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Business Warning Signs from a CFO

Updated: Nov 8, 2023

The CEO of a small business or startup doesn’t want financial surprises from a CFO. A recent post by a former CFO discusses important warning signals both companies and non-profit organizations. While specific to the healthcare industry, these warning signals are equally important to both small businesses and startups in other industries.

Some of the crucial types of warnings the former CFO discusses include:

1. Cash

As the saying goes, “Cash is king.”

Every small business and startup needs to understand what are the key drivers of cash flow.

“How much cash is needed daily – and how much is coming in by source? How much cash is going out daily – and how does that compare to the cash coming in? Review the cash forecast regularly. Cash spent at a greater rate than it is being received – known as burn rate – or a line of credit not paid back during the monthly revenue cycle, are indicators of operating issues.”

2. Internal Controls

Many startups and small businesses neglect to install the proper processes and internal controls in the pursuit of growth. However, this lack of attention and discipline will inevitably haunt the company as it grows and be a much larger problem if ignored. The lack of proper financial and operating processes (especially related to the integrity of financial statements and accounting data) is a gigantic red flag.

3. Financial Statements

Monthly financials need to be analyzed and reviewed by the CEO, CFO and other key executives. The financial information should have Key Performance Indicators (KPIs) and variance analysis to the project budget. Key financial ratios related to cash, receivables (AR), payables (AP), and debt should also be monitored.

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