We were sitting on hundreds of thousands of dollars worth of unpaid bills when Jim Bemis joined us as a chief financial officer in 1993. We couldn’t mail checks because we didn’t have the cash to clear them. In the previous twelve months, we had added two locations in the Twin Cities and five in Des Moines, Iowa, a new market. Two of the new stores were seriously underperforming; Jim advocated pulling the plug. We shut down the stragglers and regrouped. In the short term, we decided to open stores only in the Twin Cities, where our brand was firmly established. Sure enough, every new homegrown store quickly turned profitable. Eight months after Jim joined us, the checks were truly in the mail.
CFOS and the finance function
Finance and accounting people are gatekeepers. They safeguard assets and make sure information is accurately captured, analyzed, and conveyed. Absent these controls, you open yourself to flawed decisions, theft, and embezzlement. That said, hire more than a checkbook holder or recorder of history. The CFO belongs on the executive team. The best ones are information hubs, providing the rest of the team with financial tools for running their departments.
Building your budget
A consultant once told me about an anonymous client whose monthly reports showed he was meeting his budget. It left my friend scratching his head because the company was stuck in no-growth gear. H
Relentlessly and cold-bloodedly measure your performance against your budget. Mess with the numbers and you’ll have no idea whether you’re achieving the goals you established at the beginning of the year. (Forecasts, on the other hand, should be updated regularly—and spending adjusted accordingly—to reflect actual results.) Your budget’s influence seeps into every aspect of your culture. Hit the numbers and esprit de corps soars. Miss ’through flawed understandings or bad budgeting, and morale tanks.
Master the metric system
You’re in the driver’s seat, so keep an eye on the dashboard. Every business should track daily, weekly, and monthly metrics—receivables, payables, gross and net profit margins, sales, average sales, and inventory. Enlightened entrepreneurs also insist on real-time measurements unique to their industry.
In the mid-nineties, an Arizona wholesale customer played us like chumps. They steadily grew into one of our largest customers, paying like clockwork. Then they placed a succession of huge orders that pushed them beyond their credit limit. Red flags flew, and they pleaded for our help. We made an exception because of their sales volume and sterling payment record. You know where I’m going with this. We got stung to the tune of five hundred grand. Lesson learned. My philosophy is simple. Not only do you have to get paid, but you also have to get paid on time.
Bond with your banker
Your bank is a partner, not an adversary. Get your banker on board by communicating early and often
Things get worse, and one or more of the loan covenants are blown. Sheepishly, they call their banker, who’s none too happy to be the last to know. You’re better off coming clean upfront: “I thought I’d give you advance notice. We just calculated that, due to weather, we’re not going to hit our November numbers.” Chances are he’ll waive the company’s covenant before D-day. He’s human, too—the last thing he wants to do is go to the loan committee with bad news after the fact.
Managing and funding growth
Businesses are like sharks—their survival hinges on forwarding progress. Sometimes that means adding new stores, plants, or regional offices. In other businesses, it means selling more widgets to existing customers, creating new products, or raising same-store sales. Even if you’re content to stay comfortably small, standing still isn’t an option. Costs rise, and competition lurks.
Unless you advance—spreading escalating costs over an expanding revenue base— you’ll gradually take on water. But there’s more. Growth has a voracious appetite and sharp teeth—not just for capital, but also for people and systems. Focusing on growth rather than day-to-day necessities may starve the operation’s core, the source of life-giving income.