The Year End Financial Checklist

Approaching the end of the year can be a hectic period for many small and mid-size businesses.  The balancing act of finishing the year with as much revenue as possible and prepping for a good start to the new year while working around vacation schedules often leads to a frenzy of activity.  Important to note however, are five key financial items to check off the list before the year runs out:

Talk to Your Tax Accountant

  • First and foremost, have a conversation with your CPA before the year ends to give them an idea of where you expect to end the year financially. There may be some decisions to make before the year is out.  Every situation is unique, so the counsel of a good tax accountant is critical.
  • Are You a Cash Basis Taxpayer? If so, there are some important decisions that could affect your tax bill for the year.  A mad push at the end of the year to collect Accounts Receivable could result in greater tax liability.  On the flipside, accelerating payments of Accounts Payable can have the opposite effect.  The key consideration here is cash on hand as well – be cautious not to make a tax-wise decision that makes the business cash poor.
  • Are you planning any major purchases before year end? For many businesses, especially with the more favorable tax write offs available, sizeable purchases of equipment and other assets often occur late in the year.  Two vital questions – 1) does it make senses this year (get help from your CPA to answer this) and 2) what is the impact on the cash of the business?

Bonuses

  • Many companies pay year-end bonuses, especially in good years. When are they paid?  Before or after year end?  And what is the impact on the cash of the business?

Year End Financials

  • Year end is a great time to focus on cleaning up items in the financial statements of the business. This provides a more accurate picture of the year’s performance and provides a clean slate for the new year.  With that being said, it also requires a more thorough effort, and thus more time to close the year.  Plan expectations accordingly – if there is a bit of a slowdown the last week of the year, can you get a jump on some of the cleanup in advance?  What is a realistic target for the year end close so management and external stakeholders such as banks, investors and auditors can plan?

We have seen the troublesome results of overlooking one or more of these items.  It can cost businesses vital cash flow, create challenges in decision making and lead to tax surprises.  With some planning and asking the right questions, companies and their leaders can end the year with just a little more holiday cheer.

ERP Systems Part II – Successful Implementations

In our last article (link here), we covered key considerations in evaluating a new ERP system.  So, at this point, the decision has been made to implement a new system, the requirements of the new system have been agreed upon and the specific platform has been vetted and selected.  However, once that evaluation is complete and a system selected, the work is far from over.  Successful implementations require a well thought out process with some essential questions to answer:

Who Does What and When?
• Who is leading the project? An internal champion or project lead is critical.  This is often someone in accounting or operations, but someone who acts as point person and coordinates with the various stakeholders and vendors is very important for a timely and efficient implementation.
• What is the implementation timeline? ERP systems, especially with complex and/or larger businesses require a great deal of setup, configuration and testing.  What are the key milestones, and how do they tie into the full go live date?
• When is the right time to go live? This can be a disruptive time for the internal team, so avoiding peak business seasons and other intensive times for the team is very wise.  Ideally, being able to go live at the start of a new month, quarter or even year makes for a clean information cutoff.  Most importantly, the go live date must make sense for the business and its team.

Can the Team Use the System?
• Training, training, training. We have a client that made a material investment in a very well respected ERP system, only to find out a year later that key training was not provided by the vendor – this cost the team a tremendous amount of time and money due to incorrectly captured information and a reset of numerous key internal processes.  Ensure the vendor provides thorough training and the team knows how to use the system at a thorough level.
• What data carries over? In some instances, historical data is imported into the new system(s).  Even in this case, reports may or may not include detailed historical information.  It may make sense to maintain the historical system for a period simply as a database to reference historical data such as costs, or financial statements.  It may also make sense to just make one large data dump out of the old system so at a minimum historical raw data is not lost forever.  The day may come when you need to compare historical standard costs, inventory components or financial trends – know how you are going to access that information.

Does it Work?
• A sometimes overlooked aspect of system integration is testing. With many systems, some testing can be done in either a “dummy” test version or via the actual system without any permanent impact.  It is also a best practice to run side by side with the current system for anywhere from 30 to 60 days to ensure accuracy and performance.
• In the case of multiple systems being integrated together, does the integration work? Is the integration real-time, periodic or manual?  A missed piece or set of data can wreak havoc on information flow and cause errors in pricing, costing or record keeping.
• Even after the go live date, companies often run into occasional issues. ERP vendors offer ongoing support, sometimes via general customer service, or through purchased support services.  Know what is available and reach out to the experts if any kind of material issue arises.  It is far better to work out kinks as soon as possible.

Even with a very well-run integration, be on alert to expect the unexpected.  Further tweaks may be required to an ERP over time.  You and your team should be vigilant to ensure that the system is working as it was intended during the vetting process.  A new ERP should be a real asset to a company – invest the time during implementation to make certain it stays that way.

Three Keys to Evaluating a New ERP System

Whether they realize it, all businesses use some form of ERP (Enterprise Resource Planning) system, it just may be that one or more components are manual or disjointed. An effective ERP system provides greater team efficiency, continuity of information, enhanced visibility into the business and data security. More formal systems come in all shapes and sizes, both generic and highly specialized with increasingly cloud-based as well as server-based options. In evaluating a new ERP system, there are several key considerations to take into account:

Do I Truly Need to Make a Change?
• Why is the current system inadequate? Does the system not suffice, or is data not being inputted or used timely or accurately? Is the system the problem, or are communication breakdowns between departments causing issues? Is the system maxed out, or are there opportunities for advanced training?
• Is the ROI there? New ERP systems have an ongoing cost associated with them, but also can involve sizeable 3rd party implementation costs, and time investment of the internal team. Based on these costs, is there enough ROI to make a change now or can you find ways to bridge what you have until human and financial resources are available to execute properly.

What We Have vs. What We Need
• Who are the users? Who should or could be using a system? Systems like this impact multiple people and departments. ERPs rely upon the interaction of human capital and technology. Understanding who needs to use the system, how often, why, and for what are essential to scoping out needs.
• Form an internal implementation team with people from all the key departments in your company. What are their “must haves” in a new system vs. the “nice to haves”. This initial assessment needs to be thorough – a missed important function/output can be very expensive to add down the road.
• What is the desired output of the system? And this can vary across the business. What reports are needed? Can the system provide metrics and dashboards? What about the ease of entry and access to data? How digestible of a form is it in? Too often, we see companies with more data than they know what to do with, or almost none at all. This is an opportunity to decide what output is right for you and your team.

How to Choose
• What is your budget? With the proliferation of cloud-based systems, the cost of ERPs has come down dramatically. For example, many smaller companies are using platforms like Xero with an open API that allows multiple other programs to link together to form an affordable ERP. There are solid options for smaller budgets. More robust ERP’s can involve an investment of well over $100,000. How much can you truly afford to spend? Narrow the list of options based on that.
• Industry Specific vs. Off Shelf – Some industries have very good industry specific software platforms. That can be a big advantage, but also limiting.
• Do thorough demos – Any quality system has demos available to dive deeper into system capabilities and understand implications and how features can be used for your specific business. This is often one of the key go/no go decision points.

We have seen ERPs with well-organized evaluation and implementation processes provide a return on investment for companies many times over. Unfortunately, we have also seen systems that were not well thought out, leading to frustration, lost productivity and in more than one case, situations where six figure investments were scrapped in favor of starting over. Thoughtful planning can be the difference.

5 Steps to Manage Cash Flow

One of the primary challenges we see in working with growing small and midsize businesses is managing cash. The simple reality is growth can burn cash, so a healthy P&L can accompany poor cash flow. Businesses don’t fail when they lose money, they fail when they literally cannot pay their bills – and even when utilizing outside capital such as equity partners and banks, without properly managing cash, long term viability in a growth mode can be very difficult.

There are however a number of steps that growing companies can take to better manage cash flow.

1) Have a planning mindset – No different than managing a personal budget, a business has to dictate where its cash is going. Be intentional and don’t make a decision unless you know you have the cash to spend.

2) Cash Flow Forecast – Forecasting cash is essential and one best practice is a 13 week forecast. By laying out expected inflows and outflows, this allows visibility to make sure that a cash flow decision tomorrow won’t result in an unexpected cash crunch down the road.

3) Conservative estimate on collections – A good billing month does not necessarily mean collections are great as well. And a decline in collections can cause chaos in a business. There is no crystal ball, but a conservative approach to collections when forecasting can help mitigate a crunch. Don’t just look at your standard customer terms, but under what terms do you actually collect for a customer/line of business? Use historical averages, and maybe pull back from there even a little to be safe.

4) Plan for infrequent expenses – The recurring expenses that pop up every month are fairly easy to predict, such as payroll, rent, etc. Not so are quarterly or annual expenses or onetime purchases that arise. A good best practice is to reserve cash monthly so that when a big payment comes up, the cash is “saved” to manage it without disrupting everyday business.

5) Have cash reserves – Plan for a rainy day. Disruptions in business are real – maybe a key customer delays payments or there is a disruption in your supply chain and cash is locked up in inventory. How many days can your business continue to operate with available cash on hand? If the business has little to no cash reserves, part of that cash flow forecast should include saving a little each month to build one.

Proactive management of cash can be the difference in allowing a growing business to survive and thrive. With it, there is flexibility, strength and a sleep at night factor for a business owner. The absence can easily stall growth, or worse.

Contact Us

480.247.0955 or growboldly@fintrepidsolutions.com
17015 N. Scottsdale Road, Suite 235
Scottsdale, AZ 85255