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Why Every Business Needs a CFO

Published: February 1, 2023 by lauramills

Why every business needs a CFO

A typical company finance function can be divided up into 3 areas, however many businesses believe the finance role is principally to produce accurate accounts.

Ask any bank manager and he or she will tell you the bank’s most problematic customers are those who don’t truly understand what is going on in their business. Some customers ask for finance or expect to maintain an overdraft, yet cannot even produce up to date accounts.

Most SME business owners want to focus on the business and not the numbers. The business is their baby and they want it to be their sole focus – not financials!

The areas which the business owner will seek help in first will be determined by the focus and needs of the business whether in sales, operations, admin or finance. If we look at the finance function, it is traditional to break it down into 3 roles:

1. Finance direction – the CFO

2. Finance control – the Accountant

3. Book-keeping/basic accounting/ AP & AR – the Finance Department Staff

Many business owners think the finance role is transactional in nature and so concentrate just on producing accurate accounting records. This is essential in itself, but not enough to manage and develop a growing business. When focusing on the CFO role specifically then, what are the key tasks of this role and what does the CFO bring that the other finance roles do not? Why would you need a CFO?

I suggest the following four main areas of expertise and input:

1.Strategic

Co-ordinating and developing long term business plans; defining the implementation timetables; assessing the risks involved and seeking the funding required to deliver the proposed plans.

2.Operational

Developing internal controls; managing and developing the reports needed to run the business; improving profit levels; managing cash flows. Does the business owner fully understand the profitability of each product / service they offer? Often the answer is no.

3.Leader

Instilling a financial approach and mind-set throughout the organisation to help other parts of the business perform better

4.Support

Tax planning and legal issues; compliance issues; managing external relationships; outsourcing relationships.

The modern CFO needs to be able to develop all this and more. There are many other considerations that go beyond the pure “job description” above.

What’s the difference between an accountant and a CFO? A CFO looks forward and financial accounting looks backwards; it’s where your business is going that matters as the past cannot be changed – but learnings can be made and changes made so that past mistakes not repeated.

Experience: it is important that a CFO has a wide range of commercial experience, not just financial. Good CFOs do not learn their skills from textbooks alone, in fact they learn very little from textbooks – they learn by doing. Commercial experience means leaving their offices and talking to customers and engaging with the production and operations teams.

Personality: a CFO must be able to communicate at all levels be it the production teams, sales teams, marketing teams to board level. The CFO must be able to relate to people on all levels of a business.

The CFO Centre provides high calibre CFOs to SMEs on a part time basis, allowing organisations to benefit from the expertise of a highly experienced Chief Financial Officer without incurring the expense of hiring someone full-time. We don’t tie you in with a long term contract.

Whether the business in in fast growth mode and needs control or has hit a brick wall and needs survival solutions to get through a tough patch, our CFO’s can cope with both ends of the spectrum.

For more information about the CFO Centre’s service go to Home – CFO Centre Australia (wpengine.com) or call us on 1300 447 740

Article written by Peter O’Sullivan – Regional Director – CFO Centre, Victoria

Ways To Find The Cash You Need

Published: January 17, 2023 by lauramills

A lack of cash can not only stall your company’s growth but also place its very existence under threat.

You might think you’re immune from danger because your business is experiencing a high level of growth. Unfortunately, you’re wrong: expansion can exacerbate the problems caused by poor cash flow management. You almost always have to make investments and bring certain expenses on ahead of achieving the higher revenue and cash flow that comes with successful growth.

It is the oxygen every business needs to survive. The stark truth is, without cash your business will be unable to meet its payroll obligations, default on payments to suppliers and creditors (payables), and ultimately cease trading.

Fortunately, there are ways to find cash both from within your business and from traditional and alternative external funding sources.

Look within your company first

While many business owners automatically look to external funding sources, it pays to look closer to home first.

Most entrepreneurs don’t realise there is often considerable funding to support growth from within their own business. That’s because the collection of customer receivables can often be improved through strong credit control and the level of stock holding reduced through improved systems and processes. In some instances, poor negotiation of supplier payment terms means fewer funds are available within the business to support scaling up.

So before you pick up the phone (or click your mouse) to apply for external funding, consider the following methods for freeing up cash within your business.

Declutter

If the business has the machinery, equipment or large amounts of stock that is idle, consider selling it or renting it to other businesses.

Remove unnecessary overheads

Look at all your overheads to see if they can be lowered. For example, consider reducing staff numbers, or not replacing employees when they leave or moving premises to get a more favourable lease. Review the effectiveness of your marketing and advertising spend as well as your insurance premiums, power arrangements and telecommunications.

Negotiate better terms with vendors

Ask for more favourable payment terms from your suppliers. This doesn’t necessarily mean asking for reduced prices but could be as simple as requesting an extra seven days for your payment window, or seeking free freight on minimum purchase volumes.

If your suppliers refuse your request, look for other suppliers who can offer lower prices or better payment terms for the same quality of the product.

Resolve late payment issues

Make your payment terms clear to minimise the possibility of late payment issues. Try to keep to the same terms for all your customers (for example, a 30-day window for payment of the invoice). The exception may be historically poor payers that are placed on COD terms. Get agreement to your payment terms from all your customers or clients. Carry out credit checks on all new customers or clients. Ensure that invoices are issued promptly. Ideally, you should issue invoices by email on the day of completion of the job or project and ensure that overdue payments are pursued.

Get deposits for large projects or orders. Build a deposit (of anywhere up to 50% of the total cost) into your contract for large projects or orders. This is especially important if the projects or orders are likely to involve a lot of resources and time.

That way if the customer decides to cancel the project or fails to pay the balance on the project or order, you have at least recovered some of the cost of the resources and time you’ve already invested in it.

Look for external funding

You should also consider external funding sources to help ease your cash flow challenges. There are a dizzying number of sources to consider, both traditional and alternative.

Apply for a bank overdraft

A bank overdraft has been the traditional form of funding for many businesses. But these days, banks are more likely to try to steer their clients to other forms of debt.

Request a bank loan

The advantage of bank loans is that they are for a set term with regular repayments. Banks also can’t call the money back on demand. The downside is that banks will demand strong security for the loan. For example, a personal guarantee secured on the assets of the business or even the owner’s personal assets.

Use asset financing

Using your assets as collateral for the loan is one of the easiest ways your growing business can get access to quick cash. However, there is a drawback: not all assets are considered equal.

Typically, lenders will only consider assets that they can sell quickly if you default on the loan. Therefore, they usually want high-value assets with a low depreciation rate or high appreciation rate, and which are easy to convert into cash.

Get alternative financing

The alternative finance market includes a wide variety of financing models. These include peer-to-peer lending, crowdfunding and specialist finance providers. Products such as selective invoice finance and invoice trading platforms are offered.

The benefit is that since they have greater flexibility than traditional funding sources they can often offer a faster turnaround on the right deals.

Invoice Discounting

The advantage of invoice discounting, in which banks and invoice discounting companies lend money secured against your debtors/receivables, is that you can borrow up to 80-90% of the invoice amount within 24 hours. So you get the cash flow benefit and the rest when the money is collected.

The disadvantage is that it can cost more than overdraft or loan charges. Therefore, a bigger impact on your profit margins.

Peer-to-peer (P2P) lending

P2P platforms match lenders directly with borrowers so that you can borrow money from individuals. The huge benefit of this is that the rates are favourable and often much better than any other type of lending method. The disadvantage is that you will still have to undergo a credit check and possibly pay an application fee.

Equity-based crowdfunding

People come together on crowdfunding websites to pool money towards a particular venture or idea. In return, they receive an equity share in your business. The issue with crowdfunding is that it’s not as easy as some people make it out to be. It requires months of planning and lots of marketing in order to get people excited enough to contribute money towards it. There’s also the risk that you don’t receive the amount you’re seeking. In which case, any finance that has been pledged will usually be returned to your investors, and you will receive nothing. If you’re successful, there’s the risk you give away too much control in your company. This could have an impact later when you decide to sell the company.

The easy way to raise cash

The finding or raising of cash can be a much easier process by engaging the services of a part-time CFO. For example, The CFO Centre offer the services of part-time CFOs with big business experience. Their knowledge helps you uncover or obtain the cash you need to help your company achieve rapid, yet sustainable growth. They will help remove the fear and confusion from the entire process.

To discover how the CFO Centre will help your company to get cash and scale-up, please contact us here

Photo by Braňo on Unsplash

30 Ways of Increasing Profits & Managing Costs For Our Clients

Published: January 12, 2023 by lauramills

Increasing Profits using our unique IP.

At The CFO Centre, when working with our clients, we use a unique framework called the 12 Boxes. These boxes are made up of the 12 financial building blocks in any company. There are many activities that sit behind each of the 12 boxes and the list below is not exhaustive, but merely gives some examples of how our CFO’s (Chief Financial Officers) can support clients in the area of Profit Improvement:

Help clients identify the ways in which they can sell more, sell more frequently, increase prices (without losing customers) and cut costs;
Help clients identify the profit drivers in the company, both financial and non-financial;
Educate the senior team about the importance of Critical Success Factors (CSFs).
Systematically analyse relevant KPIs and trends to identify potential hazards before they become a problem;
Review arrangements with the company’s main customers to see if there is a more profitable way to supply them;
Review pricing arrangements with existing suppliers;
Research alternative suppliers across all areas of the business;
Research sources of grant funding;
Determine company’s eligibility for government funded incentive schemes that encourage research and development;
Develop effective incentive schemes for staff to encourage productivity and to manage risk;
Prepare customer surveys to understand what the market really wants;
Analyse competitors to find out what is working well and what isn’t and course correct accordingly;
Review significant overheads and isolate opportunities to reduce expenditure;
Investigate exchange rate hedging and planning;
Create a realistic and achievable action plan then communicate it to all employees;
Increase prices;
Explore online selling;
Explore more cost-effective ways of marketing by forming strategic alliances and joint ventures with companies that deal with the business’s prospective clients;
Arrange for business mentors to give advice and share experiences with the client;
Review organisational structure and delegation procedures to maximise efficiency;
Develop customer retention strategies to prevent loss of revenue;
Evaluate business location and determine possible alternatives (to save costs on production, delivery, etc.);
Outsource some functions, employ some people on a part-time rather than full-time basis;
Look at the viability of redundancies;
Introduce an expense control programme;
Review bank charges;
Check invoices from suppliers for overcharging;
Get rid of inefficient systems;
Measure the return on all advertising;
Replace frequent small orders with bulk buy discount orders.

Under the Spotlight – The CFO a A Guardian

Published: January 8, 2023 by lauramills

A CFO can act as a guardian for your business, by forecasting your cashflow and profitability, setting meaningful targets and helping you monitor your progress against them so you achieve your goals.

Looking Ahead – Forecasts

While most accountants are very good at telling you what has happened, not everyone is good at looking ahead. Historical accounting records are vital to any business, but so is a forecast. A forecast acts as a red flag, highlighting where profitability or cashflows are under threat. Forecasts need to be informed by well- thought out assumptions, and be capable of being updated quickly. These days numerous cloud-based forecasting tools are available, that are updated continuously from accounting systems.

ZZZZZ and Improving Your Business – KPIs

We all know the cliché that to improve something you have to measure it. To improve a business, you need clear targets or measure – key performance indicators (KPIs).

But how do you go about setting KPIs?

Here are some tips on setting KPIs. I call them the 5 Zs (I’m using American spelling – apologies to all of us using British spelling).

CustomiZe – KPIs must be relevant to your company. If you trade in inventory in different product categories, you need margin and turnover KPIs for your inventory categories. If you are a professional services company, inventory is irrelevant – you need labour utilization and efficiency measurements.

PrioritiZe – it is tempting to want to choose 100 goals, but don’t. If you or your staff are faced with 100 KPIs, you very quickly become overwhelmed and lose focus. Select 5-10 KPIs. Each manager or department will have their own KPIs.

VisualiZe – KPIs need to be visible and visually appealing. People need to see how they are progressing on a regular basis – every day or every week. Only by monitoring their progress constantly can they make changes to their behaviour to improve their performance. It is no use waiting until budget time at the end of the year to review how well you and your team have done.

OrganiZe – people need to be held accountable for achieving the targets. Each KPI needs a manager who is accountable for achieving that particular goal.

OptimiZe – constantly monitor and improve your performance. This means regular reviews and making the changes needed to stay competitive in your environment. This is particularly important in our current environment, where COVID19 has disrupted many industries and changed the operating environment.

Systems

A key element in monitoring your performance against KPIs is a system that gives accurate and reliable data, quickly. There is no one-size-fits-all system; you need to select a system that relates to your business needs. It’s critical that the setup and implementation of the system takes into account your business needs and your goals.

The Role of a CFO

Of course, you can try and do all of this yourself, but it is much easier to have an experienced person do it for you. A part-time CFO will be able to assess your business and set meaningful KPIs. Your CFO can take thorough look at how you are using your system, and whether changes need to be made. Regular meetings to review your forecasts and how you are performing against your KPIs will ensure you achieve your goals.

Written by Andrew de Bruyn, Principal (WA) – The CFO Centre

The Role of a CFO

Published: January 5, 2023 by lauramills

What does a CFO do?

A CFO’s (Chief Finance Officer’s) role is to get fully engaged in your business. They regularly drill down into your financials to help you plan, forecast and monitor financial performance. A CFO can provide valuable help to you in the follow areas:

Help you strategize, plan and operate your business to your maximum financial advantage.
Analyse results in the context of the company’s objectives and strategies.
Plan and consider how financial transactions will be booked, consistent with the objectives and strategies of the business.
Work with your internal Finance function (bookkeeper or Financial Controller) and/or external Accountant.
Focus on a clean, quick, and solid closing of the books within days of the end of the period.
Establish key indicators that provide early warning for management.
Work to maximize the value of the business to the owners.
Ensure you (the owner or CEO) understand the financials, the trends and the issues they identify.

Our CFOs are qualified accountants with decades of commercial experience in high level finance roles. They have controlled the finances of companies across a huge variety of industries and sectors – plus with a team of over 750 CFOs globally, you can be sure to get the answers from someone who has been there and done it.

What’s more, you can have a high calibre part-time CFO at a fraction of the cost of a full-time resource. Outsourcing a CFO is tremendously cost effective and most CFOs pay for their own time with the cost savings they identify in your business.

The CFO Centre is offering a 1:1 emergency scenario planning video call with one of our experienced CFOs to review the 7 critical areas in your business. You will come away feeling clearer about your options for increasing cash and mitigating risk.

If you believe our expertise could benefit your business, please click here to get in touch.

Or for more information about the CFO Centre please call us on 1300 447 740.

How to Scale Your Business for Growth

Published: December 28, 2022 by charlottenoble

Scaling your business depends on two factors: your company’s capability and its capacity to deal with growth.

To scale up your business, your company must be capable of dealing with a growing amount of work or sales and of doing it cost-effectively.

You need to know that your company can achieve exponential growth without costs rising as a result. It’s vital too, that performance doesn’t suffer as your company scales up.

You also need to be sure that your business systems, employees, and infrastructure can accommodate growth. For instance, if you get a sudden surge in orders, will your company be able to cope? Will you be still able to manufacture and deliver products or services on time? Do you have enough employees to deal with a surge in work or sales?

Scaling a business requires careful planning and some funding. To be successful, you’ll need to have the right systems, processes, technology, staff, finance, and even partners in place.

Identify process gaps

Audit your business processes (core processes, support processes, and management processes) to find their strengths and weaknesses. Find the process gaps and address them before you start to scale up.

Keep the processes simple and straightforward. Complex processes slow things down and hinder progress.

Boost sales

Decide what your company needs to do to increase sales. How many new customers will you need to meet your scaled-up goals?

Create a sales growth forecast that details the number of new clients you need, the orders, and the revenue you want to generate.

Examine your existing sales structure and decide if it can generate more sales. Can you increase your flow of leads? Do you need to offer different products or services? Is there an untapped market? Do you have a marketing system to track and manage leads? Is your sales team capable of following up and closing more leads?

Make sure you have enough staff to cope with an increase in sales. If you don’t have enough staff, consider hiring new employees, outsourcing tasks, or finding partners that may be able to handle functions more efficiently than your company.

Forecast costs

Once you’ve done the sales growth forecast, create an expense forecast that includes the new technology, employees, infrastructure and systems you’ll need to be able to handle the new sales orders. The more detailed your cost estimates, the more realistic your plan will be.

Get funding

If you need to hire more staff, install new technology, add facilities or equipment, and create new reporting systems, you’ll need funds. Consider how you will fund the company’s growth.

Make delighting customers a priority

To reach your sales forecasts, your company will need loyal customers. You’ll win their loyalty by delivering outstanding products or services and customer service every time you interact with them.

Invest in technology

Invest in technology that will automate tasks. Automation will bring costs down and make production more efficient.

Ensure that your systems are integrated and work smoothly together.

Ask for help

Don’t be afraid to ask for help from experts who have experience in scaling up companies. In an interview, Apple’s co-founder, Steve Jobs, said, “I’ve never found anybody who didn’t want to help me when I’ve asked them for help.

“I’ve never found anyone who’s said no or hung up the phone when I called – I just asked.

“Most people never pick up the phone and call; most people never ask. And that’s what separates, sometimes, the people that do things from the people that just dream about them. You gotta act. And you’ve gotta be willing to fail; you gotta be ready to crash and burn, with people on the phone, with starting a company, with whatever. If you’re afraid of failing, you won’t get very far.”

The CFO Centre Top 10 Blogs of 2022

Published: December 12, 2022 by lauramills

Learning is an important part of business. If a quick read provides you with even one tip to increase your profit, give you more confidence or help you sleep better at night, it would be worth the time, wouldn’t it? Check out our top 10 blogs of 2022 written by our experienced CFO team. There’s no surprise that lots of them are about improving profit!

Critical Factors For Improving Profitability

It is vital that business owners and managers understand the 2 drivers of profit, as well as the connection between profitability and cash flow.

What Does a CFO Actually Do?

Often, we get asked: What does a Chief Financial Officer (CFO) actually do? If the term “part-time CFO” is as alien to you as “UFO”, here’s what we do, in a nutshell.

Profit Improvement Through Expenses and Supply Chain Management

There are two types of expenses, fixed and variable. Careful and regular monitoring should be in place for all businesses.

7 Keys To Profitable Growth

Planning for growth is something every business owner will say they do. However, not all business owners will do this effectively and with a plan that will generate profitable growth.

How to Resolve Your Cash Flow Problems

Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes.

Understanding Your Cash Flow Position

If you are having cash flow issues, it is essential that you know the current position of your business finances. Be honest with yourself and make sure you know if or when your business needs help.

Adjust Your Business Levers to Increase Profit

With just a little additional focus on one or more of the 7 business levers, you can directly improve the cash-flow, profitability and/or value of your business.

What The Rolling Stones Can Teach You About Profit

The performers will say it’s because they love it and that they ‘don’t want to let the fans down.’ But there’s another hard-nosed reason to get their weary old bones back on the tour bus.

The Top 7 Advantages of a Part Time CFO

If you are an SME and want your company to achieve its goals quickly, you should consider hiring a part-time CFO. One of our clients recently said “it’s the best money I’ve ever spent”. Find out why.

Strategic Planning Checklist

A three-part checklist to help with your strategic planning.

Plan For Profitable Growth in 7 Easy Steps

Published: November 21, 2022 by lauramills

Planning for growth is something every business owner will say they do. However, not all business owners will do this effectively and with a focus that will generate profitable growth.

Many businesses plan for growth, but not profitable growth. Some businesses focus on growing sales without a focus on margins while others build infrastructures to support sales and growth that never materialize.

Michael Porter said, “If your goal is anything but profitability – if it’s to be big, or to grow fast, or to become a technology leader – you’ll hit problems.”

A business must focus on profitable, scalable and sustainable activities if it is to grow. Profit and the generation of cash to re-invest in your business must be made a priority. It’s an essential part of the financial strategy and structure of a successful business. Profit and a clear business plan will create a focus and the alignment of the organization. Additionally, it’ll attract investors and other sources of funds to fuel growth – all of which impacts the underlying business value of the business.

CFO Centre has identified:

7 Keys to Profitable Growth:

Define your business goals & objectives
Produce a formal plan from which you can articulate a vision
Critically review your business
Identify competitive advantage, scalability & sustainability
Establish a financial plan
Identify milestones, KPIs & dashboards
Create organisational alignment
Nurture your culture, hire the right people and communicate the vision
Identify the financial resources required
Support the business with systems & processes to optimize performance
Measure, review, evaluate & course correct
Be proactive & prepared to be reactive

If you follow these 7 Keys and plan for profitable growth, you will ultimately:

Improve and grow profits
Maximise the scalability of your business
Enhance management team and organizational structure
Attract investors and other sources of funds
Increase business value

To enhance the value of your business and grow successfully, follow the 7 Keys and Plan for Profitable Growth.