Liquidity Archive



August 2012



Strategy – why do we even bother with all of this? (b)

Written by , Posted in Strategie

Balance sheet

Your balance sheet – yes, you have seen it when the yearly accounts were prepared but it really did not matter to your start-up. For you the one and only key was liquidity in the beginning, followed by profitability but what now? Yes, those accounts become important eventually. What do I mean by that – well, once you have established your strategic goals you will need to optimize your balance sheet accordingly. If you are preparing for a sale, potential investors (and their highly-skilled forensic accountants) will look at your accounts. Are you planning to change your debt to equity ratio and work with more capital? Will a bank lend you money? Are you going to build / buy your next office or remain a humble tenant?

There are a lot more questions to ask and you are now playing with the big boys. A Fortune 500 CFO will be very concerned with her balance sheet and watch movements in these accounts closely. As an eCFO of a start-up this is a new area for you and you should slowly get into it as your business develops.

In summary a balance sheet can also teach you lots of interesting things about your business and serve as an important stepping stone to your business’s next growth / development stage.

eCFO Tips: Do not be afraid to think about new things. If you are working in an innovative start-up there might be lots of balance sheet optimization questions that nobody has really thought about. Are facebook fans in generic groups that are rented out for advertising assets? Should the initial investment into these groups be on your balance sheet and depreciated over time? How do you value your investments in other start-ups? What happens with your old, cancelled projects? Make sure you have good advisors and get lots of support when tackling these questions.

Strategy can mean a lot of different things depending on your situation but as a general rule of thumb I would suggest that you consider anything that is not based around daily operational tasks as “strategic”.  Given your unique position in the business and access to information, you have the opportunity to support the other management team members in occasionally taking a look around and consider the bigger picture, away from the grind of daily demands. This is were you can add a lot of value and a sound strategy will help the business to develop faster and to reach goals that you did not think possible only a short while ago.



August 2012



Strategy – why do we even bother with all of this? (a)

Written by , Posted in Strategie

So, why do we even bother with all of this? Initially, you need to make sure that your business performs well, does not run out of money and that financials analysis and data points support operational decisions. All of that you can do but if you are a serious eCFO this is probably not the stuff that makes you get out of bed every morning.

What really should get you excited is building a healthy, growing and extremely successful venture.  Your operational measures will support that but more importantly you should be influencing the strategic development of your company – if you are not doing that you chances are you will never be more than a glorified accountant.

Strategic decisions

In order to make a strategic decision you will need a strategy. This may sound a little too simple, but ask some start-ups about their strategy and often you will find that they either do not have one or are unclear in what it is they are trying to achieve. How much time do you think an operationally involved management team has for strategic discussion, decisions and evaluations? From my personal experience: very, very little. Daily business and the demands of a growing venture will eat up all available time.

This in turn means that your role becomes more important. As an eCFO you can provide plenty of data and input for creating a strategy. Often you will also be more shielded from client demands and product needs than the other members of the management team. Make sure you  that you add a discussion about strategy every now and then to the weekly/monthly meeting agenda.

Formulating a strategy will require a highly customized approach as your business will have individual needs, goals and problems. Nevertheless, I can assure you that if you have implemented the measures discussed on this blog, than you have all the necessary tools, processes and data to support and drive a successful strategy formulation and implementation process. This in turn will help the entire management team to make better business decisions. I have chosen a couple of strategic measures that can be undertaken to provide examples of what I consider to be strategic decision for an eCFO. As I said these are just examples and you should think long and hard about strategic elements for your specific business situation.

Profit distribution

So let’s assume that business is going well and money is flowing in. Operationally, you have fixed most major issues and business is good. With the money comes a totally new perspective for a start-up. You have to decide what to do with a refilling pool of cash – should you distribute to hardworking employees, enrich your shareholders, reduce prices for your valuable clients or invest like crazy? Again there is no perfect answer to this but a sound financial analysis will help you to make a better decision. You should start to think about concept such as ROI calculations to evaluate which return perspective each of your investment/payment decisions has. Furthermore, you need to open a dialogue with all of potential stakeholders to find out what exactly there demand and needs are. Often you will be surprised by stakeholder expectations. Note: it might be dangerous to communicate too much to each stakeholder on, as this may raise unrealistic expectations which then lead to disappointment.

eCFO Tips: Communication, communication, communication… when it comes to strategic decisions never assume that you know what each stakeholder wants. You will most likely approach a decision from a financial analysis perspective – most other (normal) people will not think that way – so make sure you talk to everyone and do not assume anything. Often you will be surprised – sometimes pleasantly and sometimes not so J.



Mai 2012



Controlling – a CFOs sole purpose in life!

Written by , Posted in Allgemein

Controlling is a key aspect for each new venture. It starts out initially with a solid understanding of cash flows and moves across various phases as a business growths. In my experience the key aspects for each venture development stage can be summarized with the following headlines:

  1. Liquidity awareness
  2. Profitability measures
  3. Balance sheet optimization

Each of these three steps requires different controlling techniques and management focus on various aspects of the business. As a venture develops it is not only these above mentioned points but also controlling techniques for each key business resource that will keep management busy.

Also be aware that, “measures” and “optimization” have been picked on purpose – your role as a CFO will change with each of the steps listed above. You will move from making decisions that might be bad for profitability but good for liquidity to pure financial engineering actions that will optimize your balance sheet. This also requires a move in your strategic thinking from survival (liquidity), to operations (profitability) to strategic, long-term goals (balance sheet and capital structure optimization).

eCFO Tip: Controlling is all about data ANALYSIS and FOLLOW-UP ACTION. If you cannot effectively collect, store, organize and eventually analyze data you will not be able to install effective controlling measures. Nevertheless, be mindful that all too often management will focus on the process of collecting, storing and organizing data and will forget that the key aspect is the analysis and the changes/learnings/actions you derive from it! Action trumps collection!

Liquidity awareness

As mentioned in previous posts this is a key aspect for each new venture but how do you actually make sure that you are aware of liquidity issues? Based on my experience you can do the following:

Compile a weekly Excel spreadsheet that lists all liquidity in- and outflows for the next 8 weeks. Here it does not matter if it is tax, P&L relevant or a rent deposit – any payment that comes in or goes out is traced. This will provide you with a solid understanding of when you will be running low on cash for the next two months.

This will require that either yourself or an extremely reliable employee is fully aware of all payment cycles (salaries, subscriptions, taxes, customer payment discipline etc.) in your business. It also goes beyond a simple accounting measurement since the person compiling these numbers will have to be aware of all operational aspects of your business. As your business continues to grow, it will be increasingly difficult to get every department head to provide the necessary information – make sure that you install well-thought out reporting structures early on. If people are used to providing information from the get-go, it will save you a lot of trouble later on.

eCFO Tip: Be aware of cash accounts outside of your normal banking activity. Paypal, AdWords/Sense, Affiliate accounts, Amiando, e-commerce shop accounts etc. can be a significant source or drain of cash. Make sure that each employee notifies either you or your team when a new account is created. Every account that uses cash should be treated as you would treat a regular bank account. I am sure as CFO you wouldn’t allow everyone to open a bank account by themselves – why should it be different for these accounts?

In addition, I would recommend that every serious CFO does the following to make sure that liquidity is well understood within the business:

  1. Check bank balance and transactions for each account EVERY day
  2. Control any payment that is made as long as the business is below a revenue of EUR500.000 p.a. / once it is above that revenue figure install a limit for each employee e.g. EUR100 per transaction which can be processed without your explicit consentJ
  3. Be fully aware of every invoice that is issued and when a customer is expected to pay

eCFO Tip: I have found a range of great SAAS products that support this process. Remember it is not your job to collect, store and prepare data for an analysis – as CFO you have to act on this data! Personally, I like the functionality of:

a) for organizing my invoices

b) for time tracking and budget planning

c) as CRM tool

Using a SAAS tool makes it fairly easy and inexpensive to keep track of your key data. Confidentiality here is also very important but in general these tools have solid user controls and are well protected from possible hacker attacks – even though there is of course the risk that your data is stored on a server that is not under your control.

Profitability measures

Once a venture has been able to either secure significant financing or cash generation has reached a point where closely monitored liquidity control is no longer a key aspect for survival, profitability moves more and more into focus. Here, it is important that the CFO fully understands all profitability enhancement techniques and makes sure that a good understanding for percentages is established. What I mean by that, is that certain key measures such as staff cost as a percentage of sales, EBIT margin, travel expenses as % of sales, etc. should always move within a certain range – once they move outside of this range you need to take corrective measures. Here a step-by-step recommendation:

  1. Reduce focus on liquidity by implementing liquidity checks every other week or even every three weeks – never completely stop since your liquidity situation might change
  2. Budget planning – there will be a whole additional post on this topic so I will stay brief here – you need to get a good understanding of the 12 months forecast. It does not matter if you actually hit these numbers. What does matter is that you can compare your actual vs. planned numbers and understand why they might be different. You can either go bottom-up or top-down on this forecast. Again the method is not that important – it is more important that these numbers are agreed upon by everybody who can actively influence them (top, middle management at least) and that they are regularly reviewed.
  3. Check out comparable companies and talk to CFOs of larger businesses from your industry. They will have a good understanding of what these percentages should be, once the business has matured. As an example: we work a lot with service agencies and therefore our HR costs should be approximately 80-90% of all operating expenses – if we are significantly below or above we are either underpaying (never!), waste too much money (very likely!) on other expenses or something else is going wrong – now it would be the CFO’s task to find out what exactly is causing the discrepancy.
  4. Make sure that you get a carefully prepared monthly P&L overview from your accountant so that you have a fairly reliable set of numbers. Make sure that you are familiar with every line item!
  5. Check, check and check again – calculate some key ratios every month. Check through each statement your accountants send to you.
  6. In the end profitability is simple – you need to make more money than you spend.

There are two major things you can do:

  1. Earn more money (increase sales, increase prices for existing products/services and so on)
  2. Spend less (do you really need: company cars, a desk, new offices, coffee maker that can make latte, Apple computers, , lawyers etc.)

ANY measure you take will either influence A or B – what you specifically do or how creative you get is up to you.

Comes back to an old CFO joke: a young CFO gets hired and the old, experienced CFO gets fired. The young gun asks the old guy: any tips? The old guy gives him three letters and tells him to open each letter if the business is performing really badly and he is suffering. So time goes on and things don’t go well. The young guy opens the first letter: It says “increase sales” and the young guy goes out and does everything in his power to pump up sales – nothing works. He opens the second letter – it says “cut costs” so he cut costs like Warren Buffet himself and cuts and cuts and cuts – no success. So he decides to open the last letter. It says: write three letters!

eCFO Tip: Don’t have blind trust in your accountants – meet them at least every two months and explain your business model, each large project and what you do – only if you do that  will they be able to prepare correct statements. They are not part of your business – especially if you work on innovative projects or in new technologies such as Facebook, Google etc. Therefore, they will not have a strong operational understanding.

I had a long chat with our accountant about Facebook fans we acquired in our internal, generic Facebook groups for later advertising purposes. The question was, whether this wasa pure operating expense or were we actually generating lasting value that should be depreciated over time – there is no rule, no case study and no exact guideline for this. Nevertheless, if your accountant understands the concept she can apply “old” rules to “new” technologies and that might be very positive for your business.

Also make sure that you do not only talk with the head of the company or some senior members –training and discussion should be aimed towards the employees/accountants who actually work with your numbers every day. They are the ones who make the decision how something should be booked in the first place – so they need to be informed first.

Balance sheet optimization

By now you should be feeling pretty good about yourself. You have conquered liquidity problems and you are running a highly profitable business. Now it’s time for the real CFO stuff – balance sheet optimization and financial engineering. Before you call Goldman Sachs and invest into derivative products I would recommend that you fully understand what you are trying to achieve – you have probably gone for the low hanging fruits of liquidity and profitability with nothing more in mind than survival and solid operational goals.

Balance sheet optimization is far more strategic. There is no right or wrong answer to: “What should my optimal capital structure be?” “Which assets should I show on my balance sheet?” “Equity vs. assets vs. liability ratio analysis.” “Should I lease all my equipment or buy?” “Rent or build office space?” In order to be good at this you need at least a strong three-year strategy that guides your action – do you want to increase your debt level, sell the business, acquire other businesses etc. These are all questions that will determine how your balance sheet should be build. Remember that all the financial engineering is not worth anything, if it does not lead towards a specific goal.



März 2012



In German only: StartUp-Roundtable am 4. April 2012

Written by , Posted in Finanzierung

Please come and join us for an interesting discussion of financing. The next blog entry will deal with exactly this topic and a summary of the article will be presented a the below event.

StartUp-Roundtable am 4. April 2012

Sehr geehrte Damen und Herren,

herzlich laden wir Sie zum nächsten StartUp-Roundtable ein, der erstmals bei unserem Partner Ernst & Young stattfindet. Wir freuen uns, Sie am Mittwoch, den 4. April 2012 um 18.00 Uhr in der Rothenbaumchaussee 78 zu begrüßen.

„Fit für Wachstum?“ heißt das Thema dieses Abends – bei dem sich alles um die Finanzierung dreht:

  • Welche Finanzierungsformen gibt es und welche sind für mich geeignet?
  • Wie bereite ich mein Unternehmen auf die Anforderungen von Investoren und Kreditgebern vor?
  • Wie stelle ich mich vorrausschauend für die Gespräche mit potenziellen Investoren auf?

Diese und weitere Fragen beantworten die erfahrenen Referenten und zeigen auf, wie Sie die Weichen für das langfristige Wachstum nach der Gründung legen.

Hören Sie dazu einen Erfahrungsbericht von Nils Seebach, CEO bei eTribes – der Inkubator und Spezialist für den Aufbau und die Skalierung innovativer Online-Geschäftsmodelle mit dem Thema: „JV, VC oder Bootstrapping? Pros & Cons!“.

Freuen Sie sich außerdem auf Jan-Menko Grummer, Partner bei Ernst & Young in Hamburg mit dem Beratungsschwerpunkt Financial Accounting Advisory Services mit dem Thema: „Finanzierung gut vorbereiten – Fallstricke vermeiden!“.

Und um das Bild zu vervollständigen, wird Matthias Grychta, Managing Partner beim renomierten Venture Capital Unternehmen Neuhaus & Partner, seine Sicht der Dinge zum Thema: „Investmentangebot und -verhandlung, Meilensteine und Syndizierung!“ schildern.


  • 18.00 Uhr Empfang
  • 18.30 Uhr Beginn der Vorträge
  • ca. 21.00 Uhr Networking

Nutzen Sie das anschließende Networking und tauschen Sie sich, bei einem Fingerfoodbuffet mit erfahrenen Unternehmern, geübten Gründern und engagierten StartUps in den Räumen unseres Gastgebers Ernst & Young aus.

Sind Sie neugierig geworden? Dann melden Sie sich bis zum 28. März hier an.

Wir bitten um Ihr Verständnis, wenn wir aufgrund begrenzter Kapazitäten gegebenenfalls nicht alle Anmeldungen berücksichtigen können. Mitglieder von Hamburg@work werden bei der Anmeldung vorrangig berücksichtigt. Ihre Teilnahme wird erst durch eine E-Mail-Bestätigung garantiert.

Wir freuen uns auf einen informativen Abend mit Ihnen und danken Ernst & Young ganz herzlich für die Unterstützung!





Februar 2012



Liquidity – the one and only!

Written by , Posted in Allgemein

It is no coincidence that the first post is about liquidity. Liquidity is the ONLY measure that eCFOs need to focus on from Day One and should focus on for the entire life of any venture. All other considerations, from profitability, growth to balance sheet optimization are irrelevant if you run out of cash.

1st day measures

For a new venture or an eCFO joining a new company I would recommend the following steps for the first 3 months to become instantly familiar with the cash flow profile of your company:

1. The second you arrive make sure that all bills and invoices have to be signed by you and that you cover all cash out- and inflow channels

eTips: Don’t forget about online specific issues such as PayPal, Adwords & Adsense accounts, facebook ad accounts; linkbuilding accounts etc. Here you have a source of expenses and income that can come as quite a surprise.

2. Establish a spending limit – currently any expense that is above EUR50/USD40 should be approved by you – any you only. This lets you get an insight into the spending pattern of the company.

3. Check every transaction on your bank account daily. Don’t forget about credit cards and PayPal here. These accounts can hide a lot of different transactions and you only see a summary booking in the account – always make sure you go through an itemized list of all transactions.

 Medium-term steps

Once you have become familiar with the companies spending profile you need to establish a structure that allows you to make all other decision-makers aware of liquidity ups and downs. Your business will significantly improve if everyone is aware of what liquidity means and that “every little helps”! Make sure that people do not only focus on expenses but also on writing invoices and collecting cash as soon as possible.

In our companies we update our liquidity estimates once every week and plan ahead for a period of 8 weeks. Depending on the type of business you run this 2 months visibility will allow you to take short term measures to either postpone spending or increase cash collections if times get tough. After implementing a control like this for a period of more than 3 months you will become familiar with your liquidity ups and downs. In addition, sending this information to the entire leadership team ensures that even people who are either inexperienced or totally operationally focused gain an insight on how to control liquidity.

Long-term financing

A later topic of this post will be on financing options available to eCFOs. A period of weak liquidity will be unavoidable at one time or another but a sustained cash crunch can delay necessary investments and destroy all fun related to working in a start-up. It is your task to make sure that liquidity issues are solved eventually. This is done by putting in place a strong capital structure and by acquiring additional financing options as well as eventually making your company cash flow positive.

Furthermore we should discuss how you move your start-up from liquidity focused to profitability or growth focused once cash is no longer a problem. This sometimes can be a difficult switch since people who are focused on liquidity will often shy away from long-term investments – that said this is for a later discussion.

Sources of liquidity when times are tough:

We all have been there- it is the 25th of the month and you are not really sure how to make payroll?

  1. Delay payment – the only two parties that need to get their payment on time are your employees and the government. Employees are already risking a lot by working for a start-up and will generally have already agreed to lower direct compensation. Also remember, they HAVE to pay rent and you want to keep them in the company – so paying them is priority one. Secondly, the government does not care that you are a start-up. They will collect VAT and taxes no matter what – make sure you pay.  Everyone else outside of these two is optional – if you have been good about keeping payment deadlines your suppliers, landlords and even bankers will understand if payments are late occasionally – just don’t make it a habit.
  2. Friends and family – depending on the size of your business you can ask anyone and I literally mean anyone for a short-term loan to pay your payroll and taxes
  3. Your banker – most bankers have a small amount of leeway when it comes to overdraft facilities. If you have kept your banker in the loop about your business she will most likely be more supportive. Be sure to communicate clear and early when times are tough – the one thing bankers hate more than anything are surprises. If you know liquidity will be tough on the 25ths make sure you call on the 15th to alert your banker to the situation – ask for permission to use an overdraft and more often than not they will agree.
  4. Your clients – if you are in the fortunate position to already have clients, especially B2B clients, you can ask them for support. If they like your services, they will help you out by allowing up-front billing or speeding up payments.
  5. Your shareholders – if all else fails ask the owners to provide a short-term liquidity injection in form of a loan. Again this only helps if you are not the only shareholders and if other shareholders have additional liquidity reserves available.
  6. Your employees – this truly is a measure of last resort but you can always ask your employees if they can live with getting some of their salary with a delay – here you should especially focus on senior employees and management who might have some cash reserves and are not totally dependent on their full salary.