exit strategy Archives - The CFO Centre Australia

4 Signs That My Business Might Need CFO Services

June 28, 2022 by lauramills

I have recently been talking to business owners and executives who want to build more resilience into their business. They are considering adding a part-time Chief Financial Officer (CFO) to their team. During these discussions, two questions usually come up. “How do I know if my business needs a CFO?” and “what does a CFO do that my Accountant can’t?”. I would like to share some thoughts on these questions.

The primary responsibility of a CFO is to optimize the financial performance of a company. This includes its reporting and accountability, liquidity, return on investment and long-term value creation.

A CFO has a forward-looking perspective. They look at interactions of the business with outsiders, acting as a diplomat and negotiator with third parties. Often the strategies put in place by a CFO are not short-term fixes. Some may take months or years to be fully realised.

How do I know when my business needs a CFO?

As to the question of when a business needs a CFO, the following indicators may be helpful.

Internal – When information that helps in making important decisions is not timely or reliable.
External – When improved respect must be gained outside the business. eg from investors, customers, suppliers, labour markets, regulators etc.
Rapid Growth – Growth requires an expansion of systems, and usually additional capital to finance the growth.
Exit – When a business is preparing for a merger, acquisition, or business sale.

So, when the business is at the stage of increased external engagement and growth, a CFO can add significant value.

What does a CFO do that my Accountant can’t?

A CFO always works closely with the external Accountant. Having an accounting background, the CFO is well placed to understand the role of the external Accountant. The external Accountant’s role is mostly concerned with compliance and transactional advice. They work from their own offices and will normally attend the client’s business premises periodically. External Accountants often have the skill sets to provide additional services. However, they are usually not involved closely enough in the running of the business to make this a sensible use of their time.

Functions such as the below will either fall to the CFO or some other suitably qualified resource will need to be allocated:

Budgeting and forecasting
Cash flow management
Financial reporting
Scenario planning
Internal controls
Insurance
Bench-marking and key performance indicators
Incentive schemes
Management of key suppliers
Accounting policies

If the business doesn’t have a CFO, the CEO or one of the Directors have to take ownership of these functions. This means they are taken away from other important leadership and governance roles. They also may not have the depth of experience in the technicalities of financial transactions to handle these things well.

Some of the common misconceptions about a CFO

There are some common misconceptions about a CFO that are worth discussing.

The first misconception is that a CFO may have an excessive focus on short-term financial results ie this year’s profit. Financial success of the business is undoubtedly the objective of any CFO. This, however, does not mean sacrificing long-term value creation for short-term results. A CFO is interested in the success of all business stakeholders. This includes owners, employees, customers, suppliers, financiers etc. All stakeholders must be rewarded to ensure the long-term health of the business.

CFOs are therefore, likely to be just as interested in the business strategy as they are in the profit and loss statement. In addition, culture, reputation, governance, and risk management will be on their radar. A good CFO recognises that sustainable financial success is only achieved when all aspects of a business are working well.

Another commonly held misconception is that CFOs think in “black and white”. That therefore, they may not be comfortable with the various shades of grey that business and life deal up. Whilst that may be true for some aspects of a CFO’s decision-making, good CFOs will look closely at the underlying issue. For example, CFOs are often involved in analysing the performance of a business or even individuals. In understanding performance, a CFO will often consider a range of underlying factors. This can include; roles and responsibilities, resources, delegated authorities, remuneration and incentive systems, behavioural assessments, management approach, and organisational structure and culture. CFOs are first and foremost experienced corporate managers. They understand that people are usually the most critical resource in businesses. From experience, most CFOs are skilled at dealing with people issues sensitively.

If you’d like a confidential discussion about whether a part-time CFO could be right for your business, please contact us.

Allan Robb, CFO at the CFO Centre

Did You Know Planning A Business Exit Takes 7 Years? Where Are You At?

June 2, 2022 by lauramills

Succession planning and/or exit planning is a very common topic we encounter as CFO’s when addressing a client’s top list of priorities.

In fact, a current client of mine has listed this as their number one priority to be achieved over the next two years. “I want out in two years, and I want $xxxx!”

Business owners spend years building their businesses, nurturing, and developing them. For the most part, the very reason they started the business was inspired by a passion or an idea. Usually around a certain product or service that they felt could not only be a commercial success, but one that would make a difference.

Common Scenarios

A common scenario we encounter as CFOs at the CFO Centre is a client up to their neck in meeting the day-to-day challenges of keeping the business “running smoothly” but just don’t have the time or wherewithal to put in place the mechanisms or strategies to set the business up for succession or exit.

In fact, we find the opposite. Business owners becoming so entwined in the business that they are involved in every aspect requiring their input. This makes the business impossible to feel separate as a stand alone entity, also making it even less attractive for a prospective purchaser.

Many business owners want that elusive buyer to walk through the door and offer a nice big settlement. The owner can then sail off into the sunset with a suitcase full of retirement cash.

This is not planning this is mostly wishful thinking. However, all is not lost and this is where we at the CFO Centre can help.

As I mentioned I currently have a client that wants to sell all or some of his business that he has built over the past twenty years. It is in manufacturing and in an industry that has its own set of unique challenges in terms of risk profile. So what can we do to assist?

Just like a real estate agent advising a client the things to put in place when selling a house, we can apply independence, objectivity, and non-emotional advice on how to position a business for sale.

Like anything that is worthwhile, setting up and executing the sale of a business or putting in place a successor takes time. Furthermore, this can take years to achieve. It is not a quick fix. Like a health check we need to implement the fundamentals that make a business successful and independent. Using our matrix of twelve financial building blocks we build the platform which enables you to ‘own’ rather than ‘run’ your business.

A more in-depth discussion can be had around our 12-box program but in essence they are:

The 12 boxes

Ideally, we address all operational issues 1^st and foremost at the outset of our engagement in conjunction with our 4 boxes of business support. Implementing the 4 fundamental operational boxes sets up a healthy platform for the business making the business all that more appealing to a prospective buyer.

Once these are in place, we then transition into more of a strategic role. We can be that mind and voice of objectivity and independence. This is especially helpful in family companies whereby that non-biased voice of reason is so critical when making strategic decisions.

Here at the CFO Centre, we have an extensive network of affiliated partners. This includes business brokers, tax accountants, legal practitioners etc. This assists in providing great support under the business support matrix (above), together with our extensive network of CFO’s and their clients. Such a large business database is helpful when trying to attract interested parties for an owner motivated to sell. Never underestimate the power of our network.

There are other ways for an owner to exit other than a sale.

The most obvious being succession planning. Someone, or a group of employees within the organisation take over from you as the owner/operator. This does require years of training. Ideally one recruits or selects someone within the organisation that shows good leadership and management skills. Normally, this person will come with an entrenched set of skills – either sales/marketing, finance or operational. Whatever that skill base may be, one then needs to embark on a program of broadening these skills. They should encompass a good grounding in all key commercial disciplines – sales/marketing, finance and operations.

It is then critical to tie this person’s remuneration to the performance goals of the business. So when these are met, the individual concerned is rewarded – ideally through equity participation in the business. When I joined Australis Music back in 1996 as Finance Manager this was my exact path. Ultimately, I took over the CEO’s role from the Owner/Founder, Peter Hayward, in 2003. So, seven years of grooming and slowly handing the reigns. When Peter sadly passed away unexpectedly in 2006, he had done all things necessary to ensure that the company was in safe hands and that his largest asset was protected. I continued to oversee the company as CEO for three years after his passing, and ultimately sold the business to private equity.

The Moral?

The moral of this story – 7 years. 7 years it took to develop and execute the succession plan. By applying our 12 financial building boxes we can play a key role as your part time CFO. Assisting in the execution of your succession/exit plan. The key however this is a process and not a quick fix that can take years to implement.

Checklist: How to Sell Your Business Fast

June 7, 2021 by charlottenoble

Plan Your Perfect Exit Strategy

Selling your business to the right buyer for the right price at the right time depends on the health of your business, having the right advisors, and your timing.

Get these factors right, and you can sell your business quickly.

Before putting your business up for sale, you’ll need to clarify:

Why you want to sell the company and what you hope to achieve.
Your ideal buyers and what their plans for the business would be.
Your goals for the sale. Do you want an earn-out clause or a cash sale?
How you’ll improve the current value of your business to get the best price.
How to market your business to sellers. You need to decide whether to use business brokers to do this or do it yourself.
The timing of the sale. You need to sell before patents, licenses, leases, etc. expire.
Due diligence. You’ll need accountants, legal advisors, along with specialists in tax, sales, and IT to perform vendor due diligence and make that information available in a virtual or real data room for potential buyers.
Who will negotiate the deal?

The following checklist will help you to achieve the best deal for your company.

Your Exit Plan Checklist

Clarify why you want to sell your business

You need to decide why you want to sell the business. It’s something prospective buyers will ask you, and it will have an impact on the business sale.

For instance, do you want to retire because you’re fed up with the stress of running a business or suffering from ill-health? Or is it because you want to start a new business, or allow someone with more expertise to take it to the next level?

Your reasons for selling the business could have an impact on the timing and outcome of the sale. For instance, if you decide you must find a buyer as soon as possible, you might have to accept a lower price or less attractive deal.

Decide what you’re selling

You need to decide if you’ll going to sell some or all of your company’s assets or the legal entity of your business as a share sale.

Focus on areas of improvement

Identify the issues and areas of improvement in your business and develop a plan for dealing with them.

For example, how can your company become less reliant on one or two major customers or suppliers? Are there areas that will benefit from cost-cutting? Is there a potential for rapid growth in the business? Can you improve productivity?

Prepare your accounts

You need to show how well the company has performed in the past few years.

Prospective buyers will expect to see at least three years of trading accounts. Buyers will be put off if they discover reports are missing or inaccurate. It will make them doubt your claims about the company’s health.

Get your paperwork in order

Your paperwork needs to be up to date and available to prospective buyers.

They’ll want to see supplier/buyer arrangements, licenses, maintenance agreements, lease or hire purchase agreements, business rates, insurance policies, list of employees, and their contracts, along with your company incorporation documents.

Resolve disputes

If you have problems with suppliers, customers, other companies, or employees, you need to document them and, if possible, resolve them before you put the business on the market.

Decide who will sell your business

Business brokers (or business transfer agents) can market your business for you, or you could do it on your own.

Brokers will demand a percentage of the sale if they sell on your behalf.

You also need to clarify what brokers will do to sell your business and whether you will be involved in picking and interviewing candidates.

Check for details such as extra fees or costs, termination rights, and cooling-off periods.

Look for business brokers that have experience in selling companies in your industry, in your markets, and similar size businesses.

Get a business valuation

Prospective buyers will want to know the true worth of your company. Hire a business valuation expert to do this for you.

Get expert advice

Put together a team of trusted legal and financial advisors who have expertise in selling companies. Get their help to identify areas of the business that need attention and on how best to proceed with a sale.

Create a confidentiality agreement

You won’t want sensitive details about your company or its sale leaked to employees, competitors, suppliers, creditors, and customers, so make sure prospective buyers sign a confidentiality agreement.

Perform Due Diligence

You need a team of specialists to produce a documented business strategy, healthy financials, along with information about your employees, and plant and IT systems.

That information must be made available in a real or virtual data room for prospective buyers to view and check.