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Are your Financials “Investor Ready”?
Frequently we receive calls from entrepreneurs and CEOs telling us they would like assistance in preparing to jump into the financial markets and seek outside funding, whether from banks or other investors. Over the years we have noticed common errors in their historical financials when we initially review them. Those listed below are the most common. Not having crisp financials won’t necessarily scuttle a deal for an equity investor, but likely will cause them to offer you less value for the business, and will often cause a bank to be less aggressive in wanting to provide funding. Mark Ludwig, Managing Director at Sorenson Capital , suggested that “the more of these issues I find, the less confident I am in the financials.” That lack of confidence leads to lower valuations among financial investors.
These common errors fall into 4 camps: One, Generally Accepted Accounting Principles compliance. Two, proper financial controls. Three, whether the financials provide truly relevant information. Four, the lack of a cash flow statement.
GAAP Compliance
- Hybrid Cash and Accrual Accounting : Financials are a hybrid of cash and accrual accounting.
- Improper Revenue Recognition : Certainly relevant to others, but common among software companies, revenue is often not recognized properly. Generally, this means you have recognized revenue before you have fully completed the tasks for which you are being paid.
- Capital Expenses are not Capitalized : Some expenditures are for products that have value to your business beyond one year. These typically should be capital expenses. Often companies are expensing them immediately through the income statement rather than capitalizing them and amortizing them over the life of the asset.
- Accrual Management : Accruals can be manipulated to manage earnings. You can TRY to be cute with them, but these inappropriate adjustments always become transparent.
Proper Financial Controls
- Balance Sheet Accounts not reconciled : The surest way to gain confidence in your financial statement is to expect and demand 100% reconciliation of your balance sheet accounts. Demand a REAL reconciliation, not just a ledger of activity in the account…sometimes called a “roll-forward”. You want to prove logically that each account balance is appropriate… every month .
- Lack of Controls and Systems: this one can be quite broad, but having proper systems and controls around business processes gives investors confidence that the data is right…without them, financials are called into question.
- Personal Expenses : Just keep them out of the business financials…period.
- Inventory Inaccuracies : If your company carries inventory, without a concerted effort and real focus, most likely you will have inaccuracies. Unless “graded on the curve”, very few companies would receive an “A” grade on the quality of their inventory management systems and processes.
Relevance of Financials
- Improperly recording Cost of Sales : Understanding true gross margin is an early quest of all investors. When some costs are inappropriately included/excluded, gross margins are misstated.
- Lack of Segment Information : Properly managing financial data for channels and cost centers, which enables profitability by segment is crucial not only for you the entrepreneur but for any financial investor.
Cash Flow Statement
- Lack of a Cash Flow Statement : Without a cash flow statement how can you articulate where your cash has gone? And even more importantly, how will you be able to tell an investor where it will go? Without this knowledge, you can’t speak with credibility about how much you need, when you need it, and what it will be used for.
While too many businesses make these common errors, the good news is that they all can be resolved with a little planning and work. In the event there are anomalies in the financials that you may feel are warts, be prepared to talk about them early, openly, and honestly. This step alone will grant you credibility with a potential investor.
And if you find yourself a little overwhelmed by all this, give us a call and we can provide a free assessment of your financial health with some recommended paths forward.

What is Keeping Your CFO Up at Night?
We recently performed an informal survey of CFOs that we work with regarding the things they worry about most for their company. The results were not surprising. The size of the company didn’t seem to matter, the concerns are the same. Below are the top 5 items of concern and the percentage of CFOs who mentioned them in the survey.
- Cash Flow 7 of every 10 respondents
- Talent Development 5 of 10 respondents
- Right Numbers and Accurate Reporting 4 of 10 respondents
- Shareholder Value Strategies 4 of 10 respondents
- Financial Controls 4 of 10 respondents
Cash Flow
The majority of CFOs worry about the company’s cash flow. Running out of cash is their biggest nightmare. Many companies have a yearly cash forecast built up by month, but also supplement it with a 13-week cash flow projection. Some of the things they’re doing to help them manage cash are: expanding lines of credit and other debt facilities and managing accounts receivable and accounts payable days outstanding to order to speed up the cash flow cycle. Additionally, many with companies in the start-up and growth stages are always working on their next round of funding to insure the company won’t run out of money.
Talent Management
Capable CFOs are concerned about hiring the right financial people and more importantly, retaining them. Finding good people is always difficult and networking with peers seems to be the best way to find good people in financial circles. Retaining good people requires proper training and your CFO should be giving adequate time to this. It is important to note that there is a shortage of talent with good controllers and as a result compensation has been trending upward in order to get and keep good controllers.
“Right” Numbers and Accurate Reporting
This concern was shared by most CFOs but had two schools of thought. CFOs are always concerned about accurate reporting because decisions made by top management rely on accurate financial information. It is critical that the financial reporting system gather numbers accurately and reporting can come right out of the system. Too much reliance on Excel spreadsheets opens the information up to errors and potential problems. The second thought related to reporting the “right” or “correct” types of numbers. It is crucial to know the drivers in the business and make sure the dashboards of the company reflect those drivers. Key Performance Indicators (KPIs) have to help top management see a clear picture of the status of the company on a daily and weekly basis.
Shareholder Value Strategies
It is critical that the strategies of the Board and shareholders are communicated to the executive team and that those strategies are executed on. The CFO needs to understand what the core values of the company are and also the strategy of the company because a value is not a strategy. A strategy is a plan of action to achieve an overall aim. In order to execute a strategy, the CFO and executive team all have to be on the same page as the Board.
Financial Controls
Fraud is increasingly becoming one of the biggest concerns for your CFO. One CFO in our survey shared a statistic he’d recently heard that 5% of all revenues in small businesses are lost to fraud (Association of Certified Fraud Examiners). CFOs are concerned with both fraud detection and fraud prevention by plugging leaks into processes and procedures related to financial controls. Making sure that vendor payment responsibilities are split properly among your accounting team is the most pressing issue. Smaller companies often have one person doing too many things and technology can help provide proper controls. Larger companies frequently have transaction volume that is hard to properly monitor. Proper procedures and split duties are the answer here.
Over and above these top five concerns, there were several other concerns that were mentioned, including:
- Technology
- Risk management
- Knowing what you don’t know
- The integrity of company and staff
- Growth in revenues and margins
- Health care
- Doing more with less
The list is not all-encompassing and every CFO has his own list of items to prioritize. But you’ll know you have a good CFO if they anticipate these issues and strategize on how to overcome them while assisting to achieve the company strategies. Now, go get a good night’s sleep. There is a lot to do tomorrow.

Life-long learning – What’s Your Plan to Remain Competent?
How do you retain your competence? Perhaps it isn’t something that you think about often with the avalanche of daily meetings, emails, phone calls, and texts but it is something that every business person in the world needs to do more than think about – it is something that we all need to act on!
I am a licensed Certified Public Accountant (CPA) and in order to retain my license, I have to take 40 hours of continuing professional education every year – and be able to prove it! While that seems like a lot of time, believe me, it is not enough to keep up with all of the regulations, practices, and technological advancements that occur in my profession. Now, before you start feeling sorry for me, I assure you that CPAs are not the only profession that requires continual learning. I once read that many computer programmers’ skills learned in college are almost obsolete within five years after graduation. In a paper published in 2007, Jim Allen and Rolf van der Velden found that “the average ‘half-life’ of competencies acquired during tertiary [post-high school] education lies somewhere in the range between 10 and 15 years. . . However, over the life cycle of the occupational career, this would imply that tertiary graduates have to “renew” their competencies on a fairly regular basis during their careers. This offers clear justification for the strong emphasis that is often placed on the need for ‘life-long learning.”
This study and my experience indicate that each of us should have a plan for renewing our competencies, but perhaps just as importantly, we should develop a core of intellectual tools or skills that will never become obsolete. These skills, while not always directly related to our specific career or job, are more general in nature (e.g., analytic, problem-solving, social, leadership, and attitudinal skills) and give us the ability and judgment to actually use what we know to provide the results that our jobs or clients demand. I have found that individuals in my profession who do not develop and hone these “general skills” tend to get caught up in the “rut” of their job. They suffer from what I call “one year of experience ten times” rather than ten years of experience! As a result, while they may be able to produce accurate, basic financial reports, they struggle to provide real information that is useful to business owners and managers, thus their value to their employer or client is questionable.
A long-term, and what I believe appropriate, view of life-long learning dictates:
- That we acknowledge what we don’t know. My friend Chuck Coonradt of The Game of Work calls this “unconscious incompetence” – what a great phrase and how true! In order to know what we don’t know, we have to learn what we should know. I like to use a portion of my learning time on updating courses and general information about accounting, finance, business, and economics.
- That we use some portion of our educational budget to keep sharp and up-to-date in the areas where we most commonly practice so that there is never a question about our competency in our area of expertise.
- That we spend time learning skills that will help us in the long term. This is where learning about enabling technologies and the latest in trends and techniques allows us to take a step beyond minimal competency and advance towards “expert” status.
- That we start viewing life-long learning as an investment rather than a cost. It is an investment in our future and the return on investment is real and easily measurable over time. As I progressed through college and experienced truly great professors (they also happened to be the hardest), I stopped trying to find the easiest classes and rather sought out the best – where I could learn the most. I believe that we are wise to do the same as we learn now.
Remaining competent sounds like a lot of work doesn’t it? Well, it is, actually and that is the way life works. We cannot achieve greatness in any aspect of our lives by dedicating only the minimal amount of effort required. Beyond the confidence that we gain from knowing that we are truly competent and that we can deliver exceptional results to our clients or employers, we also receive the added personal benefit of being in greater demand and that equates to a higher value (i.e., compensation and satisfaction)!

Accounting fraud is on the rise! Is your Business at Risk?
In a recent study, PwC US found that 45% of businesses in the U.S. reported that they suffered some type of fraud in the past two years and 24 % experienced accounting fraud, typically embezzlement of some type. These numbers all represent increases over recent years – all of which should be a concern to every business owner or manager. The study also indicates that the majority (54%) of fraud is perpetrated by someone in a trusted, middle management position.
In some cases, the data suggests that the number of reported cases of fraud is increasing because businesses are detecting more cases through improved internal controls and oversight.
If you haven’t done so lately, now is a good time for owners and managers to consider the state of their fraud risk management plan. Think about your own internal controls and procedures and when the last time they were reviewed, challenged, and updated. Are you sure that someone isn’t able to commit fraud in your business without being detected? Do you have proper segregation of duties and are you using the tools and technology available to help you mitigate risk?
If this seems like a bit of a daunting task, call us and we can help. Our seasoned professionals can help you with an evaluation of your people, processes, controls, and technology and give you solid recommendations to improve your internal controls. In addition, we can help you implement them and provide ongoing oversight so that your business doesn’t become the “one in four” that discovers accounting fraud too late!
You've Got the Vision.
We've Got the Fractional
Team to Build It.
A fractional CFO who knows your numbers. A fractional CMO driving your pipeline. An HR leader building your people systems. Sales tax specialists keeping you compliant. Valuation experts ready when you need them. All embedded. All executing. All backed by Ampleo Intelligence, our AI platform.
You've Got the Vision.
We've Got the Fractional
Team to Build It.
A fractional CFO who knows your numbers. A fractional CMO driving your pipeline. An HR leader building your people systems. Sales tax specialists keeping you compliant. Valuation experts ready when you need them. All embedded. All executing. All backed by Ampleo Intelligence, our AI platform.
You've Got the Vision.
We've Got the Fractional
Team to Build It.
A fractional CFO who knows your numbers. A fractional CMO driving your pipeline. An HR leader building your people systems. Sales tax specialists keeping you compliant. Valuation experts ready when you need them. All embedded. All executing. All backed by Ampleo Intelligence, our AI platform.
You've Got the Vision.
We've Got the Fractional
Team to Build It.
A fractional CFO who knows your numbers. A fractional CMO driving your pipeline. An HR leader building your people systems. Sales tax specialists keeping you compliant. Valuation experts ready when you need them. All embedded. All executing. All backed by Ampleo Intelligence, our AI platform.






