Category

Finance & Accounting

August 2020: What Do Great Leaders Do Next?

By | Business Consulting, Finance & Accounting, Human Resources

What Do Great Leaders Do Next?

Leaders’ successes typically revolve around the ability to develop and implement brilliant visions.  They help their staff move forward in their careers; they build their organizations; they make their communities better places.  The blur of health and social trauma over the last five months (with no end in sight) gives leaders a very different challenge.

It’s hard to create a brilliant vision with this level of uncertainty; it’s hard to help people advance in their careers when a computer screen is the only connection; it’s hard to find the energy to move forward when the race is a marathon and the footing is muddy.

 

In addition to remaining positive and staying connected with your team, consider the following during these historically difficult times:

  1. Take care of yourself and your staff. If you’ve been working without a break, find a way to take one.  Strong leaders say some of their best thoughts come during down-time.   Needs are different for each person.  To the extent that you can provide equitable flexibility, now is the time to do so.  Also, be aware of the temporary COVID requirements for your HR policies.
  2. Refresh your strategic plan with an eye towards a 12 to 18-month window. There is no doubt that we can’t see far into the future, but having a cohesive plan will provide a sense of clarity, even if you’re planning for uncertainty.  Focus on your mission and consider whether you need to adapt the strategy to react to any changes in the needs of the people you serve.
  3. Communicate with your Board, if you have one. If you are a nonprofit leader, your Board should be supporting you.  Sometimes well-meaning Boards don’t know what to do.  This is the time to over-communicate, be clear about your needs, and be sure to thank board members for the extra effort. Don’t have a board?  Consider creating an advisory or “kitchen” cabinet board. These can be paid or unpaid advisors to your company that meet on a regular basis with you.
  4. Find a way to meet new people. New connections often bring opportunities and spark new ideas.  Virtual networking is bubbling up.  Take advantage of it.  Be on the look out for Warren Whitney’s Fall Leadership Network invitation. It will be on September 17th from 9.00 – 10.00 and include time for virtual networking.
  5. Keep an eye on the numbers, especially the projected cash flow. This is the time to stay on top of receivables and update your cash flow projections at least weekly. It’s also a good time to review your internal controls, especially if you have had to change procedures because of COVID. Know your key business drivers and metrics. We work with our clients to help them understand these key variables and create dashboards to get frequent readings on business performance.
  6. Build up someone else. That’s what the best leaders do!

The professionals at Warren Whitney are grateful for the opportunity to support you and your business.  We are ready to help in short or longer-term roles or advisory services in the areas of finance and accounting, human resources, strategy, board development, and recruiting.  We welcome the opportunity to discuss your business with you.

 

July 2020: Our Brave New World- How to keep employees engaged while planning for uncertainty

By | Business Consulting, Finance & Accounting, Human Resources

Most businesses have moved beyond the initial shock of the COVID-19 pandemic and are adjusting to a new reality. Now, organizations need to remain flexible and devise strategies to keep their workforce engaged while planning for uncertainty. With the unpredictable nature of the pandemic, businesses are faced with repetitive attempts at forecasting and budgeting. Projections need to anticipate multiple scenarios to pivot quickly. Another challenge is managing employee burn out, morale, and feelings of being disconnected.

Warren Whitney’s team recently facilitated Peer Group Roundtables addressing these critical topics with HR Leaders and CFO/Controllers. These constructive roundtables produced guidance beneficial for all businesses. Below are guiding strategies that set out to:

  • Establish organizational culture that supports employees during times of crisis
  • Bypass employee burnout to reach long-term engagement
  • Assist with budgeting for unpredictable revenue streams and expenses
  • Provide finance and accounting guidance

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HUMAN RESOURCE – STRATEGIES TO KEEP YOUR WORKFORCE ENGAGED

CREATE PHYSICAL CONNECTIONS

Many employees are feeling isolated and burned out. They may miss the personal aspect that the working environment offers. Here are ways to connect and demonstrate your commitment to your workforce. These gestures can make your team feel valued, safe, and part of their work-life community.

Show your appreciation. Employees value time off.  Consider giving them a self-care day that doesn’t deduct from their PTO bank. Also, be flexible with work schedules due to child care limitations. Being understanding of their situation will go a long way. Additional ideas to show you value your employees are:

  • Sending gift baskets for special occasions (or no occasion at all)
  • Giving spot awards to standout employees
  • Providing “superhero bags” that have PPE and other goodies

Connect with your employees. Make concerted efforts to have a one-on-one with team members. During these check-ins, acknowledge the challenges and give them the chance to discuss their problems. Other ways to build comradery are:  1) Have team members share their lessons learned, 2) Organize virtual happy hours, and 3) Offer safe community service volunteering opportunities.      

Host outside meetings. Hold get togethers outside in large open areas; consider informal picnics with boxed lunches. Hold similar meetings for new hires.

ESTABLISH AN OPEN DIALOGUE

Regular and highly connective communication will break feelings of isolation and disconnection. There is no such thing as over-communicating. Below are ways to reach and engage with your team.

Leverage internal communications tools. Use the intranet or internal technology tools to keep teams informed by posting:

  • Your updated safety handbook that includes the company policy on infectious disease and COVID.
  • A message from the CEO or President that covers the FAQs.
  • Facts & supportive data points to keep employees informed.

** Consider tools for departments to easily share ideas (i.e., VOXER, SLACK, or TEAMS).

Use video to deliver messages. Create videos from the CEO & Senior Leadership, delivering an authentic & relatable message. Acknowledge employee concerns about returning to work. The videos can be short, low-tech, and even recorded on an iPhone.

Organize video calls. Show your support by facilitated video calls with the HR team or the CEO with the key supervisors. During these meetings, ask for input and allow time for Q&A.

FINANCING & ACCOUNTING – FORECASTING/BUDGETING IN FLUID TIMES

BUDGETING TIPS FOR UNPREDICTABLE REVENUE STREAM AND EXPENSES

Budgeting is especially challenging now, with the uncertainty of many variables being so high. Flexibility will be a crucial component of your business’s success because long term unknowns are hard to predict. Frequently assess risks and update your forecasts to make sure they reflect changes. Equally important is regularly reviewing the dashboards with your management team. Make sure your dashboards include Key Performance Indicators (KPIs) like: Line of Credit usage, Cash on hand, Payroll, Staff headcount, Inventory, and Accounts Receivable.

Revise your budget. Consider zero-based budgeting; build each line item from the ground up. Know that your budget is going to be lean, with little buffer for course corrections. Plan for:

– Lower margins and decrease projected revenue.

– Increased cleaning and technology (for remote work) costs.

– Cash flow: Review your cash forecast weekly with 2 to 3 scenarios.

Expense Management. Look at the budget line by line to cut costs and minimize discretionary spending. Review contracts and determine which ones can be re-negotiated and which will not happen. Consider refinancing debt to cut interest costs and evaluate office space if teleworking is effective.

Scenario planning. Decrease your risks by anticipating potential strategic pivots. Understand your key drivers, which are different for every industry, and focus on them when running the scenarios.

If you have any questions or seek further clarification on these items, please call us at 804.282.9566. Warren Whitney is available to evaluate your readiness for today’s new operating environment. Our fractional assistance and project work can help you think through decisions and execute strategies. We can put together cash flow projections, manage HR issues, adapt technology and processes, and devise a strategic plan. We Make Potential Happen.

 

 

June 2020: HOW CAN YOUR BUSINESS BENEFIT FROM A FRACTIONAL LEADER?

By | Business Consulting, Finance & Accounting, Human Resources, Strategy, Technology and Operations

HOW CAN YOUR BUSINESS BENEFIT FROM A FRACTIONAL LEADER?

And steps to find the right firm. 

For those not familiar with the concept of fractional leadership, it is an efficient and cost-effective model for businesses to outsource functions when they do not have the expertise in-house or are going through a transition. This form of leadership offers an objective perspective and can guide businesses when faced with challenging decisions. Their role is to become a trusted advisor, lead through change, and offer unbiased advice.

This practical solution gives companies access to experienced talent without paying for the committed costs of a full-time employee with benefits. And based on the needs, this can either be a short or long-term engagement. Interim needs vary from filling a vacancy while a candidate search is taking place, to covering for an employee taking medical leave, or preparing your company for a merger.

As a result of our current economic environment,  fractional leadership has become more popular. Businesses that have recently streamlined their operations have hired a fractional leader because they still need access to a high level of expertise and must close the leadership gap. A big challenge is finding a consultant that is the right fit for your company and qualified for the job. Equally important is making sure their values align with yours.

Here are steps to guide you through the process to find the firm that will deliver results and become a valued partner.

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First. Clearly define your needs and challenges. List the goals, expectations, and deliverables for the engagement. What are the expectations upon completion of the project? Be sure to define the scope of work. Prepare and share any relevant materials such as financials, charts, policies, or other reports.

Second. Ask for referrals from a trusted source. Your CPA, banker, or attorney is a great resource. The more people you ask, the better understanding you will have of the marketplace. Pay attention to names that are mentioned repeatedly. If you are new to an area, local business groups or the chamber of commerce may be able to help.

Third. Do your research. Once you have a strong list of key players, look at their websites to see how their values and approach aligns with your needs and company culture. Talk to current and former clients, if possible, to hear first-hand about their working experience with the firm.

Fourth. Schedule meetings with the top firms. Conduct these meetings like you would conduct an interview. Prepare your questions ahead of time and share your goals and expectations.

Fifth. Pay attention to the following characteristics during these meetings:

  1. Unimpeachable character. First and foremost, a competent consultant must be a person of integrity who demonstrates professionalism, confidentiality, and commitment.
  2. Solid experience. A consultant’s work experience is their asset to you. Ask how many years of experience they have as well as training and degrees. The more seasoned they are, the more value-added solutions they are likely to provide. Also, consider the types of companies they have worked with before and knowledge they may have of your industry or relevant fields.
  3. Creative problem-solving skills. Understand what their approach will be to deliver a results-oriented solution. Does their response sound authentic? Are they able to provide specific examples of how they have addressed similar situations?
  4. Excellent interpersonal skills. Try to envision working with this individual and how well they will integrate with your team. Will they proactively address issues and conflict and minimize unneeded drama?
  5. Outstanding communication skills. Pay attention to how they communicate their thought process. Their ability to lay out their approach provides insight into their level of communication.

Once the interviews are over, expect to receive a detailed proposal from each firm. The proposal is an essential element of the decision-making process because it provides additional insight into thought processes and written skills. The proposal should capture:

1) The scope of work, as discussed during the meeting.

2) The approach to resolving the problem with milestones and a timeline.

3) A clearly defined cost and payment structure for the project.

4) The individual’s credentials and experience.

5) The firm’s strength, longevity, and reputation.

Consideration of value: While cost is always a factor, examine the entire package of expertise you are receiving for the investment you are making. Often a good consultant can provide a return many times the investment (ROI) through efficiencies, savings, and/or increased revenue.

Benefit of working with an entire firm vs. a single individual: When hiring a consulting firm, your businesses is more likely to be supported by a team of of professionals who know your business, have a wealth of experience, and a strong support system. The firm can bring together different skill sets from multiple disciplines to assist with a variety of challenges. The benefit of the team is having the backup, just in case.

After deciding which firm to engage, remember you can always ask for references. It is a step that can be revealing to help make you feel more comfortable with the choice.

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Warren Whitney provides fractional leadership in the areas of HR, Finance & Accounting, and IT to include the roles of HR Leader, CFO, CTO, CIO, COO, and Controller. While we typically work in our clients’ offices, we can also work remotely. Based in Richmond, Virginia, we also serve clients throughout the Commonwealth of Virginia and beyond. We are passionate about the work we do and welcome the opportunity to speak about the services we provide. To learn more, please contact Stephanie Ford at SFord@warrenwhitney.com or 804.282.9566.

 

 

May 2020: RETURN TO WORK STRATEGIES

By | Business Consulting, Finance & Accounting, Human Resources, Strategy, Technology and Operations

RETURN TO WORK STRATEGIES – How to navigate and protect your business for a smooth transition.

 As Virginia starts a phased reopening by easing “stay at home restrictions,” businesses need a well-thought-out transition plan.  Your plan should take into consideration not only your employees’ and customers’ health and safety, but also fiscal stability, strategic direction, and technology. This multi-layered plan must address regulations, the environment, and internal communications as well as the emotional well-being of your employees. Flexibility is critical, and your business will need to be positioned to respond to a changing landscape as the situation evolves.

When devising your plan, consider these pieces of advice from our team in the 4 areas we serve our clients.

 HUMAN RESOURCES

      PREPARE THE PHYSICAL WORKPLACE

  • Give your office a post-pandemic makeover! Normalize the “6 feet rule” in the office and consider providing the baseline of PPE such as masks, gloves, and hand sanitizer.
  • Regularly clean the worksite and follow the CDC guidelines. Consider hiring an industrial cleaning company or aks your existing professional cleaner about their standards.
  • When planning the return to the office, consider:
    1. Flexible schedules to include part-time in the office and teleworking
    2. Create odd/even workdays in the office
    3. Stagger start and end times
    4. Designate days for specific work to be completed

It is important to note that doing everything possible to make the workplace clean demonstrates your commitment to maintaining a safe environment. This will build confidence and reduce the tension employees may have about returning to the workplace while COVID-19 concerns continue.

      FOCUS ON INTERNAL COMMUNICATIONS

  • Communicate your organization’s policy explaining the protocol. Transparency is key; include the thought process of how and why you devised the policy.
  • Make sure the policy is easily and readily accessible both online and in the workplace.
  • Survey your employees regularly to understand their main concerns and that their voice is valued (i.e. survey monkey, calls, focus groups).
  • Build a desire for workers to return to work and explain why especially if employees are successful at teleworking.
  • Keep employees engaged and mentally healthy. An example could be collaborating with a local gym for virtual yoga classes.

Over communicate the safety protocols as the workforce re-enters the physical workplace. Employees will feel secure knowing management has considered federal guidance and is establishing procedures to develop a culture of safety.

Refer to the state guidelines. External guidelines can help bridge the gap between varying employee opinions. https://www.governor.virginia.gov/media/governorvirginiagov/governor-of-virginia/pdf/Virginia-Forward-Phase-One-Business-Sector-Guidelines.pdf.

FINANCE & ACCOUNTING

      MANAGE INTERNAL CONTROLS

  • Make sure internal controls continue to be practiced especially in the remote working environment.
  • Investigate new ways to accomplish signature and approval responsibilities.
  • Evaluate how receipts have been handled in light of “working-at-home.” Who is proofing cash receipts? How are deposits made and who makes them?
  • Continue to communicate the controls and review of policy requirements.
  • Review by-laws for borrowing/banking transactions requiring board involvement.
  • Ensure all bank reconciliations have been prepared and company credit card receipts have been documented.
  • Make sure all mail has been reviewed and time-sensitive items have been handled.
  • Determine a rotating schedule on personnel to ensure there is at least one person in the accounting department who can be physically present the majority of the week.
  • Take your ledger to the cloud (i.e. QuickBooks Online or remote access).

        ESTABLISH FISCAL STABILITY

  • Continue to forecast cash flow and report out with your team weekly.
  • Run various forecasting scenarios to reflect potential best and worst-case scenarios.
  • Rebuild your operating cash reserve. If you recently took shortcuts, document where you mitigated risk. It is easier to remember now than when you are being audited.
  • Monitor PPP forgiveness and everchanging rules for new SBA loans.
  • Develop a strategy to: improve liquidity, build working capital reserves, and access credit facilities. There is no guarantee there will be an additional aggressive stimulus package.

 STRATEGY

       DOCUMENT LESSONS LEARNED

  • Do your post mortems. What did you learn that would have been helpful had you put it in place beforehand? Can you do it now and be more prepared if/when we are forced back into lockdown?
  • Record your organization’s strengths and build action steps around weaknesses, threats and opportunities.

        POSITION FOR SUCCESS

  • Evaluate business partnership and merger opportunities to ensure the relevancy and strength of your organization.
  • Consider potential alternative revenue streams. Work with your team and board to identify innovative and creative strategies that are mission-aligned to retain your organization’s relevancy and success.
  • Bring new thought leaders to the table to help reposition your organization in innovative ways.
  • Consider a mini-board retreat to reevalute and modifiy your strategic plan.

TECHNOLOGY & OPERATIONS

       UNDERSTAND YOUR TECHNOLOGY

  • Survey management and staff to identify issues with technology and processes; record these issues (small or large – either may cause bigger problems).
  • Evaluate your relationships with your vendor partners. Ask yourself:
    • Can they support technology changes?
    • How will we be impacted if they go out of business?
    • Will my business have the rights to continue using software provided by the vendor?
  • Regularly review your information security and technical risks. With malicious activity on the rise, risks need to be addressed by a combination of policies, technology, manual controls, training, and knowledgeable support staff.

      PLAN FOR CHANGE

  • Be prepared to address new customer and partner expectations.
  • Re-consider new technology that has been put off that may help stabilize operations. Evalute the short and long-term benefits of the technology changes. If choosing to upgrade, be patient when training employees and remember this is a huge change for all involved.
  • Think outside the box when resolving issues or ways to increase efficiencies. Even if you are not ready to make changes now, do the research so you are prepared to react when needed.

If you have any questions or seek further clarification on these items, please call us at 804.282.9566. Warren Whitney is available to evaluate your new operating environment. Our fractional assistance and project work can help you think through decisions. We can put together cash flow projections, manage HR issues, adapt technology and processes, and devise a strategic plan. We Make Potential Happen.

 

 

February 2020: Job Cost Accounting – What it is & why it matters

By | Finance & Accounting

Author: Mike Kelly

All businesses, regardless of size and industry, have one thing in common — the need for accurate financial reporting.  However, a one-size-fits-all approach to keeping your books will not work. In particular, certain businesses need to be very proficient with Job Cost Accounting as they accumulate costs of materials, labor and overhead. These types of companies include manufacturers as well as real estate and related industries like developers, architects, and contractors.

Job Costing is the method to track revenues and expenses on a job by job basis. Here are key steps to take to ensure accurate job costing for your business.

STEP 1. TRACK BILLING & COSTS BY JOB

First and foremost, your accounting system must be set up to track billings and costs on a job by job basis. Most accounting systems have job costing capabilities built-in, so it is just a matter of setting the system up to fit your needs. Each job should have a unique identifier, the job number. Job numbers can be numeric or alphanumeric, whatever works for your business.  For management reporting purposes, it is helpful to begin each job number with the last two digits of the year the project begins.  It may also be helpful to distinguish by job type with project codes (such as S for single-family construction or MF for multi-family construction).

STEP 2. ESTABLISH PROCEDURES FOR ENTRIES INTO THE PURCHASE ORDER (PO) SYSTEM

Develop internal procedures to easily and accurately determine which billings and invoices go to each job.  A detailed PO system will remove the guesswork. To make this happen smoothly, project managers and accounting staff must communicate regularly.  In addition to this, establish a clearly defined change order system to track changes as they occur (unforeseen or initiated by the client). This will allow additional costs and time to be planned for and approved by the client.

STEP 3. PRECISE TIME TRACKING

Aside from materials, labor will most likely be your second largest expense.  It is critical to track employees’ time so your payroll department knows the job(s) each employee worked on during the pay period.

STEP 4. ACCURATE BUDGETING

This process begins in the estimating stage by setting the parameters for the cost of each component and the overall expected revenue of the job.  The budgeting process can then be somewhat fluid. Be certain change order costs are updated in the budget.

Once accurate job costing procedures are established, you will have access to data points that will allow you to better understand your business. Here are ways you can leverage this resource:

RESOURCE #1IDENTIFY POORLY MANAGED JOBS.  One bad job can make the entire entity seem unprofitable. Pinpointing the problem allows you to not only correct what went wrong but also to avoid a similar issue in the future.

RESOURCE #2CONDUCT A POST MORTEM. Once a job is complete, review and debrief. This will allow you to understand the job’s profitability and learn what worked and what did not. Share these lessons learned with your project managers and estimators.  Post mortem reports are a learning opportunity for the entire organization.

RESOURCE #3RUN ACCURATE REPORTS.  Many contractors rely on credit facilities from banks. Banks require financial reports that are GAAP compliant (Generally Accepted Accounting Principles is the accounting standard adopted by the SEC). A strong job costing system will provide the tools to produce your profit and loss statement for an accurate representation of GAAP.  Job costing along with accurate job budgeting is essential for accurate revenue recognition.

RESOURCE #4ABILITY TO MEASURE EMPLOYEE PERFORMANCE. Being able to accurately measure the performance of each job is also an excellent way to measure the performance of your project managers and their staff.  This will enable you to create an incentive program for your staff to encourage them to watch costs and adhere to budgets and timelines. This will improve the profitability of each job and therefore the company.

The benefits of job costing are endless. It supports cost control, improved profitability, and tighter project management, to name a few. The first critical step is properly setting up your accounting system and developing procedures that fit your needs.  This can be a complex and daunting task that may require a professional to guide you through the process.  Mike Kelly and the team at Warren Whitney can be a valuable resource. We offer value-added tailored solutions for your accounting needs. To learn more about how we can help, contact Stephanie Ford at sford@warrenwhitney.com or directly at 804.282.9566.

 

 

December 2019: A CEO’s Guide to Secure Financing for your Growing Business

By | Business Consulting, Finance & Accounting, News

Author: Stephanie Ford

Good news/bad news: Your business is expanding and achieving projected growth. The rush of growth is exciting, but it comes with a new challenge – access to capital to maintain momentum. In any credit market, financing can be tricky to obtain. You might already know this first hand — have you applied for a commercial loan and been rejected? Feeling anxious and unsure how to move forward? Here are steps to best prepare for your next meeting with a commercial banker.

Before joining Warren Whitney, I spent 12 years as a commercial banker. The better prepared a business owner was for the request, the more likely they would receive financing.  Owners that came to me with a binder chock full of financial statements, detailed reports, and a strategic business plan were impressive. Entrepreneurs that provided few concrete materials and simply shared a stream of consciousness of their ideas gave me little to work with. How to position yourself to get funding for your business is critical in today’s credit markets. Preparing a request for financing should be taken seriously, and good preparation will yield better results. Here is a framework for thinking about your approach.

  1. Think hard about why you need to borrow. Specifically identify the purpose and develop a business case for the need to borrow and repayment.  The best way to do this is to prepare monthly cash flow projections of sources and uses of cash.  This prediction of needs and surplus will help to identify how much you need to borrow and how quickly your business can repay the loan.  The purpose of your borrowing need will also help to determine what type of loan is best for your company, such as a revolving line of credit for working capital needs or a term loan for permanent improvements to real estate or equipment purchases.
  2. The more complete a package of information you can provide to the bank, the better. If you have a business plan, share it with your banker.  In addition to 3 years of financial statements and tax returns, also include any other key reports that you use to run your business.  This may seem excessive, yet even routine reports such as an accounts receivable aging and accounts payable aging aid in giving the banker insight to your customer management and diversification.  Be sure to share any key metrics that are valid for your industry, such as inventory turns, job costing reports, days to market, customer returns, utilization rates, etc.  Providing organizational charts and competitive industry details is also valuable.
  3. Just as important as preparing your loan request package, give serious evaluation to the bank and banker you want to work with. Financial institutions vary widely in strength, size approach and focus.  Consider what is important to you: branch convenience, technology & services, commercial focus & approval process, legal lending limit, or ability for the bank to grow with you over time, etc.  Think about whether these needs are best met by working with a large national institution, a strong regional player, or a small community bank.  Once you have a sense of the type of institution that would best fit your business, research to determine the best local contact at that bank for you.  Most commercial banks have several bankers in one department with a manager above them. Finding the right person and personality for you to build a long-lasting relationship with can make all the difference in the growth of your business over time, particularly through the tough years.

The classic 5 C’s of Credit has been an excellent guide for many over the years on the borrowing process. If you can imagine yourself in the shoes of the banker, thinking through their concerns, it will help you prepare your request and business case.

Character

During the entire request process, the banker is also evaluating your character to try to determine if you would be a trustworthy borrower.  So be sure to have your personal finances in order as well.  Complete a detailed personal financial statement (any bank can provide you their form), know your credit score, and clear up any incorrect items with the credit bureaus. Provide background about your relevant experience and track record of profitability and repayment ability. This can also include any prior company experiences. Most of all, be forthcoming with both the good and any downside to your experience.  Bankers never like surprises.

Capacity

You should know that the bank will be examining your financial statements and then calculating certain financial ratios. Two of the most critical ratios are leverage and debt service coverage. Leverage is measured by debt/net worth, and the lower the better.  While the target varies per industry, a good guideline is under 2:1. Cash flow is a measure of income/debt payments or more specifically EBITDA/(prior year’s current maturities of long term debt + interest expense).  It is essential that this ratio exceeds 1.2:1.0, no matter your industry.  The higher the better as you want to show the bank you have sufficient cash flow to service your debt along with a cushion for good margin.

The key takeaway: it is good if you are able to calculate these in advance so that you can anticipate how favorably your numbers will be viewed in the eyes of the bank.

Capital

This refers to your net worth or equity value in the business which is determined by the value of your assets less the amount of your liabilities (how much you own minus how much you owe).   The higher your net worth, clearly the better.

Note: negative net worth is a red flag to the bank and a sign you may still be at the level of borrowing from friends and family or other non-traditional sources such as factoring receivables or venture funding.

Collateral

After the bank examines your cash flow repayment ability, they then look to collateral.  Consider your business assets and personal assets you have available to offer. This may include real estate, investments, accounts receivable, inventory, equipment, and even your personal residences.  How large and liquid are they in relation to the loan you are requesting?  The reality is, they should be larger than your loan request as banks discount the value of most assets and only lend 40%-80% against most assets.

Conditions

Since our economy has been strong for many years, this is a great time to position you and your company for a bank partner – one that will stand with you through the tougher times that may be ahead. However, if you have encountered any difficult spots in your business in the past few years, address them upfront.  Prepare to tell the story of your business and how you worked through the challenging times. Different banks may also have different tolerances for different industries.  This may be based on the performance of the industry overall, the bank’s experience in that industry or their amount of current exposure to that industry.  Ask about their preferences to find a better match and increase your success rate. Remember, no industry was untouched in the “great recession.”  If you were operating your company then, how you faced those challenging times (or any others since) will be insightful.

Be aware that in the technology-driven and cost-conscious banking world, many financiers have moved to automated underwriting and credit scoring for not only personal credit needs, but also for commercial lending in certain cases.  Generally speaking, the smaller a loan request it is (and the larger the bank), the more likely it is to be subject to automated underwriting.  And the larger the loan request and with more complex the companies and legal entities, then it is more likely to be underwritten by a banker or analyst who takes the time to know you and your company’s story.

Navigating financing strategy in today’s market can be complex.  To put your best foot forward, much preparation is needed.  Seek the guidance of an advisor(s) for input into your request and positioning.  Warren Whitney’s team of Fractional CFO’s can be a valuable resource in this process. To learn more, contact Stephanie Ford at sford@warrenwhitney.com or 804.282.9566.

September 2019: Fraud — Threat & Reality in your Business

By | Finance & Accounting, News

Contributor: Richard Kannan, Warren Whitney Finance & Accounting Director

The larger the company, the bigger the risk of fraud, right? Well, not necessarily. On a relative basis, smaller organizations may be at greater risk. The average fraud loss for companies with less than 100 Employees is $200,000, versus larger businesses where the average fraud loss is $104,0001. Fraud losses occur when there are NOT proper controls put in place. When small to medium-sized businesses have a leaner accounting team or one person with too much authority, they become vulnerable. The fact is that inadequate controls create opportunities for fraudulent activities.

American criminologist, Donald Cressey, developed the “Fraud Triangle” theory which explains the factors that can lead to fraud and unethical behavior as:

  • Opportunity (i.e. Lack of internal controls)
  • Pressure (i.e. Personal finances in jeopardy)
  • Rationalization (Reasoning decreases with #1 & #2)

The combination of these three factors can turn individuals you wouldn’t suspect into a fraudster. Fortunately, as business leaders, you can take control and identify the points of weakness to deter fraudulent activity. The critical element is identifying the vulnerable areas to address immediately by establishing the proper protocols.

INTERNAL CONTROLS

Half (50%) of all fraud cases in small businesses occur due to a lack of internal controls1. The below list of real-life scenarios exemplifies how easily it happens and how it can be prevented.

REAL LIFE SCENARIOS HIGHLIGHT VULNERABILITIES IN THE SYSTEM

Scenario #1: A checking account number was used to print checks made out to the fraudster. Checks were written to an account and all available funds were transferred out as soon as funds were available. The checks continued to be written until the bank caught on and stopped payment immediately. The fraudster disappeared with the money.

Lesson Learned: Bank controls would have prevented this from happening. Banks offer “Positive Pay” protocols which will not allow checks to clear unless the company registers the check number and amount. This simple and inexpensive control will prevent checks from being hijacked.

Scenario #2: A bookkeeper wrote checks to herself using familiar amounts to the owner (i.e. monthly truck payments, rent, etc.). She shared the account reconciliation with the owner every month. The owner, who trusted his bookkeeper, conducted only a cursory review.

Lesson Learned: A trusted employee scammed her employer in a clever way. This is where business owners need a clearly defined approach to reviewing checking accounts, reconciliation, and spending.

Scenario #3: A vendor’s email account was hacked. The hacker sent an email from the hacked account to the vendor’s client requesting a large payment along with new wiring instructions. The client did not question the email and the wire was sent to the fraudsters account and the money was lost.

Lesson Learned: Always confirm payment method changes. This may require a face to face discussion, or a phone call to a known member at the organization to confirm the changes.

Scenario #4: A CFO stole $500K over 2 ½ years by sending cash from the entity’s operating account to a PayPal account he controlled. The company had no reason to dispute PayPal since the transactions were on the bank statement. The CFO controlled the bank reconciliations and nobody reviewed them or the bank statements. The fraud survived two annual audits (proving you can’t expect auditors to identify fraud). The scheme was caught when the numbers got too big to hide.

Lesson Learned: Always review your company’s bank reconciliations. Your controller should have a clear listing of all the cash movement tools.

Scenario #5: A bookkeeper “borrowed” money from a small company by writing checks to herself instead of paying the payroll taxes. Because the bank statements were not being reviewed, nobody realized that the payroll taxes were not being paid. The bookkeeper was caught when the IRS sent notices for unpaid taxes.

Lesson Learned: A defined review/checklist of the bank reconciliations is critical. Be sure to include aged reconciliation items, names of payees, etc.

Scenario #6: A bookkeeper was making her car payments with a company debit card. She would open the mail and scan the bank statement. She then used PDF editing software to change the description from her bank account to a company vendor. She then presented the doctored bank statement to the owner for approval. No one could tell the statements had been altered.

Lesson Learned: Always print out the company bank statements and/or look up the balances online to confirm that the document is legitimate.

The overall lesson learned in these scenarios is not to give one-person complete authority of your banking transactions – establish procedures for checks and balances.

These simple, smart changes can enhance the leanest team’s internal controls:

  1. Implement “Positive Pay” with your bank accounts so that all checks are registered by check number and amount with the bank. Checks for varied amounts or non-valid check numbers will not clear.
  2. Review your checking account reconciliations – use a formal checklist to make sure you have the appropriate levels of review.
  3. Do not allow your bookkeeper to control credit or debit cards, regardless of how much you trust them.
  4. Add wire controls with the bank – all wires/ACH require two people – one to initiate and one to approve.
  5. Implement individual access passwords for each person for bank, ledger, investment account, credit cards, and PayPal.
  6. Never change payment information without directly confirming the change with the authorized person.

Warren Whitney’s team of Fractional CFOs and Controllers can assist your business to enhance your internal control environment. We have experience in helping businesses with limited accounting staff and strategically align with your goals and objectives.

To learn more about how to mitigate fraud in your business, contact Richard Kannan at rkannan@warrenwhitney.com or 804.282.9566

[1] Association of Certified Fraud Examiners, 2018.

July 2019: Financial Management for the Non-Financial Leader

By | Finance & Accounting, News

Contributor: Gene Gregory, Warren Whitney Finance & Accounting Director

Financial Management for the Non-Financial Leader

Whether you have just bought the company or have risen through the ranks, as the CEO, President, or Executive Director, you are responsible for overseeing operations, ensuring financial sustainability, and managing the organization.

If your career path has been in operations, business development or fundraising, you may feel your financial acumen is insufficient.  With this lack of experience, you question how can you be confident in your role and responsibility for financial sustainability.

This is not an unusual scenario.  The non-financial leader often carries this burden and can feel inadequately trained.  If this is what you face, below are recommendations to follow for your organization’s financial health.

  1. Internal Controls

Spend some time to make sure you understand how financial transactions flow through your organization.  Look for any concentration of duties or conflicts of interest that create risk.  Make sure there are clear lines of authority for all financial affairs; consider both the physical and virtual security of the organization’s assets. Remember assets may be “virtual”.

KEY POINT

“Cash is King”!  Embezzlement of cash is the most frequent means of misappropriation of an organization’s assets.  A simple monthly review of the bank statement might identify issues and, at a minimum, puts your staff on notice that you are paying attention to the details.

  1. Financial Reporting

Financial reports summarize your organization’s financial activities and position.  Your accounting department should produce consistent and accurate financial statements.   At a minimum, receive and review:

  • The monthly income statement that measures revenue and expenses.
  • The balance sheet that highlights assets owned, debts owed, and net equity.
  • The cash flow statement that shows how cash is being earned and used.

If your organization has significant accounts receivable, large capital expenses (building, equipment, etc.), or debt service requirements, the cash flow statement may tell a different story from the income statement.

Reviewing monthly and YTD income and cash flow statements will explain how the organization is progressing (or regressing).  Comparative statements showing current results and positions compared to past results and positions will identify trends.  Comparison to budgeted activities (see #3 below) will show how closely you are following your plan.  Ideally, your staff and system(s) can report activity at the “business unit” level that is important to your organization (i.e., division, location, department, program).

Make sure your reports are relevant to your needs.  External reporting likely requires financial statements prepared in accordance with the Generally Accepted Accounting Principles (GAAP); however, you may need a different view or format to make good business decisions.

  1. Budgets

Budgets are essential to good financial management because they project future revenue and spending.  Your budget should be your roadmap to operations.  Even if your operational managers lack budgeting experience, have them participate in the process.

Without a budget, your organization will “fly blind.”  The budget outlines your operational plan in terms of revenues and expenses.  How do your operations generate revenue? What is the expense structure of your organization?  Asking yourself these questions and reviewing the company’s past expenditures will help guide the process (Note- Units of sales or services usually have predictable revenue values).

As mentioned above, reporting financial results versus the budget shows how you are doing against your planned operation.  This comparison may indicate a need for greater skill in planning and budgeting or for a change in operations.

KEY POINT

  • Admit what you don’t know and seek help. Learn how to relate basic financial statements to your operation, mission, and financial health.
  • Make sure your leadership team and program managers can relate basic financial statements to the operation, mission, and financial health.
  • Your accounting staff must understand how operations work and why they are relevant.
  1. Outside Resources

Learn from the advisors who support your organization.

  • Your banker can share observations about your financial position. Banks offer many financial services, and you can learn a lot by investigating those services (even if you don’t adopt them).
  • Your audit firm will have a good financial perspective because they work with other similar organizations. While the practices of their other clients are confidential, they will have general observations they can share.  Many CPA firms offer newsletters and seminars on financial topics that impact industry, businesses, and operations.
  • Your payroll service provider (if you use one) is a good source for employment regulations.
  • Your benefits broker understands market trends for health, retirement, and other benefits. They may also be a resource for employment laws and regulations.
  • Your property, casualty, and liability insurance broker can provide a profile of organizational risk and suggest ways to mitigate it.
  • Investment managers have a perspective on the economic outlook that may be useful in organizational planning.
  • Peers from other organizations can provide their point of view and you may find shared solutions to issues.
  • Industry and community organizations may provide “capacity building” assistance for smaller organizations.
  • Professional associations offer industry learning opportunities.
  • Many, many more resources exist. Think about opportunities within your community.

Warren Whitney

Many of our clients have found that our accounting and finance professional offer an efficient and effective solution to financial management.  Our professionals work on an ongoing, part-time, fractional basis to provide a cost-effective way to supplement your finance function and build for the future. To learn more about financial management, please contact Gene Gregory at 804.977.6693 or ggregory@warrenwhitney.com

January 2019 Newsletter: Tips for Year-End Planning from our Fractional CFO.

By | Finance & Accounting

Ready or not for your year-end?  – And why do we ask in January?

Start at the beginning to be ready for the end.

Do you take your fiscal year-end preparation in stride, or do you dread it?  Whether your year end is December 31st, June 30th, or any other date, most likely you need to make sure your financial statements are ready for tax returns and, possibly, for auditors, bankers, and/or investors.  The best way to take it all in stride is to ensure you take the proper steps monthly and quarterly for minimal work at the end of your fiscal year.

Jill Swinger, Warren Whitney’s Director of Finance & Accounting, who serves clients in the roles of fractional CFO, interim assistant to the president / owner, provides the critical steps one should take throughout the year to ensure a smooth and painless fiscal year end.

Monthly:

  • First and foremost, perform a good review each month of the balance sheet and profit & loss statement while information is still fresh in your mind.
  • Run comparisons to budget and comparisons to prior year to identify variances that do not look right.
  • Review all general ledger activity.
  • Reconcile all the balance sheet accounts monthly, which will minimize year end corrections.
  • On monthly bank reconciliations, ensure there are no checks over 60-90 days that have not cleared the bank.  If there are, start calling vendors to see if they received check and re-issue as necessary.
  • Run an Accounts Payable detailed listing and make sure all bills are current.  Sometimes you have re-issued a payment for a lost check only to realize at year end that you haven’t taken care of the first payment that was lost or voided.
  • Review Accounts Receivable aging and take follow-up actions accordingly.
  • Record Investment activity monthly.
  • Make copies of any capital purchases and consolidate in either a capital expense profit & loss account or in a category of fixed assets on your balance sheet.

Quarterly:

  • Reconcile your wages paid to the 941 Employer’s tax form filed.  This will ensure that all taxable wages paid have been reflected properly on the 941.  If there are adjustments to be made, ensure you can correct before the annual W-2 Wage and Tax Statement are filed for employees.
  • Ensure that board and committee minutes required for annual audits are approved and filed.

Annually:

  • Make a reminder to review payroll adjustments necessary to be added to employees W-2’s for other taxable income.
  • Review listing of 1099 eligible vendors and ensure you have proper federal identification numbers.
  • If you are being audited by an outside firm, request a listing of documents needed in advance of field work.
  • If you need an annual inventory count, schedule the date and publish procedures.
  • Start a new filing system for the next fiscal year during the 2nd half of your last fiscal month, so that records can be kept separate right from the beginning.
  • Review your fixed asset listing for any items that you have disposed of during the year.

** Above all, ensure that you reconcile your bank statement monthly. **

A key point is to take corrective action while transactions are still clear in your mind.  It’s much harder to figure out adjustments if the details are fuzzy.

If you have any questions, reach out to Jill Swinger (804.282.9566 or jswinger@warrenwhitney.com )

*****

Learn more about Jill at www.warrenwhitney.com/jill-swinger/