Managing a Business That Survives and Thrives Financially

June 3, 2018 by Philip Campbell Leave a Comment

More businesses fail than survive in their first 10 years.

(Mouse over the graphs in the dashboard above to see more detail about the success and failure rates. You can change the “Year Business Started” date to see that the rates do not change much over time. You can expand the size of the dashboard by clicking in the bottom right corner.)

About 50% of businesses survive to see their 5^th birthday. Only 35% survive to see their 10^th birthday.

The flip side of those numbers is one-half of businesses fail in the first five years of their existence. And 65% fail in the first ten years.

I’ve seen businesses fail and it is a gut wrenching experience… even when I had no stake in the company. It creates a feeling of pain and regret that sticks with you for a long time.

Ouch

I find those success and failure rates fascinating on several fronts.

First, I learned very early in my business career that making money in business is hard. Being consistently and predictably profitable is a much bigger challenge than most people realize.

Expenses are always rising. Your competition is gunning for your customers.

You really have no choice but to constantly, and persistently, work on improving your financial results in order to survive and thrive in business.

Making Money is a Skill

Ash Maurya, author of Running Lean and Scaling Lean says: “Making money is a skill”.

I agree 100%.

Getting and keeping customers… profitably, is a skill that requires constant attention and focus by the owner and management. It requires hard work and continuous improvement in every area of the business.

The Monthly Financial Rhythm of Business

Second, most businesses with annual revenues of $10 million or less do not have a seasoned CFO defining and orchestrating the Monthly Financial Rhythm of the business. There is no one providing a service that I lovingly refer to as “adult financial supervision”.

Business is already hard.

Compound that with sloppy financial management and you risk becoming one of those business failures statistics.

It’s All About Profitability and Cash Flow

Ultimately, your profitability and cash flow determine whether you survive and thrive in business.

Make sure you have someone orchestrating the Monthly Financial Rhythm within your company so you put a laser focus on profitability and cash flow.

Pay very close attention to the metrics that matter for profitability and cash flow. (This dashboard showing my business profitability survey results is an eye-opener for determining what your profitability targets should be.)

Use fun dashboards to help you manage and monitor financial goals and results.

Make sure you have a clear view through the financial windshield of your business.

I’m rooting for you to be one of the businesses that survives and thrives for many years to come. 😊

Philip Campbell is a CPA, financial consultant, and author of the book A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow and the book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore. He is also the author of a number of online courses including Understanding Your Cash Flow – In Less Than 10 Minutes. His books, articles, blog and online courses provide an easy-to-understand, step-by-step guide for entrepreneurs and business owners who want to create financial health, wealth, and freedom in business.

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Aspirational Goals vs. SMART Goals

May 28, 2018 by Philip Campbell Leave a Comment

I’ve always been goal oriented, especially when it comes to career, business, and money.

But my favorite goals, the goals that have had the biggest impact on my career and my net worth, went contrary to the conventional wisdom of setting SMART goals.

The SMART acronym stands for goals that are:

Specific – What specifically do you want to do or achieve?

Measurable – How will you know when you’ve reached it?

Attainable – Is it in your power to accomplish it?

Relevant – Does the goal fit with your values or bigger picture objectives?

Time-bound – When exactly do you want to accomplish your goal?

Using SMART goals is a very effective approach to achieving results and getting things done. I use that approach regularly to achieve many of my business and financial goals.

Aspirational Goals

But there is something almost magical about having goals that are more aspirational in nature.

An aspirational goal defies logic in many ways in that you can’t see a specific path to achieving the goal when you set it.

You can’t explain each specific step that will get you to your destination.

You’re not sure when, or if, you will attain the goal or not.

You just know that it is something that is very important to you and you want to find a way to bring it into your life over time.

A Young CPA

As a young CPA back in my early 20s, I set a goal to make $30,000 by the time I was 30. That was back in 1984 when I was 23 years old. I was a year out of college working in a small CPA firm in Beaumont Texas. My income that year was $21,377.

I had no specific path as to how to increase my pay by 50% or so. But I knew I wanted to make more money and 30 by 30 had a nice ring to it. So, I let my subconscious know I wanted to get there.

In 1986, the college I had graduated from three years prior allowed me to interview with some international accounting firms that were coming to campus to interview new graduates.

At the time, the Big 8 CPA Firms (as they were known back then) hired people right out of school rather hire experienced CPAs or accountants. By the end of 1986, I had convinced a partner at Arthur Andersen in Houston, Texas to hire me and take a chance on an “experienced” CPA rather than a new graduate.

My pitch to them was to pay me the same money they paid new graduates (which was well below my $30,000 target) and I would show them in short order that I could add value at a much higher level. Once I proved I could do it, then I said I would sit down with them to see about increasing my pay to better match the value I was providing.

I knew that my pitch would increase my chance of getting the job. And I felt that getting the job and being in the middle of the action in Houston, Texas would help me get the experience to develop my skills and ability to add value in business. And that was going to be important for me to ultimately hit my financial goal.

My income in 1988, at 27 years old, was $32,430.

I had beat the goal and the deadline. It felt good to set a goal then look back on all the interesting turns and twists that ultimately led to hitting the goal.

And it also taught me to think bigger, and more aspirational, about my financial goals.

A Net Worth of $1 Million… or More

My next aspirational goal around 1990 was to have a personal net worth of $1,000,000.

At the time, I had what I jokingly refer to as a “not worth”. My personal balance sheet had more liabilities than assets. I had a negative net worth. LESS than ZERO!

And there was no clear path to how to go from a “not worth” to a $1,000,000 net worth. It was more like an affirmation than a SMART goal.

But it was very important to me and something I thought about often and something I taught my subconscious mind to work on for me. I wrote that goal down hundreds of times to make it a part of me even when I wasn’t thinking about it consciously.

I later revised the goal to add “or more” to it because I realized that I did not want to put a lid of what I was going after.

Now as time goes by, I just change the number. Because one thing I learned about goals a long time ago was that once you hit your goal… its time to set another goal. 🙂

Goals are a process and a journey, not a destination.

Progress is the Real Objective

The real benefit of having goals, both aspirational goals and SMART goals, is progress.

It’s about making progress toward a better you and toward a bigger and brighter financial future for you and for your family.

When you envision what would make you happy, you begin to see more clearly what you want to do and have. You begin thinking directionally about the progress and improvement you would like to experience in your life and work.

Driving Financial Improvement in Your Business

That’s one reason I enjoy homing in on the metrics that matter in business. And using those metrics to frequently define and monitor the 1 to 3 financial goals to focus on in any given month or quarter.

My experience over the last 30 years has taught me that having one to three financial goals or targets that are front and center is very, very important to driving financial results in a business.

Defining the key metrics, then “hooking them up” to your financial and improvement goals, is critical to making it easy to monitor and manage your progress (or lack of progress) toward achieving those important goals.

That’s what the Monthly Financial Rhythm is all about.

There is a natural rhythm to business and money. The Monthly Financial Rhythm is about orchestrating financial goals and targets and turning those into improved profitability and cash flow.

It is one of the most powerful processes I have discovered for driving financial health, wealth, and freedom in business.

And it all starts with identifying the 1 to 3 specific financial targets that you want to improve.

And then setting goals to help you make it happen.

Achieving goals is part of what makes life fun. 🙂

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Your Financial Superpower

May 28, 2018 by Philip Campbell Leave a Comment

Knowing what’s going on financially in your business is like having a financial superpower.

It helps you make better business decisions. It helps you drive profitability and cash flow to the levels that you expect.

It helps you avoid the pain and suffering that poor financial performance will bring into your life.

Your CFO

Job #1 of a seasoned CFO is to provide you the answers to two simple questions about the financial side of your business shortly after the end of the month:

What happened (last month)?
What’s about to happen (in the coming months)?

A well-designed monthly reporting package (with easy-to-understand historical financial statements and insight about results vs. targets) will help you answer the first question.

A reliable financial forecast will help you answer the second question. It will tell you instantly if your company is on track to achieve your financial goals or if you need to intervene in a specific area of the business.

Taking Your Understanding to the Next Level

When I am operating in a CFO or consultant role, it’s my job to deliver financial information that answers those two questions in a simple, easy-to-understand fashion. Then I take it to the next level by asking myself these related questions:

What really happened (over the last few months)?
What’s really happening now?
What’s likely to happen (over the next few months)?

These questions help introduce reality into the equation. They force you to dig a little deeper to understand what is really happening below the surface of the financial statements.

They help me get to the real insights about the business that I share with the owner or CEO.

It’s an honest, truth-seeking exercise.

It is driven by the desire to close the gap between what management thinks is going on vs. a reality-based view of what is really happening.

That is what you want from a seasoned CFO.

Insight, reality, and a burning desire to help you understand what is really going on in your business from a financial perspective is how a strategically focused CFO adds value.

Take a minute to consider whether you know what’s really going on financially in your business.

The answer will pay big dividends.

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

What Is Your Business Decision “Batting Average”?

February 10, 2018 by Philip Campbell Leave a Comment

Most of us believe we make good business decisions.

Just for fun, consider this little thought experiment:

Imagine for a minute that the quality of each of your important business decisions was measured and tracked every month.
And that you were assigned a “batting average” that measured the quality of each of those important decisions.

Does that sound scary… or exciting?

Imagine a system where each person on your management team had a business decision “batting average” as well. Would that help you assess the value of each person on your team? Would it scare them to have a batting average based on the results of their important business decisions?

Here are a few quotes on this subject from Warren Buffett during the 1999 Berkshire Hathaway Annual Meeting that I found thought provoking:

We believe in postmortems at Berkshire. I mean, we really do believe — one of the things I used to do when I ran the partnership is I contrasted all sale decisions versus all purchase decisions. It wasn’t enough that the purchase decisions worked out well, they had to work out better than the sale decisions.

And managers tend to be reluctant to look at the results of the capital projects or the acquisitions that they proposed with great detail a year or two earlier to a board. And they don’t want to actually stick the figures up there as to how the reality worked out against the projections.

And that’s human nature.

But, I think you’re a better doctor if you drop by the pathology department, occasionally.

And I think you’re a better manager or investor if you look at every one of the decisions you’ve made, of importance, and see which ones worked out and which ones didn’t and, you know, what is your batting average.

And if your batting average gets too bad, you better hand the decision making over to someone else.”

Believability-Weighted Decision Making

In the fantastic book Principles, Ray Dalio talks about a thought provoking concept he refers to as “believability-weighted decision making”.

Here are a few quotes from his book:

I have found triangulating with highly believable people who are willing to have thoughtful disagreements has never failed to enhance my learning and sharpen the quality of my decision making.

To do it well, be sure to avoid the common perils of: 1) valuing your own believability more than is logical and 2) not distinguishing between who is more or less credible.

This sort of principled and believability-weighted decision making is fascinating and leads to much different and much better decision making than is typical. While believability-weighted decision making can sound complicated, chances are you do it all the time – pretty much whenever you ask yourself, “Who should I listen to?” But it’s almost certainly true that you’d do it a lot better if you gave more thought to it.

The most believable opinions are those of people who 1) have repeatedly and successfully accomplished the thing in question, and 2) have demonstrated that they can logically explain the cause-effect relationships behind their conclusions.

When believability weighting is done correctly and consistently, it is the fairest and the most effective decision-making system.

Every day is not a new day.

Over time, a body of evidence builds up, showing which people can be relied on and which cannot. Track records matter, and at Bridgewater tools such as Baseball Cards and the Dot Collector make everyone’s track records available for scrutiny.”

Track Your Batting Average

Take an important decision like a capital expenditure or other large purchase or investment and document key management’s expectation of results.

Then create a simple process where you sit down to evaluate results vs. expectation after six months, one year, eighteen months, etc.

Rinse and repeat for future big decisions and see what you find.

I bet you will find that some of your management team are better than others when it comes to the quality of their important business decisions… and outcomes.

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Using Cool Dashboards to Drive Profitability and Cash Flow

February 10, 2018 by Philip Campbell Leave a Comment

The dashboard you see above is a simple, interactive dashboard a company uses to help them monitor the metrics that matter in their business. The dashboard is interactive, so you can play with it. You can:

Mouse over the visuals to get additional information about each metric
Move between the five pages by clicking at the bottom center of the dashboard
Expand the size of the dashboard by clicking in the bottom right corner
Use the “slicer” in the top right corner to dynamically change the time periods being presented.

Check out this short video where I show you how to use the dashboard.

I’m a huge fan of using cool financial dashboards to highlight the metrics that really matter in business.

New technology has made dashboards super powerful and amazingly easy to use (and low cost). I absolutely love the focus they bring to the work of improving profitability and cash flow in a business. It can help you:

Use the Monthly Financial Rhythm of business to highlight the metrics that really matter
Create and present compelling visual, interactive dashboards
Make your dashboards shareable in the cloud
Create drilldowns that impress and enlighten
Make your dashboards available on mobile devices so insights are available anytime, anywhere, from any device

I will be presenting a complimentary webinar on March 15, 2018 to show you some specific examples of cool dashboards. You’ll be surprised what you can create with the new breed of Business Intelligence (BI) technology and tools available today.

You can sign up for the free webinar here.

If you are reading this after March 15, 2018, you can see the recorded version of the webinar with your free membership here.

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Why Financial Forecasting Helps You Make Better Business Decisions

June 3, 2017 by Philip Campbell Leave a Comment

Financial forecasting is the ideal tool for helping you make better business decisions. It provides you with the view through the financial windshield of your business.

Imagine driving your car on the freeway without a clear view through the windshield. The question isn’t whether you will crash. The question is how severe will the crash be… and will you survive.

Making better business decisions is step one to creating better financial results. And the faster you make those business decisions, especially when your results have been going in the wrong direction, the faster you can make the changes that lead to improvements in profitability and cash flow.

In the Preface to the book Future Ready: How to Master Business Forecasting, the authors (Steve Player & Steve Morlidge) say:

… the biggest value in effective forecasting lies in its contribution to steering the business; to the day-to-day decision-making that lies at the very heart of business. Decision-making is driven by information – without it management is no more than guesswork – and it comes in two ways. There is information about the past (actuals) and then there is information about the future (forecasts).”

What’s missing in many organizations today is information about the future (especially the near future).

A reliable financial forecast fills that gap by providing the forward-looking view of financial performance. It fits beautifully in the planning and performance management process because it can shave a good three to six months off the normal decision-making timeframe.

There is a significant lag in most organizations between when the leadership team sees financial results they don’t like and when they actually make changes in the business to get results back on track.

What happens is the management team is executing their strategy and waiting for the financial statements to come out so they can see the financial results. When the results are not good they scratch their heads, and wonder what the problem is.

Oftentimes they conclude that something is just weird in the numbers that month and say, “These numbers don’t make sense. Let’s see what the numbers look like next month.” Another month goes by and the actual results come out and the results tell a similar story. Management still doesn’t quite believe the numbers so they are not ready to make changes in the strategy or tactics in the field.

Finally, a couple more months go by and they are forced to admit that changes are needed in the strategy in order to have an impact on results. Three to six months can go by and thousands or millions of dollars go down the drain as a result.

Financial Forecasting Helps You Make Better Business Decisions… Faster

A reliable financial forecast can short circuit that process because the view of what is about to happen provides feedback on results before they even happen. Then when the actuals come in, and they turn out to be like the forecast, the team has confirmation that the view through the windshield is providing them with reliable information that a course correction is required.

It’s a powerful way to help you and your leadership team make better, faster business decisions.

And better business decisions lead to better financial results.

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

The 5-Minute Profitability Assessment

May 19, 2017 by Philip Campbell Leave a Comment

Is your business as profitable as you want it to be? And what is the best way to assess whether it is as profitable as it should be?

It is very easy to get lost in the weeds as you diagnose (then work on fixing) any profitability problems you might have in your business. For example, when you begin assessing your profitability, you will have lots of questions run through your head. Questions like:

Could I be more profitable?
By how much?
Says who?
Based on what?
Do I have a revenue problem?
Do I have an expense problem?
Should I raise my prices?

I have found that the best way to answer those questions is to use what I call the 5-minute profitability assessment.

Create the 5-Minute Profitability Assessment (to determine what your profitability should be).

The purpose of the 5-minute profitability assessment is to quickly determine if your business is as profitable as it should be.

For example, in one company the owner was frustrated because cash was always tight despite the fact that they had made big strides in becoming profitable over the last two years. After completing the analysis, it turns out that profits were only 4% of sales in a business where the norm is closer to 10%. At $4,000,000 in revenues, that meant their Profitability Gap was $240,000 (10% – 4% x $4,000,000).

Now that they had put a number on the profit improvement target (the opportunity), the mission became “closing the profitability gap”.

The goal of this 5-minute profitability assessment is to come up with an estimate of what your annual profit should be (or could be). Your estimate doesn’t have to be right. It just needs to be a number you can write down. You will have plenty of time later to explore your estimate in more detail to determine if it should become your new profitability target.

Here’s the exercise. Take 5 minutes to come up with an estimate of how much money you should make each year in your business. Here are the steps:

Look at your pre-tax income (your profit before income taxes) for the last twelve months. Divide that number by your revenues (total sales). Jot that percentage down. Let’s say that revenues are $10,000,000 and pre-tax profit is $500,000. So the percentage is 5%.
Look at your gross margin (gross profit dollars divided by revenues). Use that percentage to lookup your pre-tax profit target range in the chart below. Let’s say gross profit is $4,200,000. So the gross margin is 42%. The pre-tax profit range in the table is 15% to 20% of revenues.
Pick a pre-tax profit percentage in the range and multiply that times revenues. Write that number down. In my example, I’ll choose 15% (to be conservative). That number times $10,000,000 in revenues is a pre-tax profit target of $1,500,000.

In this exercise, based on my example, the profit target is $1,500,000 and the actual profit is $500,000. The Profitability Gap is the difference, or $1,000,000.

Remember, it’s just an estimate… for now. You will have time to more fully analyze that number later.

Give it a try with your P&L.

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Here’s the Cash Flow Story at Xero

August 7, 2016 by Philip Campbell Leave a Comment

So how is the cool new accounting cloud based software company Xero doing financially?

My favorite approach to looking at the big picture of a company’s financial performance is to “xero” in on the cash. I use the Cash Flow Focus Report to create a skinnied down version of the GAAP cash flow statement.

I provided a summary of Xero’s cash flow and financial results back in 2014.

Now let’s take a look at their most recent financial results (through the lens of the Cash Flow Focus Report) for the fiscal year ended March 31, 2016:

The Three Largest Drivers of Cash

Let’s look at each of the three largest drivers of Xero’s cash flow for the year.

Net loss – The company lost $82 million on $207 million in revenues. That’s a big percentage of revenues. (Don’t try that at home!!!) In deciding to label this either good or bad, I would normally look at the budget or the projections to see if it is line with expectations and strategy. In this case, I labeled it as good because losing money (at least for now) is part of their strategic plan to grow.

Capitalized development costs – A large portion of the money Xero is spending on the actual creation of their cloud-based software is being capitalized because it benefits future periods. In FY 2016, they put $48 million of those costs on the balance sheet and will amortize (expense) it over time. I labeled it as good since I doubt the dollar amount is a surprise to management.

Amortization – $23 million of previously capitalized development costs were amortized (expensed) during the year. I labeled it as good since the costs have to be amortized.

Three Year Cash Flow Summary

Here is a summary view of the three largest drivers of cash over the last three years:

Other Financial Highlights

Revenues for the year were $207.1 million. $16.9 million of that was in North America.

They have 717,000 paying subscribers. 62,000 of those are in North America.

They have 1,454 employees. That is up from 1,161 in the prior year.

They have raised a total of $380 million (or so) over the last four to five years.

Their year-end cash balance was $184 million.

Stay tuned as we wait to see if cool accounting software, combined with a boatload of cash, can put a dent in the popularity of QuickBooks in the U.S.

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Free Report: A 3-Part Plan to Breathe Financial Life Back Into Your Business

I have created a report that dives deeper into the 3-part plan and each of the 10 steps in the system for making your business stronger financially. And I am making it available at no cost as part of becoming a member of the Financial Rhythm Membership Group.

Financial success in business can transform your life and the life of everyone who is counting on you financially. Winning financially is an important prize in business.

But there’s no magic wand you can wave that will instantly create financial success. Winning financially in business is a journey. It’s about deciding what you are trying to create financially. Then creating a plan to get you there safely and on time.

This free report provides you an achievable, 3-Part Plan you can begin implementing today. You will be surprised and delighted at the speed with which you see financial results and feel the benefits.

You can sign up for the Free Membership and get instant access to my Free Report: A 3-Part Plan to Breathe Financial Life Back Into Your Business.

And for a limited time, you can download a free copy of my book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore.

Grab Them Both Right Here – Its Free

CFO to the Rescue

March 18, 2016 by Philip Campbell Leave a Comment

In this post, I’ll talk about two of my favorite subjects: money and making a difference. More specifically, I’ll talk about making money and the unique role a CFO can play in creating financial health and wealth for business owners.

So I will be speaking in this post to the portion of my audience who are CFOs and accounting professionals to encourage them to play a more strategic role in driving financial success in business.

I will also be speaking to the portion of my audience that are entrepreneurs and CEOs. I will share with you my insight on the larger strategic value of a CFO when the time comes for you to pull the trigger and hire a full-time or outsource CFO.

A CFOs Unique Skillset

Think for just a minute about how perfectly positioned we are as CFOs to help a company win financially in business. By winning financially, I mean helping to create a company that is financially strong and that creates wealth for its owners.

What we need to do is take our financial expertise and direct it toward playing a more strategic role in creating financial success for a company and its shareholders. There’s no one in the company better positioned than we are to bring order and structure to the complex process of creating true and lasting financial success in business.

Not to mention the fact that playing a more strategic role in helping a business win financially is a super-fun and exciting way to add value as a CFO. 🙂

The Ultimate Goal of Your CFO

Here is an objective I encourage you to adopt in your role as CFO. I call it the big thank you.

Thank you Philip. You helped me create a financial future for this business that is bigger and brighter than I could have ever imagined when you joined our team.

That is what you want to hear from the entrepreneur or CEO of the company you work with.

When you set an objective like that, it inspires you to reach down deep and work on really making a difference inside a company. It reminds you that helping a company succeed financially is also helping people succeed financially.

It adds a sense of fun and adventure to the work we do every day as CFOs and accounting professionals.

The Mission in Business

Here is my view of the primary objective of business:

The mission in business is to create and have money.

By “create and have money” I mean to make money and hang on to a portion of it. Or, to make money and create wealth. The key is to be very clear with yourself that the financial goal in business is to be profitable and to turn a portion of those profits into an ever growing net worth for the business and its owners.

I recognize that not everyone is comfortable with my statement that the mission in business is to create and have money. Partly because most mission statements are intended to be more philosophical. And partly because most mission statements are really more about marketing because they are intended to be put in front of customers.

So you can add the word “unstated” before “mission” to make it a little easier for you to digest and agree to. So you don’t need to put my version of your mission on your business card. But it is very important as the CFO that you focus very purposefully and consistently on the underlying importance of helping the company “create and have money”.

It’s your job!

Making Money and Increasing the Value of the Company

Here is another way to look at the two sides of money in business.

This is a graphic I like to show entrepreneurs and CEOs to help paint the picture for them of the two sides of money: making money and creating value.

We have to focus on profitability (on the left side of the graph) so we have the money to grow the business and ultimately return a portion of those profits to the owners of the business every year.

We also have to focus on increasing the value of the business (on the right side of the graph) so the value of the company continues to go up. Financial success for the company and its owners requires both sides of the money equation to be healthy and growing over time.

Think about buying the stock of a public company as an example. Let’s say I invest $10,000 in the stock of a company. I want to receive a return on that investment (generally in the form of dividends) every quarter. I also want to know that, over time, the value of the company is going up.

Let’s say that ten years has gone by and I decide to sell my shares and I sell them for $100,000. I would have received dividends during those ten years as well as experiencing a nice increase in the value of the company when I sold my ownership interest.

That same dynamic applies to every company. As the CFO, we want to focus on helping drive above average profitability and also create a strong return on investment for the company and its owners.

The CFO’s Role in the Two Sides of Business

I like to look at business as having two overriding goals.

The first goal is to create happy customers.

I call this part of business The Customer Factory. At the heart of a strong business model is being really good at getting and keeping customers… profitably. That is the primary role of the entrepreneur or CEO. A CFO can assist in many aspects of that process, but the CFO is not the person primarily charged with the all-important challenge of getting and keeping customers.

The second goal is to create happy owners.

I call this part of business The Money Factory. A happy owner is a person receiving frequent distributions of excess cash while at the same time seeing the value of their investment is grow.

This side of the business is about managing the complex relationship between profitability and the many different aspects of cash flow. Then helping to mold the result into a strong net worth for both the business and its owners.

This is where a strategically focused CFO shines. This part of the business is led by a CFO working closely with the CEO and the leadership team to help the company and its owners win financially.

The Obstacles in the Way

There is a reason so many businesses fail to achieve financial success. It’s because there are very real obstacles to overcome when it comes to creating above average profitability and growing the value of the business for owners.

I put the obstacles in two buckets.

Entrepreneurs and CEOs:

Oftentimes CEOs lack the understanding or appreciation for the work that goes into managing the financial side of the business properly
Tend to ignore the financial side of the business until it becomes a problem
Wait too long to bring on a permanent or outsource CFO
Not always open to confronting the financial reality of their business

CFOs and the Accounting Department:

Covered up by the ever-growing day-to-day accounting and compliance responsibilities
Overly focused on the past
Uncomfortable trying to contribute at a more strategic level

In my 20+ years as a CFO, I have learned that the best way to overcome obstacles like these is to think SMALL. Think baby steps. No need to try to blow through every obstacle in one fell swoop.

Your Financial Confidence Plan

What you need is a plan, a financial road map, that is easy to follow and that can be implemented in a methodical, actionable way. A plan that fits perfectly into The Monthly Financial Rhythm of business.

Here is an achievable, 3-Part Plan you can begin implementing today. You will be surprised and delighted at the speed with which you see results and feel the benefits as you begin implementing this plan.

There’s no magic wand you can wave that will instantly create financial success in business. Winning financially in business is a journey. It’s about deciding what you are trying to create financially. Then implementing a plan to get you there safely and on time.

This 3-Part, 10-Step Plan is a simple, step-by-step approach to creating financial health throughout the lifecycle of your business. It provides you a path to follow. It provides the clarity of knowing what your next steps need to be on the road to financial improvement. It’s a “one foot in front of the other” approach to making your business financially strong.

The road map will give you the confidence that comes from having a simple system to follow. It helps shift your focus to specific action items and away from the fuzziness that too often leads to struggle and confusion.

My blog post, How to Breathe Financial Life Back into Your Business, describes the power of this financial road map and each of the 10 steps in the process. Read it real quick and see if it is the road map you are looking for.

Here’s to financial health, wealth, and freedom in your business.

Enjoy!

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Free Report: A 3-Part Plan to Breathe Financial Life Back Into Your Business

Financial success in business can transform your life and the life of everyone who is counting on you financially. Winning financially is an important prize in business.

This free report provides you an achievable, 3-Part Plan you can begin implementing today. You will be surprised and delighted at the speed with which you see financial results and feel the benefits.

You can sign up for the Free Membership and get instant access to my Free Report: A 3-Part Plan to Breathe Financial Life Back Into Your Business.

And for a limited time, you can download a free copy of my book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore.

Grab Them Both Right Here – Its Free

A Reliable Financial Forecast: One of the Most Powerful Tools in Business for Improving Your Profitability and Cash Flow

January 27, 2016 by Philip Campbell Leave a Comment

Imagine this. You walk out to your car first thing in the morning to drive to the office. You open the door… get in… put your seat belt on… and start the car.

You wrap a blindfold across your eyes and tie it around the back of your head so you can’t see anything. Then you put the car in reverse and begin your journey!

How far do you think you will go before you hit something? Not far, right?

But That’s What’s Happening in Many Businesses Today

What’s interesting is that the same entrepreneur or business owner that would never put a blindfold on while driving their car is essentially doing the same thing every day when it comes to running their company.

They are hurting their profitability and cash flow (and creating stress and frustration in the process) because they are cruising along on the highway of business with a blindfold wrapped across their eyes. The question isn’t whether there will be an accident. The question is how bad will the crash be… and will the business survive it.

A Reliable Financial Forecast to the Rescue

The cure for this problem is to implement one of the most powerful tools in business – a reliable financial forecast.

Creating the forward looking view of financial performance is a surprisingly effective way to transform the financial future of your company. It will:

Help you drive growth, profitability and cash flow higher
Create confidence and clarity about where your business is going financially
Provide the roadmap for turning your vision and strategy for your business into a crystal clear view of what success should look like financially
Enhance confidence and credibility with lenders and investors so they provide the capital and support you need to grow your business
Help you make more confident, profitable financial decisions

In short, a reliable financial forecast will help you win financially in business.

Now Try This…

Stand up and cover your eyes with both hands so you can’t see anything in the room. Now walk to the other side of the room without uncovering your eyes.

That was uncomfortable wasn’t it? Even in a room you are very familiar with, it is uncomfortable trying to do a simple thing like walk to the other side of the room when you can’t see anything in front of you.

Now let’s try that same experiment again, but with a twist. This time separate your fingers just a wee bit so you can peek through your fingers. Now walk across the room.

Much more comfortable isn’t it? That little bit of visibility is enough to prevent you from running into something.

That’s what a reliable financial forecast (a financial projection) is all about.

Not providing complete visibility or certainty. Just providing a glimpse of what lies ahead so you can get where you are going safely.

Defining a Reliable Financial Forecast

By “reliable,” I’m referring to unbiased, reality-based expectation of financial results that is designed for decision-making (not precision).

By “financial forecast,” I’m referring to a full set of forward-looking financial statements (income statement, balance sheet, and cash flows) that includes a 2-minute summary.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future. Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

A Quick Start Guide to Financial Forecasting, will help you create the view through the financial windshield of your business. Learn more here.

The Monthly Financial Rhythm

Let’s take a look at how financial forecasting fits into the monthly financial rhythm of business.

Business moves in a rhythm, a cycle. So does financial management.

I call it the TARGET, MONITOR, ADJUST cycle. It’s about setting financial goals and targets, monitoring forecasts and actual financial results, and making adjustments in strategy and execution inside the business when financial results differ from the target or expectation.

The cycle continues every month by making any necessary changes to the financial goals and targets and the resulting forecast/expectations. It’s a Monthly Financial Rhythm designed to help you focus on what matters most. It’s the key to turning financial information into insight… and improved profitability and cash flow.

10 Rules for Creating a Forecast You Can Trust

Creating a reliable financial forecast does not have to be a difficult process. It is really a matter of using a few basic principles together with your intuition and knowledge about the business. Here is a summarized version of the 10 rules for creating a forecast you can trust.

Forecasting Rule No. 1: Think Decision-Making, Not Precision. One thing stopping you from creating a forecast is thinking that you don’t know exactly what the future holds and what will happen if your forecast is wrong.

Transaction processing and creating historical financial statements is about being right. (Here, precision is your friend.) On the other hand, forecasting is about improving the company’s ability to make better business decisions. (Here, precision is your enemy.)

As you create and use forecasts and projections, think decision-making, not precision.

Forecasting Rule No. 2: Think Top-Down, not Bottom-Up. Forecasting uses big-picture drivers and assumptions to create a model of what the financial statements may look like based on existing trends and plans. You have to take yourself up to the 30,000-foot level and look down on the business financially as you forecast.

It’s about painting a picture of what the financial results will likely be based on your knowledge and intuition rather than actual transactions. Your forecast looks at the strategic view and direction of where the company is going—not the nitty-gritty bottom-up details.

Forecasting Rule No. 3: Model a Full Set of Financial Statements. A reliable financial forecast is a living, breathing tool that is updated monthly. The basic format should track with your existing financial statements (income statement, balance sheet, and statement of cash flows in the same format you use for monthly financial reporting) for at least the next six to eighteen months.

Forecasting Rule No. 4: First Look Back, Then Look Forward. One of the biggest mistakes entrepreneurs (and CFOs) make in creating a forecast is to start with a clean slate. They pull up a blank spreadsheet and begin thinking about what the first month in the forecast will look like. The problem is you unhook your forecast from reality when you do that.

The first step should be to drop in actual results for the last six to eighteen months (or more). Have the revenues and expenses been coming in the way you expected them to? Can you see a trend developing? Are you surprised by any of the numbers now that you are looking at the last six to eighteen months of actual results next to each other?

Once you have a good view of what the financial results have been over the last six to eighteen months, you want to look at some of the factors that can make the next six to eighteen months vary from the historical results. That could include things like seasonality, a change in service or product mix, whether you will be expanding geographically, etc.

Forecasting Rule No. 5: Understand the High-Level Company Strategy and Expectations. One of the benefits of forecasting is that it forces you to think about your company’s vision and strategy more deeply. For example, what are the three most critical goals or initiatives for the coming year? Is the company planning to grow slowly or aggressively? Are there plans to move into new markets or attempt to attract new customer segments?

Answering these types of strategic questions forces you to step back and think about the big picture. If you have a CFO it helps him or her “get out of the ledger” and talk to management about their division’s goals or their department’s strategies. It requires you to talk to your board and trusted advisors to get their input and perspective.

Forecasting Rule No. 6: Simplify, Simplify, Simplify. One of my favorite quotes, known as Meyer’s Law, says: “It’s a simple matter to make things complex, but a complex matter to make things simple.”

You will be surprised how difficult this advice is to implement once you begin creating, and regularly updating, your financial forecast. The number of potential rabbit holes you can dive into while forecasting is huge. With all the assumptions you have to make in creating your forecast, it is very important to think about one of the more counterintuitive facts about forecasting: The more detail you bring into the forecasting process, the more error you will create.

The key to success in forecasting is to be always thinking about how to simplify, simplify, simplify…and simplify some more. Simplify the key drivers, critical assumptions, and how you interpret and present the results of the forecast.

Forecasting Rule No. 7: Create a Repeatable Process. Because your forecast will be updated with actual results and the forecast adjusted every month based on current information, repeatability is very important to the forecasting process.

The software tool you choose will impact the success of your forecasting process. The tool must include the underlying logic for forecasting (modeling) a full set of financial statements and perform a number of additional functions. (Chapter 6 in my book A Quick Start Guide to Financial Forecasting is titled Choosing Your Software Tool–Spreadsheets vs. Forecasting Software. This chapter helps you evaluate the pluses and minuses of spreadsheets vs. software tools).

Forecasting Rule No. 8: Be Conservative. Because we know a forecast will not be perfectly accurate, the challenge is keeping it in the “ballpark” as a wildly inaccurate forecast will hurt your credibility. You do that by being conservative in your key assumptions.

It’s like meeting someone for lunch. You agree to meet a good friend at a restaurant at noon. You set noon as the time to meet so you will both be there at about the same time. But despite the precise time you set, you know that both of you will not show up at exactly noon. The only question is whether you will be there a little before noon or a little after noon. Will you be early or will you be late?

It’s the same for your forecast. Your estimates will not be perfectly accurate. You want to err on the side of being conservative. That way the surprises are pleasant rather than unpleasant.

Forecasting Rule No. 9: Condense the Results to a 2-Minute Summary. Creating a reliable forecast and effectively communicating it to your audience starts with making the forecast results simple and easy to understand. Here is a helpful exercise that works especially well when implementing a forecast process for the first time.

Imagine you will sit down with your board tomorrow morning. In that meeting, you will have two minutes to convey the essence of the forecast (key insights, implications, and assumptions) to him or her. That person will then step into another meeting with the company’s key shareholders and lenders to share his or her insight about where the company is going financially. Your mission: Ensure they can share the insights from the forecast with confidence and clarity.

This exercise will force you to distill the insights and implications of the forecast down to what matters most so that you can clearly identify and communicate the most important high-level drivers and assumptions.

Forecasting Rule No. 10: Start for Your Eyes Only. As you make progress in creating your forecast, it’s natural to want to begin sharing it immediately. However, keep it “for your eyes only”—at least to start.

That means don’t sell your leadership team on the value of having a forecast, don’t talk to them about the assumptions or specifics as you create the forecast, and don’t send the results of the forecast to them—yet.

Instead, spend a few months “beta testing” your forecast to learn from and experiment with the process before rolling it out to the management team or the board. Create assumptions at the highest level possible to prove to yourself that you don’t need to forecast at the detail level. Create the forecast for the next three months, then com- pare the actual results each month. What worked out well? Are you surprised at the difference between your forecast and the actual results?

After running the forecast process for three months, you will become more confident and knowledgeable about the benefits of forecasting and how best to create and present the results. You will learn firsthand where the landmines are to avoid. You will develop a better sense of the kinds of monthly and strategic decisions that the forecast can help you answer and influence.

Creating a Brighter Future for Your Business

A reliable financial forecast can play a huge role in your journey to financial success in business. It will help you:

Define where your company is going financially (and where you want it to go)
Expose the danger and opportunities that lie ahead
Create a road map to get you there safely and on time
Monitor the pace and progress on the journey to financial success

Best of all, it is a surprisingly effective tool in helping you increase profitability and improve your cash flow.

And it all starts with a reliable financial forecast. 🙂

Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Ouch

Making Money is a Skill

The Monthly Financial Rhythm of Business

It’s All About Profitability and Cash Flow

Aspirational Goals

A Young CPA

A Net Worth of $1 Million… or More

Progress is the Real Objective

Driving Financial Improvement in Your Business

Your CFO

Taking Your Understanding to the Next Level

Believability-Weighted Decision Making

Track Your Batting Average

Three Year Cash Flow Summary

Other Financial Highlights

Free Report: A 3-Part Plan to Breathe Financial Life Back Into Your Business

A CFOs Unique Skillset

The Ultimate Goal of Your CFO

Thank you Philip. You helped me create a financial future for this business that is bigger and brighter than I could have ever imagined when you joined our team.

The Mission in Business

The mission in business is to create and have money.

Making Money and Increasing the Value of the Company

The CFO’s Role in the Two Sides of Business

The first goal is to create happy customers.

The second goal is to create happy owners.

The Obstacles in the Way

Entrepreneurs and CEOs:

CFOs and the Accounting Department:

Your Financial Confidence Plan

Free Report: A 3-Part Plan to Breathe Financial Life Back Into Your Business

But That’s What’s Happening in Many Businesses Today

A Reliable Financial Forecast to the Rescue

Now Try This…

Defining a Reliable Financial Forecast

10 Rules for Creating a Forecast You Can Trust

Creating a Brighter Future for Your Business

Philip Campbell

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