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Metrics that Matter

Metrics That Matter

How to Identify, Track and Use Data Points

In a volatile couple of years that have seen a global pandemic, supply chain challenges, talent shortages and record inflation, the data we use to benchmark performance and guide our businesses is as vital as ever. But which metrics we use – and how we use them – has changed dramatically.

FocusCFO contributed to a recent Brainyard article, which explores how to identify, track, and use key metrics effectively in this new (and ever-changing) landscape.

As fractional CFOs, our associates often take a strategic bird’s-eye view when identifying and using key metrics. Here are four key areas that we have seen an increasing emphasis on in the past few years:

1. Inflation: Measures of inflation, particularly raw material inflation and how it compares to the selling price of finished goods, have become critical to track in today’s environment.

2. Inventory: Because of ongoing and potential supply chain issues, the days-of-inventory-on-hand metric has become more prominent. Because a just-in-time inventory strategy will likely not work well, metrics around the costs to maintain higher inventory levels, like space, insurance and shrinkage, have also increased in priority.

3. Personnel: A tight labor market means that personnel-related KPIs, like turnover, referral sources and average hourly wage versus budget, are receiving more attention.

4. Profitability: Many businesses, like restaurant groups, are now tracking profit by day of week as well as hours of operation. This allows management to make informed decisions about closing or reducing open hours on certain days.

Additionally, our brain trust of CFOs and Area Presidents noted that EBITDA has taken on a more important role due to the treatment of forgivable PPP loans, which causes distortions in net income. Cash flow from operations is also being prioritized above total cash flow.

To learn more about best practices for developing metrics that drive performance, read the full Brainyard article.

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Your Guide to SBA 7(a) Loans

Your Guide to SBA 7(a) Loans

Our friends at Filmore Capital have created a great guide that covers Everything You Need to Know About SBA 7(a) Loans: Acquisitions, Partner Buyouts and More.

Of the many loans available to small and mid-sized business owners, the SBA 7(a) Loan is the most common loan administered by the U.S. Small Business Administration. These loans are issued by a private lender and guaranteed by the SBA, which guaranteed nearly 52,000 7(a) loans in the 2021 fiscal year.

What Can a SBA 7(a) Loan Be Used For?

Also known as the “Growth Generator” loan, it is designed to help an enterprise grow by offering much-needed capital alongside low-interest rates and a manageable downpayment.

The SBA 7(a) loan is one of the most flexible loan options available through the SBA, with loans up to $5 million. The Growth Generator can be used for a variety of purposes, including to fund:

  • Working capital
  • Renovations
  • Ground-up construction
  • Business acquisitions
  • Equipment purchases
  • Partner buyouts
  • Business expansion
  • Business debt consolidation and refinancing
  • Commercial real estate
  • Franchise purchases
  • Startup projects

For more information on SBA 7(a) loans, including determining eligibility, benefits, and how to obtain the loan, head to Filmore Capital’s website:

Filmore Capital is a commercial loan broker based in North Carolina. They are engaged by business owners and commercial real estate investors to find and negotiate the most favorable financing terms. Filmore Capital leverages long term trusted relationships with a network of qualified lenders.

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Fractional Expertise is a Goldmine for Small & Midsized Businesses

Fractional Expertise is a Goldmine for SMBs

 Money is the fuel of every business; it takes a good CFO to know exactly where that fuel comes from and how future decisions will affect it. A good CFO is an indispensable resource to any business owner, and fractional CFOs can provide financial expertise at an affordable price for any business.

Why CFO Services Are Vital for SMBs

A good CFO can take the financial information created by a finance team, verify its accuracy, and then make projections about what it means for the business in the future. It’s that ability to look ahead that sets a CFO apart from other finance roles. They are the ones responsible for creating an effective financial strategy. An effective financial strategy is both a roadmap for normal times and a gauge against when to assess new opportunities. A business owner shouldn’t have to guess how certain decisions will play out.

Your financial strategy should give you a set of variables to play with that help you envision the future state of your company. And even more, that financial strategy has to line up with, support, and enhance the overall business strategy. Many accounting professionals are not comfortable making predictions about what’s to come. Accounting is, by nature, historical record keeping. Necessary and important, of course, but historical. But it takes an entirely different set of skills to look into the future based on these past activities. That’s what a good CFO can do.

Fractional Services Make C-Level Expertise Accessible

The ability to create an effective financial strategy requires experience, and experience comes at a price. A fractional model means that instead of working for one large company, an experienced CFO works for multiple small companies. A fractional CFO allows a business owner to pay for that ability without the burden of hiring that person full-time.

There are many advantages to hiring a fractional CFO. Primarily, they can bring a high level of financial expertise to your business at a cost you can afford. A CFO is responsible for interpreting financial data in a way that helps business owners make decisions for the future. A fractional CFO also brings a unique perspective, one that is broadened and enhanced from working with multiple businesses.

Take a deeper dive into the value that part-time expertise can provide SMBs in this article from Mentors Collective, or learn more about partnering with one of our fractional CFOs.

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The New CFO Mandate

The New CFO Mandate

A recent survey from global consulting group McKinsey, reveals that the CFO’s role is evolving and growing in influence.

The study, which McKinsey conducts every two years, indicates that the role of CFO is expanding in scope, requiring new capabilities, and demanding greater collaboration with C-suite peers.

This change is attributed to the changes and challenges that have been affecting the business community over the last 3 years.

“This time of change represents an opportunity for the CFO to have disproportionate impact, becoming a copilot of the business with the CEO,” explained McKinsey’s Ankur Agrawal.

We have over 100 associates operating in the midwest and southeast, guiding small businesses and our CFOs have experienced this first-hand. With their bird’s-eye view of the company’s finances and operations, they are in position to provide the data and insights that drive transformation and help business leaders make decisions.

What This Means for Small Businesses

We are living in a very uncertain, volatile time and it has never been more important for business owners to have a good copilot by their side. A CFO can look at where you’ve been and provide strategies for where you want to go.

We believe that this level of financial guidance is vital to businesses of all sizes, which is why we’ve built our company to provide C-level support that is tailored to small and medium businesses a fractional basis.

Reach out to us today to learn more about how an embedded fractional CFO can help guide you on the climb to sustainable, transferrable business value.

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When is the Right Time to Exit?

When is the Right Time to Exit?

By Darren Cherry, CEPA

You run a successful business and confidently face the daily challenges of ownership. That is your ZONE OF GENIUS. As you begin to consider exiting your business, it is a bit outside of your comfort zone on many levels. For many owners, when to exit is often the first question.

While several factors go into the timing decision, few carry the significance of financial security. For most owners, determining financial security has a few moving parts, including estimated proceeds from the business sale.

Top Mistakes Made in Determining Financial Security

  • Blind Faith: in some cases, since the business has provided a more than comfortable lifestyle, little thought is given to the post-ownership stage.
  • Frugal Retirement: many fall prey to the notion that they will suddenly spend significantly less post-retirement, which is rarely the case.
  • Back of the Napkin: often, the funding needed to retire is based on a crude estimate at a point in time.
  • Golf Course Multiple: too often, the value is over-estimated using different transaction economics. (e.g. using the 10x EBITDA multiple of a $500 million business on your $5 million firm)
  • Club Dues: another common mishap is to use the gross selling price before taxes and transaction expenses in the calculation.

Wealth Gap

One of the deliverables of a well-prepared exit plan is a robust calculation of the owner’s wealth gap. The wealth gap is the forecasted shortfall the owner may have between the funds needed to retire compared to their current investments and business value.

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