Category Archives: financial reporting

The Pandemic’s Larger Impacts on Financial Reporting

The Pandemic’s Larger Impacts on Financial Reporting 
It’s About Much More than a Loss of Revenue 

Mindy Barker | Barker Associates

Many people incorrectly assumed that the pandemic’s only true effect on a business’s financials was a loss (albeit often significant) of revenue. And while that assumption is not even necessarily true of every business (many did very well), Covid-19 impacted much more—not just financial performance, but also position, cashflow, and balance sheet accounts. There have been impairments to goodwill and other intangibles, effects on inventory, a change in how and when audits are conducted, and impacts to overall company strategy and goals. And these impacts are especially challenging for a company in the growth phase. 

If your company is in the growth phase, it’s crucial to think about your options, understand your needs and, more significantly, how they have changed since the pandemic, what numbers are required, and to develop a new strategy. Companies in the growth phase are experiencing positive cash flow. With this increase in cash, they have the ability to repay debt, and are in a better position to seek additional capital from investors to expand their market reach. However, if the CFO hasn’t been carefully monitoring the pandemic’s impact on all aspects of the company’s financials, they likely don’t have their reporting in order to even approach potential investors.  

Changing Financial Needs Means Increased Financial Monitoring 

We learned fairly quickly in the beginning of the pandemic that liquidity is key to keeping a business from closing its doors in a crisis. The question that plagued many was how to increase liquidity with revenue decreasing? But those CFOs were often only considering pre-pandemic needs and observations, not the changing needs of the company in the midst of the pandemic. Auditors have noted that many accounts, including sales, inventory, and bad debt have been affected, as well as production and distribution. 

First, these changing needs require a change in financial monitoring. Cash flow projections and other assumptions used to measure financial instruments pre-pandemic should be adjusted to reflect your company’s new reality. Remember that a majority of businesses have been affected in one way or another, but if that results in their lack of ability to pay you, you’re going to incur additional credit and liquidity risks, increased bad debt, and write-offs.  

Cash Flow 
A careful analysis of your company’s cash flow can help. Some questions to consider about revenue include: 

  • Are accounts receivable being paid? 
  • Are past due accounts being followed up on? 
  • Are late payment fees and interest being charged to customers (your money should not be free)? 
  • Do you need to offer pre-payment discounts? 
  • Should you look at retainers/deposits? 
  • Do you have the capability of setting up auto-payments? 

Of course, we can’t consider cash flow without considering expenses. And while there will be a decrease in some, there will be an increase in others. At a minimum, consider the following questions: 

  • How have your office needs changed? 
  • Do you have the ability to downsize?  
  • How much are you saving due to decreased meal and travel expenses?  
  • Where are these savings being utilized? 
  • How much more are you spending on technology expenditures to maintain communications with staff and customers/clients?  

Balance Sheet Accounts 

Additionally, other balance sheet accounts have also been affected. One issue that warrants attention if you plan to seek outside funding is inventory needs and accessibility. With productivity and supply chains being disrupted, it may be difficult to allocate costs to inventory. There is also the issue of inventory that cannot be delivered because of travel restrictions. This also plays a significant role in the larger economic impact of decreased supply and increased demand, resulting in higher prices going forward. 

Goodwill, post-retirement plans, and internal controls are other accounts/issues that require an in depth look at your financials and a pivot in business strategy, as we slowly climb out of this pandemic.  

If you’re still waiting for things to get back to “normal,” and analyzing your financials based on pre-pandemic assumptions, you are not doing your business justice. You may think you have enough cash on hand or that expenses are timely being paid, but without meticulous monitoring and a true long-term plan based on our new reality, you cannot forecast or grow to the next level. 

This can be overwhelming. But pivoting in your financial planning and forecasting is necessary. Barker Associates has extensive experience in financial statement analysis, plans, and forecasts. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.  

Defining Your Corporate Development Strategy

Defining Your Corporate Development Strategy
How to Navigate from Where You Are to Where You Want to Go

Mindy Barker | Barker Associates

Typically, when you get into your car, you have a destination. You’re going somewhere and you know how to get there (or you have your smartphone or navigation to help you along the way). You don’t get into the car and sit there wondering absentmindedly about what you should do next (put the key in the ignition, put the car into gear) or where you should go (a quick trip to the store, a commute to work, or a longer road trip to a vacation destination). Rather, you know what your next steps are to take you where you want to go.

We’ve used this analogy before in our financial literacy series, but it holds true here just as much. Running a company is very similar to driving a car. You need to know the steps you need to take to get started, where you are going, and of course, how you will get there. Without them, much like as a driver, you will soon find yourself lost. And, with a company, you not only have to worry about yourself getting lost, but all of those others (staff, clients, vendors, partners) following close behind. It’s important to navigate and lead them along the right path, or, as I like to call it, your corporate development strategy.

What is a Corporate Development Strategy?

A corporate development strategy is best described as an actionable plan for your company. There are different strategies (or routes) you can take—Stability Strategy, Expansion Strategy, or Growth Strategy, to name just a few. And while they all will take you in different directions depending on the goals you have for your company, they all have the exact same foundation—understanding your financials, both current and future projections. Without a clear understanding of your revenue, expenses, and other financial data, it would be difficult to define your strategy based on where you want to drive the company in the future. 

As you begin to define your own corporate development strategy, it’s important to put aside some common debates and confusion. Corporate strategy is not corporate finance (although it will always incorporate finance). Corporate strategy is also not business strategy. Like the distinction with finance, they are close, but distinctions abound. Business strategy deals specifically with how you are going to achieve your goals. Corporate strategy is more all-encompassing—it includes not merely your annual goals, but a clear overall strategy on where the company is going with well-researched answers to questions, such as:

  • Where do you want your business to be in terms of revenue in ten years (not three or five, as most business project)?
    • Note: This should be realistic, but not conservative.
    • What will it take each year to get there?
  • Who is in the competitive landscape?
  • How will you compete?
  • What are barriers to where you want to go?
  • Should you introduce new products/services? Should you remove any products/services?
    • If so, when? 
    • If so, should you acquire another company with experience in that space?
  • Are their potential partners or suppliers in which you can outsource some of your operations? 
  • How do you optimize productivity and profitability?
    • Do you need new technology?
    • Should you acquire a company with expertise in that technology?

Dig Deeper than a SWOT Analysis

This list in not all-inclusive, but should give you an idea of the scope of the due diligence required. Small companies often will think about some or all of these questions during an annual review (if they have one – let’s hope they do) where they dust off their white board and do a typical SWOT analysis. But a true corporate development strategy will dive much deeper than a four-section chart detailing the somewhat generic strengths, weaknesses, opportunities, and threats of a small business. To grow beyond a small business, there needs to be much more than the contents of four cubes on a whiteboard. 

A successful corporate development strategy may include diversification, where a company acquires or establishes a business other than that of its current product. It could also include horizontal integration, where there is a merger or acquisition of a new business, or a vertical integration, which includes the integrating of successive stages of various processes under single management.

Many, but not all, corporate development strategies focused on growth will include a merger or acquisition at some point. It’s often the best way to truly grow your business to the next level. But it always begins with a decision made as you define the right corporate development strategy for your business. 

Putting the appropriate strategy together is crucial for the long-term success of your business. If you need assistance defining your business’s future, or corporate development strategy, or have any other questions, Barker Associates can help. Please click here to schedule a 30-minute consultation at a rate of $100. 

The Check is in the Mail – How E-Payments Render that Saying Obsolete

The Check is in the Mail
How E-Payments Render that Saying Obsolete 

Mindy Barker | Barker Associates

If you’re like me, you probably can’t remember the last time you heard “the check is in the mail” with any seriousness. While it had been a fairly common sentiment for many years, with online banking, cash apps, Zelle, and more e-payment options materializing every day, it seems to have become a saying of times past. 

According to the Federal Reserve Bank of Philadelphia, paper checks are projected to become obsolete by the year 2026 – that’s just five short years away, begging the question – Are you ready? And while it may seem sudden to some, this trend is not at all that recent. According to the Federal Reserve, even as far back as nine years ago, in 2012, only 15% of all U.S. noncash payments were checks. By 2019, that percentage was reduced to a mere 8.3%. 

Some “Ancient” History about E-Payments 

The history of e-payments goes back much further than 2012 though. One of the significant impetuses of e-payments was actually due to the effects of September 11th; specifically, the grounding of all air traffic (and many checks in envelopes on those planes). The Federal Reserve took action shortly thereafter with the “Check 21 Act.”   

The new legislation authorized fully electronic clearance of checks, rather than presentation of the physical check. At the time, the “new” verification process was explained by the Federal Reserve Bank of Philadelphia, “This legislation initially permitted a paper substitute digital image of a check, and later an electronic digital image of a check, to be processed and presented for payment on a same-day basis.” 

And the rest, as they say, is history. 

Paper Check Usage … A Question of the Ages 

In our tech-driven, fast-paced world, with e-payments and cash apps paving the road to the future of payment processing, it is probably no surprise that check usage is a numbers game in more than one way. It is often based on the person’s age range. For example, younger generations feel the process of checks (and mail in general) is annoying, takes too long, and is inefficient. They’ve grown up with deposits on their smartphones and Venmo payments. In fact, the Google search term “how to write a check” has increased drastically over the past decade, presumably by younger people unsure of the check-writing process.  

In contrast, older generations do not quite “trust” these apps and transferring their cash to anyone with a swipe on their phones or the click of a mouse. They are familiar with paper checks and live by the motto, “if it’s not broke don’t fix it.” But the question is, “Isn’t it broke?” 

E-Payment Savings 

E-payments have a huge impact on business savings. They save money by reducing the costs associated with using paper checks (as much as $9 per check). They also save time with increased efficiency of payments. They even help save our environment by enhancing a company’s green initiative. They do all of this while keeping the foundation of a check alive and well – the ability to securely move money from one entity or person to another. 

Other benefits include: 

  • Reducing a company’s exposure to fraud. For years, checks have been the payment method most susceptible to those committing fraud.  
  • Increasing the ability to quickly process last-minute bill and payroll payments. 
  • Improved client-vendor relationships due to rapid, more efficient payments. 
  • Better reporting and workflow surrounding payments. 

This may be a shift for some businesses, who haven’t been ready to take the full e-payment leap yet. But doing what they’ve always done will not only make them inefficient, it will cost them more money in the long run. Yet, we understand that making the shift and trusting in these systems may still be overwhelming to some. That’s where Barker Associates can help. 

We have 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. But the fact of the matter is the use of checks will eventually fade away completely, and if the Federal Reserve is correct, that time will be fairly soon. There are simply too many options and solutions now for the old method of writing, signing, and mailing a paper check to live on. If you would like to discuss these services, or if you have other specific areas of concern, please click here to schedule a 30-minute consultation at a rate of $100. 

The Balancing Act of Account Reconciliation and Online Banking

The Balancing Act of Account Reconciliation and Online Banking
Convenience Doesn’t Make Up for Inaccuracy

Mindy Barker | Barker Associates

We are continuing our financial literacy discussion with something we all know about … or do we? We’re talking about online banking and its effect on our reconciliation habits (or lack thereof). In our daily routines, with our phones and computers easily assisting us with deposits, automated payments, and Zelle transfers, do we ever think about good old bank account statements and the ever-important task of regular bank account reconciliations? My guess for many is no. 

Most of us happily “live” online. Our online lives provide convenience and speed like we’ve never known before. Simply, they provide what we all crave – instant gratification. As a society, we have become accustomed to having all of the information we need with the click of our mouse or a swipe on our smartphone. Dare I say, we tend to get a little lazy, not to mention, annoyed, when we don’t have instantaneous satisfaction. Everything from groceries to dinner delivery to setting appointments to virtual doctor’s appointments to online banking just helps make our lives easier. And we’re all for it. 

With regard to online banking, being able to find out your balance, arrange for a payment, and make a deposit all from the palm of our hand is wonderful … in certain situations. However, in many instances, people are becoming far too reliant on this online information and forgetting about some of the basics, such as bank account reconciliation.  

In the Days Before Online Banking 

Once upon a time, long before online banking became a regular part of our lives, the standard practice for both personal and business checking accounts was to reconcile a check register to a monthly bank statement. You remember those days (or you should) – when you received your bank statement in the mail (yes, the actual mailbox, not email) and then you’d open your checkbook and go through line-by-line check-marking away to make sure each transaction was accounted for? Well, there was a reason for that. You need to know which transactions have cleared and which haven’t, so you can accurately determine how much is in your account (which, in reality, is not always what the number on the statement says). 

Yet, when accounting professionals adopted online banking into their processes, organizations tended to forgo the discipline of maintaining a check register as part of their reconciliation processes. In the interest of increasing efficiencies, and feeling as if the ends no longer justified the means, reconciliation became an “obsolete” practice. But should it have? Absolutely not. 

A Common Conversation 

The following is a typical conversation I’ve had when consulting with clients on accounting process improvements: 

Accounting professional (with a bundle of unsigned checks): “This is our process for obtaining check signatures.” 

Me: “How do you know you have enough money in the account to cover these checks? What is your procedure?”  

Accounting professional: “I checked the balance online this morning.” 

Me: “Where is the reconciliation to the check register? How do you know that all of the uncashed checks will not deplete the entire balance?” 

Accounting professional: “I know there are not that many outstanding checks.” 

Me: “When is the last time you reconciled the account?” 

Accounting professional: Answers range from “a year ago” to “I do not remember” (not good) to “yesterday” or “a month ago” (which is good). 

Finding the Right Balance 

I am not saying there aren’t times when viewing online balances without going through the reconciliation process is appropriate, but it’s not the final reconciliation resource. It’s okay to use online banking as an effective tool to manage your daily cash flow, but it requires the extra effort of being connected to a cash reconciliation process that is properly maintained and reviewed periodically. Without accurate and consistent reconciliations, your organization is at risk of fraud, unauthorized withdrawals, or bank errors. If left unchecked, these issues can quickly lead to cash flow issues that will hurt business operations and stifle growth. 

Let’s avoid those situations with an experiment: If you are a CEO, President of a company, or a Finance Chair of a non-profit, ask the accounting department for the latest bank/cash reconciliation of the operating account. Ask specifically for these documents: 

  • The bank reconciliation 
  • A copy of the bank document to which it was reconciled 
  • The Balance Sheet balance to which it was reconciled 

(Note: Publicly traded companies, financial institutions, insurance companies and other regulated industries have to maintain reconciliation procedures, so if you are in charge of one of those, regulation will take care of this.) 

If you are bold enough to move forward with this call to action, my experience tells me about 50% of you will get a reconciliation completed in the last 45 days. If you get one and do not know how to review it, schedule time with me for a free, no-obligation checklist that will guide you through a high-level review.  

If you do not get a reconciliation, and, in fact, get a blank stare from your accounting person, contact me to complete a review of your cash procedures and processes. You may have plenty of cash flow today, but how do you really know without a current reconciliation? Don’t risk finding yourself in a position where you cannot meet your basic financial obligations. “Cash is king” is a cliché’ for a reason – it’s true!

Grow Your Financial Knowledge, Grow Your Business

This week, we continue our month-long discussion on financial literacy, including best practices to increase your financial knowledge. While there are numerous reasons business owners do not have an adequate level of financial knowledge (some people are just not good with numbers, guidance from GAAP has gotten so complicated it makes it even more difficult to understand, and business owners are just “too busy” to get into it), this knowledge is crucial to having effective conversations about your business.  

Mindy Barker | Barker Associates

Can You Stand Your Financial Ground? 

If the right investor came along tomorrow, how confident are you that you are prepared with accurate historical and projected financials? Can you demonstrate thorough knowledge of your company’s financials, cash flow, burn rate, and return on investment?  Are you prepared to get drilled on each number you provide and have the ability to accurately explain where it came from? If you are not prepared, it will feel like the longest half hour of your life.  

So, how confident are you? 

If your answer is, “Not confident,” or “Somewhat confident,” it is time to make an investment in yourself. Here are a few tips to increase your financial knowledge: 

  • Prioritize your financial education. We know how busy you are, but think of it as the investment it truly is. 
  • Develop a financial advisory team. Ask these trusted individuals questions and encourage them to do the same.  
  • Make the cash flow statement your new best friend. This is the lifeblood of business and you should understand everything on it at all times. 
  • Take some basic accounting courses. It’s never been easier to take a class online. 
  • Connect with a CFO firm. Not everyone has all of the required resources at their fingertips. Allow the right CFO firm to become that resource as a trusted partner. 
  • Get a better understanding of key financial terms. We’re including some right here to help get you started. 

Terms to Help You Stand Stronger 

When an investor begins to ask about gross profit, net profit, or EBITDA, often the business owner’s face says it all – like when you’ve caught a teenager in a lie. Knowing these financial terms helps you not only have a more constructive conversation with potential bankers and investors, but also to truly have a better understanding of your business. Some of the basics (there are many more) include:  

Aged Accounts ReceivableThis is a report that categorizes a company’s accounts receivable according to how long invoices have been outstanding. This report is used as a benchmark in measuring the financial health (or lack thereof) of a company’s customers. 

Burn Rate. Burn Rate refers to how much money it takes to operate your business for a period of time (generally, a month). Knowing your burn rate helps to ensure that you have enough available cash to adequately run your business. Experts advise being able to cover your burn rate for at least six months. 

Cost of Goods Sold (COGS)This refers to the total cost of all labor and materials required to provide the products or services that your customers ultimately purchase. 

Debt-Service Coverage Ratio (DSCR)A ratio calculated by dividing your business’s net operating income by your debt payments. This compares cash flow to debt obligations. With the information, you can determine if you can cover debts due within one year.  

EBITDA. Earnings before interest, taxes, depreciation, and amortization. To calculate EBITA, take the gross margin and subtract total operating expenses, plus depreciation and amortization. Keep in mind the difference between EBITDA and EBIT. EBITDA subtracts all expenses, whereas EBIT subtracts everything except depreciation and amortization. 

Gross Profit Percentage or Gross MarginThis refers to the percentage of total revenue that remains after subtracting the direct costs of producing the product or service.  For example, if your company’s revenue is $400,000 in one year and your gross margin is 25%, then your gross profit is $100,000.  

Profit Margin. Profit margin is the percentage of your total revenue that you retain as profit. This metric is most often analyzed on a per unit basis. To calculate profit margin, subtract overhead expenses (along with direct costs) from your sales and then divide it by your total revenue. While it may take some time for a business to start generating profit, it is ultimately what makes it valuable … and a priority for investors. It is imperative that you are confident that your revenue you are charging for the product will cover the overall cost of the organization.  When you are in growth mode, this may not be the case – which is why the Cash Burn rate (referred to earlier) is so important. 

Working Capital. Working capital is cash plus other current assets, less current liabilities.  

Whether it’s understanding these terms (and the many others), using the tips to increase your financial knowledge, or tightening up financial reporting, successful leaders ensure these characteristics are not contained within the walls of their accounting departments, but instead, are a part of their entire company culture. With financial clarity, you can maintain stability to carry out the company’s mission. 

Simply, when you understand the financial terms and their effects on your business, it not only helps your bottom line, but also helps you have a more constructive (and potentially profitable) conversation with potential bankers and investors. 

Let Mindy Barker & Associates show you how to raise your knowledge and be prepared for that next big conversation. We can help you improve your financial brilliance and empower you with the tools and financial information you need to improve your company value, cash flow, and profitability. Schedule a 30-minute free consultation here to learn how. 

Non-Profit Mergers: It’s Time to Close. Now What?

Non-Profit Mergers: It’s Time to Close. Now What? 
Beyond Planning & Due Diligence 

Mindy Barker | Barker Associates

Last month, we talked about the initial considerations of a non-profit merger, as well as the critical due diligence phase. After finding unity of purpose, reflecting on the relevant issues and deciding that a merger aligns with your goals and mission, you engaged in an extensive due diligence process, examining all legal, financial, logistical, and human resource documents and processes. At the conclusion of due diligence, the board of directors of each organization developed and approved a Plan of Merger consistent with applicable state laws. At long last, after months of preparation, meetings, discovery, approvals, and planning, the time arrives for merger implementation. Essentially, it is finally time to close the deal. However, this is only the beginning of the end

As with the previous phases, planning and organization are crucial for a successful implementation. While it would be nice if we could sign on the dotted line and all issues magically resolve, we know that is not the case (it never is!). This process, like the others, will take time, patience, and an in-depth understanding of the logistical steps that must be achieved to effectuate the merging of two different organizations. The following checklist can be used as a guide through the final steps of the merger. 

1. Appoint a Merger Transition Team. This group of three to six individuals will spearhead each logistical step of the merger. They will assign tasks, set timelines, and keep the merger moving forward at a reasonable pace for the new nonprofit. 

2. File Appropriate Documents with the State. Each state has its own requirements for filing with regard to non-profit mergers. All documents should be filed with the state of organization/incorporation, following those particular guidelines and requirements. Note that although the merger is legally completed once the state accepts the documents as filed, many more steps must be taken for actual completion.  

3. Develop Integration Plan. Due diligence should have previously identified duplicative positions, departments, and resources. This plan will identify what is being removed and what is surviving in the new organization. The plan should also identify any issues in the short-term due to the merger and provide for analysis at one month, three months, six months, and twelve months.  

4. New Board of Directors Established. The new board generally consists of previous board members from each of the non-profits prior to merger, but can be entirely new. They should establish their new meeting schedule and implement new by-laws as soon as possible. 

5. Schedule Employee and Volunteer Training. How will the new departments, responsibilities, and tasks differ from the previous ones? What do employees and volunteers need to know about the mission, vision, and day-to-day operations to effectively perform their duties? 

6. Determine Human Resource Needs. Establish a new payroll system, health benefits, vacation and sick pay, and hiring and termination protocols. 

7. Finalize any Facilities Management Issues, Vendor Contracts, and Insurance Coverage. What contracts need to be rewritten in the new organization’s name? How will insurance coverage transfer without lapsing? 

8. Develop Communication Plan. This plan should involve internal and external communications and ensure consistent messaging throughout. This may include the launching of new branding, the name and logo, and a marketing campaign. The new website and social media accounts must also be established and maintained. 

9. Finalize Financial Transactions. Transfer assets, close and open accounts, as needed, and integrate accounting systems. 

10. Implement Technology Solutions. How will technology, phone systems, and databases be integrated? What is still required? What can be eliminated? 

While the entire process can take between twelve and eighteen months, depending on the size of the organization, this Closing Checklist enables the Merger Transition Team to keep the merger on track, heading toward a successful completion.  

Need more assistance? Barker Associates has extensive experience working with non-profit organizations as they implement and finalize mergers. If you are considering this strategy, use this link to my calendar to choose the best time for a free 30-minute consultation. 

You Have Unity of Purpose, but What about Unity of Numbers?

You Have Unity of Purpose, but What about Unity of Numbers? 
The Importance of Financial Due Diligence in Non-Profit Mergers 

Mindy Barker | Barker Associates

Last week, we talked about the initial considerations of a non-profit merger. Once you’ve reflected on the relevant issues and made the decision that a merger aligns with your goals, donors, board members, and mission, it is time for the next phase of the process – engaging in due diligence.  

In the scenario of a non-profit merger, due diligence has three primary functions: 

1. Minimizing the risks associated with joining two separate organizations to further a common mission; 

2. Providing clear insights into each organization’s interests; and 

3. Improving the timeframe of the merger by reviewing the relevant documentation and processes, and identifying any challenges sooner rather than later.  

Due diligence is conducted by thoroughly inspecting all aspects of the organization with which you plan to merge your own non-profit. The entire due diligence process consists of numerous categorical reviews, including legal, contractual, employment, operational, financial, tax, real property, physical property, intellectual property, and human resources, among others. However, for our purposes, we will focus only on financial due diligence. 

Financial due diligence provides an opportunity to analyze potential savings with regard to the overhead of the combined organizations.  With this full and complete knowledge, the approving Board Members will have the ability to examine the overall benefits of the merger. 

The Financial Audit Checklist 

Before you can merge with another non-profit, you must possess a clear understanding not only of its current financial status, but also of its financial history. You must have the ability to answer questions such as: What resources will be available moving forward? And what obligations will remain? 

Financial due diligence will include a review of the following: 

  • Audited Financial Statements for at least three years 
  • Annual Budgets, Projections, and Strategic Plans for at least three years 
  • Debt and any Contingent Liabilities 
  • Grant level financial results 
  • Accounts Receivable 
  • Accounts Payable 
  • Fixed and Variable Expenses for at least three years 
  • Depreciation/Amortization Schedules and Methods for at least three years 
  • Outstanding Liens 
  • Accounting Methods and Strategies 
  • Any Investment Policies 
  • Account Standings 
  • Employee listing with position and annual salary 
  • Organization Chart 
  • Detail list of larger donors 

While non-disclosure agreements must be executed prior to any due diligence occurring, many organizations have valid confidentiality concerns as they relate to financial reviews of internal documents. As one possible solution, some organizations choose to move forward in a phased approach. In doing so, they leave the disclosure of the most sensitive data and documents to the end of the process.  

While each situation will be different, and financial due diligence may vary slightly, it is essential to build a foundation for success. Not only are you protecting the non-profit itself, but also the individual board members and donors involved. Each non-profit should conduct its own independent due diligence, as well as joint due diligence to maximize information and minimize risks. By taking both a historical approach and a forward-looking approach, you will gain an incredible amount of knowledge. And with more knowledge, comes the empowerment to make the best decision for your non-profit. 

Barker Associates has extensive experience working with non-profit organizations as they prepare for, and go through, a merger. If you are considering this strategy, use this link to my calendar to choose the best time for a free 30-minute consultation.

Could Due Diligence Impair Your Exit Strategy?

Mindy Barker | Barker Associates

I have noted that, even during these days of the COVID pandemic, there is still a lot of money in the PE and VC world that investors must spend for firms to survive. 

PE and VC firms invest in companies with a plan to exit the investment in three to five years. The exit can take the form of another investment round at a higher valuation, an IPO, or the sale of the business altogether. Another dynamic is becoming increasingly apparent: PE-backed companies are having an increasingly difficult time implementing an exit and/or raising the next round of capital. 

Why the difficulty, when there is an incredible amount of money for investors to invest? 

The primary factor leading to next round challenges is the enhanced due diligence investors are performing now compared to pre-pandemic. The long run of economic gains nourished a confident exuberance in investors where the investor had to believe in a company’s financial projects similar to how Dorothy had to believe in Oz without much evidence. The supply of capital outweighed the supply of companies to the point that investors were willing to lower the bar for the due diligence completed on sales and financial projections, data rooms, and balance sheet liabilities.  

The current atmosphere based on a stricter due diligence process represents a correction that goes back to the core fundamentals of investing. When the pandemic dust settles a bit, the correction will result in a more sustainable environment for the PE and VC firms. In the meantime, portfolio companies must place more focus on the following areas to support due diligence efforts: 

Data rooms. Companies that cannot produce supporting documentation for their financial and sales assertions are destined to fail due diligence. Deals fall apart when a company cannot produce contracts, proving professed commitments or demonstrating compliance with the contract terms. Be prepared for due diligence efforts by appointing a trusted, organized document manager to oversee your data room. Read more about data rooms here. 

Projections. Think like the investorplay a great game of Sesame Street and make sure that one of these things (your financial projections) looks like the other (your historical trends). Practice the dialogue spoken regarding your company’s future to ensure it rings true to what you can support based on data and research. 

Historical financials. Your financial data must be accurate and easy to follow by potential investors.When you produce complicated financials that require confusing explanations or take too long to organize, you put the deal at risk. Just like a burglar will move on from a house with a security system, investors are glad to move on to the next deal that requires less effort to close. 

If you are a founder or a C-suite executive of a fast-paced, growing entrepreneurial company, are you prepared for the next round of funding or other exit strategy? Let’s talk about how to begin organizing your data room, simplify your financials, and produce realistic, evidence-based projections that investors will find credible. I would love to speak with you about the challenges you face in preparing your exit strategy. I invite you to set up a 30-minute free consultation with me by clicking on this link to my calendar – let’s talk! 

Dogs Will Lie, but the Numbers Will Not

Mindy Barker | Barker Associates

Are you wrapped around your pet’s little paw? We are, despite the fact that we recently learned they will lie to us.

Last night, I fed our Maltese and Bichon Frise their dinners and went about my evening activities. Later, my husband, Glenn, came into the kitchen and the little guys acted as if they had missed their dinner. Given the circumstances, he, of course, fed them again.

While our dogs may lie about whether they’ve eaten yet, some things never lie, such as the real data you need to run your business each day. And whether or not you intend to, it’s the same data you need to pitch to investors when seeking funding.

With the right infrastructure in place, you have answers at your fingertips, such as:

What is the seasonal fluctuation of my business so that I can prepare for the ups and downs?

What is the demographic profile of my customers so that I know where, when, and how to reach them?

What is the average cost, price, and profit of a sale? Am I losing money on my best sellers?

These questions and many more can be answered by having the right infrastructure in place and capturing the data as you conduct daily business.

What does the “right infrastructure” look like? The answer is different for each organization based on its size and complexity. At a minimum, an organization should have a list of existing and potential customers and a system to maintain communications with them. The optimal tool is an integrated Customer Relationship Management (CRM) system. An organization also needs to manage money and financial information to project cash flow for the next 12 weeks, have the correct information for tax compliance, and make the appropriate strategic decisions. This may mean you need a separate billing system and/or General Ledger. You also need to properly set up your General Ledger with the right coding segments to be able to report on profit and loss by product, location, customer, and department, among others.

If you feel that you are blindly making decisions about hiring, marketing, warehouse space, or any other issue, remember the numbers don’t lie. Let’s talk one-on-one in a free consultation to get you in the right direction. Check out these times on my calendar and choose the one that is best for you.

Don’t Just Hope For the Best – What Does the Data Tell You?

Mindy Barker | Barker Associates

Don’t Just Hope For the Best – What Does the Data Tell You?

For months, the headlines have screamed that millions of small businesses will file bankruptcy due to impacts of the COVID 19 pandemic. Perhaps you have had the thought in the back of your mind, calculating how many weeks you can remain in business before considering closing your business and possibly even filing for bankruptcy. 

Don’t just wonder – take steps to gain a confident understanding of your business’s financial position. 

Communicating with your banker and investors effectively is essential during these times of economic upheaval and doubt. To do so, you must have the right financial data to inform yourself, and then to inform your financial support team if you will struggle to make payroll in a month or two. What you need is a 12 week cash flow projection.  

Instead, you are hunkered down, uncertain of your cash position, keeping silent and hoping for the best. 

This is not a great strategy. The most important thing you have as a professional is the trust you gain over time as other professionals recognize you do the right thing. I recently had a Senior Executive of Marketing where I was serving as an Interim CFO say that they appreciated my intention to always do the right thing and recognized how much it helped the team feel more comfortable. Prior to that comment, I would have never dreamed someone in marketing would notice. 

Bankruptcy is not the only option if financial projections indicate your business is in serious trouble; in fact, your business has to qualify to file Chapter 11. The Small Business Reorganization Act of 2019 has created other options for small businesses (set to expire in March 2021) to seek protection from debtors.  The key to moving to the next step is for you to communicate pro-actively with all parties and let them help you understand your position as well as the options available to you rather than using hope as a strategy. 

Empower yourself with knowledge and get the cash flow projection you need! Listen to a podcast where I was recently interviewed about cash flow here.

If you need help starting the conversation with your financial partners and stakeholders, I invite you to set up a 30-minute free consultation with me right now by clicking on this link to my calendar – let’s talk!