Cash Flow Archives - Page 2 of 3 - The CFO Centre Australia

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.

The Value of Understanding Your Numbers Through Reporting

May 23, 2023 by lauramills

The benefits of having regular access to high-quality financial management reporting is far-reaching. Good reports reveal the efficiency (or otherwise) of the constituent parts of the business. They enable you to deal with potential threats and take advantage of opportunities to grow your business. The compound effect of making regular, quick and high-quality decisions based on a strong set of data and reports cannot be overestimated.

Most businesses have some level of reporting in place but in most cases existing procedures are insufficient to allow for rapid growth.

The Importance of Reporting is Twofold

To have retrospective visibility over past performance (that is, to analyse performance data and use it as a tool to course correct for the future).

To have visibility into the future (knowing what is likely to happen around the corner)

What are Management Reports

Management reports are tools for the management team to make decisions from. Having your bookkeeper run a monthly P&L and Balance Sheet is fine, however to run a business efficiently you need to understand those reports and dig deeper to really see what’s going on.

Base Level Reporting

At the very least you need to have regular access to three key financial statements. They are:

The Balance Sheet

The Cash Flow Statement

The Profit and Loss

4 Steps to Take Your Reporting to the Next Level

Step one:  build a reporting framework around your products to determine what is profitable and what is not. If there are non-profitable products (or those that deliver little profitability), should you consider dumping them or only include them in bundles with other products?

Step two: Build a fully flexible 3-way financial model (P&L, Cash Flow and Balance Sheet) for the next 3 years. Play around with the assumptions, i.e what other products can we put into the offering to customers?

Step three: Build a 3-year plan based on your findings from Step one and two.

Step four: Monthly reviews against the plan – what worked, what didn’t work and the whys around both.

Need Help?

Most SME’s don’t have the internal experience to action these four steps, nor does the owner have the time. That’s where a part-time CFO comes in. At The CFO Centre, we don’t just focus on the business numbers – profit and loss, balance sheet, ratio’s, forecasts, but also the less visible “numbers” – what you want from your business – your financial goal for the business, the number of days a month you’d like to work, the number of holidays you want to take, the value you want for the business when you sell, the number of years you want the business to continue (legacy), the number of years until your retirement.

Both sets of numbers play an important part in your overall success.

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO.

With their support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.

Understanding Your Numbers Through Ratios

How do I manage my business in an inflationary environment?

April 5, 2023 by lauramills

The last time inflation was over 5% was early 2000’s. For the last 20 years the only business consequence of inflation was annual small CPI adjustments.

Now, the #1 business risk may be our new inflationary world. The most learned bankers and economists admit they don’t know how high or for how long inflation will be around for. Following could be useful guidance.

BUSINESS IMPERATIVES

Forecasting and scenario planning
Cashflows and working capital become even more important
Margin protection
Prioritise high profit customers and products

AREAS TO PAY ATTENTION TO

Loans/financing

Assess the potential impact of rising interest rates and business uncertainty. This includes loan headroom, ability to service the loan, and potential covenant breaches. Use stress tests and sensitivity analysis. Have an open line of communication with your banker and don’t hide any bad news from them. Make sure the amount and duration of financing is sufficient to weather the crisis and rollout any business plans. Ensure facilities can’t be called in. Consider replacing some overdraft with fixed term financing if things look tight.

Credit Control

Your customers may struggle. Ensure you have an on-going open collaborative dialogue with key customers. Review and assess credit limits, payment terms, and credit policies. Ensure you have timely reporting on receivables ageing and potential bad debts. Weekly reporting would be desirable. And ensure someone is reviewing these reports and taking action promptly.

Cash Forecasts

Implement monthly cash forecasting process if you don’t have one in place now. Review forecasts closely. Understand why variances occur, i.e., was it a business issue or inappropriate assumptions, and take appropriate action accordingly. Run regular scenario planning to understand potential problems.

Working capital

Don’t neglect this area. It can be quietly sucking up cash largely un-noticed. Setup processes to ensure invoices are sent out promptly, and customers pay on a timely basis. Review inventory turnover and under-utilised inventory, and setup action plans to improve this. If possible, negotiate better terms with suppliers. Ensure your regular reporting gives visibility of the $ value of receivables, payables and inventory, and also ageing and turnover.

Pricing and margins

THIS IS KEY. Protecting margins is paramount, and a key driver of overall business profitability.

Pricing is a quick and powerful lever to do this. It will need to become more dynamic. Price increases will likely be essential, but they need to be targeted and precise. Understand your customers and where you fit in their value chain. For example, how important and how expensive is your product in their overall costs. This will enable more appropriate and ultimately successful price increases to be made.
Make sure reporting systems give you margin by customers and products. Prioritise high margin products and customers. This is particularly important if the availability of resources, such as labour, is constrained.
Consider hedging mechanisms and contractual T&C allowing you to pass on input prices to customers.

Mix

Understanding, monitoring, and improving, the margin impact of changing customer and product mix is critical. The key is having the mix that maximises margin $. This process needs to be dynamic and correlated to changes in input prices, and internal resource availability.

Input prices

Monitor input prices closely. Understand impact on product margins. As relative prices change, consider input substitution or replacement. Renegotiate major input prices if possible, e.g., using volume discounts.

Overheads. Review, consider what is business critical and what is not. Try to have costs on a variable basis if possible.

Assets. Review all assets. If they don’t generate profit sell them off.

Business model. Run scenarios around inflation rate, interest rates, wage and input increases etc regularly. Is your business model appropriate?, should it be changed?, do you need to have new delivery models?

Risk management. Make sure you regularly monitor risks and take appropriate mitigation. Check insurance coverage is adequate. Don’t forget that uncertainty can create opportunities.

Improve profitability through innovation and efficiency enhancers such as IT. Can business processes be streamlined, removed or changed?

Gary Campbell is an experienced CFO, based in Victoria, working with the CFO Centre Australia. He is particularly successful at profit improvement, financial turnarounds, risk management and corporate governance for SMEs and NFP. If you would like to talk to a CFO like Gary, please contact us.

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

22 Ways a CFO Can Help You Create A Winning Strategic Plan

August 1, 2022 by lauramills

Creating a well thought-through, comprehensive strategic plan is an arduous task. However, it is fundamental to businesses of any size. It can increase your profits, increase your chance of success, help tackle challenges that arise and assist in securing funding as and when required.

Thinking through objectives and likely outcomes which may occur many years down the line is, by nature, challenging. But it is the hard work up front which makes for lighter work down the road as well as a better chance of profits and reaching your goals.

Creating a solid plan

An experienced CFO (Chief Financial Officer), in particular, our part-time/as needed CFOs, can make a significant contribution.

Our CFOs often find their clients have done some good planning and strategic thinking but need a devil’s advocate to ask the right questions and help to steer the ship in the right direction. Being a CEO without a high level ‘finance person’ to bounce ideas off can be tough. CFOs often possess a different albeit complementary set of skills to CEOs.

We highly recommend you take the time out to work through the detail of your business plan. It is rare to see a company succeed if it doesn’t have a robust plan.

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. Your CFO will work closely with you to develop your strategic plan and your timetable for implementation to:

Gain a full understanding of the business and its operating procedures.
Work through the existing strategic plan with you and make necessary changes to build a plan which clarifies how the company’s objectives can be realistically achieved.
Agree on milestones and break down the plan into annual and quarterly targets.
Conduct a fresh SWOT (Strengths, Opportunities, Weaknesses, Threats) analysis bringing the plan up-to-date.
Conduct a new PEST (Political, Economic, Social and Technological) analysis bringing the plan up to date.
Carry out a full competitor analysis to understand in detail what is and isn’t working in the market.
Explore opportunities for effective market research to enable innovation and development of new products/channels to market/operating procedures.
Identify key players in the business.
Identify skill gaps in the business.
Agree financial incentive structures to retain and motivate key members of the team.
Identify five key metrics for determining what the future course of the business should look like.
Agree on the exit or succession strategy.
Develop a clear, coherent message (vision/mission/purpose) to staff and to customers.
Work with the senior team to ensure individual department goals are aligned with the big picture strategy.
Agree on a who/what/when set of objectives for all department heads.
Implement accountability protocol for every member of staff.
Determine methodology which allows the senior team to course correct periodically when a change in strategy is required.
Agree on delegation of authority to department heads to spread responsibility across the business and to free up the CEO’s time.
Create a feedback route so that strategic goals are regularly shared with staff
Develop a set of relevant KPIs (Key Performance Indicators) and a system which allows for regular (daily/weekly/monthly/annual) monitoring and reporting.
Develop a long-term efficient tax structure for the business and for key employees.
Identify key outsource suppliers/advisors and, in particular, corporate finance contacts

This process will instil a deep feeling of confidence both within the senior team and throughout the rest of the business.

You will move out of the chaos and into a more serene working environment where each of the cogs, which make up the bigger system, is able to move in harmony.

Don’t leave success to chance.

If you’d like to find out more about how we can help your business with a strategic plan, phone Venu on 1300 447 740 or watch this quick video on How It Works.

Hazards To Growth

April 28, 2022 by lauramills

There can be a low-level panic that suffuses an organisation. A constant pressure to keep moving faster and faster and faster. It’s no secret that companies can grow too fast, stretching both culture and controls.

Imagine this: a multi-million-dollar company with almost 200 employees. The founder likes to micromanage to the point he (not the HR department) has sole approval over employee benefits such as requests for time off for holidays.

The company doesn’t have a dedicated IT employee or team. That’s because that same founder believes its gifted employees should be able to resolve any IT problems that occur! No matter if doing so pulls them away from developing products or resolving customer problems.

It might sound far-fetched, but these are just a few of the problems companies can face during an accelerated growth or scale-up stage.

Challenges of Scaling Up

While your scaling up might not experience the internal and external challenges above, you are likely to face at least one or two challenges. It might be:

People challenges
Sales and marketing challenges
Operational challenges
Administrative challenges
Financial challenges.

As the CFO Centre’s founder Colin Mills said in his book, ‘Scale Up: How to Take Your Business To The Next Level Without Losing Control and Running out of Cash’, the scale-up stage is when businesses really struggle because they’re growing but don’t have the infrastructure to support their expanded operations.

They might have the necessary revenue, manufacturing base, or customer reach of a substantial business. However, their controls, processes, personnel, leadership and culture are often still that of the much smaller business they were a short time before, he said.

Worse, they often don’t have the resources to create and maintain such an infrastructure.

During the scale-up stage, they face running out of cash or simply getting stuck, he said.

Revising your business model

It’s only possible to avoid such problems by revising your entire business model. If you don’t, then all the small problems that niggle at you now are likely to become major issues once you begin scaling up.

Even if your business is already going through the scaling up stage, it’s still possible to retrofit, design, and redesign it, he said.

Don’t get lost in the complexity

“In many ways, like most things in life, scaling up is not rocket science. No genius is required, said Mills. It can often be about common sense. “But common sense isn’t always common practice, and being able to focus on the most important things as you scale up is a skill that can get lost in the complexity of the whole process.”

One solution

The easiest way to focus on what’s important during the scaling up stage is to have expert help with big business experience.

For a fraction of the cost of a full-time CFO, the CFO Centre will provide you with a highly experienced senior CFO. They will work with you on a part-time basis to help you with scaling up your business. To discover how the CFO Centre will help your company to scale up, please contact us here.