Each week as Smallbizlady, I conduct interviews with small business experts on my weekly Twitter talk show #SmallBizChat. This is excerpted from my #SmallBizChat interview with Ken Kaufman @CFOwise. Ken is the author of Impact Your Business: An allegory of an entrepreneur’s journey to clarity, cash, profit, family, and success (http://cfowise.com/impact-your-business). Ken, an award-winning CFO,
has over a decade of experience helping small business owners and entrepreneurs attain the clarity they need to maximize their financial success. His has credited with creating the Six Scoreboards Every Business Needs. In addition to serving as an outsourced CFO to eleven entrepreneurial ventures, Ken writes regularly for American Express OPEN Forum and teaches New Venture Finance at a local university. (http://cfowise.com)
Smallbizlady: Where did you get the idea for your book Impact Your Business?
Ken Kaufman: After working with hundreds of small businesses, I found a common challenge they were all facing. In the beginning of these businesses, the founders developed habits that would seriously constrain their chances for sustainable, long-term success. Each founder was intimately involved in every detail of running the business, and they received all of the information about their business performance directly from their customers, employees, suppliers and vendors. They knew everything that was happening in their business. But as the company grew, they could no longer be involved in every detail of the business every day. Their qualitative sources for business performance became less accurate and they found themselves having anxiety and fear, both of which are crippling to business success. I wrote this book to help them replace anxiety and fear with clarity through the use of quantitative data. Regardless of your competence in math or other numbers-centric disciplines, every business owner can and should become an expert in the numbers of their business.
Smallbizlady: Why is it so important to use numbers to improve and grow a small business businesses?
Ken Kaufman: I have yet to meet an entrepreneurial company or small business that is doing all they can to manage their business based on the numbers. In the book I refer to a set of six standards to which each report or set of numbers in a business must adhere, and these standards are represented in the acronym of IMPACT. These six criteria are Insightful, Meaningful, Precise, Accessible (both physically and intellectually), Comparative, and Timely.
Smallbizlady: Why should a small business owner go to all this trouble to get quantitative data about their business?
Ken Kaufman: An interesting chain of events begins when fear and anxiety are replaced with the clarity that can only come from the IMPACT scoreboards. Clarity leads to strategic insights, which lead to improvements in the business that foster competitive advantages. Those advantages lead to improved cash flow and profitability. In essence, if you want to maximize your efforts and your business, you will find that transitioning to using the right numbers in the right format delivered at the right time will significantly impact your ability to achieve your objectives.
Smallbizlady: Can you give a brief explanation of the Six Scoreboards Every Business Needsâ„¢?
Ken Kaufman: First is the Daily IMPACT Indicators®–which simplifies the company’s business model into the one to three core elements of success. Second, the Weekly IMPACT Indicators®, takes one to three key metrics from each department, or discipline, in the business and charts them on one page. Third, the Monthly IMPACT Indicators® are like monthly financial statements on steroids–usually 15 to 20 pages of in-depth analysis. Fourth, the Quarterly IMPACT Forecaster®, gives a week-by-week breakdown of the next 90 days of cash flow into and out of the business. Fifth, the Annual IMPACT Forecaster®, is a month-by-month projection of where the company is headed, with actuals compared to forecast. Sixth, the 5-Year IMPACT Forecaster®, spreads out the company’s performance over five years and becomes a critical tool in short and long-term decision-making and strategic planning.
Smallbizlady: Should a brand new business start with all six of these scoreboards right away?
Ken Kaufman: Usually not. The best place for most businesses to start is with the Monthly IMPACT Indicators®. As a company grows, becomes more complex, and/or experiences a steep trajectory, the more relevant, helpful, and impactful each of the six scoreboards becomes.
Smallbizlady: Can you explain the connection between an entrepreneur’s family life and the challenges in their business.
Ken Kaufman: There are two main reasons these are connected. The first reason is the need to balance time and energy spent on the two–family and business. I have yet to meet an entrepreneur or business owner that doesn’t struggle balancing business concerns and efforts with spending enough time with family. The second reason is that many small businesses owners struggle to separate the two, allowing business problems to spill into their personal life, and vice-versa. The business is probably the family’s main source of income and likely represents the largest concentrated portion of the family’s net worth. When problems and challenges arise in the business, they are often magnified in familial relationships. As just one example, I saw a family completely fall apart because they could not see the difference between their family and the business.
Smallbizlady: Can you explain the difference between a bookkeeper, an accountant and CPA?
Ken Kaufman: Sure. Think of the bookkeeper as the person who is into all of the details of the accounting transactions each month, while the accountant or CPA will look over the bookkeeper’s work and analyze the ongoing performance of the company while taking responsibility to ensure the company is compliant with all of the federal, state, and local taxes, regulations, ordinances, and so forth. Your accountant or CPA should be adding strategic value to your business, meaning they are thinking about the future and what you can do today to improve your outcome next month, next year, and during the next five years.
Smallbizlady: How should a small business owner go about searching for an accounting professional to help them in their business?
Ken Kaufman: You want to look for both a depth and breadth of experience. Don’t rely on someone who knows just your industry, mainly because another industry may have already solved the problem you’re working on and you can benefit from someone with a perspective bigger than yours on business, tax, finance, and accounting issues. You also want someone who has enough time to really understand you and your business. And, you need someone who communicates well and speaks in a language you understand. You want them to teach you to know the numbers of your business so you can use them to gain competitive advantages. The right accountant will show you how to do that.
Smallbizlady: How and when should a small business owner engage their accounting professional to help them make decisions in their business?
Ken Kaufman: Short answer–early and often. I have a favorite saying that addresses this in a little more detail: “If you think it’s expensive to hire a professional, wait until you see how much it ends up costing you if you hire an amateur.” As you plan and execute your small business, you need to pull the right professionals in to make sure you are compliant and building the right strategy for the future of your company. Budget for it and use an accounting professional to keep you out of trouble and help steer you in the right direction.
Smallbizlady: What is the best advice you can give a small business owner?
Ken Kaufman: Know your customers. Know them so well that you are compelled to become an advocate for them, similar to how @Smallbizlady is for the community she serves. Help them and bring far more value to them than you can charge. Once you get paying customers, you will be amazed at how many doors will begin to open for you and how much easier solving your cash flow problems will become. But it’s up to you to make it happen and create those opportunities for yourself. You’ll be certain to build a successful business if you intimately know your customers and align your interests with theirs.
Smallbizlady: How can small business owners who are math challenged use your book to run their business better?
Ken Kaufman: Before the book can help, you need to realize two things. First, the numbers in a business are not complicated. It’s mostly addition and subtraction with a few percentages and division problems mixed in–stuff your calculator can easily handle and, once you get the hang of it, you’ll likely start doing it in your head. Second, and this may seem a little direct, but you need to stop hiding behind the excuse that you are not good at math. I specifically wrote this book to help small business owners understand the benefit that comes from knowing the numbers of their business, and there is a detailed how-to section to get you on the right path. With the password found at the end of the book, a book owner can log into our website and get lots of helpful information, including sample scoreboards and reports that highlight the key metrics in any industry, among other tools and resources. Also, if implementing all of this seems like too much, our company, CFOwise® has helped hundreds of businesses to implement the six scoreboards. You’d probably be surprised at how affordable it is, and, more importantly, how much more benefit you receive than it costs. By way of example, we helped one company realize an immediate savings of over $100,000 and another company accelerate their cash conversion cycle, or working capital days, by 75%.
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