Grant Brisacher, B2B CFO®

California puts price on heads of Independent Contractors – New Labor Code section 226.8 fines employers and their advisors from $5,000 to $25,000 for “Intentional Misclassification.”

Link to it and search for “226.8″ : CA Codes (lab:200-243)

When Should an Entrepreneur Hire a CFO?
December 9, 2011
By Kimberly Danek
From Entrepreneurweek.com

Not every small business or company requires the services for a Chief Finance Officer or CFO, and as such, it is important that an entrepreneur knows the right time to hire one. To hire or not to hire a full-time CFO is dependent on many factors.

In general, entrepreneurs in a startup company outsource accounting services from other companies. These companies provide services often limited to taxes, and if a small business has employees, they also do payroll as well. However, as a small business grows, its financial reporting needs become more complicated. When this happens, an entrepreneur may decide to hire a full-time employee to handle the company’s finances i.e. bank accounts and accounting ledgers. Often, the decision to hire a chief finance officer goes beyond accounting and taxes and is usually based on a company’s need for a financial strategy such as conducting market analysis, obtaining credit and sourcing capital.

Typical responsibilities of a CFO involve financial analysis, budgeting and accounting. A CFO may also perform duties associated with handling insurance, real estate, receivables, banking and legal issues. One of the telltale signs that a company is in need of a financial chief is when the Chief Executive Officer or CEO is unable to focus on important activities that generate revenues because he is handling the financial aspect of the business. A competent CFO can give a significant amount of support in organizing finances and tracking performance. He can also prevent a startup company from facing problems associated with growth. He has strategic involvement on matters such as debt and equity, and on how to sustain the company’s present and future growth.

When a Company has Enough Revenue to Justify Salary Expense of a CFO

Regardless of the size, any company can benefit from the services of a CFO; it is just a matter of having the funds to pay for a CFO’s six-figure salary. A CFO’s salary is affordable to companies who earn higher revenues. This is one of the reasons the necessity to hire a CFO does not usually happen until a business starts earning $10 to $20 million in revenue. Companies who do not have enough money to pay a full-time CFO can consider hiring a consultant part time.

When Dealing with Investors is a Necessity

Small businesses in the threshold of growth have to eventually decide to seek investors to bring in capital. These companies need the assistance of a CFO to liaise with the investors and keep them up-to-date with the financial standing of the company. CFOs are often viewed by equity firms as the go-to person for information on how the business is performing. As such, he has to have an excellent understanding of the business operations, and he should be able to communicate information excellently, both in words and in writing.

Part of a CFO’s function is in forecasting performance, which is critical for companies who plan on pursuing IPO or initial public offering as a means to raise funds. Before a company goes public, it is critical that the control systems and reporting will meet the standards. Another function of a CFO is to establish relationships with investment analysts and bankers.

When Planning on an Acquisition or on Being Acquired

A finance officer is valuable to companies who are planning to engage in an acquisition. A CFO is often tasked to evaluate the market for potential acquisitions or acquirers and to see to it that the company’s financial records are ready to go through a due diligence process. He is also critical in administering the acquisition process, and seeing it through from the beginning to the end, from dealing with the CFO of the other company to interacting with the mergers and acquisitions team.

Kimberly is a researcher, writer, business woman, and contributor at entrepreneurweek.com blog network.  She may be reached at eweekcomauthor@gmail.com

By DARREN DAHL

Published: October 26, 2011

The following article was published in the New York Times on October 26,2 011

At Quickoffice, which sells software that allows users to create and edit documents on mobile devices, Alan Masarek always enjoyed getting deep into the numbers of his business — almost as if he were chief financial officer instead of chief executive.

That is because Mr. Masarek, who helped found the Plano, Tex., business in 2002, has a background in finance. “I always wore two hats in my business: the C.E.O. hat and the de facto C.F.O. hat,” he said, adding that he relied on staff accountants and a controller to help him run the everyday accounting functions of the company.

That changed in 2010, when he decided to hire a full-time chief financial officer. “Not every company needs a C.F.O.,” Mr. Masarek said. “It depends on how dynamic the business is. I needed to hire someone who could function as my business partner and allow me to step away from the books so I could manage other aspects of the business better.”

Generally, as start-ups grow, they hire outside accounting firms. Often, the accountants handle only the taxes and maybe the payroll. If the company continues to grow, and its financial reporting requirements become more complex, the chief executive might decide to bring on a full-time controller who can take charge of maintaining the business’s general ledger and bank accounts. On the other hand, the decision to bring on a finance chief is often tied to strategic decisions, like performing competitive market analysis, raising capital or securing credit.

THE TIPPING POINT A C.F.O. typically takes responsibility for financial analysis, accounting and budgets, along with overseeing insurance, banking, real estate, health insurance, accounts receivable and legal issues.

“When the C.E.O. is being distracted from critical revenue-generating activities to handle financing or similar issues, it’s time for the C.F.O. to take his place and make these things happen,” said Mike Henderson, the finance chief of Lendio, a company with annual revenue of $9.6 million that is based in South Jordan, Utah, and helps small businesses secure loans. “Once the C.E.O. starts to feel the pain, act quickly, because a good C.F.O. can provide tremendous unforeseen support and help avoid some of the growth problems companies face.”

No matter how small, any company can benefit from having a finance chief to help organize its finances and track its performance. Typically, however, hiring one does not become essential until companies reach a tipping point — often $10 million to $20 million in revenue, according to Mr. Masarek and other chief executives interviewed for this article.

The main reason companies hesitate, of course, is the cost — most finance chiefs are paid six-figure salaries. That expense becomes more palatable when the company has more revenue and the company’s numbers need to be analyzed and communicated.

“I like to say that a controller is always looking backward in their role of financial reporting and closing the books,” Mr. Masarek said. “But a C.F.O. is always looking forward, someone who will own the accounting functions but also get involved strategically in how we handle things like debt and equity and how we finance the company moving forward.”

Companies that do not have the revenue to justify paying someone a six-figure salary may consider hiring someone to play the role part time. For example, when her advisory board suggested she hire a C.F.O. after her company hit $2 million in revenue, Bibby Gignilliat, founder and chief executive of Parties That Cook, which stages hands-on cooking parties and corporate team-building events, turned to a consultant on that position.

Jeff Gustafson, whom Ms. Gignilliat pays $150 an hour for typically eight hours a month, took on several critical projects for the company, including building an extensive financial model that demonstrated the impact of expanding into new cities, hiring employees and raising prices. “It has allowed me to be the C.E.O., working on the business versus working in the business,” Ms. Gignilliat said.

DEALING WITH INVESTORS For growing companies, a common trigger can be the decision to bring on investment capital. At these companies, the finance chief often becomes the liaison charged with keeping investors updated on how the company is performing.

Paul M. Doman, chief executive of the Accurate Group in Charlotte, N.C., which provides financial services to banks and mortgage lenders, made the decision last February to hire a finance chief to help manage his relationship with Evolution Capital Partners, a private equity fund based in Cleveland.

“My expectation from a C.F.O. tends to be high,” said Brendan D. Anderson, a partner in Evolution Capital. “I almost view the C.F.O. as the next step to the C.E.O. in that they understand everything and can communicate verbally and in writing how the business is performing, how the plan is coming together and also forecasting where budgets and projects are headed.”

Forecasting performance is particularly important if a company sets its sights on an initial public offering. That is why Karen S. Camp joined VirtuOz, which is based in Emeryville, Calif., and provides companies with virtual agents for online marketing, sales and support.

VirtuOz, which has 75 employees and more than $10 million in annual revenue, is considering pursuing an initial public offering in the next few years — a process Ms. Camp has guided other companies through five times as an investor and finance officer.

“Even though we are not yet a public company, we will eventually do an I.P.O. or be acquired by a public company,” Ms. Camp said. “In my role as C.F.O., I have to make sure that the nuts and bolts, reporting standards and control systems are up to a public company standard.”

In addition to her internal duties, Ms. Camp said that an important part of her job is building visibility for the company with investment bankers and analysts. “It’s all about language and communication and understanding what they need to hear,” she said.

PREPARING FOR DUE DILIGENCE Finance officers can also bring tremendous value to a company when it is considering making an acquisition or preparing itself to be acquired. For instance, when Sharon Napier spun off her Rochester, N.Y., marketing agency, Partners & Napier, from a holding company in 2004, she wanted to put her agency on the fast track to growth.

“I wanted to be in an agency that would be nationally recognized,” she said. “I figured that would likely mean that we would need to eventually make an acquisition or be acquired. And having a C.F.O. on board to manage that was part of that strategy.”

She hired Jim DiNoto for the post in 2001 and made it a crucial part of his job to analyze the market for potential acquirers or acquisitions and to ensure that the company’s books would be ready to stand up to any due diligence process.

The turning point for Partners & Napier came when it began discussions with a newly formed holding company, Project: WorldWide, about being acquired. Ms. Napier credits Mr. DiNoto with shepherding the process along until the deal was finalized in January.

“Jim took the lead role in providing the data Project: WorldWide needed from us,” she said. “He had to interact on a daily basis for eight weeks with their C.F.O. and mergers-and-acquisition team working over every single financial issue. An acquisition can break down if you can’t provide the right data or think ahead to what might be needed, and that’s where a C.F.O. like Jim is invaluable to a business.”

The bottom line is probably this: hire a C.F.O. as soon as you can afford one.

When was the last time your business had a check-up by someone outside your internal organization?

1. Do your bankers and lenders trust your internal financial statements?
2. Are your internal financial statements prepared without errors?
3. Does your internal accounting staff understand your financial statements from an accounting, income tax, business and industry perspective?
4. Are the internal financial statements issued in a timely manner each month?
5. Do you receive monthly reporting on the amount you will owe the IRS?
6. Do you receive accurate internal cash flow projections?
7. Are you convinced your company does not have internal or external theft of cash or other assets?

Do any of the questions above make you nervous or raise your anxiety level?

Perhaps it’s time to contact a B2B CFO® to discuss your areas of concern. We have a proven success track record since 1987.

Core Values: Honesty, Integrity, Objectivity

Just last week, I learned of three separate instances of employee theft at some very prominent, privately held San Diego based companies.   I had to take a moment for all of this to sink in as had previously met several of the parties involved.
It is not a nice thing to think about, but employee theft is rampant in small to mid-sized businesses. It never ceases to astound people that a trusted executive or employee could steal from you. It angers you and makes you sad, but it is happening every day. Large amounts are being stolen from businesses both small and large.

The AICPA (American Institute of Certified Public Accountants) released a recent study that has some astounding statistics. According to their survey of members, up to 82% of small to mid market businesses have or will experience employee theft. Of the incidences of theft uncovered, the average theft amount equals $125,000!! And believe it or not, most of these thieves are not prosecuted.

Are you a victim? Most of us would immediately say “No, all my employees and partners are completely trustworthy.” But, what about the next employee you hire? What about the employee who has had an unexpected life change (divorce, death, or other experience) that has affected his/her financial stability? What about that employee’s spouse who you might not quite trust? Could that person have undue influence to convince your employee to do something?

Employee theft can come in many forms.  Look at the following ways employees can steal from you.

• Cash. Does the employee who collects the cash also make the deposit and reconcile the bank statements?
• Payables.  Does the employee who makes the vendor payments reconcile the bank statement? Does this employee have access to online accounts or a signature stamp?
• Time. Do your employees steal time by running personnel errands or spending excess time on the phone as you are paying them for doing the company work?
• Company credit cards. Do your employees have company credit cards? Are the expenses charged to these cards reviewed by someone other than that employee?
• Computer access. You would be amazed at how many employees run a small business on your computer and on your company time.

How can you stop this? First of all, have a policy that strictly forbids the above activities (and other similar activities). Second, look at your business functions and determine where you are vulnerable. Third, make sure there is a separation of duties between employees who handle areas where theft could occur. Forth, consider monitoring where employees spend their computer time.  Lastly, consider bringing in an outsider, such as a B2B CFO® to help review and understand your internal control weaknesses.

There are many ways an employee can steal from their employer. There are also many ways an employer can prevent this activity. Being aware is the first step.

I’ve never believed receivables collections is just an accounting task. Cleaning up receivables, instead, is an organizational goal and yes, sales needs to be involved.

I teach my clients that cash is oxygen in their businesses as it gives them life. And that means the AR collection process is one of the most if not the most critical part of an organization’s cash flow process. The way to drive this issue home is emphasizing average Days Sales Outstanding (DSO) on their weekly flash reports. We also include DSO in the monthly financial metrics.

I continually communicate and educate the sales groups of the clients I serve about the impact of sales on working capital. I help them to understand the sales cycle isn’t complete until the cash is collected.

Therefore, depending on the business and industry, I encourage most of my clients not to pay sales commissions until an invoice is collected and to charge back any commission on uncollected invoices (should the commission be paid before the cash is collected).

This is often a difficult pill to swallow for most sales organizations. However, it’s much easier to implement when the sales team understands working capital and the impact it has on their organization.

Radical thinking? Not at all. I asked three partners their take on this issue. Here are their comments.

Shane Campbell
San Francisco, CA
“Sales staff must be empowered and incentivized to see the sales process all the way through to collection. Yes, that means that commissions are not earned and payable until the money is in the bank. Once sales personnel are compensated via a collections-based commission structure, the organization is appropriately positioned to make collection issues, and possibly cash flow issues, a thing of the past. You will then see your sales staff risking an awkward moment with slow-paying customers, truly making them the world’s most interesting men and women.”

Dennis Niven
Phoenix, AZ
“In most companies, the collection of AR is relegated to the bean-counters in the accounting or AR departments. Have these bean-counters ever mastered personal relationships – even one? Likely not. Who has mastered personal relationships? The men and women in the sales department. And why should it be pushed down to the top sales producer? Because they have the personal relationships with the customers, are known to them, can walk right in, and get their phone calls, emails or messages answered.”

Mark Gandy
Columbia, MO
“Grant, as you know, I’m a contrarian in any matter of finance. Accordingly, we’re not asking the right question. The appropriate question is, ‘Why does our aging look like a train wreck to begin with?’. I help my clients build the proper systems and processes first to help eliminate past-dues. Then in those cases where we have problem customers paying late, we look at who has the best relationship to collect the cash. In some cases, it’s personnel in the finance group. In other cases, especially with new customers, I look to sales team members. I also can’t emphasize how important it is for the sales team to clearly articulate the payment process when landing that new customer.”

Nice article by my Dallas-Ft. Worth based B2B CFO® Partner, Glen Katlein.

Despite economic issues, it’s still the five Cs of credit
Glen J. Katlein

Given the current economic climate, I believe entrepreneurs and CEOs, with help from their CFOs, must navigate the five Cs of credit harder and better than ever. Credit is available for prudent credit risks. The challenge that can be met is how those five Cs are being scored. The same fundamental credit underwriting factors as during economic growth are still the factors evaluated to make credit decisions today. Business leaders must address how the current economic levels impact the magnitude of those factors.

Contrary to popular sentiment, lending has not hit a brick wall. B2B CFO® partners across the country have helped clients close loans totaling over $100 million since November 2008. Community and regional banks have the appetite and capital to continue lending. Major banks seem to have the appetite and capital to continue lending to existing customers. Many bankers have been contacting me expressing their interest in lending opportunities.

The same five Cs of credit still apply to determine loan approvals. They are:

• Character (integrity)

• Capacity (cash flow)

• Capital (net worth)

• Collateral (assets), and

• Conditions (borrower and economic)

Prudent credit risks based on modest underwriting scrutiny during credit expansion will still be prudent credit risks with more diligent underwriting scrutiny. Marginal credit risks approved by deteriorating lending standards during the past credit expansion will now be denied.

The first C is “character”. One of my favorite inspirational thoughts is the statement about leadership that “The ultimate measure of leaders is not where they stand in moments of comfort and convenience, but where they stand in times of challenge and controversy”. Our current conditions provide a great opportunity for entrepreneurs and CEOs to demonstrate their character.

Next is “capacity” or cash flow. Comprehensive cash flow tracking and forecasting is more critical than ever. More companies should be using weekly cash flow tracking and forecasting rather than traditional monthly reporting. The business leaders must make the tough decisions while demonstrating to customers, employees, and the lenders that those decisions are prudent and not risking the long term value of the company.

The “capital” or equity invested and supporting new loan decisions is likely getting more attention. The equity portion for asset-based loans is rising. Although this may be frustrating to business leaders accustomed to historical loan to value percentages, I would encourage those entrepreneurs and CEOs to put in perspective that the same equity they have and can commit to new loans will simply support somewhat lower loan balances and therefore somewhat slower growth in funded assets.

Of course, in conjunction with less leverage is more “collateral”. Whereas loans without collateral may be getting hammered, lenders are looking for opportunities with traditional collateral – receivables, inventory, and equipment. The business leaders will likely need to pay more attention to demonstrating the quality of collateral.

The most challenging factor is the current “conditions” of the company and the economy. The business leaders must be able to demonstrate strategy, action already executed and having an impact, and a reliable vision and path that the business will navigate during the current economic challenges. The question is which business leaders will demonstrate they will be successful for our next wave of economic growth. Business leaders should not let the more challenging loan underwriting scrutiny discourage them. We must simply work harder and smarter to execute the fundamentals of the five Cs of credit in order to be the winners in our economic recovery.

Nice article by George Dennis, CEO of TV Ears. He understands the benefits of outsourcing and how many small to medium size companies can benefit.

FC Expert Blog
The true benefits of outsourcing
BY FC Expert Blogger George Dennis

This blog is written by a member of our expert blogging community and expresses that expert’s views alone.

Despite its growing popularity, outsourcing has gotten a bad rap over the past few years. While there may be good reasons for it in certain circles, it doesn’t mean that such strategies aren’t a good idea for small to mid size enterprises.

In fact, I remain a firm believer that in order to run a successful business, some of the best talent must come from outsourcing. If a company doesn’t possess strength in one area, it’s imperative to find experts in that arena in order to capitalize on their expertise. While there’s certainly a cost saving metric to outsourcing in many circumstances, the more important benefit is in the value such professionals can bring to an organization.

At my company, TV Ears, we’ve attained great success because of the partners we’ve collaborated with to assist with various facets of the company. Here are four ways that companies can utilize outside services to help grow their business:

Manufacturing
Firms that build products for companies based on published specifications for a living do it more effectively and efficiently than others. At TV Ears, we contract some of our products to be manufactured in China and others in California and Utah. Executives should take care here by ensuring that the partner is not only cost effective, but delivers products that meet specific quality standards..

Finance
Depending on the size and scope of your business, it may not be necessary to hire a full-time Finance Director and accounting team. Instead, a solid bookkeeping service along with an outside CFO consultant may be more effective for less money. For example, TV Ears has been extremely fortunate to partner with Grant Brisacher, a part-time CFO with B2B CFO®, who plays an instrumental role in analyzing and controlling our operational costs. These individuals can also provide added benefits by bringing with them best practices from other industries and companies to bear on your organization.

Marketing
Some organizations opt to incorporate an internal marketing and PR department. However, there are plenty of qualified individuals that are well versed in various industries that can help a company just as much, if not more so, than an internal team. A better solution might be to hire an in-house director that manages outside Website, advertising and PR services in a coordinated fashion. The result is a more experience staff for the same – if not less – costs than bringing all those disciplines in house. For instance, our Pay-on-Performance PR and Marketing firm, Stalwart Communications, has attained great publicity for TV Ears by successfully securing articles in various key industry trades. Just make sure to hold regular teleconferences and meetings with them to keep everyone on the same page.

Fulfillment
Orders can be processed using a “drop shipping” service; one that requires the company to hold little inventory on site, thereby tying up a great deal of its overhead in products collecting dust in a warehouse. It’s a solution that has caught in for many product companies over the last 10-15 years, and one that can add direct value to an organization’s bottom line.

Whether a company is looking to cut costs or just secure optimal professionals in a particular industry, outsourcing is still a popular practice among small and large businesses as it should be. Delegating certain responsibilities to skilled experts allows organizations to focus more on core aspects of the business. That’s our experience at TV Ears; where our team concentrates on customer service, sales, and product development as we assign new projects to other capable firms without lowering our standards for success.

B2B CFO®’s CEO and Founder, Jerry Mills, discusses tax hikes on Fox Business.

Tax Hikes Will Cause Unemployment

Nice article about the reality of today’s market when selling your business. See comments from my partner, Tom Coffey.

Businesses Put Up for Sale Smack Into Harsh Reality

By SARAH E. NEEDLEMAN

Small-business owners banking on a big payoff when they sell their establishments may have to settle for a lot less than planned.

A combination of tight credit, skittish buyers and business owners unwilling to sell at rock-bottom prices—factors similarly affecting home sellers—has left the small-business marketplace at a standstill.

David Wetzel says he spent two years trying to sell his business, Dorset Hardware, a Ventnor City, N.J., shop he’s owned since 1993. He’s now liquidating the business and expects to earn only about a third of his asking price. “I had some very close leads who wanted to buy, but they could just not get the financing,” says Mr. Wetzel, who is 64 years old.

Just 1,117 small businesses were sold in the U.S. in the third quarter, the same number as in the year-earlier period, reports BizBuySell.com, an online marketplace for small-business acquisitions in San Francisco. By contrast, there were 1,462 small businesses sold in the third quarter of 2008, according to BizBuySell. (BizBuySell.com licenses some of its data to The Wall Street Journal.)

One of the problems, experts say, is that business owners are proposing prices greater than their companies’ true value.

“Owners still think their businesses are worth what they used to be,” says Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, a provider of outsourced chief financial officers to small businesses. In reality, many “small companies just aren’t earning what they used to earn,” he says.

During the third quarter of 2010, owners listed their businesses for a median price of $245,000, according to BizBuySell. However, the average closing sale price in the period was $140,000, which was 6% less than what owners sold their businesses for during the same period in 2009, according to BizBuySell data.

Some owners say they have identified interested buyers but that many of these people are unable to obtain sufficient funding amid declines in loans guaranteed by the Small Business Administration. The agency backed $16.84 billion in loans in its fiscal 2010, down from about $20.61 billion in 2007.

As an alternative, some sellers are offering to finance part of the asking price for buyers “to close the gap,” says Joseph L. Caffrey, president of Worldwide Business Brokers LLC. The arrangement has been typical of transactions that his company has brokered over the past 18 months, he adds.

For example, the owner of a frame shop in Virginia recently agreed to finance $62,500 of the business’s $125,000 price tag over a five-year-period for a buyer who could raise only half of the total upfront and was unable to obtain a loan for the rest, Mr. Caffrey says.

Another challenge hindering sellers is that even potential buyers with sufficient funding are hesitating to close deals due to the volatile economy, says Mike Handelsman, BizBuySell.com’s general manager. “People’s risk profiles have taken a dramatic kick in the stomach over the last few years,” he says.

Business owners also are shying away from the marketplace. Though the number of enterprises sold in the third quarter was stagnant, there was a 7.1% decline in listings from a year ago, to 31,856, according to BizBuySell.

Mr. Caffrey says some owners whose businesses lost market value during the recession are waiting for the economy to rebound before going to market. “They’re reluctant to sell based on current valuations,” he says.

For many, selling in the current environment will likely mean having to settle for less, which from the buyers’ perspective, can be a good thing.

Timothy C. Barry says he bought two online stores last spring for the e-commerce and consulting business he co-owns, Intelligent Technologies Inc. of Vancouver, Wash. He says he first saw them listed nine months earlier for double the amount of the final sale price.

In January, Dwight Davis bought an existing LearningRx franchise in Charleston, S.C., that he says had been on the market for about year. With the help of a bank loan, he says he paid $107,000 for the cognitive-skills-training business, which was roughly 30% less than the original asking price, he says.

Franchises may have the benefit of a more recognizable brand name. Stacy Swift, owner of FranNet Colorado, a franchise brokerage business in Denver, says sales of new and existing franchises she’s brokered over the past year have increased moderately. She declined to disclose figures.

Some business owners fearing a double-dip recession aren’t willing to wait around for the market to improve, especially baby boomers like Mr. Wetzel, who is hoping to retire after the liquidation of his hardware store.

“They probably started thinking of selling their businesses years ago and times got tough,” says Maria Coyne, executive vice president of the business-banking unit at KeyBank, a division of KeyCorp., in Cleveland. “But now they’re thinking we’re back to a more reasonable environment” and they’re not going to go through a recession again.