Business Pointers from Brains on Fire’s CFO

Posted on February 6th, 2009 by Kindling Spirits and currently 5 commenting.

The following post is from Kathie Conway, who is not only a CPA and our CFO, but is also a rudder for Brains on Fire. You would think that all she does is the crunching of the numbers, but she’s also an incredible resource when it comes to redefining what it is to be a creative company in this new day and age. (I won’t pretend to know even half of what she’s talking about.)

I have the good fortune of being the Chief Financial Officer of Brains on Fire and being part of a great team of wildly talented people.  When I first joined Brains on Fire five years ago, we were in pretty good shape.  But, we like goals around here.  Robbin, myself and the rest of the team worked on making us a profitable company with a purpose.  Brandy Amidon and I both came to Brains on Fire from larger companies and we’ve both attended a few conferences along the way and we’ve realized people were hungry- really hungry- for information to help their business.  Now, we are not trying to over-simplify professional services, but there are simple things both small and large businesses can do. Things we often forget.  So below are a few tips that both Brandy Amidon, CPA, (who we couldn’t live without) and myself agreed we should share.  We’ve both consulted with clients from architectural and engineering firms to creative companies to law firms and we’ve found these few simple things really help turn things around.

Cash is king.  Yeah…it sounds simple.  In these economic times it is the companies that saved for rainy days that will prevail.  Do you have three months of operating cash on hand?  Everyone tells you to do that, but how do you get there?  Here is a way to accomplish this task.  It takes time, but if you stick with it, we promise you will reap the reward.  Look at your billing schedule.  If you bill all of your clients the same week or even the same day of the month, you are shooting yourself in the foot.

Sit down with your accounting department and work up a billing schedule that spreads out your repeat clients throughout the month.  Match it up closely with your short-term cash flow.  If you need more cash during the middle of the month, then bill your biggest client in the middle of the month or a week before.  When they pay you in thirty days, you will have the cash to meet that need.  Do you see why this is important?

If you are not sure about your cash flow or how to determine when your need is greatest, use a short-term cash flow schedule.  Several versions are available for download free online.  My favorite tool is available on www.score.org.  It may be a little more robust than you need, but you can download it and delete out what you don’t use.

Oh yeah…and let your accounting department prepare the invoices.  Not the account executives, not the CPAs, attorneys, graphic designers or engineers.  Seriously people…let the assets of your company do what they do best.  Do you have an accounting department or an accountant? Use them.  Take that task away from the people who are billable and make money for the organization and give it to the people who were hired to keep you profitable.  You will sleep better at night.  The invoices go out on time, the checks come in and you stay out of the credit line.  Win-win for all!

Next, get in the habit negotiating your contract terms for payment.  Try as hard as you can to get your days to net 15.  If you receive pushback, only negotiate back to thirty when you get your fifty percent upon signing of the contract.

Estimate your projects well.  Estimating does not mean only knowing how to build up an estimate by hours, rates and outside costs (especially since we did away with time sheets).  Estimating means knowing the value of your work and charging for that value.  It also means knowing what your benefits, profit mark-up and overhead costs percentages are. If you can’t answer that or know those numbers, you should.

Now let’s get into the sticky side of the business….profit distributions.  If you are a partnership or a subchapter s corporation, a good rule of thumb is to follow the 1/3, 1/3, 1/3 rule.  One third goes to taxes, one third goes to distributions and one third goes to retained earnings (that means you carry it over into next year – start to build up that cash balance we talked about above).  Also, it is critical that you pay attention to your accumulated adjustments account on your Form 1120 and that you don’t distribute too much.  Bottom line is that many consultants tell you that you should be pulling “X” dollars out of your company as a principal or partner.  Well that is all well and good if there is “X” dollars to pull out.  Don’t be greedy or foolish and run your business into the ground.  We probably could write a whole blog post or white paper on this subject alone.

Now, our favorite part of things to help your business has nothing to do with accounting.  It has to do with the relationship side of business that people so often forget.  If you want to make sure your accounts get paid timely, make a friend with the accounts payable contact with your client.  No….we don’t mean bribe them.  We mean, really make a connection.  When you sign on a new client ask for the accounts payable contact person phone number and email.  Personally call them and say you are happy to be working with them.  Ask them how they want to be invoiced and what would make their life easier.  After you send them that first invoice, follow up to make sure it was exactly how they needed it and if you can do anything else.  After you receive a few payments on time from this new client, send flowers to your accounts payable contact thanking them for paying you on time and letting you know how much you appreciate them.  We promise if you ever have a problem with your account, they will be more than happy to help.  If you visit the corporate office, stop by and meet them in person.  Thank them for working with you.

Well that’s all the tips for this month.  Hopefully I will be back as guest writer if you feel this was valuable information.  We look forward to your feedback and good luck.