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Category Archives: CFO

Yikes! Are You Still Using Paper Checks?

Placing paper checks in the mail to vendors places your company at risk if you are placing them in the mail without Positive Pay.
Why don’t you just play Russian roulette with a full chamber or ride a motorcycle without a helmet? That may seem a little over the top, but the paper check is a risky way to submit payments to vendors. 

What Can Happen?

A client contacted me recently to help unravel the mystery of the missing payment to one of his vendors. By researching his automated AP system and conferring with his third-party print vendor, we confirmed that the check had been produced and picked up by the post office for delivery. The check was eventually presented to a bank in Chicago for payment. The vendor was in North Carolina.

The bank in Chicago eventually released a photo to the FBI (yes, they had to get involved) of the person trying to cash the check. We had the chance to view the photo to confirm the person was not an employee of my client’s company. Thanks to using Positive Pay, they did not lose out on the amount of the check.

Check Fraud

The incidents of check fraud are so frequent that law enforcement officials such as the FBI aren’t that interested in pursuing the “little guys;” they want to go after the big fish. Even though the check my client had cut was over $20,000 – big to him – it wasn’t worth pursuing just that instance to the FBI.

If you thought checks were old news, take a look at these statistics from the 2016 AFP Electronic Payments Fraud and Control Survey:

  • Seventy-five percent of organizations that were victims of fraud attempts/attacks in 2016 experienced check fraud, a 4% increase over 2015.
  • Positive pay continues to be the method most often used by organizations to guard against check fraud, used by 74 percent of organizations. Other methods include:
    • Segregation of accounts (cited by 69 percent of respondents)
    • Daily reconciliations and other internal processes (64 percent)
    • Payee positive pay (41 percent)
  • Lack of positive pay (cited by 23 percent of respondents) and clerical errors (18 percent) were two primary reasons for financial loss due to check fraud.

Electronic Payments

As the statistics show, checks continue to be the payment method most frequently targeted by those committing or attempting to commit fraud. One method companies use to fight check fraud is converting to electronic payments. In addition to the fraud prevention benefits, ePayments provide benefits such as:

  • Ability to quickly process last-minute bill and payroll payments.
  • Take advantage of early payment discounts, while paying closer to the due date.
  • Improved client-vendor relationships due to rapid, more efficient payments.
  • Eliminate the cost of printing and mailing paper checks, which can be as much as $9 per check.

Often implemented as an add-on to your existing financial system, the selection of vendors offering B2B ePayment solutions is huge. Barker Associates has seen the “deer-in-the-headlights” look that clients get when trying to sort through the options to choose the best solution for their company.


Gathering this information and learning more about the ePayment process can be overwhelming. Want help? Sign up for a 30-minute consultation with me to discuss. 

In addition, we have compiled an invaluable checklist that will guide you in the transformation of your payment process to select the best vendor for your circumstances.



The New Sales Tax Laws- What You NEED to know!

I have had the opportunity to work with creative, tenacious entrepreneurs who add disruptive technology and new functionality to our world. I understand that as these wonderful people are creating, they do not always think about the best way to maintain the sales and customer infrastructure they need on the back end. A new court ruling could have implications for their business.

To help you all understand how the new sales tax laws could impact your business, I have deconstructed the new rulings to give you the bottom line on the fundamental requirements you must have in place to sleep peacefully, knowing you have the financial clarity to be prepared.

My experience working with the sale of a business, capital raise due diligence and audit prep gives me an understanding of complying with the new out-of-state sales tax requirements.  I can see the look on your face when you ask your tax person, “What information do I need to understand my exposure to the new sales tax law, and they say, “It depends…”

Are Your Customers Out-of-State?

The recent ruling of the U.S. Supreme Court in the South Dakota v. Wayfair, Inc. case (June 21, 2018) has garnered lots of attention from business owners and finance professionals alike. The new law in South Dakota – if you sell a minimum of $100,000 in sales OR 200 transactions to South Dakota customers from anywhere in the US, you must collect and remit that sales tax based on South Dakota’s laws. There are thousands of technical tax issues and caveats that follow suit, with legislators expanding states’ legal ability to collect sales tax on sales executed anywhere in the United States; this should be more than enough to make you think it has got to be 5 o’clock somewhere.

Don’t be distracted trying to learn all the technical aspects of what is required; instead, work with tax professionals at a CPA firm or similar services. When you muster the courage to ask how to prepare for an impending sales tax audit, the person you are talking to is going to say – It depends.

Your tax person will ask many difficult questions, which you can’t answer to off the top of your head. I have worked with hundreds of companies going through audits at a national accounting firm, and I have been the CFO of both large and small entities. The wide range of systems and information about sales and customers that I have seen has been lackluster; in my estimate, a mere 15% of companies have the correct data on their customers organized in a way they would be able to answer questions when the tax professional says – It depends.

The New Sales Tax Requirement- What You NEED to know!

Be Ready for It Depends…

You can quickly feel overwhelmed just thinking about being subject to a sales tax audit for each state that you ship your product to. I’ve compiled the following list as a comprehensive guide to strength-testing your customer database, to see how it will hold up when this sales tax issue inevitably affects you.

1. Can you produce data that shows sales by customer that will reconcile with that year’s tax return submitted to the IRS? Or are you the type of business that does not consistently keep sales data that matches the corresponding financial data? Companies that are not subject to Sarbanes-Oxley, State regulatory filing requirements, or an annual audit do not keep sales data that matches their summary financial documents. In the case of the sale of the business, this becomes a due diligence issue, as the acquiring firm or investor cannot substantiate and analyze the sales to comfortably know what they are buying.

2. Can you dig into your customer data by state and by transaction? Can you determine the number of transactions by state? South Dakota’s new law states that if you have 200 transactions, you are subject to the collection and remittance of sales tax. There is NO dollar limit, or requirement on the 200 transactions. You could make 200 hair bows in your garage then send them to South Dakota, and you will still have to collect and remit sales tax.

3. Do your customer records consistently distinguish between billing and shipping addresses, and how easy is it to report? Is there a clear business rule and process that makes the shipping address distinct from the billing address?

4. If your business model is subscription services, but includes the sale of a product at the beginning of the relationship, can you segment the sale between product and service? For example, if you are a software-as-a-service, (SaaS), company and you sell hardware to run the service at the beginning of each sale, can you produce records that agree with the information in #1, to distinguish between product and service?

5. If your revenue is generated from maintenance and/or installation of items are you able to distinguish customer sales records between the sale of the product and the labor to install? The tax on labor for maintenance and/or labor in each State that charges Sales Tax is different, and you must be able to distinguish the difference between Labor and Parts in your operations, sales, and billing systems. Examples, where this applies, are large long-haul trucks, machinery, or pipelines used in construction, all of which include a sale followed by installation or maintenance.

Be Prepared with a Solid Infrastructure

Strategy discussions with your CPA must include an analysis of how to manage through these new regulations that are inevitably going to make their way through your state’s legislature. Politicians in states other than South Dakota are eager to push similar bills through their system, and it will be a popular but non-controversial pursuit. How exactly will each state implement such sales tax laws? My crystal ball says that only time will tell.

The bottom line is that, once again, I am giving another example of the cost of having the wrong infrastructure in your business.  The costs related to sales tax compliance in this new world will be substantial.  The good news is, with a solid data capture and reporting infrastructure, you can use the same data for analysis, reporting and audit preparation.  Let’s work together to get you running your business with the financial clarity to know where you are headed!

Mindy Barker, CPA
cfo@mindybarkerassociates.com

The CFO – Your Financial Strategist

A CFO has the financial birds-eye-view to develop forward-looking strategic thinking; they understand different cash management policies to help through challenging times; they help prepare a company for both the known and unknown or unexpected financial obligations, using strategies that make sense for the circumstances.

The CFO - Your Financial Strategist

Do you launch bleeding-edge products? If so, you understand it’s not just about product design, sales, and marketing – the CFO is the team member you need to help with the financial aspect of a new product, such as how to price it, is it making money, should we discontinue an old product.

Want to offer new employee benefits? How much will that idea cost over time?

Considering expansion to a new city, or buying up a competitor? Where do you start?

These are areas where the CFO provides financial strategy and leadership throughout the process.

So, what was your question again – why do you need a CFO? That’s why.

Barker Associates, CFO Strategists, works with entrepreneurial growth companies, established corporations and nonprofits to develop positive cash flow and increase the value of your company. We can be contacted at cfo@mindybarkerassociates.com or 904.728.2920.

Why Should You Hire a CFO?

I have learned from my years as both a CFO and a business owner that many business owners who have not worked directly with a CFO, don’t understand the value they bring to steering the company’s future. When the CEO has a difficult time determining how to spend limited dollars, for example, they may decide to invest in sales and marketing to strengthen sagging revenue, expecting immediate returns with hockey stick-like increases in sales.  Sales and marketing efforts are great investments if properly managed and monitored; however, without discipline and strategy, the expected return may not be realized if the investment was misdirected, to begin with.

CEOs often have a background expertise in sales or technology.  They have enough respect for accounting and finance to know they need at least some of it but, truth-be-told would rather kiss an alligator than to admit how little they understand about financing, how a balance sheet works or why they need a cash flow statement.

Why Should You Hire a CFO

They also don’t understand the difference between a CFO and a CPA.

So, what was your question again – why do you need a CFO? That’s why.

Barker Associates, CFO Strategists, works with entrepreneurial growth companies, established corporations and nonprofits to develop positive cash flow and increase the value of your company. We can be contacted at cfo@mindybarkerassociates.com or 904.728.2920.

Don’t Expect Your CPA To Be Your CFO

I frequently see struggling businesses feel comfortable engaging a CPA to perform an audit, or use a bookkeeper to handle the financial processes of their company and provide monthly finance reports. As we delve deeper into the client’s concerns through probing questions, I often discover that neither the CEO nor the Board fully understands the monthly financial reports that were dutifully distributed to their emails.

Don’t mistake your CPA, who is preparing your tax return or an audit, as the financial strategist for your business.  The CPA’s focus is compliance-driven, not future-focused.  The tax return and audited financial statements are products that show the financial results at a specific point in time.  It is unrealistic to expect your CPA to include ongoing consulting in their services.

To describe in sports terms, think of the CFO like the defensive coach on the field, helping to manage the organization’s financial moves, calling plays in the financial world.

Don’t Expect Your CPA To Be Your CFO

The outside CPA is like the scorekeeper, up in the booth, keeping the score.  It is unfair to blame them when you miss a goal or miss the opportunity to score a touchdown.

Consider adding a CFO to your leadership team to bring a financial, future-focused view to your organization’s decision-making process.

Barker Associates, CFO Strategists, works with entrepreneurial growth companies, established corporations and nonprofits to develop positive cash flow and increase the value of your company. We can be contacted at cfo@mindybarkerassociates.com or 904.728.2920.

Start With Simple

What do making your bed and pitching to potential investors have in common? According to Admiral William McRaven, in his book, Make Your Bed (available at Amazon.com), it’s the simple steps, taken each day, that achieve great results.

To better link these two seemingly unrelated activities, consider this: Chief Executive and Financial Officers may feel overwhelmed by the need to focus on daily tasks and raising capital.  But by executing a simple task, such as making your bed each day, the tone is set for the rest of the day’s attitude and accomplishments.

Combine the responsibilities of a C level position with the priorities of kicking off a new year, and CEOs and CFOs may lack the required focus to also prepare to meet with potential investors. I suggest you personally implement one to two simple habits successfully, then move on to other new habits. The success of achieving even simple changes will reinforce your mindset for success.

Surviving a Disaster – Hurricane Irma

Mindy Barker | Barker Associates

The Accounting Department – More Than a Processing Machine

Or – how to become an irreplaceable business partner to your CEO.

 

Why do accounting departments exist? The accounting department can be a processing machine producing mountains of data and reports that get little to no attention OR they can serve as business partner to senior management.

But how do you make that transition to the irreplaceable business partner?

It starts with innovation.  Most people think about inventing a specific product when they hear the word innovation. That is not necessarily the case. It can also mean changing a process – even something as basic as how an entity receives mail, pays bills or records revenue.

 

Innovation – a new idea, more effective device or process; the application of better solutions that meet new requirements, unarticulated needs, or existing market needs (Wikipedia, 2015)

Mindy Barker | Barker Associates

Consider these examples of innovation:

  1. NetFlix innovated Blockbuster out of business with online streaming.

 

  1. Amazon innovated a new way to interact with customers with the Prime and Subscribe and Save programs.

 

  1. New technology in police cars that carry canine officers has the ability to sense when the temperature in the car is too high, triggering the window to automatically roll down and starting a fan to keep the dog cool.

 

Companies have implemented lots of new ways to process a piece of paper and save steps, time and money … small changes like these add up and allow the accounting team to provide a better product to stakeholders.

Where do we start to transition from a process machine working too many hours … to a business partner to senior management? The key is to move the work time from “process and reporting” to “advisor and special project work.” To do this, you must shorten the month end process and change the annual budgeting process to a rolling monthly or quarterly process.

 

The CEO must support this change and as an accountant, you will need to pitch the change by thinking through the emotional drivers that will appeal to the CEO. If your CEO is the type who is uncomfortable with the financial side of the entity, he or she may ask for more data than they actually need. It’s your job to help them understand the best way to guarantee their success is to know the answer to key questions and have the answers to these questions laid out in a meaningful dashboard format.

A great place to start is with the laborious process of Accounts Payable. The paper associated with Accounts Payable and Expense Reporting can be overwhelming.

 

Here are 11 actions you can take to streamline your company’s accounts payable process:

 

  1. If possible, use an automated purchasing system so that purchases are approved at the beginning of the process. This minimizes time on the back end. The system should be set up so that employees that can order a specific type of product and then send to the appropriate approver.
  2. If you do not have an automated system, think through your process with the goal of moving the approval process to the beginning of the payment process – rather than at the end.
  3. In all cases, maintain a list of vendors and their websites with the logins and passwords, securely stored where only authorized users can access. This is especially important with PayPal, who is relentless if you lose the login and password for their site.
  4. In all cases, set up an Accounts Payable email address that routes to at least two accountants. It should go without saying – but I will anyway because I see it all the time – You do not want vendors sending emails to a specific person. When that person leaves, it creates chaos with the accounts payable communication.
  5. If possible, with your technology, set up a process where vendors upload invoices to the purchasing or accounts payable system, with the general ledger codes already noted.
  6. If this is not possible, ask the vendor to send invoices to the accounts payable email address. From there, the invoice can be matched with the purchase order, approved or sent to the cost center owner for approval.
  7. If you do cannot automate the receipt of invoices, except for nonprofits that must maintain original invoices for grant purposes, scan paper invoices and save invoices emailed with a naming convention either in a cloud-based storage or on a shared drive. Set the naming convention to assist with location of invoices later for research. Something like: <invoice date_vendor name_cost center>; think through what information you will need when you research a payables question. If you are the lead of the accounting department or a leader – do not set this naming convention without the input of the person doing the work.
  8. Process payments on a regular basis. If you are processing invoices when the cost center owners request it or vendors call – you are flushing money down the toilet. This is not a good practice. Get your employees and your vendors on board by communicating the payment pattern.
  9. Consider implementing an e-Payment process, either through your accounts payable software or using a third-party vendor who specializes in e-Payments. Utilize the controls that are built into these types of products, don’t bypass them if they seem inconvenient, they exist to protect the company from fraud.
  10. Process all invoices for the month by the last business day of the month. This is essential to maintain a tight monthly schedule. So you may say – I will not have all the invoices – OK – but you generally get 12 invoices a year and it really does not matter if each and every one is in the month it covers. For the month you implement the change, you may need to record an accrual of expense you will reverse until you get the pattern of expense working correctly.
  11. Reconcile Credit Cards on a monthly basis. You can use Expense Management Apps from your phone similar to “Expensify” to assist management with keeping up with receipts and expenses.

 

If you can implement these changes in your AP environment, you have made a great start to free up time for the transition to a trusted financial advisor to the CEO. The next part of this series discusses changes to the month-end process that will continue to advance your progress from “process and reporting” towards “advisor and special project work.”

 

Mindy Barker & Associates (cfo@mindybarkerassociates.com) works with companies to help maneuver the many questions of strengthening accounting processes and practices through process improvements, as well as other decisions that face growing companies.

Other Key Considerations for Equity Allocation

Part 3 of the Equity series. The Equity series concludes with five additional key considerations for startups, as you lay the foundation for the future growth and development of your new business.

 

  • Equal split of equity and decision-making with a Partner(s). For this arrangement to work, quick decisions have to be made and put in writing so progress is not deterred and there is no confusion over what was agreed to. Teams need leadership and someone has to act as a leader to build value effectively.
  • Allocating fully vested equity to a partner who has not been properly vetted. Don’t do it – here’s why: fully vesting a major C-level executive with substantial equity, only to find out they don’t work out, means you have just given away all of that equity. You have also limited your options for giving equity to the new C-level executive who does work out, because buying back the equity you gave away may prove difficult.
    Equ-Pt-3shutterstock_525406363shutterstock
  • Giving equity to an advisor who later proves to be unethical could affect your brand and ability to do business. Conduct proper due diligence and background checks up front to avoid such situations.
  • Back up your actions – maintain accurate records. When you are spending money to get a company up and running, there is a tendency to deposit funds in the bank account and worry about documentation later. As the Founder, you need to “paper up” transactions and issue yourself either a promissory note, stock certificate or some other form of documentation to back up the deposit of funds – and here’s why: I have seen many Seed and Series A rounds delayed because accountants and attorneys are working to determine what the actual capitalization of the company looks like. Don’t be that shortsighted founder.
  • Refusal to part with any equity. Some entrepreneurs refuse to give away any equity and this is not good either. This example explains why. I once met with an entrepreneur who told me he had a solid offer for a large investment in exchange for 50% equity in his company, which he turned down. Further information revealed the entrepreneur was having difficulty making payroll, paying rent and keeping the company moving forward due to limited financial resources. I walked away from the conversation concerned he would, at the end of the day, own 100% of nothing when he ran out of money.

In conclusion, here are some final words of advice on investors and equity. Once you have proven your unique value proposition by building your customer base and generating revenue, you may start to seek an Angel or Seed round of investing. Do your due diligence prior to entering into a partnership with an investment partner, including speaking with other entrepreneurs with whom they have invested. The right investment partner will offer invaluable wisdom and advice.

 

Beware investors who may attempt to incorporate unreasonable terms or harass you to a point where you put your business’s survival at risk. Avoid these types of arrangements: a convertible note that converts into 100% of the equity to the investor if the company defaults on the payment; terms that allow the investor to fire the CEO/Founder without cause; or surrendering voting rights to make major corporate decisions at the expense of engaging with that investor.
The common theme here is be a well-informed entrepreneur by doing your due diligence as you journey through your startup adventure.

 

Mindy Barker & Associates (cfo@mindybarkerassociates.com) works with entrepreneurial growth companies to help maneuver the many questions of funding, employee compensation and other decisions and is available to discuss your questions on equity.

Primary Considerations for Equity Allocation Agreements

Part 2 of the Equity series. In Part 1 of the Equity series I laid the groundwork for equity allocation by discussing the impulsive entrepreneur who gives away the business to friend and family just to have them involved in the new venture.

 

Part 2 focuses on equity allocation to key roles in your organization. Unless your entrepreneurial idea is to start a new kind of venture capital firm or become an attorney who specializes in IPOs, discussing employee stock option plan (ESOP) allocations and agreements with potential staff members may seem intimidating.

 

That’s why I am sharing some key considerations for you to be aware of when you are ready to start that conversation. My perspective is that of a former principal and chief financial officer of a private equity firm.

 

Equity allocation to Principal Management. EquityPart2-shutterstock_229730320 The rule of thumb for the allocation of equity to senior management and advisors is 15 – 20%.

 

The allocation to individuals depends on several factors and even timing. For example, if the founder(s) know they need to hire a CEO/President after they get the entity to a certain level, they should reserve some equity for this position.

 

Sales executives typically will earn more through commission than most of the management team, therefore should have the lowest allocation of equity of the C-Suite.

 

Technology and Financial positions are critical in most companies, which means the majority of the allocation should go to these positions.

 

Equity to advisors is another factor when divvying up equity, and discussed in more detail in Part 3 of this series.

 

Finally, there is vesting equity ownership as an employee incentive to perform well and stick with it while the company evolves from start-up to success. My advice is to keep it simple – don’t have one-off vesting arrangements for each person – keep it straightforward, make all terms and conditions with all option arrangements pari passu (on equal footing) with everyone – this makes it easy.

 

Part 3 concludes the Equity series with other key considerations for entrepreneurs considering equity allocation for their startup.

 

Mindy Barker & Associates (cfo@mindybarkerassociates.com) works with entrepreneurial growth companies to help maneuver the many questions of funding, employee compensation and other decisions and is available to discuss your questions on equity.