Finance leader Jeffery Giavotella on how you can become the CFO of your small business

As one of our 2020 Finance Futurists and the CFO at Ballard Brands, a restaurant franchise group, Jeffery Giavotella has a wealth of experience that’s highly relevant to small businesses.

From strategy and scaling up to paying yourself a salary, we asked Jeffery to share his advice for small businesses, side hustlers and startups on the secrets of financial success in year one.  

What, in your experience, should be the number one financial focus for a small business?

My experiences have taught me that disciplined cash flow management is the most important component of any business endeavour.

Whether it be through operational cash flow, financing or equity, the business can never have enough protection and resources to grow into the intended vision.

Don’t let your vision exceed reality. Financial discipline is critical to seeing your vision to success.

Plan ahead of the business cycle, so you always have enough cash to manage, even if the business doesn’t make any money.

Do that homework upfront.

A high volume of side hustles have been set up during coronavirus. How does an entrepreneur know if their idea is viable enough to become their sole source of income?

You have to take into consideration these critical items before determining viability:

1. Do you see a future need for your product or service? What works today may not be the same tomorrow.
2. Do a SWOT analysis. Viability will depend on whether your product or service can maintain long-term sustainability. For your business to sustain, you need to be able to identify your strengths, weaknesses, opportunities and threats. This includes understanding your competition and possible market changes. If you can account for all these things and still see a profitable position for your business, it could be time for the next step.

Many small businesses need funding to get started. Do you recommend a loan or seeking investment?

Your next steps depend on if you are comfortable selling a piece of your business or taking on debt. Both have their share of advantages and disadvantages.

Private investment (private equity) usually involves more flexible financing terms but at the cost of a percentage of your business.

If your business has a solid pipeline, a feasible business plan and a solid set of financials, you may be able to earn the attention of investors.

However, most small businesses won’t have enough earnings before interest, taxes, depreciation, and amortisation (the process of spreading the repayment of a loan, or the cost of an intangible asset, over a specific timeframe) to garner interest from investment firms.

Banks, however, will lend and profit off the interest. They don’t have a stake in how well your business does after the loan as long as it’s paid off on time.

What would a bank or an investor expect a small business to be able to demonstrate in terms of finances?       

Again, both use different methods to assess for financing.

Banks mostly rely on collateral and risk profiles to support any type of funding. Investors are usually familiar with the business or industry and understand the risks and rewards.

Sometimes private investors heavily influence the concept, strategy and offering.

Either way, you need to make sure your financials have no grey areas. Paint a clear picture of what your analytics mean for your business projections and be prepared to substantiate your data.

Building credibility is very important.

For a bank loan, banks rarely fund loans without some form of collateral or capital support. Try to have enough assets available to equal your asking amount.

When can an entrepreneur expect to pay themselves a salary from the business?

You can expect to pay yourself from day one. That does not mean you can afford to do so.

You typically won’t have the money to pay yourself a large salary in addition to all other financial obligations. You have to have an idea of your ultimate bottom line, not just sales.

Take into consideration actual costs of business, meaning all of the variables involved that come out of your business revenue.

When should a small business think about employing staff?

This is a huge responsibility and makes a new business owner very nervous. It depends on your business model and the required demands to achieve your goal.

Consider how much you can afford to invest in your employees in the form of salary, benefits, etc. Can you afford to maintain everyone’s livelihood even above market rate for retention?

Employee salaries represent a large portion of the overall business expense. Can you generate enough business to sustain long-term employment?

How does a small business owner know if they need an accountant’s help?

You always need an accountant’s help. The key is to have the right accountant.

You want someone that is direct and holds ownership and accountability in their work. They are the gatekeeper of your money while you focus on what you do best.

How does a startup know that it’s doing well? What are the most important figures to track?       

Again, it depends on the business. Cost of goods and labour costs are the largest components that impact profitability. The controllable expenses must be managed closely.

If you take out a loan or a line of credit, be sure you can service your debt in a way that leaves you with positive cash flow.

What about scaling up? Should entrepreneurs have a long-term strategy in place?

You have to be able to demonstrate your concept is fit to be scaled. It takes time to work through all of the kinks before you take on more responsibility.

Once you have perfected your concept, you can then take it to the larger market to attract investment.

Many small business owners have a brilliant ideas but need to build financial expertise. Where is the best place to start?

Every local government has economic development resources. The benefits of joining a peer networking group are also invaluable because they function as a ‘think tank’ comprised of business owners with varying experience.

Peer networking groups meet to work through business challenges together. It’s likely that someone within the network has experienced the same challenges as you and can offer insight to help.

Good luck!