The CFO'S Perspective

In the case of a Small Business Administration Payroll Protection Program (“PPP”) loan, businesses have been presented with an opportunity to maintain their current employment levels and pay certain expenses with assistance from Uncle Sam, in the form of a loan. These loans carry a low-interest rate and up to five-year maturity.

Businesses can apply to have the loan treated as a grant; in which case the loan is forgiven.

This seems like an easy decision for the Chief Financial Officer. Ask for loan forgiveness and accept the gift. But would it ever make sense not to ask for forgiveness? Could the underlying economics of a long-term loan be almost as good as or even better than an immediate grant? The short answer is yes, but only under very specific circumstances. For most businesses, under most circumstances, and for most loan types, loan forgiveness is best.

Financial projections are a critical component of a sound business plan. These projections (or “financial forecasts”) are used externally to obtain funding as well as internally to create a strategic growth roadmap with key milestones.

At the core of these projections are logical assumptions for revenue, COGS (cost of goods sold), SG&A (sales, general, and administrative) expenses, capital investments, and cash flow that serve as building blocks for the final figures that result. Because your financial projections rely on these pillars, it is crucial to find a balance with these inputs. Being too conservative or too aggressive with your assumptions will skew the resulting projections, damaging their overall credibility. The goal is to inspire confidence externally as well as internally while maintaining high ethical standards, which requires a balanced approach toward creating assumptions for financial projections.

Use existing financial information, even if it is limited by the newness of your business, to justify these assumptions and inform your financial forecasting process. Your resulting financial projections should include a P&L statement, cash flow statement, balance sheet, capitalization table, and strategic investment plan.

Effective cash flow management requires careful control of both money coming in and going out. While practices like shortening payment terms, offering variable pricing, and pursuing collections can increase the timeliness and amount of money coming in, delaying payments to vendors can slow cash outflows, providing the float needed to sustain operations during difficult times.

In an article about re-opening your business, Jeff Dunn explains succinctly, “Determine which vendors are critical to your day-to-day operations and pay them as timely as possible; which are important but can be paid slowly; and which are not important going forward that will be paid when able.”

How do you decide who to pay now and who to pay later, and how do you abide by vendor management best practices while doing both? This quick guide will help you answer those questions to improve your cash flow position right away.

Lenders and investors will always ask for financial statements as part of the application process. When applying for funding, you will be required to provide both historical financial data and projected financial figures. Banks and investors will then analyze where the company has been and where it appears to be going to determine if its trajectory fits within acceptable risk parameters.

A vital part of a business’s success is the strength of its management team.  This is always true, in good times, and during a crisis.  A successful business needs all oars of the boat pulling together at the same time.  And the boat needs to be headed in the right direction.

The current economic crisis is highlighting the importance of strong financial leadership.  That is undoubtedly true, given the flurry of new government aid programs and the impact of stay at home orders.  But a business owner always needs strong financial leadership.  In a healthy economy, the owner needs to make sure they are operating at maximum efficiency to take advantage of likely higher gross margin opportunities, or to make sure an investment in a new product or service has long term value.

This article points out a few areas to consider in determining if you currently have the “right CFO” and a pointer on “buyer beware” if you are considering making a change in CFO during a time of high unemployment.

GAAP compliance in financial statements is an essential underpinning for nonprofits and for-profit businesses alike. It is essential to be in GAAP compliance for audits, funding applications, etc. However, the standard GAAP financial statements may not be enough to ensure your statements will match your cash position at the end of the month. Additional perspectives are required to quickly assess the organization’s financial performance.

What now? One thing is certain, most businesses have been impacted and their 2021 results will differ significantly from previous budgets and forecasts.

Now is the time for serious planning and strategizing. Business owners and CEOs should be considering what reopening looks like in all markets in which they operate. Will your business return to normal operations or will there be significant changes needed? Involve your key leadership team and advisors in these planning sessions.

Editor’s Note: We are fortunate to have many exceptional clients. From time to time, we include “Company Spotlight” posts in our blog to express our gratitude and appreciation for the awesome work they do and the accomplishments they achieve. Enjoy!

Leanpath understands that what gets measured gets managed, and what gets managed gets improved.

Traditionally, food waste in high-production kitchens was “invisible.” It would be thrown away throughout the day with no one aware of its accumulated weight and cost. Food waste needed to be measured so kitchens could manage it and improve it. So, they could finally “see” it. But how to make that tracking easy? Leanpath CEO Andrew Shakman asked that question 16 years ago.

The answer was a technology suite introduced in 2004 that, today, represents a complete food waste prevention platform consisting of in-kitchen tracking devices, analytics software that crunches food waste data, and coaching programs that help kitchens understand their data and act on it to prevent food waste.

Leanpath cuts its clients’ food waste by 50% or more. Since 2014 alone, working with thousands of kitchens across 40 countries--with clients including Google, IKEA, Aramark and Sodexo--Leanpath has empowered culinary teams to prevent over 55 million pounds of food from being wasted.