chief financial officer Archives - The CFO Centre Australia

Why Your Business Will Fail Without A Plan

June 21, 2022 by lauramills

Do you know how much revenue your business is going to deliver in the next year? What’s your profit forecast? How many goods/items will you be able to deliver to your clients? How many man hours will you need for each month to make this happen?

It is common sense that all activities in the business have a financial consequence. Many business owners’ responses to these types of questions is “How could I know?”

Well, it would be gold to predict the future operations 12 months ahead. CEOs and executives would be able to plan just enough resources to cater for it accordingly. However, nobody is 100% accurate in their predictions.

Moreover, if we plan the business operations activities at the beginning of the year and manage business according to these plans with disciplines, our results won’t be too far from our predictions. We call this process “Budgeting”.

Case Study

A client I have been working with recently, is turning over in excess of $30 million with 12 business segments and over 200 employees. The business adopted a “top-down” approach to budgets many years ago. Most of the managers didn’t even know how to check their budgets. Effectively, their budgets had been not very informative.

I was brought in as the interim Chief Financial Officer to implement a set of more suitable budgets within short period of time.

After investigating their databases and legacy systems, I managed to extract relevant mega data with the help of query tools. Furthermore, I suggested that the Activity Based Budgeting (ABB) approach would benefit them in the long run.

What happened next

Planning meetings were held with all business managers to identify daily activities and 12 month action plans
Identifies cost pools and cost drivers within each business segment
Extracted, transformed and loaded historical data from and to the relevant databases
built customised data models to quantify the business plans
Time series analysis, multi-factor regression analysis and stress-testing
Presented findings and action plans to all business heads in language everyone could work with
Tested the numbers with various scenarios
Conducted retrospective forecasting

As part of the budgeting journey, we highlighted the business improvement opportunities and the ways in which to realise them. In fact, this was pushed by the Activity Based Budgeting.

Consequently, the senior executives were thrilled with the “Porsche budgeting experience”.

What does it mean to you?

Budgeting is a disciplined management process that every business needs to achieve the optimal commercial outcome.

A part-time CFO will review and build out your business plan so that your budgets and forecasting make commercial sense.

Lastly, it is never too early to start planning, and it is never too late to roll out budgets into your everyday business management.

Written by Clinton Cheng, CFO at CFO Centre Australia

Step Back and Allow Yourself to Dream

April 7, 2022 by lauramills

The Challenge

One of the toughest challenges for owners of SMEs is to be able to stand back. To look at their business through a wide-angle lens and identify what it is they really have.

When you started your company, you almost certainly allowed yourself to dream. Every successful business operator needs ambition. But as we’ve seen, all too often those aspirations become bogged down in the everyday grind of keeping a business afloat.

Because quite often, the day-to-day distractions and diversions that inevitably surround the running of a successful business get in the way. This affects sensible, objective evaluation and strategic decision-making. Crucially, important opportunities can go at best un-exploited and at worst, un-noticed.

If this resonates with you, what can you do to change the status quo? Ultimately you need an extra pair of hands at a senior level to free up your time and allow you the time to dream.

The Solution

The key could be a CFO (Chief Financial Officer). Whether that is promoting from within, hiring a full timer for a large business, or using a part-time CFO making it affordable for SMEs.

A CFO can be that extra pair of hands to free up your time by ensuring the smooth running of the finance function. They will also being a senior sounding board, taking on some of your worries as well as:

help decode your dream
turn your dream into a plan
be the one to hold you to account to make it happen.

Great CFOs are catalysts. They can help you break the pattern of linear growth and get you what you really want on an expedited timetable.

Your dream is achieved by developing a concise roadmap based on what you want to achieve. The role of the CFO is to help you identify and unlock that potential. Thus, freeing the dream and making it a reality.

Of course this is not to suggest that success comes easily. Business challenges are usually complicated and risky. That’s another reason why potential isn’t always realised.

If you’d like to learn more about how our part-time/as needed CFOs can help you unlock and realise the true potential in your business, please contact us

Photo by carolyn christine on Unsplash

Profit Improvement through Expenses and Supply Chain Management

February 21, 2022 by lauramills

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

Fixed Expenses

Fixed expenses remain relatively constant regardless of the volume of sales. These are usually salaries, insurance and rent.

If your organisation has a significant decrease in sales, profit is impacted as fixed costs remain constant. Additionally, although termed “fixed”, those costs can increase alongside changing economic and other trading conditions.

The following tips can help a business improve the management of fixed expenses.

Regularly review all these costs and compare them against other suppliers’ pricing to ensure the business pays competitive rates.
Salaries are classified as a fixed cost. You should review your staffing levels and make sure they align with your business activity
Compare your expenses to the industry standard. This will also help you know if the costs you are incurring are in line.

Variable

On the other hand, variable costs are directly impacted by changes in the activity levels or the volume of products or services that your company produces.

It is crucial to differentiate variable costs from fixed costs as variable costs are critical when it comes to profitability. If your organisation is not performing as expected, sales can remain flat or are decreasing. It is essential to manage these costs in line with the sales to reduce the risk of profit erosion.

The following tips can help a business improve the management of variable costs.

Analysing profit margins, not just on a company level but on all product lines. You may find that one product has a high margin and another a negative margin. This will not be evident unless you report on each product line.
Make sure you are aware of which costs are attributed to sales. If you see that the profitability is reducing, you may need to reduce those not attributed to sales, for example marketing costs.
Staffing can be a high cost for any organisation. Consider hiring staff on a casual or part-time basis so that you can scale your staffing levels up and down based on sales demand. There are also recruitment agencies that will handle this aspect for you.

Supplier / Supply Chain

When thinking of supply chain, you usually think about the delivery of goods, are they on time or are they correct, and when will you pay for them. If you think about your supply chain as another way to maximise your profitability, you will be on the right track.

The following tips can help a business improve the use of its supply chain:

Implementing the proper inventory method, finding the balance between too much and insufficient material.
Technology that suggests minimum material quantities, and when more stock needs to be ordered. As a result, this can reduce reliance on human interaction and ensure the stock is on hand when required.
Review your supply chain arrangements regularly, look to see if you can get a better price or negotiate the current arrangement. Having your suppliers hold the stock could reduce your cost of storage.
Always have two suppliers. If something were to happen to one supplier, this would not impact your organisation as much if you only had one supplier.

Each business has its own challenges when it comes to profitability. This blog only touches the surface around what can be achieved. The CFO Centre has been assisting SME’s for 20 years, offering highly experienced Chief Financial Officers on a flexible, part-time basis. As CFOs, we are qualified CPAs or CAs with extensive commercial experience across multiple sectors, so we know what to look for and how to respond.

Written by Elechia Jones, Regional Director, The CFO Centre

Tag: chief financial officer