Most entrepreneurs hate the fact that they have to spend money on a function/department they consider to be a pure “cost center”.

One thing I learned early in my career as a CFO was that when I showed a really smart entrepreneur or CEO what the role of accounting really is their eyes would light up. I helped them see the wisdom of thinking more strategically about how the accounting and financial side of their business is being managed.

Your accounting and financial function only has two purposes.

1. Help you create a company that is strong financially
2. Create and foster confidence and credibility in the minds of lenders and investors

That’s why your CFO, and the accounting department, exists. Everything you demand of your accounting function, and everything that happens in that function, should be aligned under those two objectives.

Let’s look at each one in more detail.

1.   Help you create a company that is strong financially

The only way to survive in business is to constantly focus on driving your profitability and cash flow higher.

The competition is always after you (and your customers). Payroll is always going up. The cost of products and supplies is constantly increasing. Margins are always under pressure.

You want your management team to have the information and insight they need to answer the key questions they should be asking like “Did the strategies and goals we are focused on produce the specific financial results we expected?” And “What do I need to do different going forward to get the financial results we have targeted?”

The CFO to the rescue

To accomplish that, you need a relationship with your CFO where he or she is excited about providing the information in a way, and on a timetable, that speeds and improves decision making in your company. This is one of the most important roles they can play.

When the accounting function is proactively providing insightful information designed to help make decisions, everything changes. They are no longer just providing financial statements or tax returns because someone told them they had to.

Now they are thinking about the business. They are thinking about the goals and objectives of the company. And they are creating reports and analysis designed to help you and your management team assess performance and make better business decisions.

That’s how the accounting and finance function can add tremendous value to you and the company in your ongoing effort to improve profitability and increase cash flow.

2.   Create confidence and credibility in the minds of investors and lenders

This is where your CFO can lead the way in ensuring you always have access to the capital, the cash, you will need to grow your business over time and win financially in business.

And where will much of your growth capital come from? It will come from investors and lenders.

You will need the support and backing of banks, lenders, and investors to ensure you have access to capital when opportunities arise.

It’s all about confidence and credibility

To get their support and backing they have to have confidence in you and your company. They have to trust you. You have to demonstrate credibility in their eyes.

And remember, lenders and investors are financially oriented people. It’s impossible to create confidence in their minds without a strong accounting and financial function providing them insightful and relevant financial information every month.

It’s also important to remember that investors and lenders are not usually involved in the day-to-day activities of the business. They need to understand the essence of your business, and the essence of your financial results, without getting bogged down in too much detail. They need a different view of the business than management.

You want to help them understand the key drivers of profitability and cash flow. You want them to quickly and easily understand how your financial results compare to your plan and prior periods. They want to understand trends and trajectory.

This means they need targeted and insightful financial information delivered every month. That’s what helps them become comfortable and knowledgeable without having to do a bunch of work to figure things out.

Fast and accurate is the path

When you provide accurate information quickly, and you do it consistently month to month, you set yourself out as a company that has its act together. Lenders and investors love it and you will forge a strong relationship with them that will last a long, long time.

The more confidence they have in the financial information they receive from you, the more support and backing they will provide you and your company over time.

This is an opportunity for your CFO, and the department they manage, to take charge and play a vital role in the success of your company.

I talk more about the roadmap for creating confidence and credibility in my article How to win friends and influence investors (and lenders).

I also set out some of the most common pitfalls I have seen entrepreneurs and CFOs make with lenders and investors in my article How to build credibility with the financial community.

Your next step

Sit down with your CFO and talk about how to better align that function with the two real purposes of accounting – helping you improve results and helping create confidence and credibility in the minds of lenders and investors.

You have a beautiful opportunity here to turn your accounting and financial function into a valuable strategic asset in your company.

Now is the time to make sure that your accounting and financial function is an important part of your strategy to win in business.

Philip Campbell’s Blog is dedicated to helping you get the accounting and financial side of your business under control.

While most of us will, luckily, never face a crisis situation like that, it triggered a thought about this post which I had started earlier in the week.  That is, all of us have a bit of that uncomfortable visual in mind when we think about media relations. No matter how extroverted, or confident any business executive is, the most polished professional can freeze up when the camera lens turns his or her way.  In reality, most businesses spend much more effort trying to get media to pay attention than they ever do dealing with negative issues.

The key to successful media relations is effective training of company executives and spokespersons.  Not all small businesses can afford the expense or time of formal training, so we’ve prepared a short series for the Business Resource Center that can help.  The first step in being effective is understanding the media, the focus of today’s post.

Hyper competitive marketplace

The first step in understanding reporters is to understand just how competitive the market in which they operate is.  There are ever fewer “traditional” outlets and they are all under continual cost pressure.  This in turn means there are fewer full-time reporters trying to cover a broader scope of issues than ever before (as well as playing multiple roles, today a reporter is generally writing stories, capturing his or her own photos and video, blogging and maintaining an active online presence).   Add to that, the “win” for a reporter comes from having a good news story before anyone else (that can even sometimes involve reporters at the same publication competing for a byline).  What makes that story “good” is the newness or controversy factor because at the end of the day that is what “sells.”  Humans will always read “Man Bites Dog,” before “Dog Bites Man.”

What does that mean for media training?  First, when a reporter contacts you it’s easy to think “why couldn’t they have given me a little notice?”  In reality, the same reporter is likely working on multiple other stories at the same time, constantly scanning incoming information to make sure they are not missing a big news event, and has very little time to finish the story.  In short, make yourself available right away.   Second, when contacting a reporter about your company’s news, try to have a reporter’s perspective in mind.  In the noise of all of that incoming information, what will make your news stand out?  And keep in mind, if there’s a major breaking news story, even your most interesting news won’t get the attention it deserves.

Also, the time to have company spokespersons chosen and executives prepared is before a reporter calls.  In general, especially with small business, you’ll want as senior of an executive as possible available to speak to a reporter.  Reporters will appreciate the access to decision makers as well as the perspective the executive brings to the table.  It is also a good idea to have a company spokesperson designated – generally someone in a senior marketing or communications role.  A spokesperson can be a good “first line of contact” for reporters – ensuring any inquires are not lost in busy executive inboxes, and can represent the company when executives are not available or would rather not address a specific issue.

Reporter motivations

In addition to wanting to be first to tell a story, a reporter is also motivated to ensure a story is balanced. That means they want to include multiple points of view, especially if there are different or even conflicting ones. (Even with cost constraints, most reporters still need stories approved by editors who will insist on multiple points of view if the reporter does not.)

This approach means reporters are naturally inquisitive and rarely take information at face value.  And they are going to ask questions that get them the new or controversial element that will make their story interesting.

For media training this means an understanding that reporters are not asking hard questions just to put you on the spot.  They are working to ensure they have considered all sides of an issue, they are considering the news from the perspective of their readers/viewers, and, ideally, they are looking for a great quote or soundbite they can use to boost interest in their story.  So, if you are able to take a step back from your company’s news and consider other ways outsiders may see it, and what questions they may ask about it, you’ll be prepared when you walk into any interview.  We’ll talk more about preparation for an interview in the next post.

At all times keep in mind, “marketing speak” does not fly with reporters. If you try to give a reporter the same sales pitch you’d make to a potential customer, it’ll fall flat. You’ll want a “media version” of company information, facts, announcements, etc. that focuses on factually-based superlatives and removes any extraneous marketing hype.

Beyond deadlines – social media has changed everything

There was a time when a reporter had until late afternoon/early evening to finish a story. Once news was available online that changed – reporter deadlines moved up when being first meant being first to post something online.  As few as three years ago, we included a segment in media trainings about the effect of blogs on more “traditional journalism” and how they were further accelerating deadline pressure.

All of that has changed because of social media.  News can break instantly, especially on Twitter.  Most reporters have had to develop a following on social media channels to remain competitive, and, in addition to the hundreds of pitches they receive a day, they are actively watching social media for story ideas and developments.

In terms of media training there’s actually an upside to this.  Following a reporter on social media, especially Twitter, can give you tremendous insight into their interests, trends, and needs that simply aren’t going to come through in finished stories.  On the flip side, it also means you need to be as aware of your company and industry’s real-time reputations in the social media sphere when you want to share news, because reporters will certainly already know what is being said about you.

The next post will discuss how to prepare your company’s story and how to prepare for the interview.  In the meantime, if you have questions about interacting with reporters please let me know!

Last week, Warren Buffett published in FORTUNE Magazine an adaptation of his annual shareholder letter. Buffett wrote that bonds “are among the most dangerous of assets,” because of the effect of inflation over the past century—even though bond investors “continued to receive timely payments of interest and principal.” He called them “dangerous” and says they “should come with a warning label.”

Is Buffett crazy? Hasn’t he read a newspaper to see what is going on with Greece and Europe? Buffett isn’t crazy—but it is a matter of perspective on time frames and ability to withstand volatility.

If you invest in a 10 year US Treasury bond today, the government will pay interest of less than 2%–before taxes. After inflation, Buffett knows the Treasury bond is virtually guaranteed of losing purchasing power over the next ten years. For many retirees looking for safe income this presents a difficult predicament.

Does this alone mean that everyone should pile into the stock market? NO!

Over the past fifty years the broad stock market has gained as much as 57% in one year and lost as much as 37%–that is a huge swing. But it is a short term swing—and Buffett knows that. And therein lies the issue—smart investors must match investment needs against time frames.

The only time you should consider investing in the stock market is if you have truly long term (10+ year) time frames. If you need money for your child’s tuition next semester then do the easy thing–buy a CD or put it in money market.

Many retirees trying to maximize cash flow have turned to the stock market. If that is your choice, proceed, but with caution.

We advise our retired clients not to withdraw more than 4% of their portfolio’s value in a year, but preferably 3%. The 3% number offers odds that your funds are virtually certain to last the remainder of your life. With life spans ever increasing, this is hugely important.

There is one problem with this strategy, however. Assuming a $1 million portfolio, a 4% withdrawal rate leaves you $40,000 to spend. As long as the market is going up, this plan works well. The problem occurs when we revisit another 2008 and the market drops by 40%. All of the sudden your $1 million portfolio is only worth $600,000 and your 4% withdrawal needs to decrease from $40,000 to $26,000. Although many of us think we can make these adjustments, it’s a very difficult trick to pull off—especially in the face of increasing costs of living.

Another method of stretching cash flow is to limit withdrawals to the actual cash produced—the dividends and interest. If a company pays you a $1 dividend with great consistency, then you are not nearly as concerned about the stock’s price volatility. The price might be $30 per share today and $20 tomorrow—all you are concerned with is their ability to consistently pay the dividend.

Given this, smart investors must first identify the time frames over which they are investing. Short term, fixed income investments may be perfect—but over the next 100 years they are a suckers bet due to inflation. Long term, the stock market can deliver better returns, and handsome cash flow, but it comes with tremendous shorter term volatility.

While there are several products and services to ease the time-consuming taxation issues for the higher end systems such as SAP, there haven’t been many viable options for the smaller business. Until now.

One such product we’re working with for small to medium businesses is Avalara’s AvaTax – a cloud-based service that works within your accounting system to calculate sales and use tax. When entering an new customer into your sales / accounting system simply select “Avalara” as the taxing entity, enter the street address, city and state – and Avalara will assign the right tax rate along with detailed jurisdiction breakdowns (state, county, local, special taxing authorities). The historical data is saved so that sales tax reporting is simplified. No more relying on your data entry clerk to determine the correct sales tax rate, and the time-consuming reporting at the end of the month.

Avalara helps with the initial setup. And since the accuracy of the tax calculations depend on how accurate your customer addresses are – you may want to review/clean up your current customer addresses. In the end, the benefits of reducing reporting time, improving accuracy and minimizing tax compliance risk is worth it. It is such a relief to not have to research and set up a new tax rate when new customers are added.

AvaTax provides seamless integration with 100+ ERP, accounting, e-commerce, and retail POS systems including QuickBooks, TRAVERSE, Open Systems, Dynamics, Sage, and many others. They also offer a Software Developer Kit making it possible to integrate AvaTax with other e-commerce or accounting applications. Avalara also offers free sales tax calculations on their website.

Interested in learning more about sales tax automation? Here are a few websites you can check out:

Sales Tax Support – read Susy Soo’s excellent blogs on sales automation such as, “Is Tax Automation for me?”

Avalara tax automation for ERP, accounting, e-commerce, and retail POS systems including QuickBooks, TRAVERSE, Open Systems and many others.

ADP – http://www.adp.com/solutions/employer-services/sales-and-use-tax.aspx

• Your demand deposits are insured without any limit on the dollar amount.
• Your time deposits (Certificates of Deposits/Money Market Accounts/Savings Accounts) (Accounts that pay interest.) are insured to $ 250,000.00.

The 2008 financial markets near-meltdown caused this change in coverage. The FDIC was very concerned that a run on some of the banks that were deemed “Too Big to Fail” (TBTF) could lead to their possible collapse. Because of this, all FDIC insured banks were required to participate in this new unlimited coverage insurance on demand deposits. For the large, less capitalized TBTF banks, this program was very costly. This was mainly due to their large size and overall financial weaknesses, which caused both the Treasury’s and the FDIC’s actions of 2008.

In 2009, the FDIC decided to allow all insured banks to drop out of the unlimited insurance at the end of the year. All of the TBTF banks and most other large banks, withdrew from the program.

When the Dodd-Frank Act was passed in 2010, the FDIC unlimited insurance on demand deposits was reinstated beginning in 2011. So today, all of the FDIC insured banks again have to cover you with two types of insurance!

For the Business Bank of Texas, N. A., this was an excellent program because our insurance cost was lower and the insurance was a great complement to the existing coverage for our commercial customers. When the end of 2009 came around, we saw no reason to un-enroll from the program, and we continued to cover our customers in this secondary method. We’re proud to say we kept this coverage since it’s beginning, and continue to provide it to this day. It is yet another way we make sure we provide our customers with a fantastic banking experience.

Long term capital needs would be the need to purchase real estate, equipment, or make property improvements.

Short term capital needs include financing A/R and inventory. These needs are typically financed through a line of credit.

Now, let me ask you a question. Would you buy your personal car with a credit card? Chances are your answer is no. The same principal applies to business financing as well. Just as you would not finance a car on a credit card, you do not want to purchase a piece of equipment for your company on a line of credit.

You may be thinking “My line is only at a rate of 4.25% and I can pay it off in a couple of months.” If that is the case, then paying 6.0% in a properly structured term loan is going to have a very minimal differential in interest expense over a few months. The peace of mind in case an opportunity arises will more than make up for it.

Consider this situation: you finance a new piece of equipment on your line of credit with the intention of paying it back in a couple of months. You have a large receivable due from a long time client that should be in by then. However, this might be the time when they have to stretch payment out to 60 days. This delay results in you carrying the line’s balance longer and you are now limited on the amount of future receivables your company can finance until capital becomes available.

Having your line of credit tied up in long term purchases can also impair your company’s ability to seize on exciting business opportunities. I’ve seen it happen. A manager could tie up the company’s line of credit, only to find out that the sales team just landed a big contract that will need substantial upfront investment costs for raw materials. Now they look at their line’s available credit and see that there are not enough funds for this project. As a result you have to delay this project until capital becomes available, or pass on it altogether.

If you find yourself in need of more capital what do you do? If you go to the bank, you have two options:

1) Ask for an increase in your line of credit. If you choose this, with the tightening of credit in the market today, the bank may be reluctant. In addition, the bank will want to look at the assets securing the line and also at your company’s current ratio. A current ratio is calculated by dividing the company’s current assets by its current liabilities. An acceptable current ratio will depend on your industry, but the bank will not look favorably on any business having a current ratio of less than 1.0.

2) Ask your bank to refinance the purchase of the long term asset into long term debt. This is a better option. Properly structured debt will help your company’s balance sheet look healthy and positions your company well for future lending. The longer you wait to restructure the company’s debt, the more difficult it will be for the bank to identify the original use of the credit and thus harder to refinance.

Properly structuring your company’s capital needs in the beginning can save you headaches and will position your company well for future growth. But dealing with the problem late is better than not dealing with it at all.

Four years ago a client came to us frustrated with CD interest rates. “Andie” wanted an investment alternative with better opportunities. It was early 2008 and the stock market was strong—while interest rates continued to drop.

Now Andie has come back to us questioning what happened. With the stock market down 5% since we started working for her, Andie observed that she would have been better off had she just invested in CD’s.

Although her account outperformed the stock market— CD’s would have performed better—and with less volatility.

Now, she has “investor’s remorse” wishing she had stuck her money in a CD. Despite the remorse, it led to a very constructive conversation that is good for all investors.

First, hindsight is 20/20. If you are always looking backwards you will fail to see the future and you will constantly second guess yourself. Your investment advisor does not possess clairvoyance. No matter how good an advisor is—they are not perfect—including us. Expecting perfection—after the fact–will make for a less than productive relationship.

Secondly, when we start a new investment relationship we ask a series of questions to determine where a client is and where they are going.

In this particular case, Andie wanted better returns than those offered by a CD. To achieve higher returns we explained that she needed a longer time frame—much longer. Whether for ourselves, or any client, we fully acknowledge that we have no idea what will happen in the stock market over any short period of time. If we invest in the stock market we do so knowing we must leave funds invested for at least ten years in hopes of achieving the desired results.

Additionally, the stock market is a bumpy ride—often very bumpy. Many investors think they can handle volatility–until it shows up. Often we over-estimate our ability to handle stress and remain calm in the face of adversity. Any time you look for returns that are greater than a CD or Treasury you will incur volatility of some sort—it is a guaranteed trade-off.

Over the last many decades the stock market has averaged about 10% per year—but it has lost as much as 37% in just one year and gained as much as 56% in a single year. That is extreme volatility. Investing in assets of this nature will be volatile and you cannot panic mid-stream. Also, you must be prepared to underperform other assets during short periods of comparison.

As Andie and I talked we moved on to the future. It is natural for Andie to be frustrated that her investment has not worked out as she may have hoped so far. However, I reminded her that she also needed to consider what the future looks like.

If Andie abandons her ten year plan and chases after a “safe” investment she is looking at interest of 0.75% on a five year US Treasury or 1.89% on a ten year Treasury. She will also pay taxes on the meager interest she earns. Factoring in inflation she would be guaranteed negative real rates of return. All of the sudden the “safe” investment does not seem so safe going forward.

With six years left in her ten year plan it is good for Andie, and all investors, to be asking these questions. The only dumb question is the one that is not asked.

This is not new. It’s been happening for a long time as technology and efficiency allowed businesses to be “leaner” although not necessarily “meaner”.

In a recent interview on NPR’s Morning Edition, David Wessel, the economics editor at The Wall Street Journal, told Renee Montagne that factories get 40 percent more output today, compared to what they got 10 years ago.

Just look at the chart. It reflects this. You’ll see that job income has been going down as a portion of GDP. We’re not paying less; we’re paying less people.

Wages as a Percentage of GDP have been going down since the 1970’s.

You still want the best, right? You probably feel you have even less time to ensure to find the people you want, right? Then there are three “musts” to hire right and in less time whether they are entry level or higher and no matter the job skill requirements.

Those three musts are:

1. Know the job you want done.
2. Know the candidate has the desire to listen.
3. Know the candidate has the willingness to follow directions.

Number one is Job descriptions. They are even more necessary than they used to be. They make sure you and the candidate know what’s the job.

Are yours up to date? What was true a year ago in terms of job responsibilities is probably not true now. The best way to check is have each supervisor and manager write down what the employees that they are responsible for do. Then get each employee to write down what they really do. In my experience, there is always a big disconnect. Decide whose right and adjust the job descriptions to match.

The other two “musts” are tied to attitude. If someone has the right attitude, they will want to listen to you and others. They will demonstrate they aren’t a “loose cannon” and your company can count on them to pay attention to the direction of the business before trying to go a different way. Innovation is important but only if it’s relevant to company goals.

You can easily test both of these: ask the candidate to complete a simple task by a certain day and time. If they do it right and on time, you have a measurement of their willingness and desire for the job. They have the right attitude.

What this means for those responsible for hiring is that attitude should trump skill in the first rounds. If you weed out those who don’t comply (for whatever reason), you will only have left those who really care about the job. This saves time and money that might be spent on candidates who will wash out at the end or worse yet, after you hire them. What you see now is what you will get later.

What are your experiences either as the person doing the hiring or as the candidate?

This past week President Obama made news when he rejected TransCanada Corp.’s Keystone XL pipeline application. The proposed pipeline would deliver crude oil 1,700 miles from Alberta, Canada through six U.S. states, ultimately being delivered to refineries in Texas.

The oil sands of northern Alberta are the world’s third-largest crude source after those in Saudi Arabia and Venezuela.

In addition to delivering 830,000 barrels of oil per day from a friendly neighbor, the project would cost about $7 billion and would immediately put many Americans to work. TransCanada says the pipeline could create as many as 20,000 jobs while a State Department report indicates the pipeline would create up to 6,000 jobs during construction.

This decision was an immediate lightning rod for criticism.

Newt Gingrich quickly proclaimed “What Obama has done is kill jobs, weaken American security and drive Canada into the arms of China out of just sheer stupidity.” Not surprisingly, other Republicans had similar comments.

However, the criticism did not end there. One of Obama’s largest supporters, the labor unions, is very much in favor of the pipeline project as an immediate job creator. Surely the president does not want to alienate this group of supporters. This is especially true when stated unemployment is 9% and functional unemployment is over 20%. Any job growth should be welcome.

The president is stepping very lightly with the election only nine months away. In supporting the pipeline, Obama risks offending another political supporter—the environmentalists. Despite the massive amounts of safely run pipelines crisscrossing our national landscape, rather vocal environmental groups have promised to yank support, as well as funding, should the president approve this project.

No matter what the terms are, environmental groups generally loathe oil sands. These groups oppose increasing the flow of oil sands crude from Canada because of its bigger carbon footprint in the mining process.

However, the environmentalists in the U.S. are very idealistic. The U.S. does not own Canada and Canada has other options. Canadian Prime Minister Stephen Harper has already said Canada is serious about building a pipeline to its West Coast, where oil could be shipped to China and other Asian markets. Translation: if the U.S. does not build the pipeline, it will be built elsewhere.

The president has another, larger, issue to consider. The proposed pipeline treks across a 65 mile stretch of the Sandhills area in Nebraska, which supplies water to eight states. This seems to be the largest sticking point to the entire project. While the president’s experts claim they need additional time to solve the Sandhills problem, they have had since 2008 to evaluate this issue. More than likely, the democrats wanted to delay a decision on this project until after the November election.

This entire controversy is nothing but jockeying from both sides of the political equation. There is virtually no doubt that the proposed pipeline will be rerouted around the Sandhills area and it’s Ogallala Aquifer—it is just a matter of when.

Unfortunately, the longer we drag this out, the longer American jobs are put on hold and the greater the chance the Canadians build the pipeline to their western ports excluding us altogether. Additionally, the longer we stall the more oil we buy from OPEC as opposed to our friendly neighbors to the north.

I’ve had the pleasure of knowing Gary for over 30 years, and I’m excited to bring him on board at the Business Bank of Texas. Gary has been in banking for over 40 years, and in the Austin market for nearly 30 of those. His knowledge of the Austin market is extensive, and we’re eager to see his results.

Gary attended the University of Texas for his undergraduate degree, and then went on to receive a master’s degree from the Southwestern Graduate School of Banking. Since then he’s worked at several banks, most recently as the branch president of First National Bank Edinburg. Prior to that, he served as the senior vice president at Prosperity Bank.

In my initial discussions with Gary, one of the things most appealing to him was our unique business model. Notably, the ability to offer quick loan decisions, unlike many larger banks, struck him as a notable competitive advantage.

“Seeing how the Business Bank of Texas has used technology to make banking more convenient and at a lower cost, yet still maintains the level of customer service that you’d find in a smaller bank is particularly admirable,” Gary said. “It’s a very unique approach to banking and I look forward to working with them.”

Again, we’re excited to have him on the BBT team. If you’re interested in talking with Gary about equipment financing, business credit lines, or owner-occupied real estate, you can reach him at ggreen@businessbankoftexas or at (512) 485-7109.