How can your business benefit from a CFO? 

Most small businesses will benefit from having a CFO on their team. However, not all small businesses need a CFO on a full-time basis. Furthermore, hiring a CFO full-time can be expensive! 

Therefore, fractional CFO services are a more affordable option for small businesses that need strategic financial guidance on a part-time basis. As a result, you can avoid the hefty salary, bonuses, cost of benefits, and employer payroll taxes that come with hiring a full-time CFO by outsourcing the CFO function. 

What should you look for in a CFO? 

Skilled CFOs have many years of corporate finance experience. They are trustworthy and analytical. Additionally, CFOs are collaborative and can explain complex financial concepts in straightforward language to anyone on your team. Finally, CFOs have excellent decision-making abilities.

Momentum CFO’s leadership has over 20 years of experience. We’ve led finance organizations at various size businesses. From small startups to Fortune 500 enterprises. As a result, we bring the benefits of large company expertise to smaller businesses like yours.   

Ready to learn more?  Schedule a free consultation! Together we’ll explore how Momentum CFO’s part-time CFO services can help you achieve your financial objectives.

3 | CPA

A CPA (Certified Public Accountant) is an experienced accountant who is licensed by the state. In other words, all CPAs are accountants, but not all accountants are CPAs. 

As an example, obtaining a CPA license requires years of accounting study, experience, and passing a comprehensive exam. But, before you hire a CPA, always confirm that they are licensed and in good standing with your state’s board of accountancy. Californians can check their CPA’s license here.

A CPA is a valuable member of your financial team. However, don’t confuse the roles of a CPA and CFO. A CPA typically focuses on accounting and tax matters. A CFO focuses on broader financial strategy and management.

Common responsibilities of a CPA include: 
  • Keeping and auditing financial records
  • Preparing financial statements in accordance with GAAP (Generally Accepted Accounting Principles)
  • Ensuring compliance with tax laws
  • Preparing and filing taxes
  • Developing strategies to minimize taxes
  • Representing you in the event of an audit
  • Interfacing with IRS representatives (the least appealing part of the job!)

More differences between a CPA and CFO

Some CPAs offer CFO services. However, a CPA doesn’t usually have the same depth of strategic finance experience as a CFO. Just as a CFO doesn’t have the same depth of tax experience as a CPA. 

CFOs are focused on:
  • Setting forward-looking financial strategy
  • Developing budgets
  • Creating long-term financial projections
  • Managing all aspects of a business’s finances 

In short, the two roles are complementary but different. Therefore, it’s a good idea to engage financial professionals who specialize in various domains of accounting and finance. This will help you successfully manage your business finances with more precision.

Need a CPA? We’re happy to recommend a few great ones here in San Diego. Drop us an email.

The Bottom Line

In summary, all three – a bookkeeper vs CFO vs CPA have important roles to play in your small business. Now that you understand the key differences, you’ll know who to turn to for help with various aspects of your business finances.

Still have questions? Need help forming a superstar accounting and finance team? No problem! At Momentum CFO, we coordinate activities among your financial professionals and will recommend trusted professionals to add to your team if needed. 

Ready to get started? Book your free consultation today and let’s work together to grow your business profitably!

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Increase Profitability With These 6 Simple Steps

In this post, I’ll share 6 ways for small business owners to increase profits. We know that, when comes to profit, small business owners often feel like they’re on a roller coaster ride. Whether you’re just starting up or you have an established business, you’re likely experiencing some ups and downs. 

One year your profit is great and the next year you might not be able to avoid a loss. This is especially true when unexpected events like the coronavirus pandemic throw a wrench in your plans.

If you’re unsure if the sum of all the financial decisions you’ve made will ultimately equal a profit or loss at the end of the year, here are some concrete steps you can take to put yourself on the path to consistent profits. 

1 | Set a Goal and Make a Plan

First, start with the basics.  Set a goal for increasing profit. What are you trying to achieve? Do you want to increase your small business’s profit by 10% compared to last year? Hit a specific number by a certain date? Make your goal specific, realistic, and time-bound. Realistic goal setting is the most important of the ways for small business owners to increase profits over the long run.

After you’ve set a goal, creating a financial plan is a vital next step.  As Antoine de Saint Exupery wrote, “A goal without a plan is just a wish”. A financial plan is like GPS for your small business.  It helps you:

  • Chart the course to your desired destination 
  • Navigate roadblocks you encounter along the way
  • Measure whether you are on track to achieve your profit goals

A CFO will develop a financial plan based on knowledge of your business, goals, historical financial performance, and what’s feasible in the current economic environment.  Not working with a CFO just yet due to budget constraints? We offer consulting services, along with packages specifically for start-ups and small businesses. 

 2 | Understand Your Numbers

Understanding your numbers and how they affect the profitability of your business is one of the most important ways for small business owners to increase profits. But where should you start? Well, your bookkeeper records all the financial transactions that occurred during the month. In addition, she should provide a few basic financial reports that summarize what happened.  

Need a good bookkeeper? We’re happy to recommend a few great ones here in San Diego.  Drop us an email.

If you didn’t study finance, you may feel intimidated or confused by those bookkeeping or financial roll-up reports. You are not alone.  If you don’t know the differences between an income statement (a.k.a “P&L”), balance sheet, or statement of cash flows, not to worry.  Ask for help. Here at Momentum CFO, we conduct monthly financial review meetings for all of our clients. What’s included:

  • Easily understandable charts so you can visualize your financial results
  • Analysis of your financials, and an explanation of why they occurred (in plain English vs. finance jargon)
  • Identifying early warning signs of potential problems that can decrease profitability
  • Comparing the results to your plan to ensure you achieve your goals
  • Providing clear recommendations for improving profit

3 | Evaluate Your Pricing

A third way to boost profit is evaluate your pricing strategy. You may learn that your products or services aren’t optimally priced. 

How did you originally set your prices? Was it based on “gut feel”? Did you research current market conditions and your competitors’ pricing?  

If you don’t have a clear advantage over your competitors, too-high prices can result in lower sales volume. Customers can buy a similar, lower-priced product or service elsewhere.

If your pricing is too low, your sales volume may be high, but you’re probably leaving money on the table that could boost your bottom line.     

In addition, when you set your prices, did you account for all your costs of doing business?  Your total costs aren’t just the direct costs of the labor and materials it takes to produce your product or service.  You also need to factor your general business overhead expenses (e.g. rent, office supplies, software applications, administrative staff support, etc.) into your pricing. 

Your prices should reflect your direct costs, indirect costs, and an appropriate markup to generate a profit.  If you haven’t had a moment to really sit down and figure all this out, fill out our contact form and let’s see how we can help! And remember pricing is one of the subtle yet powerful ways for small business owners to increase profits over time. 

4 | Analyze Product and Service Profitability

Do you know which of your products and services are the most and least profitable?  It’s not uncommon for small business owners to be unaware that they’re losing money on some of their products and services. Some business owners deliberately sell their products at a loss to gain market share from their competitors. However, unprofitable sales aren’t a sustainable long-term solution.

Analyzing product and service profitability involves reviewing your prices, discounts, and the total costs of your products and services. When you know how much profit or loss you’re generating, you can make better decisions about what to do next. Working with a financial consultant or a CFO can help you with your pricing and discounting strategies. Furthermore, they can identify ways to reduce your costs of production and delivery.  

5 | Take a Close Look at Expenses

If you’re looking for ways to increase profit, take a close look at your monthly expenses. To boost your profit by cutting expenses, first identify which of your expenses are necessities for running your business. Necessities include expenses such as rent, cost of goods to produce your products, and business insurance. 

Second, look for expenses you can reduce or eliminate. Ask yourself questions like am I:

  • Paying a recurring monthly fee for a product or service I no longer use? 
  • Spending too much on meals and entertainment?  
  • Setting spending limits for my employees? Or, are they buying whatever they want, whenever they want? 

Few small business owners relish cutting costs because it implies that they must give up something. We can help you be creative and find ways to reduce your expenses! Some tactics we’ve used with other clients include:

  • Renegotiating contracts with your suppliers
  • Refinancing high-interest rate debt (more on this below)
  • Analyzing the return on your investment on marketing or other services intended to increase sales

6 | Refinance High Interest Rate Debt

Small business owners often finance the growth of their business with loans. However, high loan interest expense can substantially decrease your profit. 

Are you generating a consistent annual profit? If not, you’ll have limited options for securing a loan. Furthermore, if you don’t meet the lending criteria set by commonly known financial institutions, you might turn to smaller online lenders. These are a great option for small businesses and startups. However, small online lenders provide that much-needed cash at a high cost. In addition, loans from these lenders frequently carry high double-digit interest rates that can exceed 30% APR.  Reducing high-interest debt is one of the more powerful ways for small business owners to increase profits.

We excel at working with small business owners to generate higher, consistent profits so you can qualify for loans at reasonable rates. Furthermore, we’ve helped numerous clients refinance and consolidate loans. 

As an example, we recently helped a small business reduce their monthly debt payments by over 70%! Now that’s a good return on investment!  

Final Thoughts

A business can’t stay in business for the long term without healthy profits. Therefore, by taking the steps outlined above, you can reap additional benefits such as:

  • Opportunities to grow and expand to new markets or locations
  • Ability to hire more employees and incur new expenses that help you grow
  • Better chances of being able to borrow money at reasonable rates
  • Ability to attract better investors
  • More cash in the bank 
  • Increase in the market value of your business
  • Peace of mind that you are on the path to financial success

Need more help boosting your profit?   Book your free consultation today and let’s work together to grow your business profitably!

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Paycheck Protection Program Loan Forgiveness

What is the Paycheck Protection Program Flexibility Act?

Have a Paycheck Protection Program (PPP) loan? If so, you may be wondering how to qualify to have the loan forgiven. 

Well on June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law.  This means the PPPFA makes it easier for small business owners to obtain loan forgiveness by relaxing the original PPP rules. 

Need to know what changed? Let’s dive in!

PPP Forgiveness Time Period

The Paycheck Protection Program (PPP) is a federal financial assistance program that provides forgivable loans to small businesses. So as a small business owner, you receive funding equal to 2.5 times your average monthly payroll costs. 

Originally, business owners had only 8 weeks to use the loan funds and obtain forgiveness. However, the PPPFA extends the forgiveness period from 8 weeks to 24 weeks after loan origination. 

How Can PPP Funds Be Spent?

The primary goal of the Paycheck Protection Program is to help small business owners continue to pay employees.  For the loan to be forgiven, you were originally required to spend at least 75% of PPP funds on payroll-related expenses. However, many small business owners were unhappy with this requirement. 

Why? Most small businesses were running at a fraction of their original capacity.  They suffered from greatly reduced income. To protect what profit they did have, many businesses decided to reduce their expenses. In many cases, this meant laying off staff.

Therefore,  the PPPFA reduces the requirement for payroll-related spending from 75% to 60%. Furthermore, no more than 40% of the funds can be spent on rent, mortgage interest, and utilities.

Rehiring Deadline and Requirements

The PPPFA also extends the deadline for you to rehire laid-off workers by six months. You now have until December 31, 2020 to rehire your team. In addition, the PPPFA relaxed the requirements for rehiring workers. 

Are you still operating with less staff? Well you may be eligible for loan forgiveness if you demonstrate an inability to:

  1. Rehire similarly qualified employees as those that were laid off
  2. Return to previous levels of business activity
  3. Rehire someone the business employed on or before February 15, 2020

What to Track to Qualify for PPP Forgiveness

How do you apply for PPP Forgiveness? First, keep detailed records of how you used your PPP funds. Be sure to spend only on approved expenses.

Second, provide payroll and other financial information. Thankfully, many payroll processors have developed PPP payroll reports specifically for this purpose. Not working with a CFO? Schedule your free financial consultation now and learn how we can help!

Additional information you’ll need to share:

  • your number of employees
  • how much you spend on mortgage or rent
  • your utilities 

Did you receive an SBA EIDL loan? If so, you’ll be asked to report the loan and loan advance amounts you received. 

How to Apply for Paycheck Protection Program Forgiveness

Here’s the steps to take to apply for loan forgiveness:

  1. Complete the SBA’s revised 3508 application or the 3508EZ form. 
  2. Unsure of which one to use?  Review this checklist to see if you qualify for using the simpler EZ form. 
  3. Check with your lender for specific requirements for submitting your application.
  4. Submit your application.
  5. Need assistance gathering the required documentation? Your payroll processor, CPA, or CFO may be able to help. Operating without one? Momentum brings the benefits of Fortune 500 financial expertise without the expense of hiring a full-time CFO. Schedule your free financial consultation now.

Repayment of Unforgiven Funds

The PPPFA enables more small business owners to obtain full loan forgiveness. However, if based on your use of the funds, you still feel you will not receive full loan forgiveness, there’s good news. The PPPFA extended the repayment term for the loan from two years to five years.  

In addition, the annual interest rate for the loan was left unchanged at 1.0% annually. 

Need more information about the Paycheck Protection Program Flexibility Act? View the full text of the Act here. 

Still Have Paycheck Protection Program Questions?

Need more help with PPP loans and long-term financial planning? Well, we offer services for small to mid-size businesses to help them avoid the expense of hiring a full-time CFO! 

Save money and time by contacting us at 858.284.0314. Or, schedule your free financial consultation.

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Coping With the Coronavirus Cash Flow Crunch

If you’re like most small business owners, you are suffering from cash flow challenges due to the coronavirus pandemic.  With lots of money going out the door and much less coming in, what should you do to cope with the coronavirus cash flow crunch? 

In this article, we’ll discuss four critical steps to take to ensure your business survives this unprecedented time:

  1. Forecast cash flow
  2. Adapt your business practices to generate income
  3. Cut costs
  4. Apply for financial assistance programs

1 | Forecast Cash Flow

Cash deficits are the #1 reason businesses fail. COVID-19 is exacerbating the problem. How long will it take for your business to run out of cash if you have reduced or no income in the near future? You will surely feel stressed and anxious if you don’t have a good handle on how much money you need to sustain your operations. 

The solution is a cash flow forecast that predicts future inflows and outflows of cash.  By looking ahead, you’ll eliminate the much of the uncertainty about the cash you’ll have on hand next week or three months from now.  Not sure of how to set this up?  Reach out and we can help! 

Remember, do not manage cash simply by checking your bank account balance. A bank account balance is simply a snapshot in time that doesn’t provide insight into how much cash you’ll have in the future.   

Want to set up your own cash flow forecast? Great! Here’s how to create a basic cash flow forecast:

  • Start with your beginning bank account balance for the time period at hand, whether it’s the current week or month. 
  • List all your inflows of cash from sales, loans, or other sources. 
  • List all your outflows of cash such as payroll, rent, and credit card payments. 
  • Add your total cash inflows to and subtract your total cash outflows from your beginning bank balance. Then you will have a forecast of your ending account balance for the time period. 

Still feeling overwhelmed, don’t have a bookkeeper, let alone a CFO?  We offer services for both startups and small businesses. In addition, we already have experience helping businesses reopen and bringing them out of their cash flow crunch due to COVID-19. 

2 | Adapt Your Business Practices to Generate Income

Many states have ordered non-essential businesses to close. If your business was forced to close, and you are still suffering a loss of income, it’s time to get creative.  Brainstorm how you can continue to offer your products and services in a different way. For many, this many mean switching to e-commerce services or product sales. 

Do you typically meet clients in person? Determine if you can deliver your services online via video conference instead. Were you selling products at a storefront? Well, you might be able to promote digital gift cards or offer delivery services! 

Either way,  set up safe, socially-distanced options for your customers to continue to work with you. Stay top of mind. And, don’t overlook the power of social media to do this. Offer special promotions to keep clients engaged. 

Be sure to stay on top of your accounts receivable and follow up with customers who are late on payments. Bill customers as soon as you deliver your product or service. Consider using a factoring company (factor) to get an advance on the receivables your customers owe you before their payments are due to you. For more information on factors, see our article on cash flow. 

3 | Cut Costs to Increase Cash Flow

If you’re suffering from a severe cash-flow shortage, cost-cutting is essential. What should you do? First, reduce or eliminate all non-essential expenses.  Postpone major purchases. Sell excess inventory. Delay payments to vendors as much as possible. 

Rent and payroll are the two biggest operating expenses most businesses incur. Ask your landlord or mortgage lender if you can defer payments to a future date. Some lenders are offering rate reductions on existing debt. Payment deferments of up to six months are available on Small Business Administration 7(a) and 504 business loans and microloans.  Learn more about SBA loan deferments. 

Lastly, in this exceptionally low-interest rate environment, consider consolidating and refinancing any existing debt at a lower rate to save on interest expense. Contact your lender or finance professional for assistance. 

To learn more about how we’re helping businesses reopen post COVID-19, contact us at 858.284.0314 or schedule your free financial consultation.

4 | Apply for Financial Assistance

The Small Business Administration’s Economic Injury Disaster Loans (EIDLs) and the Paycheck Protection Program (PPP) forgivable loans are federal financial assistance programs available to small business owners. 

SBA Economic Injury Disaster Loans are available to businesses and non-profit organizations suffering losses from COVID-19. The funds from disaster loans can be used to pay your employees, vendors, and creditors.  Disaster loans provide up to $150,000 in assistance for business owners and have favorable terms including low-interest rates, and long payback periods.

The Paycheck Protection Program provides forgivable loans to small businesses to pay their employees during the pandemic. The loan amount is based on 2.5 times your average monthly payroll cost. The entire loan amount will be forgiven (you don’t have to repay it) if you use the proceeds to pay for payroll costs, rent, mortgage interest, and utility costs and you maintain staffing and compensation levels. 

Contact your local bank to find out if it is participating in the program.  Get all of the details about the Paycheck Protection Program.

In addition to exploring federal assistance programs,  research financial assistance programs that are specific to your industry and location. Special funds have been established for businesses in various industries. In some areas, local government agencies are also providing assistance. 

For example, the City of San Diego’s Small Business Relief Fund is available to local businesses affected by COVID-19. The fund provides grants and forgivable or low to zero interest rate loans to eligible small businesses. 

Final Thoughts on Increasing Your Cash Flow

This is a stressful time for most small business owners as we are all navigating uncharted waters. Don’t hesitate to drop us a message about how we might be able to work together to get you through this cash flow crunch.