Don’t let your money sit idle.

Many companies have come out of the pandemic/inflation/fed counterattack in a great position with more cash on their balance sheets than they expected, or needed, to run their business effectively. For some, that comfort has led to complacency, letting the cash sit in their business checking accounts ready on demand for any new venture, or just in case a surprise tornado takes off the roof, or to make their bankers happy, or whatever.

I submit to you that is a management error that I’d like to address in today’s post.

We all need enough cash in our checking accounts to pay the expenses of running a business, both today’s expenses and those expected in the weeks and months ahead. Anything less is irresponsible or a sign of a troubled company. But leaving more cash than is needed in accounts that pay no return to the company is not good business. It’s simply passing up an opportunity to earn more money for the business.

Why would you do that? Would you lower your prices in order to reduce your income? Would you absorb today’s cost increases over so many areas of the economy without any attempt to recover those cost increases through greater efficiency, better buying habits, or passing them through to your customers? Probably not. But letting unneeded cash sit idle is another, albeit less obvious, way to lower your company’s profits.

When interest rates were near zero and interest-earning accounts were being paid .01% interest – yes, we had a few of those – it really didn’t matter much. But with today’s rapidly rising rates, even if the sharpness of the raises is likely to abate soon, it’s a different matter. Credible financial institutions are paying dividend rates of 3%, 4%, and sometimes more, in fully insured accounts, for the opportunity to use your unneeded cash to run their businesses. Why would you not take advantage of that? And, if your bank is unwilling to meet the market for interest bearing deposits, their competitors are eager for the opportunity. Not a reflection of your bank’s disinterest in having you as a customer, it’s just business.

One caveat remains, however. You need to know with pretty high certainty how much cash you need to run the business and pay all bills when they come due, today and into the future. How far into the future? That clearly depends on the nature of your business, but if your investment vehicle of choice is a fixed term deposit, e.g. CDs, you need to be clear that you’re covered without needing those funds until their term expires, because the cost of early withdrawal is usually high enough to void most of the benefit of the investment. That means having a reliable cash forecast that projects through the term of any such term deposits. And if your forecasting is flawed, your effective use of excess cash to earn additional profits becomes a gamble and a guess. Not good management.

So, is your cash forecasting reliable, regularly updated, and actively watched? If the answer is yes, what are you waiting for? If your answer is anything other than yes, you need help. Do we provide that kind of help? Of course!

We are Your CFO for Rent.

When Should You Say NO?

We have a client that does manufacturing for a very large aerospace company, almost exclusively under multi -year contracts that guarantee a steady flow of work – at fixed prices during the life of the contract. That contract is currently in negotiation to be extended, at the urgent request of the customer, who would very much like to lock in fixed prices for up to 7 years into the future by extending the contract life from its normal 3 years through 2030. The customer in question is our client’s largest customer by far, easily tipping the customer concentration scales into risky territory. But on the flip side,  the company has been making product for this customer for over 40 years, and the relationship has been strong and mutually beneficial – until now.

We suspect that our customer – whose main customers are the folks who make all the planes and weapons that we read about flying, not flying, and shooting at Russians in Ukraine – is being pressed in the same way by their customers, all in an effort to get someone else to take on the risk of inflation’s impact on margins. If you can get your suppliers to eat most of the price increases, it gives you more leverage to absorb similar hits from your customer. Until you get far enough down on the food chain that there are no more layers to push those risks down to.

It’s clear to us – and we think clear to our customer too – that costs are rising faster than the historical norm, and will continue to for the next few years at least. Fixing prices at today’s levels, or even worse, by extending the prices in the current 3-year old contract, will pretty much guarantee shrinking margins for our client through the end of the decade. How that will affect the viability of the business, let alone a fair return for the normal risks of running a business, is not hard to predict, even if not down to the last decimal point.

So, what’s my point?

When do you push back to your customer’s unreasonable demands – even if they are one of your largest customers? Here are my thoughts for your consideration:

  • Is your customer being reasonable with their requests? Or are they making demands because they think you can’t afford to lose them?
  • Can you afford to lose them? Is their business essential to your company’s survival? If this is your assessment, call a doctor immediately. I mean us, of course.
  • Is your product easy to obtain elsewhere? Can it be purchased by your customer for a price that is lower than the price you want or need? If so, what are your competitors doing that works better than what you’re doing?
  • Who needs who more? Sometimes the product you produce is essential to a key element of your customer’s business, and they need to keep it coming. Then it’s possible that they need you as much (or more) than you need them.

On that last point, if you are in the position of our client, where the need is mutual and not easily replicated elsewhere, it may be time for you to say NO. In our experience if managed well, this strategy can result in a win for your company and a more reasonable business approach from your customer. We’ve helped our client do this before, so we know how it works. After all..

We are Your CFO for Rent.

Section 1031 Tax Relief for Californians

As my focus shifts more and more to my real estate investing business, I noticed with interest the recent disaster relief rules implemented by the IRS for all taxpayers who live and work in designated counties in the state of California that have been deemed to have incurred weather disasters. Here’s what caught my eye:

If you live and work in one of these counties, and you were in the middle of a Section 1031 exchange anywhere in the country on or after March 9, 2023, you get a sizeable extension of the time required to complete the other leg of that exchange.

Let’s be clear about that. If you live and work in any one of at least 43 counties in California – including Los Angeles or San Francisco – and you sold an investment property anywhere in the USA on or after March 9, and needed to find a replacement property anywhere in the USA, your 90 or 180 day time limit for identifying and purchasing a replacement property can go out as far as October 16, 2023. That means your 180 days can now be as long as 220 days. This applies in reverse, too. If the first leg of your transaction was a purchase and you need to sell the property you own to complete the reverse exchange – anywhere in the country – you also have the same time extension, as long as the first leg occurred on or after March 6. (Source: First American Exchange Company)

So, you may say, how does that help me?

Well, if you’ve already identified both properties, and both will be all cash deals, you probably don’t. You aren’t concerned about finding the right replacement, finding the right buyer, finding the right loan (you or your buyer), or getting your deal done in the time allowed to effectively defer the profit on the deal.

But if all those things aren’t clearly defined, you might just welcome the extension. The volatility of today’s market for investment capital is all over the map:

  • mortgage interest rates are changing daily as interest rates climb, or don’t climb, or might climb,
  • lender availability is uncertain, as banks pull in capital for protection after several major bank failures,
  • shifting pricing on commercial properties, especially those with certain industry focus,
  • stock market reactions causing risk-averse funds to leave for safer havens, and more.

And that doesn’t include anything that might be happening in your life. We’ve got a shopping center in Arizona that has thus far resisted our plans to sell it months ago, preventing redirection of a fair amount of our capital.

So, by all means talk to your tax advisor if you think this might be of value to your finances. There are a few wrinkles that are too involved to cover here, such as the overall limitation tied to tax return filing deadlines.

We don’t have all the answers, but we do have the most important questions. Because after all…

We are Your CFO for Rent.

Ten Things to Think About

I was off last week attending a great tennis tournament in Indian Wells, CA. So, no blog last week. But while I was there, I met an interesting fellow who had built a profitable business over nearly 40 years and was thinking about selling it and retiring (whatever that means). He asked me what he should know before approaching an investment banker or business broker, so he won’t sound uninformed. I sent him my list of 10 things to think about and offered to help him prepare. He may or may not take me up on it, but I thought it would be a useful subject for a blog post, so here’s my list:

  1. Understand the true value of the business: In order to sell a business profitably, the owner needs to have a clear understanding of the true value of the business. This involves assessing the company’s financial condition and market position to determine the business’ overall value.
  2. Plan the sale ahead of time: A well-planned sale can maximize the value of the business and ensure a smooth transition. We tell clients to start the process 2 to 5 years ahead of time, depending on the condition of the business.
  3. Select the right buyer: Choosing the right buyer who has the resources, experience and vision to run the business can be a crucial aspect of selling a business. This can be very different if the buyer is a financial buyer, a strategic buyer, or someone wanting a lifestyle business.
  4. Negotiate the deal effectively: Negotiation is critical when selling a business. The owner needs to be able to negotiate effectively in order to get the best possible terms for the deal, while also satisfying the buyer’s requirements. This is where the broker or banker earns their fees.
  5. Seek professional help: Selling a business can be a complex process, and it is often helpful to seek professional assistance from accountants and, lawyers. They can help with tax strategies and legal matters, such as ensuring legal compliance and mitigating risks.
  6. Maintain confidentiality: Confidentiality is critical when selling a business, as leaks can negatively impact the company’s reputation, employee morale, and customer relationships. Owners should use non-disclosure agreements when sharing sensitive information.
  7. Create a strong marketing plan. The right advisors will help the seller emphasize their unique selling proposition, financial performance, and growth potential. This is a key area of preparation in which the banker or broker can be a critical member of the team.
  8. Be prepared for due diligence: Due diligence is a critical step in the sale process, where the buyers ask all the hard questions. They will look for ways to lower the price, so owners should be prepared with accurate documentation, and address any potential issues before the buyers find them.
  9. Plan for post-sale transition: Assuming the seller doesn’t want to remain after the sale, they should plan for a handover period, where they can train the new owners, introduce them to key stakeholders, and provide ongoing support and guidance.
  10. Have realistic expectations: Owners should have realistic expectations about the timeline, valuation, and terms of the sale, and be prepared to negotiate, perhaps compromise, but still be protective of their interests, including the possibility of walking away from a deal if it’s just not right.

How do we know this stuff? We’ve done it a few times, and we’re still doing it.

We are Your CFO for Rent.

Hiring Staff Is Hard! Let’s Not Make It Harder.

One of today’s most pressing challenges for growing companies is finding staff to do the work that is needed. While good people are always hard to find, this time around the challenge is magnified, and often hiring managers make it harder by setting a bad example. Here are some thoughts to help you get it right, even if it takes a little longer.

Relax at the helm and let your team lead.” This only works if your team knows how to lead, either because they learned it before you hired them or you effectively taught them how you want them to lead and then stepped aside and let them do it. In my experience this actually happens less than half the time, likely because

  • they didn’t really learn before you hired them, so couldn’t be successful on Day 1, or
  • You hired people for the amount of money you wanted to spend, and it wasn’t enough to get the right people to begin with, or
  • you told them how you wanted it done but didn’t trust that they’d do it your way, so you reserved most of the decisions to yourself anyway.

Yes, Virginia, the resulting management style is called micromanagement.

And then there’s this one: “They keep screwing up, not getting it right, not doing it the way I wanted it done.” This comes from the leader who has an internal sense of what they want to happen but has failed to communicate effectively to the team, who keep disappointing, thus validating the leader’s inborne assumption that ‘it won’t get done right unless I do it myself.’ The key to this one is ensuring they don’t understand the message so the leader can reassure themselves that their people don’t support them or appreciate them or understand them. We find some level of this leadership behavior in almost a quarter of the companies we work with. And while most of our work is focused on the financial side of the business, money doesn’t get things done. People do. Or they don’t.

Oh, of course, there are those leaders who are simply happier making all the decisions themselves, and perfectly happy with the resulting performance of their team. They like being essential to every part of their company and are satisfied that it will always be only as large as they can personally manage, which is to say small, or lifestyle, businesses.

And finally there’s the longer, more time consuming, more labor-intensive way – hiring the right people for the right reasons, grooming them in the culture of the company, compensating them according to agreed goals and objectives, and then getting the h— out of their way unless they need your advice. You may soon feel like they don’t need you anymore, because everything is running so smoothly you have to spend your time looking for opportunities to grow, expand productivity, plan for tomorrow’s next steps, maybe even plan your successful exit. Bummer.

We are Your CFO for Rent.

Toward More Creative Variance Analysis

As we urge every CEO and business owner to do, we compare actual results with the projections the client made at the beginning of the year, whether it’s a formal budget with staff accountability or not, and we ensure a discussion with management follows. Even without staff accountability, there is value in management learning what differed from what they had estimated only a few months ago, and looking beyond the basics for answers that will drive better results. Here’s a short example of that interaction with a current client, a product distribution and service company.

The monthly results were published. Revenue fell short but the bottom line beat the profit projection. Then we compared key elements as a percentage of total revenues, and that revealed that Gross Profit Margin (GPM) was 51% vs. the projection of 44%, each measured against their respective revenue projections. That was the lion’s share of the profit improvement, and it turned a mediocre projection into a solid gain. We saw that a dollar of sales cost them less than they thought it would. Let’s go further.

We next calculated the percentage of revenue of each element of Cost of Goods Sold (again, against their respective revenue numbers, so that the anticipated relationships are preserved).

Their labor provided to customers is their most profitable offering, and it’s an essential part of every sale, so we looked there first. The percent of revenue projected was 12%. Actual percent of revenue achieved 12%. Clearly not the contributor we were looking for.

Next, parts and components that are typically part of every sale came in 2% under the projection. No one recalled any comparison between vendor invoiced costs and the client’s price list to see if a price increase differential was the reason, so some homework to be done there.

Then we got to equipment – the largest dollar category but the least flexible in price due to supplier controls. Turns out their equipment sales cost 5% less as a percentage of sales than forecasted. That’s a big number. Why did that happen? Product mix? Price list revisions? Missed budget (always a possibility)? More homework to check that out, but we felt pretty good that the resulting research would give us information that would enable us to do a couple things better:

  1. Compare our price lists with vendor invoice costs to see if we are keeping up with passing cost increase through to our customers, or over-compensating,
  2. Help our marketing and sales teams drive their efforts in optimally profitable versions of the sales plan, with new information, and
  3. If needed, help to improve our forecasting accuracy with more real data.

This is more analytical than the traditional budget variance analysis, that looks at dollar differences by line item and stops there. A bit more homework. But it’s also more useful in driving management actions than analysis based on dollar variances alone. Better data, better analysis, better results. Perhaps you should consider it. Why do we say that? Because…

We are Your CFO for Rent.

Cash Management According to ChatGPT

“Cash management is a critical function for any business, involving managing cash flow to meet financial obligations, invest in growth, and succeed in the long-term. Effective cash management is vital to maintaining financial stability and avoiding cash flow problems that can negatively impact the business. It also enables businesses to free up cash for investment and growth, which can help them stay competitive and increase profitability.

Cash management can also help businesses manage financial risk and avoid taking on too much debt, as well as build stronger relationships with suppliers and other stakeholders. By paying suppliers and creditors on time, businesses can build trust and credibility, leading to more favorable pricing and better access to credit and financing.

Finally, by setting clear financial objectives and developing a cash management plan, businesses can stay focused and on track towards achieving their long-term financial goals. Effective cash management is crucial for any business, regardless of size or industry, to position themselves for success, even in challenging economic conditions.”

For those not yet familiar with this new tool of AI (Artificial Intelligence) I downloaded the free (for now) ChatGPT app and gave it a simple task: Write 300 words on the importance of cash management to business owners. While ChatGPT apparently can’t count very well – the result was 166 words long, not 300 – it got the logic of the question accurately and pretty well defined the key reasons why cash management is important to business owners. In several tests run by an associate during a group meeting earlier this week, it responded to several requests to write marketing letters or legal opinions, and responded in less than a minute to each request. In every case, as in my example, the logic was sound, the opinions well stated, and the conclusions reasonable. And at no time did a human being touch the requested response before it was delivered.

Think about that for a moment. A computer algorithm using its access to the internet to create a plausible chunk of text that looks like it was written by a financial consultant. What if it were represented as actually being written by someone you know? What if it came with instructions to send money, or pay the bill, or vote for a make-believe candidate? How will you know that it wasn’t written by your accountant, your banker, or your grandmother? How will you know if your kids earned that A or if they simply copied and pasted an AI response?

The power of evolving technology is – as we have long recognized –  both a friend and a fiend. It gives us the opportunity to be much more productive, or to be duped into making a serious error in judgment. The need for awareness when we open our laptops has never been greater. Something to think about. Why do we think about these kinds of things? Because…

We are Your CFO for Rent.

Risk vs. Reward: It’s About Choices.

We’ve all heard about the relationship between risk and reward in business – the higher the reward, the greater the risk that inevitably follows it. Nowhere is this more true than in real estate investing. Well, maybe crypto stocks are still ahead, but in real estate you have choices that aren’t all in or all out. This was demonstrated this week in a conversation I had with another small property commercial real estate syndicator. The comparison was interesting.

His purchases have to date been smaller deals, in industrial areas with tenants whose names you wouldn’t recognize, sometimes with lease terms that necessitated a refinance early on because it wasn’t possible to get long term financing for not-so-long term tenant commitments. Sounds a bit far afield from the kinds of properties we prefer – long-term leases with built-in rent accelerators for premier tenants in inflation-proof healthcare industries.

But that’s where the choices come it – it’s not simply black or white. His properties are in pretty solid businesses – warehousing for some small but successful industrial tenant deemed likely to stay awhile, for example – and his cap rates to his investors are a full point or two higher than we typically offer. While all Absolute NNN deals (no repair obligations slipped in), they require more handholding to make them work, like early refinancing once a short term lease has been lengthened to reduce the debt service cost, or having to decide whether to negotiate higher renewal rates or sell the property sooner than might be necessary to capture the full anticipated returns. But the promised returns are very nice, in return for the higher risk.

We talked about his interest in getting into bigger deals, and our possible interest in taking on a bit more risk to improve our overall returns until the spread between cap rates and interest rates widens again. Those are the kinds of trade-offs investors need to make if they want to expand their portfolios in today’s market. We have looked outside our traditional healthcare focus at some different but equally successful business models, such as dollar stores, fast food chains and value-add residential, and have even invested some money with other folks who are willing to exert the management effort that we don’t want to take on.

All in the interest of making choices to balance off risk vs. reward, and to put capital to work in an economy that is demanding better returns but not yet offering the best opportunities to capture those returns. So far, we’re still waiting, but constantly looking. How will we know when the time is right? We know how to read the signs. That’s what we do, because…

We are Your CFO for Rent.

Safe or Easy – Pick One


  • North Korea-backed hackers stole $1.7bn (£1.4bn) of crypto in 2022, says blockchain analysis firm Chainalysis. For context, North Korea’s total exports in 2020 totaled $142m worth of goods, so it isn’t a stretch to say that cryptocurrency hacking is a sizable chunk of the nation’s economy.
  • The (Justice) department said it had successfully prevented victims from having to pay $130 million in  ransoms to Hive, a prolific ransomware gang, before seizing two of the group’s servers on Wednesday night.

These are just two news items from a blog that I read weekly, to keep aware of trends in this problem area of cybersecurity that everyone talks about, but that too few (CEOs) are doing enough to protect themselves from. The blog is called “Cybersecurity News of the Week & Weekend Patch Report” and its author is Stan Stahl, the best-known expert on cybersecurity protection I know. The quotes I chose are not to suggest that  North Korea or Hive are coming for you, but to remind everyone that hacking can hurt us all in many ways, only one of which is by picking our pockets directly.

OK, maybe they are coming for you and we just don’t know it yet, but our job – your job in your company – is to make it difficult rather than easy for them and others to succeed. And that means keeping aware and updated. And that means your software, the publishers of which issue regular updates in the form of patches for security risks that they have discovered and fixed. Besides relevant news, every issue of Stan’s blog contains a list of new updates along with the current versions of most of the popular software in use today, and if our stuff doesn’t match Stan’s list, I get busy. Even better, Stan recommends, a resource that can check all your applications against current versions and automatically handle many needed updates.

So my message for you today is this: Sign up for Stan’s weekly letter. You can do that at How do we keep up with all this stuff? It’s our job.

We are Your CFO for Rent

Marketing Spend: Which Half is Wasted?

Those of us who have spent our careers in the financial world have been working with a quandary for many years: It’s very important to invest in marketing, but only in the marketing that works. And, as most marketing experts will tell you, “You only really know if it works after you spend the money.” A sharp CFO will then come back with “Show me how you will measure that, so we don’t just spend the money and then hope we did well.” You can see how this back-and-forth debate can go on endlessly, between the two critical support functions backing every company’s CEO.

The good news: everyone knows, including the CFO, that marketing drives sales and sales drives the company’s bottom line. As an old friend of mine was fond of saying: Nothing happens until you sell something. Actually, one thing happens before you sell something: you create prospective buyers.

The bad news: everyone knows, including the CMO, that companies fail every year by spending themselves into the ground trying to create a new market or grow an existing market, and going at it the wrong way, with the wrong product or to the wrong market, which is discovered after the wrong way ends in the collapse of the company.

There has to be a better way. And today, happily, there is, thanks to the advances of technology and the prolific use of online marketing techniques to drive virtually every company’s marketing strategy. Today we have options that didn’t exist when we launched Your CFO for Rent 35 years ago, thanks to the increasing capability of companies to capture data in a timeframe that enables informed decision making, including redirecting test marketing efforts, reinforcing successful initiatives on the fly, and cutting programs midstream if they are proving fruitless. The trick is picking and using the most effective KPIs to capture, measure and review the most relevant data.

The job of the executive management team is to ensure that the right tools are put in place to do that, avoiding the strategies of the past in which everyone hoped the CMO’s plan was a good one, and waited anxiously for the results at the end of the day.  Here are a few proven KPIs for your consideration:

  1. Website traffic growth from period to period – whether supporting brand awareness, outreach, or product recognition, this metric is the most basic strategy for scaling a business, creating new opportunities to convert visitors into customers.
  2. Traffic-to-Lead conversion rate – how much website traffic converts to leads that express interest in buying something, best tracked as a percentage of website traffic visits. This measures your ability to build trust between you and your visitors, so they become prospects when they’re ready to go shopping. Call it your Marketing Qualified Leads metric, or MQL.
  3. Marketing Qualified Leads to Sales Qualified Leads, or SQL – this percentage captures the transition from aware and curious (MQL) to significant interest in your product offering (SQL), even if they’re not yet ready to commit.  These are the leads that get passed to your sales team, who will try to convert them into sales.
  4. SQL to committed sales – this one doesn’t need a label, only a number, the percentage of SQLs that become closed sales. And finally…
  5. Marketing cost per sales dollar – the KPI that measures how much money you spent to get a new customer, calculated by all the costs of the first 4 steps, divided by the number of new customers captured. Ultimately translated into the marketing cost per dollar of monthly sales.

I wish we’d had the ability to track this kind of information without the painful manual data collection 35 years ago. The concept was there but the implementation wasn’t easy to sell or carry out. But we have it today, and we know that because, as you know…

We are Your CFO for Rent.


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