Finance – New Economy CPA

How to Create and Follow a Cash Forecasting Model

April 25, 2023/in Entrepreneur, Finance/by Jeff Allain

To help you understand how to create and follow a cash forecasting model, let us paint a picture for you.

The Hero

Every hero has a story. And we are big fans of the hero. You are the hero in this story.

Picture yourself as Luke Skywalker.

You are the entrepreneur working really hard and doing amazing things. You have guts, passion, and are willing to put it all on the line. We understand where you are coming from and have tremendous respect for you.

But we also understand that it’s not easy.

The Problem

In every story, the hero has a problem to solve. Some are more challenging than others, there is a problem we see over and over again.

Entrepreneurs:

Don’t have the financial visibility to know when cash needs will arise
Don’t know how to be proactive to avoid these needs
Don’t have the time to pull the information together
Don’t have the unique abilities to work through the issues

This is your Darth Vader and it can have massive implications on your ability to build and grow your business. Nobody wants to run out of cash.

The Guide

Another essential aspect of a good story is a guide.

New Economy, with its team of experts, financial tools, and trusted processes, is grateful to play the role of the guide.

We want to help you solve the problem. We want to help you succeed. We are your Yoda.

In this article, we’ll take the opportunity to explain how we can help you solve this common problem i.e. get rid of your Darth Vader. Specifically, we’ll talk about the importance of visibility around cash flow and the projection tool we use to help our heroes become triumphant.

The Cash Forecasting Model aka The Tool

Here at New Economy, we believe that entrepreneurs need a tool to see their cash flows out into the future. We like to provide this visibility over a rolling 13-week period.

Our tool is very easy to use and is accessible by way of Google Sheets.

It’s our goal to start simple and solve the problem at hand (lack of data for visibility and decision-making), only then will we introduce automated technology and dig deeper into your finances.

You can check out our free cash flow tool here.

Getting Started with Your Cash Forecasting Model

Before diving head-first into your cash forecasting model, you need to do some planning, investigating, and info-gathering.

This can be a time-consuming process, so be patient and give it the time it needs, ensuring your records are thorough and complete. Keep in mind, hard work now has the possibility to make massive impacts on your business and help you sleep better at night :).

Here are some simple steps you can take to get started:

Analyze historical spending
Understand spending needs
Cut, reduce, and extend payments
Identify cash flow gaps
Identify solutions to cash flow gaps

As you gather this information, you’ll need to get deep into the “weeds”. Look at your accounts receivable and accounts payable journal and take a close look at historical bank statements since we are talking about cash. These are the source documents that will be utilized to build out the tool.

We always advise clients to be detail-oriented because the more information you include in the tool, the better your results will be.

The above data will be utilized to show the cash in and cash out needs of the business. We will be leveraging the historical results to predict the next 13 weeks.

A great start is to sign up for that cash flow tool noted above which will walk you step by step through the process of building out the tool.

Your Transformation

Nailing down a cash forecasting model comes with plenty of benefits. You’ll gain stronger business processes and intelligence around:

Cash collection acceleration techniques
Proven effective collection policies
Proven effective credit policies
Proven effective payment policies
Building cash reserves
Preparedness on meeting obligations before they occur

Remember when we said a well-built cash forecasting model will greatly impact your business and help you sleep at night?

We meant it.

Ending with Success

What does success look like in your story? If gaining financial security establishes itself as a success indicator for your business, our team at New Economy has you covered.

With our help, we’ll work to help you get the feeling of financial security based on the ability to predict cash flow needs.

You’ll be able to:

Know when, where, and how your cash flow needs will occur
Know the best resources for meeting cash flow needs (Debt, Equity, Factoring)
Prepare to meet those needs in advance
Set goals for building cash reserves
Set goals for paying down debt
Improve collection processes and techniques

Your success is important to us and as a recession looms, cash forecasting models need to play an even larger role in your financial management processes as they can prepare your business for what’s to come.

If you want to learn more, schedule a time to meet with Jeff, the Founder of New Economy! We help entrepreneurs gain control of their finances to make smart decisions to build and grow their businesses.

We’d love to be a part of your story.

Use Efficient Data to Reach Business Financial Goals

April 24, 2023/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

If you are a typical business owner, there’s a good chance you wake up at 2 am some mornings with an uneasy feeling – trying to crunch numbers in your head and get an accurate pulse of what’s going on in your business. But with out-of-date and tough-to-read data, things just aren’t adding up.

So you take the pulse based on your gut. But deep down, you know this isn’t going to get your business where you want it to be.

New Ecomony’s solution – formulate your data in a way that allows you to consistently and accurately take the pulse of your business so you can take effective action.

If this sounds good, read on.

Do You Have Business Goals?

Goals are defined as a desired result that you, or a group of people, plan and commit to achieving. Does your business have them? If not, you should.

Here are some of our best tips for setting goals for your business:

Get Your Team Involved

Your team is full of ideas and has an interest in the success of your business. Get them involved. Get their buy-in, and gather their thoughts and ideas. Lean into what they have to say and use it to help you build out your goals.

Think Through Your Priorities

Think of your top 1-3 priorities in your business that need to be focused on to move it forward. This may take some deep thought and serious evaluation, but it will be worth it.

Ask yourself:

Where is your business now?
What are you trying to accomplish?
Where are you trying to go?

Your goals should help you accomplish your priorities.

Create SMART Goals

Following the SMART goals framework helps you build good goals.

Here’s what we mean:

S – Specific
- Make your goals specific and narrow.
M – Measurable
- Define how you will measure your success towards reaching the goal.
A – Achievable
- You have to be able to accomplish your goal. Don’t set the bar too high.
R – Relevant
- Make sure your goals align with your priorities.
T – Time-based
- Set a realistic end date for reaching your goals.

Document Your Goals

Once you’ve built out your goals, document them.

Make them clear to your team.

Hold yourself accountable.

Having goals won’t do you any good if you are the only person who knows they exist.

What Does Your Data Look Like?

Financially speaking there are certain data components that can help to determine if you are on or off track. When you track the right data, you have the opportunity to make decisions to right the ship when things are off track.

Here’s what your data should look like:

Every Business Should Have a 1, 3, and 5-Year Financial Plan

A strong financial plan will be broken into 1-year, 3-year, and 5-year segments. You’ll be able to refer back to your financial plan to bring the business you want to life. Think of it as a roadmap.

You can break your financial plan down by month and measure it against actual financial results. This is the KEY. If something is off, you need to be able to gain an understanding as to why.

Assign ownership to an individual to get to the root cause and offer up suggestions to get things back on track.

By following along with your plan, you can also narrow down what resources are needed as you go, like:

Cash
Customers
Employees
Equipment

As you build out your financial plan, use our top 4 financial tools to guide you.

Use a Weekly Scorecard

Every business should have a weekly scorecard. At New Economy, we believe a good Key Performance Indicator (KPI) in the form of a scorecard will help you manage data and provide you with a pulse of your business on a consistent basis. This will allow you to take prompt, effective action.

Here’s how you can create an effective scorecard:

Identify and agree on the top 10 items to measure
Make someone accountable for each measure
Create goals for each measurable
Make the measurable time sensitive
Make someone accountable for getting the measurable and filling in the scorecard each week
Use it

Each Team Member Should be in Charge of a Measurable

Keeping track of your measurables is essential, but the task shouldn’t just fall on one person’s shoulders. Give everyone on your team a number to keep track of. Doing this:

Cuts through murkiness between manager and direct reports
Create accountability
Provides clarity and commitment
Produces results (this is a big one as we are trying to use data to drive towards our goals)

For example, if you are a service-based company, you might measure revenue by employee, and each employee understands what is expected of them. If they achieve their measurable, which should be aligned with the business goals and overall measurables, then you have a high degree of alignment and can rest assured knowing team members rowing in the right direction.

Bring Your Data to Life, Achieve Your Goals

By having a Financial Model, Weekly Scorecard, and Individual Measurables, you are bringing to life the data road map which can be utilized to help you achieve your goals.

A few final thoughts to remember before you put the plan into action:

Be open to learning. What is the data telling you?
Dig deep. Is something off track? Get to the root cause.
Apply what you have learned and get things back on track.

If you’re searching for a financial partner to help you use efficient data to reach your business goals, schedule a call with our Founder, Jeff! Our mission is to help entrepreneurs gain control of their finances so they can make smart decisions to build and grow their businesses, and we’d love to help you!

Prepare for a Recession with this Cash Flow Projection Template

April 4, 2023/in Entrepreneur, Finance/by Jeff Allain

Unfortunately, a recession is on the horizon and if you want your business to weather the storm, it’s time to start preparing.

At New Economy, we have 5 strategies we suggest focusing on to get through this tough time. Each strategy is important but you’ll soon realize that managing your cash lands high on the list.

We’ll explain more below and let you know how you can use our cash flow projection template as a tool for success.

Use These 5 Strategies to Weather the Storm of a Recession

1. Manage Cash Well

Cash is the lifeblood of every business. This means managing it well is essential for survival. Here’s how our team at New Economy suggests you manage your cash:

Plan and Process

Your business needs a solid plan and fool-proof processes to properly manage its cash. You can do this by:

Analyze historical spending
Understand spending needs
Cut, reduce, and extend payments
Identify cash flow gaps
Identify solutions to cash flow gaps

Transformation

The way your business is managing its cash now may not be sustainable through a recession. You’ll need to build stronger business processes and intelligence around:

Cash collection acceleration techniques
Proven effective collection policies
Prove effective credit policies
Proven effective payment policies
Building cash reserves
Preparedness on meeting obligations before they occur

Ending in Success

Properly managing your cash is an ongoing process, but eventually, you’ll earn a feeling of financial security based on your ability to predict cash flow needs. To create this feeling, you’ll need to:

Know when, where, and how your cash flow needs will occur
Know the best resources for meeting cash flow needs (debt, equity, factoring)
Be prepared to meet those needs in advance
Set goals for building cash reserves
Set goals for paying down debt.

2. Know Where Your Business Stands – No Sugar Coating

As a business owner, you need to have a strong pulse on your business. This means diving deeper into a few key areas to ensure the needle is moving in the right direction.

Not to be overlooked, the health of your team and culture play a major role in the success of your business. Team members need to be on board and understand how their work plays a larger role.

Keep a close eye on your goals as well. Regularly take the time to ask yourself if you are on or off track with your goals and one-year plan. Understand why and what needs to change to get or keep the business on course.

To no surprise, analyzing financial performance is key to understanding where your business stands. Are you meeting key targets, like:

Revenue?
Gross profit?
The budgets for operational costs?

Dig deep to know where you are at and what may need to change.

3. Turn Up Your Leadership

Companies rise and fall based on leadership. Your role as a business owner is to serve as a leader for your team.

Here are a few of the ways you can become a stronger leader:

Give clear direction on the vision
- Create openings and opportunities for the team to connect. Be compelling and bang the drum.
Provide the necessary tools for the team
- They’ll need training, technology, and most importantly time and attention to help the succeed.
Act with the greater good in mind
- One of your roles is to focus on long-term outcomes. Help your team understand how their work now impacts the greater good of the company.
Keep expectations clear and communicate well.
- We can’t stress this enough – communication is key!

4. Run Scenarios

There are plenty of different directions your business could turn in a recession. To best prepare, you need to have the ability to do “what ifs”. Scenario planning, aka financial modeling, offers you the ability to get a glimpse of potential outcomes for your business.

With good financial modeling, you’ll get future visibility by month to make decisions.

Our advice: Play with the assumptions to determine the outcome. For instance, lower your revenue by 10% to see the implications on cash flow and profitability. Perhaps then, you reduce your operating expenses to achieve the same profit margin.

Again, understanding where your business could be headed will help you make quicker, more educated decisions.

5. Find Opportunities

Just because a recession is typically a negative experience, it doesn’t mean there aren’t hidden opportunities.

For example, layoffs are abundant, but this also means there is top talent being let go. Look for that talent and add them to your team.

You may also run into a business that is not adequately prepared or is struggling. This may provide an opportunity for a merger or acquisition. Keep your eyes and ears open.

Other struggling businesses may not be serving their customers well, providing you an opportunity to acquire new customers.

As a reminder, our team at New Economy helps entrepreneurs gain control of their finances to make smart decisions to build and grow their businesses.

One of our favorite tools to use to do this is our cash flow projection tool. It will help you understand how to plan your budget in advance and see how much money will be coming in and out over time. You can grab it for free here.

If you have any questions or would like assistance in preparing your business for a recession, schedule a call with our Founder, Jeff! He’d love to learn more about your business and explain how New Economy can help!

What Will it Cost me to Outsource my Accounting?

September 26, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

Outsourcing accounting is trending in the business world.

Depending on the role you choose to outsource, entrepreneurs reap many benefits, like:

Accurate and timely financial insight
Strategic support and guidance
More time to work on the business instead of in it
Cost savings

If you’re exploring this option for your business, one of your primary questions is most likely, what will it cost me to outsource my accounting?

The following article will answer this question based on New Economy’s numbers so you can have a rough estimate of the total cost savings you’ll receive from outsourcing your accounting.

Know What You Need

Before you begin to think about the cost of outsourcing your accounting, you need to be clear on the kind of service you need, whether it be an accountant, controller, or CFO.

Each service has a different function, so you want to make sure you’re outsourcing based on your needs.

An accountant is tactical in nature and takes care of the basic financial management that is required for compliance and business success.

A controller is a bit more experienced and typically leads the accounting staff. They’ll have more insight into your business and have the ability to make operational improvements to your financial system.

A CFO is a strategic partner and will work with the CEO to perfect the business model and ensure the business is meeting its financial goals.

For more detail about each role, check out our article on the topic. It’ll help you select which service is the right fit for your business so you can properly outsource your accounting.

Let’s Define the Cost Savings (Sorry for the data and detail, we are number crunchers!)

The cost of hiring a full-time employee can pile up, and this is before you even think about the time and salary.

However, outsourcing your accounting to New Economy offers plenty of cost savings in a few key areas.

Training Investments

We cover the training investments for each team member and make sure they are continuously developing new skills and growing professionally. In fact, we invest between $5k-$10k per employee each year.

IT and Technology

We cover all of the IT and technology investments which is roughly $5k per employee each year.

Fringe Benefits

We cover all of the fringe benefits including payroll taxes, 401k match, and health insurance. To put this into perspective, this means we are investing between $15K-$20k per employee each year based on a $75k salary.

Management Time

We cover all of the management time on each account which can be a bit more challenging to quantify. However, you are now valuing your own time.

So as you can see, New Economy covers anywhere between $25k-$35k in costs that, when you outsource your accounting, you do not have to assume. And keep in mind, these numbers don’t include salary.

Before we Jump into Salary, Consider the Time that You Need

When you take into account the costs above and include a salary of $75k per year, you’re now shelling out anywhere between $100k-$110K for a full-time employee. However, this begs the question, do you really need a full-time employee?

We are learning that many internal accounting hires are pulled into operations or admin work. When this happens, they are being overpaid and under-challenged. And you run the risk of losing them.

To avoid this, you need to understand the true time needs in accounting. This will reduce your investment in this area.

For example, a full-time controller could cost between $80K-$125K, but if you only need a 50% schedule, your cost will reduce dramatically.

Now onto Salary, Keeping in Mind we are Focused on Growing Small Businesses and Startups

Let’s take a look at the typical salaries for hiring full-time:

A new accountant can cost anywhere from $55K-$65K
An experienced accountant can cost anywhere from $65K-$80K
A Controller can cost anywhere from $80K-$125K
A CFO can cost anywhere from $125-$200K

In our experience, most growing small businesses and startups don’t need full-time accounting help.

So the true cost savings of outsourcing your accounting while still obtaining top-tier talent would be:

$25K-$35K on technology, training, and benefits
20%-30% of the salary by leveraging the team member in their unique ability and removing all admin and operational type work

Interested in Outsourcing Your Accounting to New Economy?

At New Economy, we believe outsourcing is a great way to help you gain control of your finances to make smart decisions to build and grow your company.

Our team comes from a great culture where they are nurtured and developed and we are proud of the awesome service they deliver.

Based on the above, you can see that there can be significant cost savings in outsourcing your accounting.

If you are interested in learning more about our service, reach out to us today!

Do You Know the Difference Between an Accountant, Controller, and CFO?

August 30, 2022/in Entrepreneur, Finance/by Jeff Allain

Accountants, controllers, and Chief Financial Officers (CFOs) can all play an essential role in a finance department.

However, the size of your business, your business needs, and your business goals, will all play a part in determining which role you need to hire for. Making the right decision is crucial and can completely change the trajectory of your business.

This article will touch on the importance of knowing the difference between an accountant, controller, and CFO and cover the key differences between each.

Let’s dive in.

Knowing the Difference is Important

Accountants, controllers, and CFOs all provide different services. Each role fills different needs within a company, so before you make a hire, you need to be clear on exactly what areas of your finances need attention and which role will best fit those needs.

This will ensure you are bringing on team members who have the skillset required to meet those needs.

Knowing the difference and choosing the right role before making a hire also ensures:

You are not overpaying
You are not under-challenging or over-challenging the team member based on their unique skill sets as compared to the functions needed
You are building a solid foundation for your accounting team

When you are clear on your company’s needs and hire the right person to match the role, you’ll see better results.

Let’s Cover the Differences

Here is a general overview of the role of an accountant, controller, and CFO so you can be aware of the differences and make a hire that best fits your company’s needs.

Accountant

An accountant is someone that is tactical in nature. They do the groundwork and basic financial management that is required for compliance and business success.

Accountants handle things like:

Bill paying
Payroll
bank recs
Invoicing
Expense categorization

An accountant will be under you or whoever is in charge of your company’s finances and will likely need supervision and training. They will handle the tasks needed to keep everything in order while maintaining and compiling the information you need to make financial decisions.

Controller

A controller is someone who is more experienced than an accountant and has a solid understanding of GAAP and the business. They’ll take the time to really understand your goals and use that information to improve your finance department.

Controllers typically lead and manage other accounting staff as well as select and implement the processes your financial system needs to succeed.

Your executive team will benefit from a controller because they deliver timely and accurate financial information. This information is typically derived from historical results which, as you know, can be very helpful and identifying trends and spotting issues before they turn into larger problems.

Overall, a controller will have more insight into your business and have the ability to make operational improvements to your financial system when needed.

CFO

A CFO is a strategic partner. They take on the higher-level role of managing your entire accounting department and its processes. Everything that happens within your finance department will be overseen by your CFO, including:

Cash flow strategy
Business strategy
Creating budgets & forecasting
Oversee the entire accounting team

CFOs work closely with the CEO and have a strong understanding of the business and its goals. They spend time perfecting the business model and supporting the strategic direction of the company.

You’ll turn to your CFO for advice on the basics like improving profitability and building cash flow but also for strategic support regarding organizational changes like mergers, acquisitions, and IPOs and negotiating vendor contracts.

CFOs will also prioritize capital, ensuring your business has what it needs to fully execute its plans and reach its goals. They are skilled in building relationships with investors and are well-versed in capital-building strategies and can apply that information to best serve your business.

Pick a Role That Meets Your Needs

While each role can make a massive impact on the financial health of your business, they are all unique.

Before making any decisions, you need to lay out your needs and sort through the areas where additional help could be of benefit. From there, refer back to the roles of an accountant, controller, and CFO to determine which best fits your needs.

Ensuring the people you hire fit into the role you are looking to fill is the best way to set them and your business up for success.

However, if you’re looking for a more cost-effective approach than hiring an in-house accountant, controller, or CFO, consider reaching out to New Economy.

We aim to help entrepreneurs gain control of their finances and make smart decisions by offering each of these roles for a much lower price than a full-time employee.

We would love to meet with you and learn more about your needs so we can direct you towards the right role for you. Contact us today to learn more!

What to Ask When Interviewing an Outsourced Firm (and How New Economy Answers)

August 1, 2022/in Entrepreneur, Finance/by Jeff Allain

As your business grows, so will your financial needs. You’ll start to require:

More time for financial management,
A stronger understanding of your financial information,
Better tools and resources to ensure timely and accurate numbers.

At this point, many businesses choose to outsource their accounting, which solves and helps avoid the problems listed above.

However, like hiring a new employee, outsourcing your accounting requires an interview process. You have to make sure you select the right firms – one that will grow with you and wants to see you succeed.

The rest of the article provides several questions you should ask while interviewing an outsourced firm and how we, New Economy, answer them.

How Do You Manage Capacity?

Capacity management should be of utmost importance when choosing where to outsource your accounting. You want to be confident that your finances are a priority and that none of the work you are outsourcing is slipping through the cracks.

At New Economy, we take three extra steps to manage our capacity:

We have a second team member trained and take a team approach in case of turnover. This ensures that no matter what happens on our end, we are still able to prioritize your finances.
We leverage a schedule for time-blocking. Time-blocking allows us to dedicate time to your project so we accomplish what needs to be done.
We have an operations team in place. Our operations team keeps everything running smoothly, helps to eliminate bottlenecks, and is always looking for ways to improve workflow.

How Do You Train and Develop Your Team?

In the same way you care about building a strong team for your business, you should also care about the team you outsource your accounting to.

They should be well trained, experienced in their field, and always working towards growing as professionals.

Training and developing our team is key to best serving our clients. New Economy team members each get 40 hours of training upon hire. From there, we create quarterly development rocks to help each employee work towards their goals.

Do You Have Any Industry Focus?

Selecting an accounting firm that is experienced in your industry is a key factor in making your final decision.

An industry-focused accountant will be able to help you track the right metrics, make strategic decisions, and plan for long-term growth. They’ll know what works in your industry and what doesn’t so you can avoid the what-ifs and start improving financially as a business.

At New Economy, we work with investor-backed startups and growing small businesses. Most of those are technology and service-based companies that range from pre-revenue to $50 million in revenue.

If your business falls into any of those categories, New Economy may be a good choice as your outsourced accounting firm, simply because we have a strong understanding of your industry.

How Do You Set Up Pricing and Fee Structure?

Pricing is rightfully a major concern for businesses looking to outsource their accounting. Typically, accounting firms operate on one of two styles of pricing:

Hourly
Fixed Fee

Hourly billing works as it sounds – you are charged by the hour for services.

Fixed fee sets a monthly retainer. The focus is more on the value of the service being provided, within the agreed time

You should select a firm whose pricing and fee structure best suit your needs.

New Economy has fixed fees as we are focused on the value delivered as opposed to the billable hour. Additionally, we revisit fees quarterly to make sure everyone is still benefiting economically.

What is Your Proven Process for Service Delivery?

Be sure to ask the firm you are interviewing what their process is like for delivering services. You deserve a clear understanding of how things work from start to finish.

This will give you insight into their priorities and workflow management, as well as set clear expectations for the relationship.

At New Economy, our process for service delivery is broken into three primary areas.

The first is taking the time to learn about your business and its needs through several sales Zoom calls leading up to a signed contract.

The second is an onboarding Zoom call to set timelines and expectations for our work.

Finally, we will set weekly and monthly calendar check-ins to measure against expectations.

Our goal is to help you get the most out of your business, and by following this process, we will be able to fully understand you and your business, create a customized plan to help you reach your goals, and provide deliverables with progress updates and more.

Interested in Outsourcing to New Economy?

If after reading you feel New Economy might be a good fit, schedule a time to meet with Jeff, our founder today!

We help entrepreneurs gain control of their finances and make smart decisions and would love to learn more about you, your company’s story, and how we can add value to your situation!

Top Ways to Prepare for a Recession

June 29, 2022/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

Talks of a recession are growing as the economy continues to feel the negative effects of the Corona Virus and the war in Ukraine.

Both have led to lingering supply chain issues, inflation reaching record highs, capital markets tightening up, and talent shortages across nearly every industry.

For small business owners, a looming recession can be frightening. The last recession, which began in 2007 and lasted through 2010, forced nearly 1.8 million small businesses to go under.

Now, business owners are intimidated and again struggling to keep up and adapt to a market that is trending downwards.

However, there’s no need to fear, there is still time to prepare and strengthen your business for a potential recession. Here are some of the top ways to do it:

Review Your Expenses in Detail

As you prepare to fight the storm of a recession, the first place to look is your expenses. You’ve likely already sifted through your expenses and cut back in places where you were overspending or spending unnecessarily, but now it is time to go back to the drawing board.

Instead of starting with all of the expenses you can cut, start by defining your necessary expenses.

Rent
Utilities
Inventory
Insurance
Employee salaries
Etc.

From there, crosscheck these necessities with your current spending habits. What expenses don’t fit into these categories?

This will give you an idea of what expenses you can do without when the time comes to save money.

Manage Your Cash Flow Weekly

We’ve said it before, and we promise to say it again, cash flow is the lifeblood of your business. It’s a strong indicator of financial health and without a positive cash flow your business won’t survive a recession.

You can build your cash flow by:

Tracking related metrics and utilizing forecasts to produce better outcomes.
Keeping a close watch on your accounts receivable by collecting payments on time and knowing what you are owed.
Updating vendor and partner contracts to ensure you are not overpaying.
Running a pricing analysis to ensure you are still charging the right prices.

As you start implementing these strategies, remember to wrap your arms around your cash flow and manage it weekly.

New Economy’s FREE Cash Flow Projection Tool can help you do just that. It was built to help you predict your cash flow and make smart decisions about spending and saving. With our tool, you’ll be able to see all of the inflows and outflows that affect your bottom line over time so that you can plan ahead with confidence.

Run Scenarios in Your Financial Projections

Your financial projections can determine how well your business copes with the effects of a recession. They’ll use previous data to help you indicate where you may see problems down the road.

As you prepare for a recession, you should create financial projections for what would happen if you cut expenses, saw changes in revenue, increase or decrease your prices, and so forth. This will give you better visibility as you navigate the downturn and help you make the right decisions to keep your business afloat.

Revisit Financing Options Now

Before it’s too late, explore your financing options. Now is a great time to speak with lenders or investors, apply for grants, or even start a crowdfunding campaign.

However, be clear with how much additional cash you need to raise before you dive in. You can use the free cash flow tool here, as well, to gain greater visibility and determine how much you may need to survive a recession.

Get Accurate and Updated Financials

Knowing where your business stands at all times is key to preparing for and withstanding a recession.

There are multiple tools you can use to get accurate and updated financials. The top four tools include:

Cash Flow Tool
- As we mentioned, this helps measure the inflows and outflows that affect your bottom line.
Weekly Scorecard
- This includes the KPIs you need to reach your business goals.

Financial Projections
- These are predictive analyses you can use to help you make informed decisions.
Month-End Close
- This is a monthly recap of your financial statements. By following the steps needed to complete your month-end close, you’ll also be staying on top of your finances month-to-month, which is essential for preparing for a recession.

New Economy Can Help You Prepare

For business owners, the thought of a recession can be intimidating. However, with preparation, you can ensure your business comes out on the other side.

We’ve covered the importance of reviewing your expenses in detail, managing your cash flow weekly, running scenarios in your financial projections, revisiting financing options, and getting accurate and updated financials, but if you’re still struggling to prepare for a recession, turn to New Economy for guidance!

We help entrepreneurs gain control of their finances to make smart decisions to build and grow their business – and that includes before, during, and after a recession. Contact us today to learn more about how we can help!

Top 4 Financial Tools for Success

June 1, 2022/in Entrepreneur, Finance/by Jeff Allain

Financial tools are the drivers behind successful businesses. They bring simplicity to tasks that can otherwise be complicated and time-consuming.

Thankfully, financial tools can be used in nearly every corner of your financial system. At New Economy, we suggest using four primary tools to help entrepreneurs, like you, gain control of their finances to make smart decisions to build and grow their businesses.

Here is an overview of each of these helpful financial tools:

Tool #1: Cash Flow Tool

Cash flow is the lifeblood of your business. You need cash on hand to handle basic tasks, like:

Paying employees and suppliers
Buying inventory
And leveraging business growth

However, measuring how much cash is flowing in and out of your business can be difficult, especially if you don’t have a solid tracking system. Making smart decisions about saving and spending gets complicated and you often lose the ability to properly grow your business.

This is where the free cash flow tool we created at New Economy will come in handy. With it, you can see all of the inflows and outflows that affect your bottom line over time so that you can plan ahead with confidence.

Visit https://neweconomycpa.com/free-offer/ to access our free Cash Flow Tool.

Tool #2: Weekly Scorecard

Scorecards include a combination of the KPIs you need to reach your business goals.

They are built specifically for your business and give you a look into your performance over a set amount of time, in this case, a week.

As you craft your weekly scorecard, try not to overthink it. Focus on including only four or five of the most important metrics.

To select your metrics ask your team how they would measure a good week. This could be anything from making “X” number of sales to having “X” amount of money in the bank. In general, you should include metrics that provide information related to revenue, client acquisitions, efficiency, and profitability.

In addition to your weekly financial scorecards, you should create weekly scorecards for other departments as well. This gives you a good idea of what is going on in your business across the board.

Tool #3: Financial Projections

Financial projections are essential tools for every business. They are predictors of where your business is headed based on previous data and indicate when you may have problems with cash flow, pricing, or overspending.

With your projections and current data, you can also evaluate the state of your business, structure big-picture ideas, assess risk, and take action for business growth.

For example, let’s say you believe increasing prices will help you generate more profit but are worried you’ll lose too many customers. Financial projections will predict where your business will stand financially after raising the price. With that information, you can create the best course of action moving forward.

Tool #4: Month-End Close

By now you have probably figured out the importance of leveraging your financial information to make business decisions. You can find everything you need to run a successful business with your numbers, however, if you don’t have a good process for doing so, you’ll miss out on plenty of opportunities.

The best way to ensure you are mining value from your numbers is to build a month-end close process. Essentially, this will be a combination of complete and timely financial statements you can use to help you make business decisions.

While you should build a month-end closing process that works best for your business, here are the key things to keep in mind:

Record
- Make sure all revenue and expenses have been recorded
- Record accrued liabilities, including payroll, employee vacation, notes payable interest expenses, and taxes
- Review fixed assets and perform an inventory count
- Post journal entries for depreciation and amortization
Close
- Reconcile cash, checking, and savings accounts, petty cash fund, and credit card accounts
- Reconcile prepaid accounts
- Reconcile intercompany accounts to ensure payables and receivables match between both businesses
Analyze
- Generate an adjusted trial balance and draft income statement, balance sheet, and A/R and A/P Aging Reports
- Review analysis with stakeholders
Report
- Prepare management, FP&A, and external/SEC reporting
- Assemble required documentation for internal and external auditors

As you go through your month-end close process, take your time and rely on automation as much as possible. Remember, this is an essential piece to a successful business.

Want Help Incorporating These Tools into Your Financial System?

Each of these tools adds a tremendous amount of value to your financial system. They monitor cash flow and overall business performance, as well as give you an idea of where your business is headed and help you nail down the numbers you need to make better business decisions.

Properly leveraging these tools leads to a successful business, so if you need assistance in this area, consider New Economy!

We help entrepreneurs gain control of their finances to make smart decisions to build and grow their business. Contact us today to learn more!

5 Ways to Manage Cash Burn and Runway

April 29, 2022/in Budgeting, Entrepreneur, Finance, Startup/by Jeff Allain

Every business, especially new startups or quickly growing businesses, should be keeping a close eye on their cash burn and runway.

These metrics provide essential insight into the sustainability of your spending habits and the financial health of your business. If cash burn and runway are struggling, your business will also struggle.

Below is an overview of what exactly cash burn and runway mean for your business and how you can manage them.

What is Cash Burn?

Cash burn is a measure of how quickly your business uses your cash balance. In other words, cash burn is the measure of how much cash is flowing out of your business.

Typically, cash burn is measured on a monthly basis. However, in some cases, when the need to use cash increases, it can be measured on a weekly or even daily basis.

Why is Cash Burn Important?

Cash burn rate is a great indicator of the overall health of your business. It shows you:

How long you have until you run out of cash
If you have a healthy cash flow
How fast you are spending the money you have on hand

It’s important to find a healthy cash burn rate. In fact, a recent study shows that nearly 82% of businesses fail because of cash flow problems.

If you are spending your cash too quickly, it can lead to a failed business. If you aren’t spending your cash fast enough, it can indicate a lack of growth and investment in your business.

For young businesses and startups, cash burn is especially relevant. Typically, profits are low during this time, which means managing your spending is even more important.

How to Calculate Cash Burn

Cash burn for any given period of time is fairly easy to calculate. First, you have to identify your start and ending cash balance (found on your statement of cash flows) and then find the difference between those numbers. Next, you divide the difference by the number of months in the given period. The total is your monthly cash burn rate.

Here is an example:

$300,000(starting balance as of Jan 1) – $120,000(ending balance as of March 31) = $180,000(difference)

$180,000(difference) / 3 (number of months in the period) = $60,000 monthly cash burn rate

Now that you know how quickly you are going through your cash, you need to determine how long you can withstand that spending rate. This is referred to as your runway.

What is Runway and How is it Calculated?

Runway is the amount of time your business can continue to operate with your current cash burn rate. Like burn rate, a healthy balance of runway is essential for any business.

If you have a short runway, your business is quickly running out of time to survive. However, while a long runway sounds appealing, it could also mean you are not properly allocating your cash reserves.

To calculate your runway, simply divide your total cash reserve by your burn rate.

For example:

$120,000(total cash reserve) / $60,000(burn rate) = 2 months left before your business runs out of cash.

Tips for Managing Cash Burn and Runway

Ideally, your business will have a negative cash burn rate. This would indicate that you are bringing in more money than you are spending and would, therefore, lengthen your runway.

Here are several proven ways to manage your cash burn and runway:

1. Reduce or Defer Non-Essential Expenses

You’ll want to take a close look at your budget to determine if your expenses are bringing value to your business.

Find where you can cut, reduce, or defer certain expenses. However, make sure your changes are sustainable. Making too many changes too quickly can stunt growth.

2. Pay Bills Slower

If you aren’t reaping a benefit from paying your bills before they are due, hold off on your payments.

This allows you to hold on to your cash for longer periods of time.

3. Bill Sooner and Collect Faster

If you’re struggling with your cash burn and runway, one of the best adjustments is collecting your money sooner rather than later.

Send your invoices right away and include terms for payment. If you’re struggling with collecting payments in general, try implementing a late fee or improving your collection methods.

4. Raise Additional Funds

Many new start-ups and small businesses have to go through multiple rounds of funding before they start seeing substantial profits.

After calculations, if your cash burn and runway are not where you want them to be, consider raising additional funds.

5. Increase Prices

Inaccurate or low prices can negatively impact your profits. If you’re looking for more cash inflows, consider running a pricing analysis. Chances are, you’re charging too little for your products and/or services.

Our Free Cash Flow Tool Can Help

Having clear predictions of your cash burn and runway can mean the difference between success and failure for your business.

That’s why we put together a free cash flow tool that lets you plan your budget in advance and see how much money is coming in and out of your business over time.

With the help of New Economy, you’ll gain control over your finances and position your business for success! Contact us today to learn more ways we can help you!

Why Companies Choose New Economy as an Outsourced Accounting, Finance and Tax Partner

March 21, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

New Economy was designed to help entrepreneurs gain control of their finances and make smart decisions to build and grow their business

As an outsourced accounting, finance and tax partner, we do this by making you the hero (think Luke Skywalker), identifying your problems and challenges (think saving the galaxy), and we come in and play the role of guiding you to financial success (think Yoda).

We believe you deserve financial confidence to grow your business and want to be the reason you fall back in love with being an entrepreneur.

Here’s how we will get you there:

You are the Hero

This is all about you. Your dreams. Your business. Your finances. Your success.

Being entrepreneurs ourselves, we understand the ups and downs that you are going through to build your business. We understand how hard it is but we also know you’re up to it as you have plenty of passion, guts, and vision.

And we know, there are plenty of challenges awaiting our Hero. And every great hero needs a guide helping them solve problems and pointing them in the right direction behind the scenes.

Every Hero has a Problem

As an entrepreneur, your issues and problems are abundant and financial issues can be overwhelming at times, especially since you didn’t start your business to manage the books, taxes, or accounting systems and processes.

Some of the problems you may run into are:

You lack the financial visibility to make decisions that drive your business forward.
You are not getting your financials in a timely manner, meaning you lack real-time data and the ability to make quick changes to get your business back on track.
You have inaccurate financials, giving you a misrepresentation of your business. You are struggling to get the right person in the accounting and finance seat to move at your speed and provide timely and accurate financial information to build and grow your business.
You are using processes and technology that aren’t adapting as your business is growing, which is causing inefficiencies and costing you money.
You are lacking strategic business or tax support.

Each of these issues puts your business in a tough position. They inhibit growth and add more work to your plate.

The Vision for Success

Having a great understanding of the problems and challenges facing entrepreneurs puts us in a position to add value and help you achieve your goals.

So imagine the following:

Having a partner that is providing accurate financials on time that you can trust
Having a partner that will help you leverage financial information to make decisions
Having a partner that will help to ensure your financial systems and processes are working efficiently and evolving to meet the needs of the business
Having a strategic partner to help support the growth of the business
Having a strategic partner to ensure you are keeping up with the evolving tax changes

Imagine a world where you don’t have to worry about anything financial, accounting or tax-related and where you can spend your time focused on growing your business.

That’s where New Economy comes in as the guide.

We are the Guide to Success

At New Economy, our passion is to Unleash the full potential of the Entrepreneur.

We have come alongside many Entrepreneurs helping to put their pain points and problems at the center of our focus. This is why we’ve created a team and culture that is thirsting to make an impact and add value.

Our goal is simple: to guide you to get the most out of your business finances so you can do what you love.

In fact, our tagline is: Helping entrepreneurs gain control of their finances and make smart decisions.

We truly believe with our support, your business can achieve the success you’ve envisioned from the beginning.

Here is what a few of our Heros have to say:

Linda Bohmbach – Owner/President of Sales at Home Healthsmith

“We have felt uncertainty and concern about how the business was performing financially. But then we found New Economy! They helped us understand our financials better by providing cash flow projections, a budget, and a projection. These tools have removed some of the fear and uncertainty and helped us with decision-making. But the best is they are entrepreneurs just like us.”

Erica Wennerstrom CFO/ COO at Framework Homeownership

“I first found New Economy in 2016, when I joined a technology startup whose accounting processes and technology stack were lagging and not operating effectively. With their partnership, I was able to modernize our financial operations and count on timely and accurate financials.

I have since worked with New Economy at two other companies, and each time relied on the New Economy team to help me tackle key financial operational challenges, including revamping the Chart of Accounts and financial statements, implementing new systems, and dealing with sales tax liabilities.

Even in the midst of large operational projects, New Economy ensures that I always have a handle on the numbers to make smart decisions and a team I can count on. THANK YOU!”

Su Sanni – CEO at Dollaride

“Dollaride is a growing venture-backed startup. We’ve been focused on growing our business, but needed a partner that could step right in to provide us with financial visibility and own the process. The team at New Economy has helped us to get organized.

Every month, they also provide key financial information that enables us to make smart decisions that build and grow our Company. We enjoy working with New Economy and highly recommend them!”

Want to Learn More About Working with New Economy as an Outsourced Accounting, Finance and Tax Partner?

If you want to gain control of your finances and make smart business decisions, New Economy is the outsourced accounting partner for you.

With our help, you’ll get the most out of your business and fall back in love with being an entrepreneur.

Schedule an appointment with us so we can get an understanding of who you are, where your challenges lie, and how we can help.

Does My Company Need a CFO?

February 22, 2022/in Entrepreneur, Finance, Startup/by Jeff Allain

As you know, a CFO can add value to your company. They have the strategic mind to financially engineer plans to raise capital, provide leadership, create and implement systems and processes that will support your business growth.

However, before making the decision to hire a CFO, you’ll likely have plenty of questions:

What exactly do they bring to the table?
Is my business in the right position to make the hire?
How deep do my pockets have to stretch to bring a CFO on board?

To bring some clarification to the decision-making process, we’ve answered some of the top questions for determining if your company needs a CFO.

What Does a CFO Do?

A chief financial officer wears many hats and each comes with valuable benefits for a business.

Oversees All Things Financial

It goes without saying that a strong financial position is a necessity if you hope to have a successful business. Including a CFO in your team makes this possible.

Their primary goal is to understand the ins and outs of your finances. Meaning when it comes to managing cash flow, creating budgets, leaning into financial forecasts, ensuring accurate reporting, and everything in between, a CFO will have it covered.

Strategic Advising

Not only will a CFO have a strong understanding of your finances, but they will also be able to offer experienced and data-backed advice to help your business make the right decisions.

They’ll serve as a planner and map out strategies with your goals in mind. From there, a CFO will implement and track the progress of those strategies to ensure your business sees success.

Apart from the more obvious financial strategies like improving profitability and building cash flow, CFOs offer strategic advising for:

Organizational changes like mergers, acquisitions, and IPOs.
Negotiating vendor contracts to ensure you are getting the best out of your money.
Building relationships outside of our organization but within the financial community like lenders and potential investors.

Building Infrastructure

Everything within your business requires a process. Whether it’s from a production, operational, or financial standpoint, you have (or should have) a system.

One of the roles of a CFO is to create systems and processes that help your finances stay organized and on track. This could include anything from:

Implementing a new payroll software
Creating a new way to track your cash flow
Integrating a new bookkeeping system

The idea behind this work is that your business will be able to run much more smoothly and efficiently with the proper infrastructure in place.

Building and Developing the Team

CFOs serve as the right-hand to upper-level management. They analyze everything from a financial perspective, which can be incredibly useful when building and developing a team.

A CFOs insight can be helpful for determining:

If it is the right time to hire.
Feasible salaries and benefits for employees.
Productivity and efficiency among current employees.

When Does My Business Need a CFO?

Typically, rapid growth plays the largest role in determining if your business is CFO-ready. As you grow, the need for financial assistance and expertise increases.

For example, a growing business often runs into the need for capital. A CFO understands the process of valuing your business, meeting with investors, pitching the deal, and then creating a plan for properly utilizing the money. They provide all of the support you would need to secure funding for growth.

As mentioned, the faster your business grows, the more financial support you will need. Your:

Budgets will have to be more detailed.
Reporting will have to be more accurate and advanced.
Forecasts will have to predict a multitude of different situations.

Every area of your business’ finances will require more attention and expert-level analysis, something only a CFO can offer.

Once new strategies are in place and your finances begin trending in the right direction, your entire team will need to be on board. For your success, it’s essential your team sticks to their budgets, understands their role from a financial standpoint, and reaches their assigned goals. A CFO serves as a financial leader, providing your team with the information they need to understand why they play an intricate role in your business’ success.

What Does a CFO Cost?

When a business owner is weighing the pros and cons of hiring a CFO, cost typically sits front and center. However, there are two routes you can take when it comes to reaping the benefits of a CFO.

Full-Time CFO

A full-time, in-house, CFO spends all of its time building strong finances for your business. As an employee of your company, you’ll be required to pay them a salary with equity and offer additional benefits.

If you choose the full-time CFO route, you’ll be paying anywhere between $300K-$400k a year to receive all of the benefits above.

Part-time/Outsourced CFO

The second option is to hire a part-time/outsourced CFO. They will take time to understand your business and your goals. Even though they are not full-time, they still offer the same services and you will receive the same benefits.

When you work with a part-time/outsourced CFO, your monthly bill will range between $6K-$12K per month. Oftentimes, with this option, you can pick what level of service you’d like, which is why the prices vary.

If you are interested in working with a part-time/outsourced CFO, consider New Economy. We offer lite CFO services which include strategic planning, capital raising, and financial modeling for forecasting and future visibility. Our goal is to help entrepreneurs gain financial clarity and make smart decisions.

Schedule a consultation with us today to learn how we can help you get the most out of your business!

1. What are the due dates for my company’s returns?

As an entrepreneur, due dates for your company’s returns will vary depending on how your business has been organized.

Tax Returns

If your business is structured as a c-corporation you will file using Form 1120. If your business has elected s-corporation status you will file using Form 1120S. LLCs may be classified as a disregarded entity, a partnership, or a corporation in the eyes of the IRS.

Generally, C-corps are required to file by the 15th of the fourth month following the corporation’s tax year. S-corps and partnerships are required to file by the 15th of the third month following the corporation’s tax year. Disregarded entities follow the filing of the owner of the entity.

1099’s & W-2

As an employer, you are required to report employee wages on Form W-2. This filing is required to be prepared and sent to your employees by January 31st.

Other payments to non-employees may be required to be reported on Forms 1099. Payments to independent contractors, payments to attorneys, payments of interest, or rent are just a handful of scenarios in which Form 1099 may be required. Filing due dates for Forms 1099 are dependent upon different factors so it is best to consult with a professional.

2. Are there any big changes in the tax code I should be aware of?

Due to the COVID-19 pandemic, the last couple of years have brought about many changes to the way businesses file their taxes. Changes to the tax code have likely affected your business.

One major change is related to the employee retention credit (ERC). Unfortunately, the employee retention credit program ended effective September 30, 2021, for the majority of businesses. However, a business may be able to retroactively claim the ERC. The IRS has provided a notice outlining conditions to avoid a failure to deposit penalty due to the abrupt end of this program as some businesses may have underestimated their tax obligations.

Another mentionable change is related to the utilization of net operating losses. Generally, losses generated in years after 2017 are limited to 80% of taxable income and can only be carried forward. The CARES act temporarily allows for losses generated in 2018-2020 to be carried back five years. Carryback of these losses may result in a refund of taxes paid previously – be sure to check with a professional on your unique tax situation.

Typically, 50% of business meal expenses are deductible for tax purposes. IRS Notice 2021-25 has provided for a temporary 100% deduction for business meals purchased from restaurants in 2021 and 2022. This increased deduction can save your business tax dollars.

3. How can I save money and reduce taxes?

Figuring out how to save money on taxes is every business owner’s top priority during tax season. Here are the two best ways to do it.

Stay organized with a platform like QBO or Xero

A common flaw for many entrepreneurs during tax time is a lack of accurate records. Expenses fall through the cracks and trying to clean up your books at the end of the year becomes a nightmare.

However, using a platform like Quickbooks Online or Xero can help you avoid this and save you money even though they come with a fee. These virtual bookkeeping platforms allow you to track all of your expenses, so when it comes time to make deductions, you’ll have everything in one place.

Logging your transactions throughout the year also makes year-end closing simpler, because hopefully, you will have caught any discrepancies ahead of time.

Capture credits

There are plenty of credits available for businesses. Tax credits are claimed by submitting the required form and will lower your tax bill dollar-for-dollar. The two credits you should be aware of are the R&D credit and ERC.

The Research and Development Tax Credit is meant to encourage businesses to invest in the creation or improvement of products and processes within your business. Please don’t hesitate to reach out to us if you think you may be eligible for this credit.

As mentioned earlier, there was a change made to the ERC inhibiting its use for the final quarter of 2021. However, it can still be claimed for the first three quarters of the year. Your business may qualify based on how many employees you have.

4. Is my product or service subject to sales tax?

Whether or not your product or service is subject to sales tax boils down to where you are conducting business. It varies by state and while most states do have a statewide sales tax, some do not. The world of sales tax is frequently changing and is nuanced based on a variety of factors relating to business line, services, location of employees, etc.

We can help you navigate sales tax laws and link you with a team of professionals so you can shift your attention to your business. As you can imagine, making sure you are placing the correct sales tax on your products or services correctly is crucial to limit your tax penalty exposure.

5. How much will it cost to have a professional handle my taxes?

Handing your taxes over to a professional is ideal. They will work with you to ensure you meet important deadlines and are claiming credits and deductions your business qualifies for. Accountants are well-versed in tax code, meaning they are on top of any changes or important information you need to know before filing. Your ROI for working with a tax professional will not go unnoticed.

If you’re interested in passing off your taxes to a professional, consider working with New Economy. We help small businesses and investor-backed startups gain control of their finances and make smart decisions.

Schedule a discovery call to discuss the cost associated with our services and to learn how we can help your business grow!