Here is a great primer on the subject of debt and how it applies to all small and medium sized businesses.
It is critical that budgeting, cash flow modeling and the clarity it gives, along with revenue generation predictability and forward thinking strategy be a part of every CEO/Owners “toolbox” . . . and the use of same - daily - is critical to the success of all businesses in every business sector.
Your Outsourced CFO’s “Phased Engagement Model” was built to give CEO/Owners the current and forward looking clarity needed to manage and grow successful businesses in the hyper-connected environment we all inhabit.
“Good Debt - Bad Debt, Know the difference.”
Smart Tactics to Resolve and Stay Out of Entrepreneurial Debt
August 15, 2018
Debt is a part of every business and every entrepreneur knows that. However, not all entrepreneurs are aware of the difference between a bad and good debt and that makes it hard to learn how to avoid the debt trap.
All good business debts are credit lines, mortgages, and loans. They get leveraged for the benefit of the entrepreneur’s business. In other words, they are productive debt.
Bad debt, on the other hand, is the amount that you can’t leverage as your company expands. Financial experts call this reductive debt. Simply put, it’s money which isn’t working in your favor. Generally, this capital gets used to purchase things that are beyond your financial reach. Typically, the results aren’t always favorable.
Reasons entrepreneurs encounter debtsEntrepreneurs find themselves in debt for three main reasons. They are discussed as follows:
1. The fluctuations of the cash flow
Some entrepreneurs and business owners sometimes undervalue the crucial cash-flow ups and downs. They are unable to predict a poor cash-flow for a prolonged time frame. These entrepreneurs usually switch to credit cards to manage the troublesome cash flow, hoping there’s some balance.
Most entrepreneurs feel that they can repay off their credit card amounts fast, but that’s far from the truth. And that’s the starting point of the crisis. It is here that entrepreneurs contemplate on loan and get caught up in a debt cycle.
2. Excessive business pressure
Sometimes, entrepreneurs start to live on their business income. It is not a smart call until such time the business can support them.
Most leave their jobs and go all out to develop a business. But most don’t realize that they aren’t yet ready to pay off the monthly earnings that they stay on.
Each company requires investment and it also needs time to invest. It also requires time and reserves for generating a consistent cash-flow. If you resonate with this, have a second line of earning to balance the crisis.
3. Overconfidence is dangerous
At times, entrepreneurs can be overconfident while using productive debt. Generally, the situation shapes up something like this:
The entrepreneur counts on his earnings and he decides to maximize the business debt to expand his business as fast as possible. However, his lifestyle also gets modified to the new income level.
Here’s where the situations go out of hand.
Due to losing customers or an economy change, a crisis happens. The entrepreneur incurs a financial loss and the situation goes out of control. The entrepreneur incurs a debt to smoothen financial crisis.
How to manage entrepreneurial debt?
Entrepreneurs who understand good debt go a long way. Their strategies are progressive. Some of these entrepreneurs, who are millionaires, have various thought processes that other business owners don’t possess. They have a unique way to make money and manage debts as well.
Two primary methods have been discussed below as follows. If you want to know more on managing entrepreneurial debt management, you can browse through sites like NationalDebtRelief and others to get better information.
Getting out from a reductive debtEvery entrepreneur wants long-term success. For that, it’s essential to obliterate all kinds of wrong and reductive debt from your business at the earliest.
The spreadsheet strategy or analysis must be familiar to you. It is instrumental in taking you out of any business debt faster than you can imagine. The process is simple.
All you need to do is:
• Develop a basic financial plan
• Adhere to it
• Learn from your experience
You need to start by outlining the monthly earning. Know how much of it you can use on an end-to-end basis to reduce the reductive debt. Commit as much as you can. The amount you decide to pay to remove the deficit needs to stretch you.
Go on and create a reductive debt list in proper order. You may start with a high-value debt amount at number 1 and the least at last. Don’t forget to add in the least payment beside every debt in your list.
Once you do this, you’re all set to execute the plan. Go ahead and take out the exact sum that you promised to remove the debt with on a monthly basis. You may add some extra money to small debt payment.
Keep on making your required minimum repayments for every remaining payment. You’ll notice that the lowest debt gets repaid fast this way. Going forward, you may apply the same process to pay off the high-value debts. In the same process, you’ll see that the high-value debt amounts get repaid. Repeat this process, until such time all the debts get cleared.
Consciously stay out from any debt
It is the ideal way to steer clear of all kinds of business debt. However, precise financial planning is essential. You can count on few of the best business practices to manage and stay away from entrepreneurial debt.
• Try and shrink expenditures – Being frugal is smart. Successful entrepreneurs always suggest this practice. You can read books that will be of help.
• Avert unnecessary expenditures – Do consider the opportunity expenses when you are arriving at a financial decision.
• Recruit people only when it’s possible – You have to pay your staff. So, it’s a smart call to only recruit people when you have the financial capacity to. Else, you will have to apply for a loan and eventually fall into a debt cycle.
• Don’t stretch with productive debt – Spending carefully, even with productive debt, is crucial. Making investments that can go against you isn’t a smart decision.
In all situations, it is always advisable to have ample cash deposits. It helps to manage economic downturns and manage other emergencies.
In the recent times, debt consolidation has proven to be a great way to manage entrepreneurial debt. Rather than repaying at various quarters, it is easy to pay off one huge loan amount. That way, an entrepreneur will have one amount to pay off in a month.
Today, there are various financial institutions providing debt loan consolidation services and other financial counseling. You can use it to plan your business cash-flow better and master how to avoid debt trap.
See Also: Entrepreneurship: A Better Career Choice For Generation Z?
Original Author: Cindy Hawthorne
3:00 PM - Last post from the conference
The session went great, the room was packed - and given that it was the last session of the conference, where people are usually “checked out” mentally and otherwise, we cannot be more excited by the results.
The guys ran out of handouts with requests to send via email which is always a good sign!
All the panelists were on point and held the rapt attention of the attendees, who took full advantage of the Q&A time after the formal presentation.
Jeff Bruno was his usual, dynamic self, taking the audience where he wanted them to go while outlining concisely how partnering with YOCFO brings measurable value to the clients it serves.
Bringing the point home was Marc Coleman of The Tactile Group, whose willingness to be open and transparent about where his business was, last August, at the beginning of the YOCFO engagement was inspirational to an audience that was not expecting such a raw and powerful example of the benefits of the YOCFO and PIDC Technical Assistance Partnership.
It is abundantly clear that YOCFO has a powerful metrics measurement tool in its FIG Score© (Financial Intelligence Growth Score).
The attendees were amazed at the breadth and depth of the information, detail, and insight it provides to YOCFO, PIDC, and their clients as they strategize on the how and why of the growth of their business.
Post Q&A, some interesting inquiries were made about the YOCFO Model, the availability of the FIG Score© Model and the depth and breadth of the partnerships we form with our clients.
“We Love It When A Plan Comes Together”
Pretty soon we will be “leaving on a jet plane”
Look for a post conference recap, sometime next week!
6:30 AM – Presentation prep
Jeff Bruno, Marc Coleman & Dwayne Rankin up early to do a final polish on this morning’s presentation - “Innovation In Technical Assistance Partnerships”
Jeff and Dwayne, leaders in their fields, share both their stories and their solutions for providing tailored, technical assistance to their partners - in the case with Bridgeway Capital in Pittsburgh - and PIDC’s - in the case with YOCFO.
The discussion will center on how the partnerships were developed and executed to bring financial and operational intelligence to support business growth to their small and medium sized business clients.
Time to put the handouts together, meet with the videographer, have some breakfast, pack . . . and make the magic happen!
7:20 PM – A long, but exciting day
The day was topped off with a round of intense networking, interesting conversations and further proof that the YOCFO Model is disruptive and transformative.
There are 540 attendees at this conference, representing over 100 different Community Development Financial Institutions of all different sizes, areas of expertise, philosophies and success.
All of them are on a mission to help small businesses that have been underserved by traditional financial institutions - historically - by providing the capital and technical assistance tools all businesses need to survive, grow, and become generational.
Jeff Bruno’s session tomorrow, ‘Innovation in Technical Assistance Partnerships’, closes out the formal break-out programming of the conference and as Jeff does on a regular basis, it will allow YOCFO, PIDC, Gateway Capital & the Tactile Group to close the circle on how CDFI’s and their client businesses can enhance the odds that small and medium size businesses will grow and succeed.
Up early tomorrow to review the highlights of today, review the presentation for the final time, meet the videographer to maximize the impact the presentation can have for a wider audience . . .
. . . and . . .
Have More Fun!!!!!
See you in the morning.
“That time you booked a flight to Chicago and landed in Milwaukee . . .”
Tough weather in Chicago forced the plane to divert to Milwaukee, but they finally made it!
The JW Marriot in downtown is full of conference folk who are friendly, earnest and interested.
The guys are ten minutes from lunch, have made their rounds of the exhibitors, they took a look at the session room for tomorrow, which got Jeff Bruno’s juices flowing and will be looking to spend some time this afternoon with Wanda, Dwayne and Marc going over the presentation and working on making the presentation seamless.
Never doubt Bruno’s work ethic, this is him on the plane knocking out fifty emails . . .
The Energizer Bunny.
They have reviewed the Networking Session for later and have prioritized our “divide and conquer” strategy . . .
Bruno is taking the CDFI CEO Room and Rich is covering the TA (Technical Assistance) Providers Room.
Our guy LOVES to network.
Will check in later with more updates!
5:20 AM – Getting On Our Way
The guys are on the way to the airport, headed to the Opportunity Finance Network’s Small Business Finance Forum in Chicago. Our CEO, Jeff Bruno, will be presenting alongside Wanda Speight of PIDC, Dwayne Rankin of Bridgeway Capital, and our client Marc Coleman from The Tactile Group, with Ginger McNally as the moderator.
This presentation, the first introduction of our business and vision to the Chicago area, will be held in a ‘sold-out’ conference room that holds around 150 people. We’re looking forward to answering questions and getting new ideas about how we can help small businesses.
Right now, just waiting for Jeff to hit the gate. Likely, he is in a long line at La Colombe and will arrive just in the nick of time.
These next two days are very significant for him as our Founder and CEO of this budding, disruptive Outsourced CFO partner for the myriad of businesses from $1 million to $20 million in gross revenue who have never had the access to the kind of ‘financial and business intelligence’ large corporations have.
The OFN Forum will solidify the importance our brand of technical assistance and metric measurement tools can be for the well over 1,000 Community Development Financial Institutions across the country that are helping to build the small and medium-sized businesses in their communities.
This should be a fun and rewarding trip!!!
Your Outsourced CFO (YOCFO) Partners with Philadelphia Industrial Development Corporation (PIDC) To Empower Emerging Small Businesses With Financial Process, Structure, & Strategy
Firms benefit from YOCFO financial intelligence, operational clarity, and key metrics for measuring growth to aid in forecasting future success.
Your Outsourced CFO, a leader in providing financial process, structure, and strategy to businesses in the Philadelphia region, has been chosen by the Philadelphia Industrial Development Corporation to provide financial guidance to PIDC clients.
YOCFO has partnered with PIDC clients, bringing their services to small businesses at a critical time in each company’s development.
PIDC is a non-profit, public-private economic development organization that spurs investment to bring growth to the Philadelphia region through business loans, investment, and a large portfolio of commercial and industrial real estate.
“We’re honored to have been chosen by PIDC to assist these Philadelphia businesses in making better-informed financial decisions as they continue to grow within the community”, said Jeff Bruno, Founder & CEO of Your Outsourced CFO. “We are helping to guide them to clear and company-specific financial intelligence that allows them to monitor and measure their progress on a monthly basis. Using our proprietary FIGS® “scorecard”, we’ve found a way to quantify how these companies progress and improve over the first year of an engagement.”
Using the FIGS® (Financial Intelligence Growth Score) process, the YOCFO team analyzes and assesses the financial operations, financial reporting, financial metrics, and business intelligence of the client on a quarterly basis. This gives the client, PIDC, and YOCFO a clear assessment of the client’s financial and operational position, as well as understanding how well leadership is doing at meeting their current and future growth targets. During the engagements YOCFO benefits the client via a needs-based assessment that evolves as the company grows. For example, YOCFO has helped clients manage and improve monthly cash flow, designed a strategic plan for expansion, and has helped pair the client with PIDC products as the organization began to grow.
PIDC chose to partner with Your Outsourced CFO due to the company’s vast experience with the intricacies of running small & medium sized businesses and their knowledge of and connections to complimentary service companies within the region.
“PIDC is thrilled to partner with Your Outsourced CFO to provide in-depth information and support services to our clients,” said Wanda Speight, Senior Credit Officer and Senior Vice President, Credit and Portfolio Management at PIDC. “Our pilot work with Your Outsourced CFO has already shown tangible results for our small business clients and we are excited to expand our partnership to benefit more business owners.”
Your Outsourced CFO has grown exponentially over the last twelve months and as our customer roster expands and achieves new levels of growth and profitability, we decided it was time to redesign the website – our “face to the world” - and also create a forum for highlighting both our customers’ newsworthy achievements as well as share a bit of what we’ve learned and observed over the past five years of our existence.
The release of this website is in line with some very big announcements recently and one more to come very, very soon!
YOCFO wants to ensure that our customers and future customers get the credit they deserve through our “Media & News” tab, while under “Our Blog” we will be posting timely entries regularly, discussing topics from current events to best practices and ways to improve your business . . . and . . . ”financial intelligence”.
Our Team is growing and so is this page, giving you a glimpse of the expertise and experience we have brought onboard in order to strategically guide you and your business to the next level.
Our Roadmap shows the process we go through to partner with your business, to analyze your financial situation, create metrics to monitor growth and objectives, and to help develop strategies for reaching short-term and long-term goals.
Lastly, we’ve laid out the website in a more aesthetically-pleasing and easy to understand way so that newcomers to the site can – immediately - see the value Your Outsourced CFO adds to each of our client’s organizations.
Today’s companies MUST use data to analyze trends to stay competitive and manage growth effectively.
But how do they do it?
The term Big Data has been coined by many economists as having transformative powers for many large corporations. Amazon, Facebook and Google have been able to transform and even merge industries by compiling, analyzing, and utilizing data. The outcomes can be seen in the form of intermarket acquisitions, hyper-targeted advertising, and integrated product launches.
The analysis of these datasets can be an incredible tool for large companies with multi-billion-dollar market capitalizations, but what about those small-to-medium-sized-businesses (SMBs)? How can this market size benefit from the same data focused trends?
Jeff Bruno, Trilogy Alliance Partner and CEO of Your Outsourced CFO, agrees that all businesses today are extremely sensitive to the data we monitor and how the correct metric analysis is critical.
Big Data steals the spotlight these days, but SMB owners can still ride the data wave by utilizing Small Data, identifying what Trickle Down Metrics© drive their business, and using them both to help achieve short and long term goals.
The Definitions: Small Data vs. Big Data
Big Data is defined by the volume, variety, and velocity of the data being collected.
Small Data is defined as well along the same lines.
The outcomes of Big Data and Small Data are to provide impactful insights, however at very different scales (corporations vs. SMBs). The key for an SMB owner is to be able to clearly identify what Trickle Down Metrics© are the most critical drivers for their business and to focus their limited resources on monitoring the right metrics for the right outcomes.
Trickle Down Metrics©
The Trickle Down Metrics© of a company are the metrics that permeate throughout all aspects of an SMB and which drive the company towards the ultimate goals of the CEO and/or organization.
The CEO or Organizational goals can vary wildly while discovering their Trickle Down Metrics©:
1) Target the Trickle Down Metrics© derived from the WHY
2) Identify Supporting Down Stream Metrics, 3) Collect Data, 4) Monitor Outcomes, 5) Take Action, 6) Repeat, 7) Grow
Information = Power that Drives Growth (See below)
Consider ABC Company, an application development company that creates custom software and applications for SMBs at a fixed fee rate. The CEO has built the company up to $2MM in revenue and $200K in annual net income within a few short years with grit, direct sales, and gut calls. The CEO would like to expand his team and diversify product offering within two years by increasing revenue, maintaining or increasing profitability, and reinvesting those profits into the new revenue channels.
ABC Company Trickle Down Metrics©
The CEO expanded his or her direct labor force in anticipation of revenue growth, hires a VP of Sales and a Sales Administrator to increase revenue of main product and test market for new offerings, and installs a new project management software in preparation for hiring a project manager.
The CEO grows revenue to $2.8MM within twelve months, but sees profitability decrease to break-even levels. The CEO was correct in assuming he needed more direct labor ahead of the increase in sales and successfully avoided the issue of a contract backlog, but twelve months later, even with revenue up to $2.8MM he has no profits to reinvest into new revenue channels. Even worse, he does not know why his actions resulted in some wins and some losses.
Operating WITH identifying the Trickle Down Metrics©:
The CEO analyzed billable versus non-billable labor hours exported from the billing software and found that his Utilization Rate of Direct Labor was around 90%, higher than industry average and an indicator that they would soon be overwhelmed. The CEO used this knowledge to confirm his decision of hiring new direct employees.
The CEO then hires a VP of Sales and a Sales Administrator hoping to increase Billed Revenue and keep his new direct employees busy! The two new hires spend six months closing an acceptable number and revenue level of deals, however they were incorrectly projecting how many hours of labor the projects would require and thus had been miscalculating the fixed fee contract.
This pricing error began to eat into gross profitability of individual projects and the smaller projects weren’t even profitable at all! However, by monitoring the issue over time, the CEO was able isolate the issue, why it was occurring, and take action to correct it before it worsened. The CEO decided to hire a project manager sooner than originally planned to handle the estimation duties and keep labor costs down.
Billed Sales had increased overall to $2.8MM, but they lost slight profitability in the short term due the estimation issues. Outside this slight bump, they are now on track to continue growing towards the CEO’s goal of maintaining profitability and reinvesting excess cash into new revenue channels.
What is your Trickle Down Metrics©??? The Team at Your Outsourced CFO is happy to discuss!
Your Outsourced CFO helps the modern CEO strategize for growth, while continuing to manage critical financial processes monthly, quarterly and annually. We act as your executive sounding board and work with you through every major decision to help achieve growth milestones.