Profitability Analysis

Most people think that this is the easy part of running an organization. Yet it is often ignored because usually the financial results are not available until after the fact. An Outsourced CFO can provide four resources to advance this analysis.

The first one is to streamline the Financial Statement process in order to have interim statements available while the data is still fresh and something can be done to improve the operating results. It may be as simple as downloading Banking statements instead of waiting for mailed statements, or streamlining the Expense Accrual process, or automating the Payroll and Accounts Payable processes. Often a fresh set of eyes can find ways to streamline a process without compromising the integrity of the results or violating standards of Internal Control.

A second resource is the ability to determine what drives the business process and how can we measure it. As an example, If we know that our Sales Force needs to average 15 appointments per week to land enough sales to continually grow Revenue, then reporting weekly activity as well as process results can help decision makers to direct the organizations efforts to be more profitable. Or the CFO maybe able to analyze a Not for Profit’s contribution patterns and establish what activities drive donations.

The third resource the CFO can bring to bear is the ability to create models that allow a small amount of data to forecast results. This is very important when an organization is considering making a major change to its processes in order to have an idea what the impact the change will have on sustainability of the organization. Sometimes these models can substitute for the interim Financial Statements for more real time decision making.

Fourthly, the CFO can provide historical trend analysis to the data to help identify what story the recent history is telling us.

I was once the Finance Director of a Not for Profit, our accountants were producing statements showing the changes in expenses from last year compared to the spending for this year. The variance was almost 50% and caused a good deal of concern for the Board. However, the analysis was not complete, it failed to show that we were serving 90% more people and generating 65% more Revenue than the same period of time in the previous year. So if Revenue grew by 65% while expenses only grew by 50% (assuming we ended the prior year at no worse than Break Even) than that is actually a Good Thing. Adding a small amount of data to the report gave a truer picture and allowed for better decision making.

Do you really understand what drives your organization? Are you able to get the full picture in a timely manner? Do your Financial Reports generate more confusion than clarity among your Board or Bank? Perhaps now is the time to invest in the resources that can lead your business into the future.

Outsourced CFO

Most people hear this title and connect with the Outsourced piece rather well. It is not hard to imagine in our economy outsourcing almost anything that a business or not for profit needs. However, a lot of people do not seem to fully understand the Chief Financial Officer (CFO) part of the title. I have found that while smaller organizations are looking for the specific tasks provided by a CFO, they often believe that they are too small to have their own CFO.
This is where an Outsourced CFO can fill the gap. Working on either by the project or on an hourly rate, the Outsourced CFO can become a valuable asset while assisting the organization in meeting its goals. Almost every organization has a different view of what a CFO is responsible for. However the following list contains some of the more basic needs that the CFO will fill.

• Profitability analysis and maximization: identifying the drivers of profit and how the organization can maximize the outcomes of those drivers. In the Not for Profit world, identifying the drives of the organization’s mission.

• Cash Flow Management: cash is the lifeblood of every organization, managing the cash flow well can be the difference between failure and success.

• Strategic Pricing: by helping to fully understand the organizations costs, serves to set pricing to maintain market share and grow the enterprise while maximizing cash flow.

• Formalized Cost Containment: What are the real cost’s of the organization? What expense reductions will actually make it more difficult to generate Revenue or Cash Flow?

• Strategic Forecasting: attempting to drive a business simply using its historical Financial Statements has often been likened to driving a car by only looking through the rear view mirror. The CFO can take historical numbers and use them to build a forecast to manage the future. This forecast will allow the organization to see the impact its Strategic Plan is expected to have on the organization. When compared to actual results, it will allow for faster and more strategic adjustments to the plan as conditions dictate.

• Internal Control: Smaller organizations lack the staff and training to design effective controls to safeguard the organizations assets and protect its staff.

• Debt Financing/Equity Development: the CFO is invaluable in making sure that the organizations needs are properly presented to investors and lenders.
If you are the CEO of or on the Board of a privately held organization, which of these items would best serve the organization?