Have you ever heard of found money? Of course, you have!
But I’m not talking about the loose change found between the cushions of your sofa. I’m talking about the kind that they keep in a Brink’s truck – a hundred thousand dollars or more. And it’s all yours!
But it’s not in your bank account. This money is hiding in your business.
Wait. Why is it hidden?
Well, as a business owner, you probably don’t know about it, aren’t looking for it, and haven’t been looking at the operational and financial performance of your company on a regular basis. This is likely because you don’t have the time or desire and you’re focused on driving your business forward and leading your company. You figure that if you just sell more, everything will fall into place and the money will follow. But that’s not always the case. In fact, selling more of a product or service that has a low gross margin is a slow death and will eventually drain your cash.
Another reason that all that cash isn’t in your bank account is that you may not have the right expertise in your business. In the case of hidden cash, you need the folks who are analytical – say, like Indiana Jones – looking and digging for archaeological finds (those hidden profits) and coming up with a plan to excavate the treasure.
Measuring the Right Things
Are you selling more and making more? Or are you selling more, not getting paid for it and not putting that money back into your bank account?
If you’re only measuring the top line of your business – i.e. just your sales – that’s not the best way to run your business. But there are so many people who are oh-so-focused on the top line and the bragging rights that come with it. These people are ego-driven and brag that they run a 7- or 8- figure business. But if you can’t pay yourself, what good is that business doing you?
If you’re only measuring the top line, you’re probably missing where the cash is hiding because you’re not seeing the rest of the hiding spots.
The question remains, where can this $100K be hidden in your company?
Where Are the Profits Hiding?
Depending on the nature of your company and your industry, it could be in a variety of places. Let’s go through a few of them:
• Accounts Receivable – If you have a high level of accounts receivable – say, excessive days of sales outstanding – that could be cash that actually belongs to you. So, maybe you have 30-day terms with your customers, but when you measure your accounts receivable, you find that there are 60 days’ worth of sales there. Well, that’s an extra 30 days of cash that belongs in your bank accounts. But for whatever reason, your customers aren’t paying you in a timely fashion.
• Labor – This is the cost of delivering or making your product or service. You may struggle with inefficient service delivery, poorly trained employees, lack of standard operating procedures and processes that result in heavy costs in terms of labor time, productivity issues with the people who work for you, or employees who are just frustrated.
• Inventory – If your business carries inventory, you could also experience some issues there. Inventory, unlike a fine wine, does not grow more valuable the longer you hold on to it. So, you need to make sure your inventory is turning over and moving quickly. This starts with having the right item in the proper quantity at the right time to meet customer needs.
• Gross margin – Selling more of a low margin product because it’s easier to sell is not an effective way to run your business. It means that you’re not generating enough cash to pay your overheads. Not knowing your profit by product or service line or customer is an issue that can hinder your company’s profitability.
Additionally, if you sell to different customers at different price points – say product A is sold to customers X, Y and Z, but Z gets a “friends and family” discount or a preferential price level, that’s going to create pockets of hidden profits. If you make the appropriate price adjustments, you can recoup that cash back into your business.
• Procurement – In the areas where you purchase items for your business, are you doing competitive bidding for your high-volume and high-expense items? Are you looking at how much you are spending and with which vendors? Do you have dual sourcing for the important materials in your business?
If not, you need to – and you need to competitively bid them. Look at whether you are buying from friends, because friends may not always give you the best price. A thorough vendor analysis is vital to keeping more profit in your company.
• Wages – Are you paying your BFF’s more for doing less? Do you have a compensation plan inside your business which ensures that people are being paid the same for the same work inside your company? Along those lines, do you have inconsistent starting wages for the same role depending on who gets hired, when they get hired, and what they want when they come to work for you? Those factors can drive differences in your bottom line.
• Piggy bank – From a business owner’s perspective, are you running your personal expenses through the company? If you are, you should probably stop – that’s hidden money. (The IRS doesn’t like it and neither should you.) Do you take excessive pay or distributions? Do you pay yourself rent for a building you own and use for your business that’s in excess of fair market value? Do you travel for vacations and charge them to the company?
It’s true, business owners sometimes do some or all of these, and the issue is that much of this area remains off-limits when you’re looking for those pockets of hidden profit.
• Outside/Professional Services – Are you hanging onto consultants who are no longer providing a service to your company, or a return on investment for those services? There can be big bucks to uncover here.
• Software subscriptions – How many times have we kept subscriptions or programs that were in use years ago and have since been replaced or abandoned, but are still hitting our credit card? We need to review those programs and eliminate them if they’re no longer necessary.
Why You May Be Looking in the Wrong Direction
If you’re using a generic online bookkeeping service, chances are you don’t actually know much about your company’s financial position. Yes, your chosen service will import your transactions from the bank each month and place them in the bucket where they think they belong, and you will get a report or be able to look at it on an app. But there’s never any mention of deep analysis or digging for answers. This is because we’re talking about bookkeeping, not accounting.
You see, accounting is the interpreting, classifying, analyzing, reporting and summarizing of financial data, whereas bookkeeping merely records transactions. So, if you are asking your bookkeeper questions, they will not have the answers. Sometimes, you just get what you pay for.
When you turn to the right expert for the right solution, the results can be life changing. For example, meet Dean:
Dean is the CEO and owner of a $13 million feed and supply business. When I met him, he was experiencing extreme money panic. It wasn’t that he could see his business actively failing – he was in the dark entirely.
When he tried to get clarity from his controller, he came up empty. No one had the answers he needed. Not knowing how his business was performing was eating Dean up.
Once Dean reached out for help, we gave his staff the financial systems and tools that put Dean back in the driver’s seat. Now when he reviews his numbers, he feels completely in control, because he knows what to measure and why.
With the details safely in the hands of a competent employee working within a reliable system, Dean could focus on the bottom line. And the changes were massive – indeed, his gross margin promptly improved by 15%.
The fact is, finding the hidden money in your business is about knowing where to make small adjustments. For that, you need help from someone with an outside perspective and a lot of experience.
How I Can Help
Bringing a CFO in to help dig up all that hidden profit can result in more benefits than you might expect. A consulting CFO serves as your year-round quarterback, keeping your financial management activities humming. It’s to your advantage to have someone with a great understanding of accounting fundamentals on hand to ensure you’re seeing the real financial position of your company.
You don’t have to settle for lack of clarity or unanswered questions. Besides finding the money you’ve been missing, a CFO can help you:
• Save the money you already have – A consulting CFO uses a fraction of the time an on-staff CFO works. Keep in mind, on-staff CFO’s can run from $200,000-$500,000. A fractional CFO allows you a high-caliber professional at a third of the cost.
• Gain flexibility – A fractional arrangement allows you to tailor your CFO’s services to your business’s needs. And as your needs change, you can adjust the level of service you receive. You may need the CFO more while you’re establishing controls and creating systems and scale back after, or transition to strategic planning or larger projects.
• Access more experience and skill – A fractional CFO generally comes to you with much more experience and skill than you can afford in a full-time employee. You’ll have access to the training, perspective, contacts and know-how of a professional with many years of experience, but at the cost you would pay for a full-time bookkeeper or brand-new accountant.
• See your business from an independent perspective – As CEO of your company, the one thing you need in a CFO is someone who can see what is happening, tell you the brutal truth and what to do about it.
• Get solutions faster:
An outside CFO has likely seen the same problem you’re facing many times before. They come ready to solve problems and get you results quickly.
This is exactly what I do – I step in to help frustrated business owners achieve clarity, take back control and tame the chaos, and find the profits they’ve been missing. If you’re tired of being in the dark about your company’s financial position and you’re ready to find the thousands of dollars hiding in your business, let’s talk.