4 Ways That Financial Complexity Creeps Into Your Business

Author: Larry Chester, Founder & President

Small Businesses have very simple financial profiles. There are few employees, few products, and simple production processes. In Family Owned businesses, the family may be the only employees, and the time they spend working is not valued, because it’s free.

The immediate concerns are the cost of raw materials, packaging, and freight. Even a Part Time Controller would help, but for now, there is no one to guide the record keeping, provide the Business Metrics to help with an Analysis of Profitability, Cash Flow, or Forecasting. Detailed record-keeping is something you’ll take care of later. There are more important things to deal with now, like customers and product development.

But before you decide to put off detailed accounting till “later,” here are some tips on why you should start doing that work right now:

• Adding Employees – The first decision is whether you are going to do your own payroll or hire an outside service. An outside service will save you headaches down the road. Consider putting your employees in different categories to identify your costs. Administration, Development, Sales, etc.
• Launching New Products – As you introduce new products, identify families of products, so you can group your sales. Segregate your costs so that you can identify your direct expenses relating to each product. You need to identify your product margins, tracking how profitable each product or family of products is.
• Using Multiple Suppliers – Identify the items you’re buying, and who you’re buying them from. Are you sole sourcing? How much are you spending with each supplier? This might point out a dangerous concentration, or give you ammunition for a discount.
• Borrowing Money – If you are going to a bank, or planning an equity offering, you need to have a clear presentation of your costs and margins, projected sales and profits. All of this will be a logical extension of a detailed accounting record. Without that record, you can’t tell an accurate story of your company’s performance and future.

Financial complexity arrives slowly. The best time to create the financial structure for your company is right now. Implementing proper financial reporting AT THE OUTSET will make your life easier. The help of a Part Time CFO or other consulting advisor provides you with the guidance to do it right, and information in your hands to make the right decisions for your future.