The CFO and the SMB

Updated: March 10, 2011

I just saw a $50M company that was extremely successful. They employed several dozen employees, and had an entire floor in a high-demand area of town. In fact, they were stressing the square footage as they have been growing steadily for years.

They had some problems and we were discussing these issues when several topics came up that immediately piqued my "there's a trouble a-brewing" antenna.

Chief among these topics is that they had no real banking relationship, and the bank they were with, for their industry, was the wrong bank.

Secondarily to that issue is they had no credit line. None, zero, not even over-draft.

When I brought up the subject they pooh-poohed it, since they didn't like nor want debt. Too bad, because of an oversight, they had a large amount of money tied-up awaiting certain paperwork to be finished. While this paperwork and cash was in limbo, their once cash-positive company became cash-negative.

So much so, that the owner had to loan the company money.

Do you see where the picture is going?

Every tenant of finance was being broken because the company was still being run by a mentality of the "mom and pop" corner store.

What could and should have happened, if he had invested in a Chief Financial Officer (even a part-time or interim CFO) would have been multi-fold.

1. A banking relationship would have been established.

2. A line of credit would have been established.

3. Reviewed and/or audited financial statements would have been prepared (and in their case going back a year or two).

4, The paper snafu would have never occurred.

5. The convoluted accounting/administrative systems would have been streamlined (probably saving him five (5) bookkeeping salaries.

6. The inadequate accounting system (for their business model) would be replaced.

Along with a host of other strategic and tactical changes.

Does this scenario only occur in mid-sized companies? Absolutely not. Start-ups, small and large size companies all have the same issues.

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