4 Warning Signs That Your Customer Needs an Outsourced CFO

4 Warning Signs That Your Customer Needs an Outsourced CFO

warning signs your customer needs an outsourced cfoIn today’s competitive banking market, successful bankers strive to develop a very close relationship with each of their customers. Frequently the customer is too busy to meet with their banker. In those instances where access is somewhat limited, what signs can you look for to help you gauge the health of your customer’s business and whether or not that customer may need the assistance of an outsourced CFO?

BeaconCFO Plus believes there are 4 signs that your customer may need an outsourced CFO. The signs are visible when the company:

  1. Can’t produce credible forecasts
  2. Lacks visibility of breaking loan covenants
  3. Suffers from low levels of cash flow and high debt levels
  4. Knows what to do but not how to do it

Can’t Produce Credible Forecasts

The first sign relates to the customer who is requesting additional lending or the renewal of a current lending but can’t produce credible financial or operational forecasts. This is indicative of a company whose focus is historically-based only. They can close the books for last month but lack the acumen to look forward to see where the company is going. Their staff may be too busy or may lack the expertise to develop forward-looking documents that could support the lending request.

Lacks Visibility of Breaking Loan Covenants

The second warning sign is the company that breaks loan covenants—and the banker is the one who tells the customer that they are “out of covenant”. The breaking of the covenant is actually only the symptom. The problem is that the company has no one on staff with the time or the ability to establish a simple covenant monitoring system. Well-run companies with appropriate staffing understand the importance of monitoring covenants in their loans and the need to communicate with their bankers BEFORE the covenant is breached.

Suffers From Low Levels of Cash Flow and High Debt Levels

The third warning sign that a customer may need an outsourced CFO is when the company suffers from persistently low levels of cash flow. This can cause lines of credit to look like term loans. Again, this is symptomatic of bigger issues. The problem is that the company has a poor business decision making process that is causing them to make decisions that actually deplete their cash flow rather than increase it.

Knows What To Do But Not How To Do It

Lastly, most customers are very talented in their areas of expertise—engineering, information technology, or possibly sales and marketing. They know both what they must do to fix problems in those areas and they know how to do it. In the financial areas of the business however, they only know what they need to do. For example, they know they should be as efficient as possible with their working capital but they don’t know how to do that. They need someone who is skilled in that area to complement their skill set.

If you see any of these warning signs with your customers, the best thing you can do to help them would be to have a conversation about talking to an outsourced CFO. Your customer will likely thank you as he or she is already aware of the problems in the company but doesn’t know where to turn for help.

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Tom Gentile
Tom Gentile
Tom Gentile is a founding partner with BeaconCFO Plus who has created successful business solutions for companies across multiple manufacturing industries.  He has extensive experience in strategic planning, turnaround management, working capital/cash flow improvement, acquisitions and procurement.  Tom regularly speaks to groups of business owners providing advice to improve their ability to generate cash flow.
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