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The Importance and Benefits of Small Business Certifications

The Importance and Benefits of Small Business Certifications

There are many important benefits and advantages available to businesses owned by women and/or minorities, but in order to qualify for them a business must become certified as a minority- or woman-owned enterprise. Connections, marketing assistance, and technical training are just some of the benefits that come with certification, says Susan Rittscher, president and CEO of the Center for Women & Enterprise, the New England affiliate of the Women’s Business Enterprise National Council, a leading certifier of women-owned businesses. (Others include the National Women Business Owners Corporation and the National Association of Women Business Owners.)

“First and foremost, if the diverse-owned business is interested in pursuing bids or contracts with a large corporation with a supplier diversity program, a state agency, or a federal agency, they must be certified in order to count toward supplier diversity goals,” Rittscher says. Another benefit of certification is connections to other certified businesses, which can be a powerful network of potential partners, clients, and advisors and mentors. “Certification is a strong marketing and selling tool for business owners when leveraged effectively,” she adds. Certified businesses may also have access to exclusive programs and services such as professional development workshops and networking and matchmaking events.

Tom Greco, vice president of ThomasNet.com, a free platform with a database of more than 610,000 companies, notes that there are many different ownership/diversity certifications that provide a competitive advantage to qualifying companies, and many businesses and government agencies are anxious to do business with them. “Indeed, 72 percent of buyers recently surveyed by CAPS, a research arm of the Institute for Supply Management, said they would be increasing their spending with diverse suppliers. Diverse businesses include Women-Owned Businesses and Minority-Owned Businesses as well as Veteran-Owned Businesses, Small Disadvantaged Businesses, HUBZone Businesses, and Service-Disabled Veteran Businesses,” he says.

While the process for obtaining various kinds of certification varies, Greco suggests that a business seeking any of the certifications mentioned above start by self-registering with the federal government’s System for Awards Management (SAM), since that is a requirement for most types of certification. Next, seek out one of the major certification organizations for your diversity group—such as WBENC for a women-owned business or the National Minority Supplier Development Council for a minority-owned firm. In most cases, minority-owned business certification falls under the purview of the individual states. Check out this useful list of certifying agencies by state to learn more.

It is important to note that in order to qualify for minority- or women-owned certification, the business must not only be owned by minorities or women but also controlled by them, says Dean dt ogilvie [ed. note: lack of capitalization is intentional and should be retained], the dean and a professor of business strategy at the Rochester Institute of Technology’s Saunders College of Business. “They have to be the ones making the decisions about strategy, business, and structure. They can’t just be figureheads to get the certification,” she warns. Owners must provide required documentation to prove ownership and control; they must have contributed capital and/or expertise to the business; they must be U.S. citizens (or, for some programs, resident aliens); and they must be independent in decision-making, Rittscher says.

Lisa Firestone is president and owner of Managed Care Advisors (MCA), a woman-owned employee benefits and disability management consulting and workers’ compensation case management firm based in Bethesda, Maryland, and she believes certifications and the set-asides to which they provide access play an important role in leveling the playing field for companies like hers. MCA is a certified minority business enterprise in Maryland and several other states and a WBENC-certified woman-owned business. In 2012 it also became certified as an Economically Disadvantaged Woman-Owned Small Business. “Honestly, before my business entered into government contracting, certifications and set-asides were unfamiliar concepts, and ones that made me a bit uncomfortable,” she says. “But what I have learned is that there really is no ‘special consideration,’ but just an opportunity to level the playing field and compete effectively. Certifications can get your business noticed, but they are not a direct conduit to a contract. You still have to get out there, compete for that business, and win it.”

May 15, 2014 Today's Business, , , , , , , , , , 0 Read more >

Using Your Benefits of Certification To Advance Your Business

Using Your Benefits of Certification To Advance Your Business

There are many important benefits and advantages available to businesses owned by women and/or minorities, but in order to qualify for them a business must become certified as a minority- or woman-owned enterprise. Connections, marketing assistance, and technical training are just some of the benefits that come with certification, says Susan Rittscher, president and CEO of the Center for Women & Enterprise, the New England affiliate of the Women’s Business Enterprise National Council, a leading certifier of women-owned businesses. (Others include the National Women Business Owners Corporation and the National Association of Women Business Owners.)

“First and foremost, if the diverse-owned business is interested in pursuing bids or contracts with a large corporation with a supplier diversity program, a state agency, or a federal agency, they must be certified in order to count toward supplier diversity goals,” Rittscher says. Another benefit of certification is connections to other certified businesses, which can be a powerful network of potential partners, clients, and advisors and mentors. “Certification is a strong marketing and selling tool for business owners when leveraged effectively,” she adds. Certified businesses may also have access to exclusive programs and services such as professional development workshops and networking and matchmaking events.

Tom Greco, vice president of ThomasNet.com, a free platform with a database of more than 610,000 companies, notes that there are many different ownership/diversity certifications that provide a competitive advantage to qualifying companies, and many businesses and government agencies are anxious to do business with them. “Indeed, 72 percent of buyers recently surveyed by CAPS, a research arm of the Institute for Supply Management, said they would be increasing their spending with diverse suppliers. Diverse businesses include Women-Owned Businesses and Minority-Owned Businesses as well as Veteran-Owned Businesses, Small Disadvantaged Businesses, HUBZone Businesses, and Service-Disabled Veteran Businesses,” he says.

While the process for obtaining various kinds of certification varies, Greco suggests that a business seeking any of the certifications mentioned above start by self-registering with the federal government’s System for Awards Management (SAM), since that is a requirement for most types of certification. Next, seek out one of the major certification organizations for your diversity group—such as WBENC for a women-owned business or the National Minority Supplier Development Council for a minority-owned firm. In most cases, minority-owned business certification falls under the purview of the individual states. Check out this useful list of certifying agencies by state to learn more.

It is important to note that in order to qualify for minority- or women-owned certification, the business must not only be owned by minorities or women but also controlled by them, says Dean dt ogilvie [ed. note: lack of capitalization is intentional and should be retained], the dean and a professor of business strategy at the Rochester Institute of Technology’s Saunders College of Business. “They have to be the ones making the decisions about strategy, business, and structure. They can’t just be figureheads to get the certification,” she warns. Owners must provide required documentation to prove ownership and control; they must have contributed capital and/or expertise to the business; they must be U.S. citizens (or, for some programs, resident aliens); and they must be independent in decision-making, Rittscher says.

Lisa Firestone is president and owner of Managed Care Advisors (MCA), a woman-owned employee benefits and disability management consulting and workers’ compensation case management firm based in Bethesda, Maryland, and she believes certifications and the set-asides to which they provide access play an important role in leveling the playing field for companies like hers. MCA is a certified minority business enterprise in Maryland and several other states and a WBENC-certified woman-owned business. In 2012 it also became certified as an Economically Disadvantaged Woman-Owned Small Business. “Honestly, before my business entered into government contracting, certifications and set-asides were unfamiliar concepts, and ones that made me a bit uncomfortable,” she says. “But what I have learned is that there really is no ‘special consideration,’ but just an opportunity to level the playing field and compete effectively. Certifications can get your business noticed, but they are not a direct conduit to a contract. You still have to get out there, compete for that business, and win it.”

 

April 30, 2014 Today's Business, , , , , , , , , , 0 Read more >

Creating a Living Business Plan

Creating a Living Business Plan

To strengthen your focus and prospects for growth, commit your strategy to paper—and let it live off the page.Creating a Living Business Plan

1. Introduction: Plan Because You Need To

Staff members at the Shenandoah Valley Small Business Development Center (SBDC) receive frequent calls for help in creating a business plan. The trouble is, the entrepreneurs who seek this assistance often aren’t launching new companies. They’ve been running existing companies without a business plan and sit down to write one only when forced to by banks or other lenders who need that document to process a financing application.

That approach deprives the company of a resource that can play an important role in driving and guiding growth. “The plan is really a management tool for the business owner,” says Joyce Krech, the SBDC’s director. “It’s a great piece of the lending package, as well, but we would prefer that they be doing it for their own purposes and not because they’re being asked to do it.”Creating a Living Business Plan

2. Stay On Course and On Target

Capturing your business planning process in writing gives you a solid analysis of the company’s mission, income, financial obligations, and paths to growth. Companies that operate without a written plan run the risk of getting distracted and thrown off course by opportunities that may seem interesting but aren’t really germane to their core business and function.

“They lose their focus, which just deters them from growth,” says Gwen Moran, founder of Biziversity, an online information resource for small businesses, and co-author of The Complete Idiot’s Guide to Business Plans (second edition, Alpha). “A business plan acts as your touchstone to keep you on track, to make sure that your business is performing in the way that you expected it to perform. Without a business plan, it’s very difficult to gauge those metrics and to know exactly what your business needs are at any given time.” Creating a Living Business Plan

Once the plan is written, how do you keep it in play and optimize its value to your business? Experts recommend that you revisit your plan each time you review the company’s performance—whether that means at annual or quarterly meetings or in regularly scheduled conferences with your financial advisor. That helps business owners to hold themselves accountable to their plans and look objectively at whether the company is on course in terms of liquidity, credit, human resources, pay scales, production capabilities, distribution and logistics systems, risk management, and marketing.

“A good accountant will be able to help you fine-tune your plan and see opportunities and pitfalls that you might not even see because you’re so in the day-to-day of your business,” Moran says. Other options include SBDCs, the Service Corps of Retired Executives (SCORE), or non-competing business owners who are interested in providing mutual support. “You’ll get insights from different industries and new ways of thinking about doing things.” Whichever option you choose, make sure you select advisors who are willing to stand up to you and make sure you engage in all the critical thinking necessary to maximize the company’s potential for success. Creating a Living Business Plan

3. Know How to Answer, “What If?”

These reviews will help you to assess not only how well your company is performing, but how thorough the plan is in anticipating what could go wrong and how you’ll handle those scenarios. “It could be a resource issue. It could be a competitive issue. The law could change,” says management consultant and business planning specialist Jenifer Grant. “There should always be a risk section in the business plan. And then you can assess, what happens if a key person goes away? What happens if the costs of our main ingredients go up? What if I need to hire people, and I can’t find them? You need to assess all the different risks that could have an impact on your business.”

And those if-then analyses aren’t limited to worst-case scenarios. You should also consider what you’ll do if, for example, your product takes off so much faster than anticipated that you suddenly need to ramp up production and contend with cash flow issues and staffing shortages. “Fast growth can be as much of a stressor as slow growth, or even more so,” Moran says. “You have demands placed on your business, and if you can’t meet the demands of your customers, you’re ultimately going to disappoint them, and they’re going to turn elsewhere.” Creating a Living Business Plan

Comparing what’s written in the plan with what’s happening day to day can even produce insights about entry into new markets or expansion of your customer base. “Then you start thinking, as one of my clients did, ‘I never thought about this particular type of customer for my product before, because I had one vision in mind, one road on my roadmap. I didn’t see this other parallel customer base that I can tap into at very little cost,’” Krech says. In that scenario, too, a business plan is an invaluable resource in helping the company to modify its course and take advantage of those additional opportunities. Creating a Living Business Plan

4. Bring the Whole Team on Board

But the business plan is not just a resource for entrepreneurs and executives. It’s a big challenge, but to get the biggest return on your investment in the plan, you’ve got to look for ways to make it live throughout the organization and ensure that it is supported by every employee. “On a day- to-day basis, you come in, you do your job, whatever it is,” Grant says. “It has to resonate with what you do—you, the individual employee.”

As a business owner, part of your job is to communicate the plan’s importance through your actions and behavior. “As you begin to fulfill your plan, it’s your job to talk to your employees, to talk to your team members, to get them as excited about your business as you are,” Moran says. She advises business owners to make sure their employees understand the solution that the company offers in its market and also the strategy you’re pursuing to achieve your market share. In addition, all employees should know their roles in the business and how they are important to the overall corporate vision. “That’s how you get buy-in. You need to be excited about your plan. If you’re not, then you need to go back to the drawing board until you find what makes you excited about your business, something that you can communicate to the people in your organization to get them excited about the difference that they’ll make in this process.” Creating a Living Business Plan

Moran offers the example of the CEO of a mid-sized manufacturing company who each month invites a small group of employees to his office for coffee, donuts, and conversation about the business. Giving employees that kind of access to a business owner who knows their names and asks after their families is a morale booster. It also gives staff members a chance to see how committed the boss is to the company. “When you see someone who’s truly excited or truly passionate about something, it’s hard not to care about that,” she says. “You get that great one-on-one face time. You get that opportunity to convey excitement, to convey enthusiasm, to let people know that they’re part of a winning team. And everybody wants to be part of a winning team.”

5. A Plan for Top Performance

Once you’ve integrated the plan into your company’s day-to-day operations, how often do you need to revisit and re-evaluate it? That depends on your business and its rate of growth. During periods of rapid growth or cash flow crisis, some entrepreneurs and venture capitalists find it necessary to review the business plan weekly to make sure the numbers are on track. And any time you pass a major milestone or hit a certain revenue target, it’s good practice to re-evaluate the plan and make sure that it’s still serving you well. At a minimum, experts say, you must review the plan annually, and a quarterly review is preferable. Creating a Living Business Plan

“When you keep a microscope on those numbers, they’re going to tell the story of your business. And too many business owners don’t,” Moran says. “They let a few financial statement periods go by before they actually look at the numbers. Then they realize that their expenses are far too high and their incoming revenue is far too low, and they start getting into trouble. But when you start following the numbers monthly and then doing a very serious dive into what’s happening in your business according to the metrics on a quarterly basis, that’s when your business plan starts to become a living, breathing document.” Creating a Living Business Plan

Ultimately, that shouldn’t come at the expense of a huge investment of your time. You can achieve these goals without creating a massive document; a few pages can suffice. The objective is to be equipped to compare current operations and numbers with a written projection or benchmark that points out any divide—positive or negative—between the company’s projected and actual performance. And over the long run, a resource that accomplishes that should save you time, keep your company on track, and help ensure that the business delivers on its potential for sustained profitability and growth. Creating a Living Business Plan

August 20, 2013 Today's Business, , , , , , , 0 Read more >

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management
by Sherron Lumley.

When a business has more money coming in than going out, that’s positive cash flow. Ideally, this is the zone in which a small business could operate forever, like a perpetual motion machine. Even though understanding cash flow seems simple, the day-to-day reality of it can cause mayhem. What to do when a customer payment is in the pipeline for next month, but employees must be paid on Friday, raw materials purchased next week, and the electricity bill taken care of by 5:00 p.m. today? These are the do-or-die questions of cash flow.

According to business information giant Dun and Bradstreet, 90 percent of small business failures are caused by poor cash flow. That’s why creating a cash flow budget, maintaining a cash reserve, getting paid on time, and managing expenses are critical policies to keep your small business successful.

Cash flow management would appear simple except for one major complication, and that’s credit. Accounts receivable and accounts payable are by-products of credit arrangements and the length of time between money paid and money received is called the cash conversion cycle. In a nutshell, cash flow management is about minimizing this cash conversion cycle. The ins and outs of cash flow fill some hefty tomes of financial literature, but here are four simple best practices to improve day-to-day money management for small businesses.

PQ_CashFlow.jpgFirst, make a plan

“The first requirement is an effective budget. If you don’t know what your cash flow is, it will be difficult to manage. Both your budget and your projections should be reviewed and adjusted on a timely basis,” says Andrew Schrage, former hedge fund analyst and founder of Money Crashers, a financial advice website.

The plan, otherwise known as a cash flow budget, is a way to project your business’s cash inflows and outflows over a defined period of time, say six months. The U.S. Chamber of Commerce provides a free download of a cash flow budget worksheet with relevant categories and explanations of what you need to do to prepare a cash flow budget. You start with the current cash, add the projected cash inflows, and then subtract the cash outflows to get your cash flow bottom line.

Have a contingency plan (or two)

In order to anticipate cash inflow, a sales forecast is needed, which can be based on recent revenues, seasonal sales, or market research. It’s important to have several projections, including best-case and worst-case sales scenarios, with a contingency plan of how to respond to these different situations. In the event sales are lower than expected or an unforeseen crisis happens, be prepared by maintaining a cash reserve, advises Dun and Bradstreet. Have alternate sources of cash for when unexpected needs arise, and get to know your bankers before you need a loan from them.

“If you’re in a business with inventory, or if you have employees, you should have a six-month cash reserve,” advises SCORE.org, a non-profit entrepreneurial mentor organization that works in conjunction with the U.S. Small Business Administration.

Managing inventory—mind the gap

The cash conversion cycle breaks down into three categories: accounts payable, accounts receivable, and inventory. Too much or obsolete inventory leads to negative cash flow. Although some cash is going to have to be spent to have inventory on hand, clearly, the less inventory sitting around and becoming obsolete, the better. A closer look: The Inventory Conversion Period (ICP) refers to the length of time between the purchase of raw material and the sale of the finished product. Since the business must wait for the sale, then wait some more for the accounts receivable to be converted to cash; any money tied up in maintaining inventory becomes a drag on cash flow. Conversely, a business can temporarily boost its coffers by waiting until the end of the reporting period to pay its own bills.

If possible, wait 30 or 60 days to pay suppliers and ask for a discount for early payment. “1

You know that you can improve cash flow by slowing down your payment of accounts payable,” says Sam Thacker, writing for Dun & Bradstreet. Thacker is a partner in the Austin, Texas based financial consulting firm, Business Finance Solutions, which assists small businesses with financing challenges.

The flip side of the ICP is the Receivable Conversion Period (RCP), which is the time lag between selling on credit and receipt of cash for the accounts receivable. When customers or business partners show stable or positive trends in payment and avoid delinquency, expand their credit line to encourage revenue growth.

“Having a good handle on your accounts receivable is very critical to improving your cash flow, especially during tough economic times when everyone else is slowing down their payables,” Thacker points out.

Cut costs and expand with caution

“The more money you can save, the less you will need to rely on outside investors,” advises Schrage at Money Crashers. For example, “Start by saving money on start-up costs. Investigate your options to acquire used computer equipment, office furniture, and other supplies,” he says.

“You can also consider delaying hiring as one of a number of strategies to trim expenses,” adds Schrage. Running a business solo can save you a great deal of money, as long as you’re willing to put in the work.”

Cutting costs can significantly free up your small business’s cash flow. Simple initiatives such as keeping an eye on overhead expenses such as rent and travel, and shopping for competitive prices among suppliers can make a big difference.

Lastly, expand with caution. “In addition to your budget and income and expense projections, you should have a plan in place as to how and when you plan to expand,” explains Schrage. “The expand-at-all-costs business model is not very effective. Once you’ve got larger cash reserves and more experience in your industry, then you can be a little more aggressive in terms of growth.” Expanding through your business’s own cash flow is often an attractive alternative to outside debt or equity financing.

Cash flow resources available online:

The U.S. Chamber of Commerce has information on preparing a sales forecast and an online cash flow budget worksheet.
Microsoft Office has a free template online for creating a cash flow statement.
Score.org provides a free template for a 12-month cash flow projection.
The U.S. Small Business Administration provides guidelines for 7(a) loans (the most basic and most used within the SBA program), for starting, acquiring and expanding a small business.
Dun & Bradstreet provides information on establishing, building and monitoring business credit.

April 26, 2012 Today's Business, , , , , , , , , , , 6 Read more >

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management
By Sherron Lumley.

When a business has more money coming in than going out, that’s positive cash flow. Ideally, this is the zone in which a small business could operate forever, like a perpetual motion machine. Even though understanding cash flow seems simple, the day-to-day reality of it can cause mayhem. What to do when a customer payment is in the pipeline for next month, but employees must be paid on Friday, raw materials purchased next week, and the electricity bill taken care of by 5:00 p.m. today? These are the do-or-die questions of cash flow.

According to business information giant Dun and Bradstreet, 90 percent of small business failures are caused by poor cash flow. That’s why creating a cash flow budget, maintaining a cash reserve, getting paid on time, and managing expenses are critical policies to keep your small business successful.

Cash flow management would appear simple except for one major complication, and that’s credit. Accounts receivable and accounts payable are by-products of credit arrangements and the length of time between money paid and money received is called the cash conversion cycle. In a nutshell, cash flow management is about minimizing this cash conversion cycle. The ins and outs of cash flow fill some hefty tomes of financial literature, but here are four simple best practices to improve day-to-day money management for small businesses.

PQ_CashFlow.jpgFirst, make a plan

“The first requirement is an effective budget. If you don’t know what your cash flow is, it will be difficult to manage. Both your budget and your projections should be reviewed and adjusted on a timely basis,” says Andrew Schrage, former hedge fund analyst and founder of Money Crashers, a financial advice website.

The plan, otherwise known as a cash flow budget, is a way to project your business’s cash inflows and outflows over a defined period of time, say six months. The U.S. Chamber of Commerce provides a free download of a cash flow budget worksheet with relevant categories and explanations of what you need to do to prepare a cash flow budget. You start with the current cash, add the projected cash inflows, and then subtract the cash outflows to get your cash flow bottom line.

Have a contingency plan (or two)

In order to anticipate cash inflow, a sales forecast is needed, which can be based on recent revenues, seasonal sales, or market research. It’s important to have several projections, including best-case and worst-case sales scenarios, with a contingency plan of how to respond to these different situations. In the event sales are lower than expected or an unforeseen crisis happens, be prepared by maintaining a cash reserve, advises Dun and Bradstreet. Have alternate sources of cash for when unexpected needs arise, and get to know your bankers before you need a loan from them.

“If you’re in a business with inventory, or if you have employees, you should have a six-month cash reserve,” advises SCORE.org, a non-profit entrepreneurial mentor organization that works in conjunction with the U.S. Small Business Administration.

Managing inventory—mind the gap

The cash conversion cycle breaks down into three categories: accounts payable, accounts receivable, and inventory. Too much or obsolete inventory leads to negative cash flow. Although some cash is going to have to be spent to have inventory on hand, clearly, the less inventory sitting around and becoming obsolete, the better. A closer look: The Inventory Conversion Period (ICP) refers to the length of time between the purchase of raw material and the sale of the finished product. Since the business must wait for the sale, then wait some more for the accounts receivable to be converted to cash; any money tied up in maintaining inventory becomes a drag on cash flow. Conversely, a business can temporarily boost its coffers by waiting until the end of the reporting period to pay its own bills.

If possible, wait 30 or 60 days to pay suppliers and ask for a discount for early payment. “1

You know that you can improve cash flow by slowing down your payment of accounts payable,” says Sam Thacker, writing for Dun & Bradstreet. Thacker is a partner in the Austin, Texas based financial consulting firm, Business Finance Solutions, which assists small businesses with financing challenges.

The flip side of the ICP is the Receivable Conversion Period (RCP), which is the time lag between selling on credit and receipt of cash for the accounts receivable. When customers or business partners show stable or positive trends in payment and avoid delinquency, expand their credit line to encourage revenue growth.

“Having a good handle on your accounts receivable is very critical to improving your cash flow, especially during tough economic times when everyone else is slowing down their payables,” Thacker points out.

Cut costs and expand with caution

“The more money you can save, the less you will need to rely on outside investors,” advises Schrage at Money Crashers. For example, “Start by saving money on start-up costs. Investigate your options to acquire used computer equipment, office furniture, and other supplies,” he says.

“You can also consider delaying hiring as one of a number of strategies to trim expenses,” adds Schrage. Running a business solo can save you a great deal of money, as long as you’re willing to put in the work.”

Cutting costs can significantly free up your small business’s cash flow. Simple initiatives such as keeping an eye on overhead expenses such as rent and travel, and shopping for competitive prices among suppliers can make a big difference.

Lastly, expand with caution. “In addition to your budget and income and expense projections, you should have a plan in place as to how and when you plan to expand,” explains Schrage. “The expand-at-all-costs business model is not very effective. Once you’ve got larger cash reserves and more experience in your industry, then you can be a little more aggressive in terms of growth.” Expanding through your business’s own cash flow is often an attractive alternative to outside debt or equity financing.

Cash flow resources available online:

The U.S. Chamber of Commerce has information on preparing a sales forecast and an online cash flow budget worksheet.
Microsoft Office has a free template online for creating a cash flow statement.
Score.org provides a free template for a 12-month cash flow projection.
The U.S. Small Business Administration provides guidelines for 7(a) loans (the most basic and most used within the SBA program), for starting, acquiring and expanding a small business.
Dun & Bradstreet provides information on establishing, building and monitoring business credit.

April 23, 2012 Today's Business, , , , , , , , , , , 41 Read more >

When is the Right Time to Bring Small Business Financial Experts on Staff?

When is the Right Time to Bring Small Business Financial Experts on Staff?Small Business – When is the Right Time to Bring Small Business Financial Experts on Staff? by Susan Caminiti.

One of the distinguishing characteristics of nearly all entrepreneurs is the passion they bring to their businesses. But whether you’re a skilled butcher, a terrific baker, or the best candlestick maker in town, there are functions of your company that you’ll need help with. And there’s no aspect of running a small business where this is more apparent than your finances for your small business.

“Money is so personal and that makes many entrepreneurs more skittish about handing over control,” observes Mark Koziel, CPA and vice president of the American Institute for Certified Public Accountants (AICPA), the world’s largest association representing the accounting profession. “A small business owner who wouldn’t think twice about reaching out for IT help is often the one who thinks that they, or maybe a bookkeeper, can handle all their finances.”

To figure out the kind of financial expertise your business needs—and when it’s time to hire a controller or even a chief financial officer—experts say it’s essential to answer a few basic questions:

What kind of growth do you envision for your small business? Will it remain a fairly small venture or will the business eventually expand to the point where it requires hiring dozens of employees?
Does the business finance receivables and inventory? Will it need funding for additional locations, offices, and equipment?

Are you looking to attract venture capital or any other type of private equity?

“When I work with small business owners I ask them to honest with me about how big they really want their companies to be,” says Barbara Steinmetz, president of Steinmetz Financial Planning in San Mateo, California. “Not every business owner wants to run a huge company with hundreds of employees.”

In that case, she says, a good bookkeeper is often enough. This person, says Steinmetz, can be full-time or part-time and should be able to keep accurate financial records that are detailed enough to enable an outside accounting firm to prepare your company’s taxes. Don’t wait until tax season, however, to discover that certain information might be lacking. Advises Steinmetz: “Keep in touch with your tax professional throughout the year. Ask if they have the documents they need and if they truly have your company’s complete financial picture.”

Despite what many small business owners may believe, there’s not one milestone revenue figure that signifies it’s time to move beyond a bookkeeper and hire a controller. Even if your business is small sales-wise, if it’s growing quickly and adding customers at a rapid clip, you should hire a controller, says Koziel of the AICPA.

Peter Fazio, executive vice president of Sterling Affair Caterers in New York City, first hired a controller two years ago when he was “done making so many mistakes.” In the early days of his company, he says, having a bookkeeper on staff was enough to handle Sterling’s bills and its receivables. But as his company grew—it now caters nearly 500 events annually—and Sterling began working with more and more vendors, Fazio says he knew it was time to bring in someone who could take a more holistic approach to Sterling’s finances.

For instance, when he was interested in looking for alternatives to the company’s outside payroll vendor, his controller was able to investigate different options and negotiate a better price, saving the company about $15,000 this year. Sterling’s controller was also the person who initiated conversations with different banks to get a better rate on the company’s line of credit. “I may have the idea of different things to look into, but I don’t have the time to follow through,” Fazio explains. “[The controller] has enabled me to take this company to the next level because I have her to focus on all the financial issues while I run the company and plan our events.”

One of the biggest obstacles in hiring any financial expert on staff is the trust factor. Fazio admits it was tough at first. “This employee knows every single thing about your business, including what you pay each employee and how much money you make,” he says. However, he is adamant about one thing: “If you try to segregate out information or just give a controller some information and not all of it, the relationship will fail,” Fazio warns. “Sign whatever confidentiality agreement you have to, but make sure your controller has all the facts.”

In addition, if a company is looking to attract venture capital or any other type of private equity, then it’s likely to need a chief financial officer. Ron Johnson, president of WAGIC, a product design, engineering, and manufacturing company based in Los Gatos, California, has had a CFO on board since his firm’s earliest days in the mid-1980s. “We raised outside capital when we were first starting out and those investors wanted to know we had someone who had plenty of experience managing the finance side of the business,” he says.

Johnson does acknowledge that for many small, early-stage businesses, cost is a factor. “At the end of the day, it does come down to what you can afford,” he explains. “However, spending $3,000 or $4,000 a month to have the services of a part-time CFO may be the best money you’ll ever spend because of the level of financial expertise they bring.”

February 24, 2012 Today's Business, , , , , , , , , , , , , , 3 Read more >