Do the words “budget planning” make you groan? For many people, it’s on par with being stuck on a cross-country flight next to a screaming baby. Or calling [insert company you dislike most here]’s customer service line. 

It doesn’t have to be that way. Budget planning is not all about limitations. In fact, budget planning can be freeing! As John Maxwell said, “A budget is telling your money where to go instead of wondering where it went.” 

You control your budget. Your budget does not control you.

Budget planning is undoubtedly a key component of your small business’s financial success. Therefore in this article, we’ll discuss the importance and benefits of small business budget planning.

1 | Clear Goals and Strategies to Plan Your Budget

Planning a budget for your business provides you with an opportunity to plan strategically for the year ahead. The first step in budget planning is identifying your financial goals. What do you want to achieve? 

Here are a few common small business financial goals, with links to get you started on some of these right now:

Goals should be SMART: Specific, Measurable, Achievable, Realistic, and Timely. An example of a SMART goal is: “Grow net operating profit by 10%, to $250,000 by the end of the year”

Next, consider how exactly you’re going to achieve your goals. For example, if you want to increase revenue, what specifically do you need to do to make it happen? 

  • Do you need to hire more salespeople?  (Use our new hire cost calculator!)
  • Spend more on research and development to launch a new product? 
  • Engage a marketing agency to increase brand awareness?

As you work through this process, don’t lose sight of any constraints on your resources. Most businesses do not have unlimited cash to spend. Therefore, you should allocate resources to the initiatives that are most impactful to your business. Prioritize your spending to get the most bang for your buck! GET HELP WITH YOUR BUDGET

2 | A Path to Greater Profit

Effective budget planning details anticipated income and expenses by month. It charts your path to greater profit. How?

Well, your budget should include detailed information about revenue by product and service. It should break down spending by account categories, such as professional services, software, and employee compensation. Need a budget template to get started?  Download Momentum CFO’s budget template for free!

In addition, it’s a good idea to document supporting details for those account categories as needed. Your budget may include additional schedules that show compensation costs by employee, or the components of spending specific marketing initiatives. 

That way, when you refer to your budget, you’re not just looking at one big number, trying to remember how you came up with it. Instead, you’ll be able to review the details of your spending.

Net profit (your “bottom line”) essentially equals revenue minus the cost of goods sold and all other expenses. After you’ve completed your budget planning, you’ll have a custom-made plan to achieve your profit goals. 

3 | A Way to Measure Financial Performance

Another benefit of budget planning is that it gives you a way to measure your small business’s financial performance. Businesses become and stay profitable with careful financial management. Therefore, analyzing variances between your actual financial results and your budget (a process known as “variance analysis”) keeps you on track to achieve your financial goals.

Review variances between the two sets of numbers each month so you can identify where you may be getting off track from your budget. For example, if you find that sales are $50,000 lower than you expected in the first quarter, you’ll need to cut expenses by the same amount to achieve the profit goal you set. Don’t put off this important task. If you procrastinate, by the time you’ve identified a problem, it may be too late to solve it.

Don’t have the time or inclination to do complete variance analysis yourself? As part of our CFO Services, Momentum CFO can analyze your financial results each month. We will deliver them to you in easy-to-understand financial dashboards. All of your critical financial information will be at your fingertips! 

In addition, we can provide you with analysis and customized financial recommendations that don’t take a degree in finance to understand.  

4 | Confidence About Financial Decisions

Budget planning gives you greater confidence about making financial decisions. Here’s why:

  • You have already set your goals and developed strategies to achieve them
  • You’ve determined how much you’re going to spend 
  • You know what you’re going to spend it on 

By planning out your budget for the year, it takes a lot of the guesswork out of how to manage your business’s finances. That makes it much easier to decide whether you should sign that contract, make a big purchase, or hire a new employee! 

Ideally, you should share your budget plan with your leadership team. You and your staff should be on the same page, working towards the same goals. Stick to your plan as much as possible and you’ll be on your way to a great year!

Budget Planning: The Bottom Line

As Dale Carnegie said, “An hour of planning can save you ten hours of doing.”  Take the time now to plan for the next year. By doing so, it will help you set the strategic financial direction of your business and provide a path to greater profitability. Budget planning provides a way to measure financial performance, course correct as needed, and feel confident about your financial decisions.  

Need help? You don’t have to tackle budgeting on your own.  Download our budget template to get started today! Then, let Momentum CFO do the heavy lifting for you.  Schedule a free consultation to learn how we can help you plan for financial success in the year to come!

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:

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:

  • bookkeeper processes and records financial transactions in accounting software.
  • 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
  • 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 OnlineTypical 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 CFOA 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!

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!

As a small business owner experiencing a loss of revenue from the novel coronavirus (COVID-19) pandemic, you’re probably losing sleep at night wondering how your business will survive in these uncertain times. The mental narrative playing on repeat in your head may sound something like this:

“Coronavirus is crushing my business! How will I serve my customers? Am I going to lose even more of them? And my employees… will I have to lay them off? I’m not sure I can afford my next payroll. What about my bills and debt payments? I could lose my business! ” 

These concerns are enough to make anyone feel worried and anxious. Fortunately, disaster loans are available to help businesses weather the pandemic’s impact. 

What are Disaster Loans?

Note: the following information was sourced from the SBA’s website and was updated on July 21, 2o2o.

Disaster loans help businesses recover from physical and economic damages caused by a disaster such as a hurricane, flood, or in these times, COVID-19. 

The Small Business Administration (SBA) provides Economic Injury Disaster Loans (EIDL) to businesses and non-profit organizations suffering losses from COVID-19. These loans provide essential cash to help keep your business afloat. The funds from disaster loans can be used to pay your employees, vendors, and creditors. 

The SBA’s economic injury disaster loans provide emergency funding for business owners and have favorable terms including low interest rates and long payback periods. The interest rate for disaster loans is 3.75% for small businesses and 2.75% for private non-profit organizations. The length of the loan payback period will vary based on your ability to repay it, and can be as long as 30 years. 

Which Businesses are Eligible?

Small business owners in all U.S. states and territories are currently eligible to apply, provided that your business meets the SBA’s size standards. In general, to be considered a small business, you must not have more than 500 employees, but there are exceptions. Use the SBA’s Size Standards Tool to find out whether your business qualifies. 

SBA Disaster Loan Process

How to Apply for a Disaster Loan

You can apply for an SBA disaster loan online, by mail, in person at a disaster center, or by calling the SBA Customer Service Center at 1-800-659-2955.  The SBA recently introduced a streamlined application process.  Click here to access the application. 

Be sure to have your financial statements on hand before you apply. Among other things, you’ll be asked for information about your revenue and cost of goods sold, for the twelve months prior to the date of the disaster. The SBA defined January 31, 2020 as the disaster date. 

What Happens Next? 

After you submit your loan application, an SBA loan officer will review your credit, verify your eligibility, and approve or deny your loan application. If your application is approved, congratulations! It’s time to move on to the loan closing process and receive funding. 

You’ll receive an e-mail from the SBA that directs you to log into their website. There, you’ll have an opportunity to decide if you want to receive all or only some of the total loan amount that was approved.

What Else Should I Do?

Regardless of whether you’re approved for a disaster loan, there are other things you can do to mitigate the impact of COVID-19. 

  • Maintaining a cash forecast  that predicts your business’s future inflows and outflows of cash is vital to the health of your business.  By looking ahead, you’ll eliminate the much of the uncertainty and anxiety about what your business can afford in future. Check out our previous article for more tips on cash flow
  • You should also reduce or eliminate all non-essential expenses. If you’re running out of cash and have a line of credit, now is the time to draw funds from it. 
  • Consider seeking professional financial guidance to help you through this challenging time. While it may seem like one more expense you can’t afford, professional help may save your business from permanent closure. An experienced CFO will ensure that today’s problems don’t snowball into bigger ones down the road. If you need assistance coping with the financial fallout of COVID-19, engage a CFO today.  

About Momentum CFO

Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We help business owners increase profit, improve cash flow, plan, and make smart financial decisions. Enjoy the benefits of Fortune 500 financial expertise without the expense of hiring a full-time CFO.

Every year, millions of people make New Year’s resolutions, hoping to improve some aspect of their lives. As a small business owner, you probably have many ideas about how to improve your finances in 2021. But with so many opportunities, where should you begin? Start by reading up on these 5 financial tips for a prosperous 2021! 

1 | Set Measurable Financial Goals

2021 is the year to think big for your business. What do you want to achieve this year? Setting measurable financial goals is the first step toward ensuring your business is prosperous in 2021. 

The best goals are “S.M.A.R.T.” – specific, measurable, acheivable, realistic, and timely. Instead of setting a general goal such as “I’ll increase my profit in 2021”, try “I’ll increase my profit 10% by December 31, 2021”. 

2 | Create a Budget to Achieve Your Goals

The next financial tip for a prosperous new year is to think about how you’ll achieve the financial goals you just set. Whether you want to maximize profit, expand operations to a new location, pay down debt, or hire new employees, a budget is the key to your success.  

Think of it as GPS for your small business. A well-crafted budget charts the course to your desired destination and helps you navigate roadblocks you may encounter along the way. It provides the road map for achieving your goals and the yardstick for measuring whether your performance is on or off track. 

When you compare your monthly financial results to your budget, you can spot warning signs of a potential problem. Then, you can take corrective action to avoid unfavorable results. And, if you find that you’re achieving or exceeding your goals, you’ll have a reason to celebrate! 

Still not convinced?  Learn why budget planning is so important for the success of your small business.

3 | Stay on Top of Your Numbers

It’s critically important for business owners to review and understand their financial results.  Timely, accurate, and meaningful financial reporting and analysis provides the information you need to successfully manage your business finances. 

Was there a profit or loss last month? Why? What needs to change to ensure you achieve your profitability goals?  Having insight into your numbers reveals opportunities to understand and improve your small business finances.

4 | Have a Backup Source of Cash

Ongoing cash deficits are the #1 reason small businesses fail. And aside from the obvious jeopardy your business will be in without steady cash flow, you’ll surely feel stressed and anxious about the future. 

How do you avoid that risk and discomfort?  Savvy business owners plan for seasonal cash shortages.  How? Here are a few ways:

  • Build cash reserves (an “emergency fund”)
  • Obtain a working capital line of credit
  • Monitor your accounts receivable. Ensure your customers are paying you on time. Immediately follow up with those who have past due bills. 
  • Maintain a cash forecast that predicts your future bank account balance. Today’s balance doesn’t give you visibility into your cash balance at the end of this month, next month, or six months from now. 

Need more tips? Check out this article on common cash flow mistakes and how to avoid them.

5 | Know When to Ask for Help

It takes tenacity and perseverance to build a business. But as your business grows, so do the financial responsibilities, decisions, and demands for your time. It’s okay to ask for help. 

As an educated and intelligent business owner, you might feel overwhelmed or embarrassed about your never-ending financial to-do list or challenges. Believing that you “should” be able to manage your business finances on your own won’t change the situation. Going it alone could result in compounding problems. Outsourcing to an expert makes the best use of your time and yields better, faster results.

If you’re struggling to keep up with your small business finances, set up a free introductory meeting to learn how Momentum CFO can help. 

The Bottom Line

A new year brings new opportunities for greater small business success. These five simple financial tips are the foundation for a great 2021. 

Have a happy, healthy, and prosperous new year!

About Momentum CFO

Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We bring the benefits of Fortune 500 financial expertise to your business without the expense of hiring a full-time CFO. 

To learn more, contact us at 858.284.0314 or schedule your free financial consultation.

“Entrepreneurs believe that profit is what matters most… But profit is secondary. Cash flow matters most.”  – Peter Drucker

Cash is truly the lifeblood of your business.  Without it, there’s no money to hire employees, buy supplies, or repay debt.  According to a US Bank study, 82% of businesses that fail do so because of cash flow problems.  Don’t be a statistic- learn six cash flow mistakes that can sink your business, and how to avoid them.

1 | Overestimating Sales 

If you have a financial plan for your business that projects your income, expenses, and expected profit, great job! You’re on the right track.  However, if your sales projections are overly optimistic, you may find yourself short on cash.  If you’re counting on every one of those sales to materialize in order to afford your business expenses, take a step back.  Most businesses don’t generate significant sales in their first few months (or sometimes years) of operation.  

While it’s great to have a “best case scenario” financial plan for your business, it’s also important to have a more conservative backup plan.  Identify expenses that you can reduce, postpone, or eliminate if sales aren’t as strong as you expected, and immediately cut costs when needed. 

2 | Overdue Customer Invoices

You’ve made the sale and sent the invoice… now you need your customers to pay you on time so you can pay your own business expenses. 

To avoid coming up short, review your accounts receivable (A/R) aging report each month and contact customers that have overdue invoices.  Include consequences such as late payment fees in all your customer contracts, such as 3% of the invoiced amount for each month that the invoice remains unpaid.  Set clear collections policies for unpaid invoices and be diligent about following up. 

3 | Out of Sync Payment Terms

If the payment terms you offer your customers are significantly different than those you have with your vendors, you’ll quickly wind up with a cash flow deficit.  For example, if you give your customers 45 days to pay your invoices but your vendors require you to pay in 15 days, you’ll need extra cash on hand to cover the 30-day gap in payment terms.  

To close the gap, renegotiate your contracts with customers and vendors.  If that’s not possible, consider offering your customers a small early payment discount, typically 1 – 3%, to give them an incentive to pay invoices before they’re due.  

If out of sync payment terms are a consistent problem, invoice factoring may be a solution.  Factoring companies advance qualified businesses short-term cash secured by the value of customer invoices.  Here’s how it works: You send your customer an invoice for $25,000 that’s due in 60 days. The factoring company advances you $25,000 immediately, and then collects payment from your customer when it’s due.  As with any type of financing, be sure you fully understand the costs of the factoring arrangement.  Factoring companies generally offer their services in exchange for a percentage of the invoice value.

4 | Not Having a Cash Flow Forecast

When you first started your business, managing cash flow may have seemed as simple as ensuring you had enough money in your bank account to cover your expenses.  But 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.  

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 month or six months from now.  You’ll be able to pinpoint times when you expect a cash flow deficit and create a plan to ensure it doesn’t put your business in jeopardy.  

5 | Not Having a Backup Plan

Cash crunches are sometimes inevitable.  It’s impossible to predict the future with perfect accuracy, so it’s crucial to have a cash cushion or “emergency fund” to fall back on when you have a cash deficit.  Your emergency fund should include enough cash to fund at least 3 months’ worth of operating expenses.  Keep the funds in an account that isn’t at risk of losing value, such as a savings account.  

You can also consider applying for a line of credit that you can draw from when your cash flow forecast indicates that there will be a deficit.  Interest rates for lines of credit are variable, so stay on top of your borrowing costs by reviewing your monthly statements.  

6 | Not Knowing Your Numbers

Last but not least, you must know your numbers to have positive cash flow and a profitable business. It’s tempting to put managing your finances on the back burner while you focus on generating the revenue needed to sustain your business. But without a solid understanding of your monthly financial performance, it’s difficult to pinpoint problems and determine how to adjust course when things don’t go as planned. 

Each month, review your cash flow statement, which reflects your inflows and outflows of cash, and your P&L, which details your income, expenses, and resulting profit or loss.  Those two reports will give you an understanding of your sources and uses of cash. 

Final Thoughts

Maintaining healthy cash flow is a common challenge for entrepreneurs.  If you stay on top of your finances and regularly update your cash flow forecast, you’ll set yourself up for future success.  If you have a cash flow problem and aren’t sure what to do next, make it a priority to engage a qualified financial professional.  When you have little cash to begin with, it may seem counterproductive to spend more of it.  But just as a doctor helps you get well when you’re sick, an experienced CFO can help your business return to financial health.  Engage a CFO today.  Your bank account will thank you! 

About Momentum CFO

Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We bring the benefits of Fortune 500 financial expertise to your business without the expense of hiring a full-time CFO. 

To learn more, contact us at 858.284.0314 or schedule your free financial consultation.

Do you need a financial management checklist for your small business? Well, you’re in luck! You’re in good company if you’re unsure about what you should be doing to keep your business finances in order. Many small business owners benefit from guidance on how to manage their finances. Here’s a handy checklist to keep you on track. Contact us if you need help completing these tasks. 

Daily Checklist

  • Check account balances
  • Record all financial transactions in accounting software
  • Document and file expenses receipts
  • Log business mileage

Weekly Checklist

  • Deposit checks and cash
  • Invoice customers
  • Pay vendors
  • Process payroll (bi-weekly)

Monthly Checklist

  • Reconcile bank and credit card accounts
  • Review past due receivables
  • Prepare monthly financial reports including a profit and loss (P&L) statement, balance sheet, and cash flow statement
  • Analyze financial results. Compare results to the prior month and your budget.
  • Review key performance indicators that measure the health of your business
  • Assess progress made toward achieving your financial goals
  • Update profit & loss forecast and cash flow projections
  • Review inventory
  • Look for personal expenses paid from business accounts or vice versa
  • Close the books

Quarterly Checklist

  • Pay estimated state and federal taxes to avoid late payment penalties
  • Submit payroll tax reports and make payments
  • Make sales tax payments, if applicable
  • Review quarterly financial statements
  • Prepare customer, product and service, and/or project profit and loss analyses
  • Complete a physical inventory count
  • Analyze return on investment (ROI) of major initiatives 

Annual Checklist

  • Close out your bookkeeping
  • Prepare financial reports and tax returns
  • Audit financial statements and internal controls
  • Complete IRS W-2 and 1099 forms
  • Review unsold and obsolete inventory 
  • Evaluate contacts and negotiate more favorable terms
  • Set goals and develop a financial plan for the upcoming year

The Bottom Line

This financial management checklist will help you stay on top of your business finances. Get a copy here:Financial Management Checklist DownloadDownload

About Momentum CFO

Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We bring the benefits of Fortune 500 financial expertise to your business without the expense of hiring a full-time CFO. 

To learn more, contact us at 858.284.0314 or schedule your free financial consultation.

Learn Your Total Costs of Hiring

Are you planning on hiring new employees? Before you start recruiting, it’s important to understand the total costs of hiring.

A common misconception among small to mid-sized business owners is that the cost of a new employee is limited to his or her salary or hourly wages.  It’s easy to overlook how employer-paid costs such as payroll taxes and insurance, benefits, job supplies, recruiting, and harder-to-quantify costs can easily tack on another 25% or more to the cost of your new hire.  So before you hire, download Momentum CFO’s New Hire Cost Calculator to determine the true costs of hiring an employee. DOWNLOAD NOW

Here’s a preview of what you’ll receive:

About Momentum CFO

Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We bring the benefits of Fortune 500 financial expertise to your business without the expense of hiring a full-time CFO. 

An experienced CFO can help you quantify the total costs hiring so that there are no unpleasant surprises that negatively impact your cash flow.  

To learn more, contact us at 858.284.0314 or schedule your free financial consultation.