When is the last time you looked at your business and assessed it for business risk?
Insurance vendors will talk to you about the need to insure all sorts of risks. HR vendors will talk to you about legal exposure related to work and employee practices. CPAs will talk to you about tax implications and exposure. But no one really talks to you about ongoing business or financial risk that you face and what you can do about it. This is where a good CFO can help you see your ongoing and embedded business risks and map some alternatives to be able to respond.
What if, a large customer or Vendor changes their terms with you? What if they leave? There are a host of such : what if questions you can ask. Like Banks did during the financial crisis, subject your business to a stress test. You do this by looking at your business through your current financials and building a set of projections. These projections are modeled to answer some key assumptions – 1. What will happen if your sales reduce 20% or even increase 20%? What will happen if interest rates go up by 2%. What happens if customer payments are delayed by 30 days? A series of relevant assumptions modeled through a set of complete projections will give you good insight as to what stresses your business can withstand. Your projections should include not only the Income statement – most businesses stop here. It is important to project the Balance Sheet and Cash flow too, to understand the total picture.
Based on what you see you can map out alternatives; standby arrangements, think ahead and set up action plans. This avoids rude surprises.
MSNCFO provides many opportunities to intermediate accounting students. Throughout my 3.5 years of working with the company, I was able to improve my existing skills,