business Archives - Page 2 of 5 - The CFO Centre Australia

Understanding Cash Flow Problems

June 28, 2023 by lauramills

Cash flow problems put your company at risk.

Unless your company manages cash flow effectively and uses regular cash flow forecasts, it is in jeopardy. Cash flow shortfalls mean:

You can’t pay suppliers on time
You can’t make debt repayments on time or at all
You can’t buy new inventory to meet customer demand
You can’t pay staff wages
You can’t compete for new contracts
You can’t advertise to attract new clients
You can’t hire new staff.

Causes of Cash Flow Problems

Conditions that can impact your cash flow include:

A fall in sales or a decline in gross profit margins. This could be a result of changing economic conditions (such as the most recent global pandemic), increased competition, or a drop in demand for your product or service.
An unprofitable business model
Using a negative cash flow business model. You offer customers or clients credit terms of anywhere from 30 days to 90 days (or longer).
Having excessive debt
Having inadequate stock or credit and debtor management.

Your cash flow problems can be due to any of the following:

Late paying customers: When a customer doesn’t pay on time, your business can experience cash shortfalls.
Poor debt collection processes: Not issuing or chasing up invoices in a timely fashion can result in reduced cash flow.
Low prices: If your prices are too low, but your expenses are rising, your company is almost certain to experience cash flow problems.
Low sales Too often business owners try to resolve poor sales by looking for new clients. But this incurs more costs in areas like advertising and marketing to attract those new clients.
Too generous payment terms: Allowing customers to pay in arrears for goods or services received is a bit like giving those companies short-term, interest-free unsecured loans.
Overtrading: Rapid growth means your company will have to invest in more stock, equipment, or hiring staff to meet demand. If you don’t have sufficient working capital, the company will experience cash flow problems.
Too much stock: Every dollar you have in inventory is a dollar you don’t have in cash.
Too much debt: If you’re overleveraged (when you’ve borrowed too much and can’t pay interest payments or principal repayments or meet operating expenses), you’re likely to experience cash flow problems.
Cash Management: Cash is vital to your business. Without it, your business won’t be able to pay suppliers and creditors and to meet its payroll obligations.

Finding and fixing the cause of your cash flow problems in your business and putting systems in place to manage cash effectively is vital for your company’s survival. Fortunately, most cash flow problems can be resolved with help from the right people. They will help you to identify the causes of cash flow problems in your business and advise the best way to fix them.

Understanding Your Cash Flow Position

June 17, 2023 by lauramills

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.

To do this you need to create your cash flow forecast, you need to make sure you know what cash is coming in and what payments need to be processed, this can be constructed in a simple excel spreadsheet.

Tips that can assist in preparing an accurate cash flow forecast:

Call all your current clients/customers and speak about their current situation and find out when the funds will be received. Don’t hold back from entering into a payment plan with them; this will give you a clearer picture of your cash flow.
Hold off on larger payments that are not yet due.
Assume a reduction in your revenue; you must be realistic. If you know that your business will be impacted over time, adjust your revenue to reflect this in the cash flow.
Eliminate discretionary spending. What can wait!!
Employee bonuses, if there are bonuses due and the employees are depending on them, you should pay them if possible. If you can hold off on paying them for 60 days, then do so.
If there are any tax bills requiring to be paid, speak with the tax office or your Accountant about a payment plan.
Be transparent with your employees.

Having a rolling cash flow forecast and updating it weekly, will help you make sure that you are staying on top of any issues that may come to a head.

Once you have listed all known transactions, you will then need to stress-test the scenarios, for example what will happen if your top customer can no longer pay their account?

Questions you should ask yourself – be truthful

Do I know where my business is at financially?
Are we insolvent already?
Have I spoken to my suppliers and customers and do I have a clear understanding of where they currently stand?
Have I spoken to the ATO?
Do I need help? If so, make sure they are qualified.

Many cash flow problems are related to “working capital cycles” and the timing of cash inflows vs outflows. For example, the business pays its staff weekly and suppliers on 14-day terms, but offer its customers 30 day terms. Therefore, the business needs to fund the gap. A part-time CFO will explain your own working capital cycles and present a solution to improve your cash position.

The CFO Centre has been assisting SME’s over 20 years, offering highly experienced Chief Financial Officers on a flexible, part-time basis. As CFO’s we are qualified Accountant’s with the added benefit of extensive commercial experience across multiple sectors, so we know what to look for and how to respond.

You can learn more about How It Works here, or give us a call on 1300 447 740.

Photo by Towfiqu barbhuiya on Unsplash

What does a CFO Actually Do?

June 2, 2023 by lauramills

Often, we get asked by friends, family and peers: What does a Chief Financial Officer (CFO) actually do? These are frequently people that have known us for years, that we dine with regularly, share holidays with, stand at the side of the footy pitch with! Yet, they don’t fully understand exactly how we have helped business owners to transform and scale their businesses. So, if the term “part-time CFO” is as alien to you as “UFO”, here’s what we do, in a nutshell:

Whilst a CFO is a qualified accountant, they also have decades of high-level commercial experience, quite often across many industries.

A CFO works alongside you as the business owner/CEO – giving you more time to work on the business instead of in it. The part-time CFO concept is tremendously cost effective as most CFOs pay for themselves with the cost savings they identify in your business.

In a nutshell, a CFO will typically:

Help you strategize, plan and operate your business to maximise on cash, profitability and company value
Gain access to funding
Ensure you have a solid banking relationship
Become the custodian of your internal Finance function.
Work with your bookkeeper or Finance Officer and/or external Accountant.
Analyse results in the context of the company’s objectives and strategies.
Establish clear KPIs (measures that really matter)
Ensure you (the owner or CEO) understand the financials, the trends and the issues they identify
Assist in growth, expansion (including overseas) and exit strategies
Become a trusted sounding board and devil’s advocate

The need for a part-time CFO may appear earlier on your journey than you may expect. For instance, you may have turnover of over $1million and are experiencing growing pains. Perhaps you would like to grow in a sustainable way, or improve the financial performance of your business. Either way, I would say it’s worth exploring how a CFO can help you in your business.

Our unique 12 box model gives a deep dive into each of the areas that a CFO will assist you with.

The CFO Centre

The CFO Centre provides part-time CFOs to SMEs, so you get the experience of a high calibre CFO for a fraction of the cost of a full-time resource. We have years of experience as a Senior Finance Executive or CFO for large corporations. They have extensive knowledge and experience to bring to your business. In addition, with no lock in contracts, we can work with the needs of your business, providing our services 1-2 days a week to as little as one day a month.

As a global company, we have over 850 CFOs in 18 countries, so we really have seen it all! Therefore, the benefit for you is that no matter what your needs, however complicated, you can tap into that global wealth of knowledge at no extra cost. It’s pretty powerful stuff.

Our video on How it Works sums all of this up, or if you’d like more info you can get in touch with us here.

4 Top Tips for Cash Flow Management

March 17, 2023 by lauramills

Cash Flow Management is pivotal in any business. All too many business owners think that the battle is won once the marketing rolls out and the product is sold. They see that their investment of time and resources has paid off and therefore, assume that their goal has been achieved.

However, the fruit of these hard-won victories can quickly run out. Your working capital (debtors, creditors and inventory) should be carefully maintained with a structured cash-flow management plan.

Here are some key points for businesses to keep in mind when managing cash flow:

Analyse cash flow history and identify patterns

This is particularly useful for businesses that have been in operation three years or more. The past can prove a helpful guide for predicting future ups and downs. Therefore, you can more consistently capitalise on the ‘ups’ while preparing for the ‘downs.’

Review your cash flow management systems and processes

Who have you invoiced? Who has paid? And have you made your payments? Without reliable systems and processes in place, you simply cannot accurately ascertain what your monthly cash flow is, let alone manage it.

Ensure your customers pay before suppliers are paid

With each new business relationship, decide with your debtors a credit plan that will ensure you get paid on time. If a particular arrangement is not working, try something different, such as a payment plan. A partial payment now is better than no payment at all. Make it easy and convenient for the customer, by having all the necessary information on the invoice, and offer various payment options.

As for creditors, try to get as extended an arrangement as possible. As a result, this can help ensure that you’ve been paid by your debtors first. You will reduce the risk of default and help ensure you make payments on time.

Be transparent with your bank

Your bank is your most important creditor. It can also be your best ally if your cash flow projections and business plan inspire confidence. Communicating with your bank about your payment status will also engender greater confidence and lessen the negative impact should a surprise late payment or default arise.

The above key points are all necessary elements in managing your cash-flow well, but they are not sufficient in and of themselves. They is no replacement for tailored advice from an experienced professional. The CFOs at the CFO Centre are all highly experienced in cash-flow management and are dedicated to helping ambitious businesses meet their strategic objectives. For more information, contact the CFO Centre on 1300 447 740.

Photo by Riccardo Annandale on Unsplash

The CFO Operator – Increasing your Profits

February 7, 2023 by lauramills

Cash vs Profit

If cash used to be King, in today’s new landscape it’s now Emperor. The Operator frees up the Business Owner from having to worry about the day to day financial operations. Cash has always been critical to every business, however, now more so than ever. Your CFO will help (re)structure your business to maximise your cash position. This involves balancing supply and demand while cutting back unnecessary costs and improving productivity, efficiencies and ultimately profit.

4 areas of focus are:

Maximisation of Profits and Profitability
Ownership of Cash flow
Reduce Costs
Increase Productivity & Efficiency

The CFO as an Operator

Being thought of as the Operator may not be the first role that a small business owner would think of for their CFO. In his blog, my colleague from The CFO Centre – Dr. Andre Van Zyl set out The Strategist role that a CFO often fills Under The Spotlight – The Strategist. While that role is critical for any organisation’s long-term existence, CFOs also have vast tactical experience in an Operator role. We are obviously not referring to operating a factory floor machine. We mean that the CFO has the ability and experience to oversee and operate a number of critical functions. A calm and reassuring Operator may be key to a company’s future.

In a more benign operating environment, the maximisation of profit may be central to a company’s strategy. In the current environment keeping a tight control of cash and costs will increase organisational efficiency.

Time

Time, or the lack of it, is so often cited by small business owners as one of their biggest frustrations. Our clients often comment that they are spending so much time working IN-the-business that they can’t spend enough time ON-the-business. A Part-time CFO who works closely with a small business owner can free up time for the owner by sharing the load. As a result, this ensures the owner is fully focused on those very roles that were the initial catalyst for creating the business. This can be a significant ‘value add’ aspect of the Operator role of a CFO.

Our CFOs have either worked their way up through, or had executive responsibility for, the Finance functions in various organisations. They deeply understand the importance of running a tightly controlled organisation. This includes specific focus on cash flow management, profitability, and productivity. Andre wrote about developing three-way financial forecasting models which are critical for banks and financiers. It is just as important to deliver against those models.

Making Critical Decisions

Many businesses need to consider whether current business models can survive in the longer term. Critical decisions may need to be made on products or business lines to either scale-up, maintain status quo, scale-down or even shut-down completely. A part-time CFO can help small business owners as they work through that exercise.

A new or refined operating rhythm may therefore need to be designed. This could mean minor tweaking or more major restructuring. Consideration of this may be critical for survival. The Operator who has extensive business experience will greatly assist with a rapid transition to a new business model. Central to this will be the robust and disciplined forecasting exercise.

At The CFO Centre we have the relevant experience required to assist business owners in navigating and operating during the current and future challenges. The objective must be to future proof your business, and The CFO Centre is here to support you.

Written by John Paterson, Principal (NSW) – The CFO Centre.

Ways To Find The Cash You Need

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

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.

How to Scale Your Business for Growth

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.”