Hire a CFO Call us 1300 447 740
Hire a CFO Call us 1300 447 740

Tag: part time cfo

The Top 4 Mistakes People Make When Planning

by lauramills
The Top 4 Mistakes People Make When Planning

A strategic plan is fundamental, it sets out the company’s strategic direction. It defines its main operating and financial targets, the actions it will take to achieve those objectives, the new initiatives and investments planned, and their impact on the company’s performance.

The top mistakes business owners can make when it comes to planning are:

  1. They don’t have a plan at all
  2. They don’t have a formal plan, it’s in their head which is difficult to share with others
  3. They don’t have an implementation timetable attached to their plan
  4. They don’t have a mechanism in place to conduct regular reviews

Without a comprehensive, up-to-date strategic plan and an implementation timetable, companies may be missing out on opportunities for growth and not realising their full potential. A formal plan can be an extremely valuable tool for managing and growing a business, as it allows a company to recognise its strengths and weaknesses.

Chaos Reins

Not spending quality time on strategic planning usually leads to a chaotic working environment. Our clients often talk about ‘not feeling in control’ and ‘not really knowing what is coming around the next corner’. When the plan is weak, business owners tend to operate without the same sense of conviction as those who allocate time and expertise to the planning process. Our CFOs often find that 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.

Helping Hand

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/MDs. It is natural for business owners to bring people into the company who see the world in the same way they do. However, it is often more valuable to have key members of your team who possess very different skills to your own.

Constantly doing the same things in the same way with the same people will usually lead to achieving the same results. If you are worried about whether you have the right team in place to fulfil the vision you have for your business, or whether you have the funds you require, or whether your business plan is sufficient to reach your objectives, then we would recommend you take the time out to work through the detail. It is rare to see a company succeed if it doesn’t have a robust plan.

Our part-time CFOs often work with clients who started off with intentions to run a business and have ended up working in a job. However, with the right business plan in place and a robust implementation approach, the business owner is able to run the business without getting drawn too far into the day-to-day details. Contact Us if you would like to discuss your options.

How A Strategic Plan Will Change Your Business

by lauramills
How A Strategic Plan Will Change Your Business

Strategic Planning is the key to the success of any business, no matter its size or age but it’s said that many small to medium-sized businesses don’t have a plan of any kind.

What is a Strategic Plan?

The strategic plan sets out:

  • the company’s direction and priorities;
  • its main operating and financial targets,
  • the actions it will take to achieve those objectives,
  • the new initiatives and investments planned, and
  • their impact on the company’s performance.

Nearly a fifth of SMEs say they prefer to keep plans in their head, according to research by Close Brothers Asset Finance. Mike Randall, CEO of Close Brothers Asset Finance, says, “It’s concerning that so many small and medium sized firms do not have a strategic business plan.  Without clear direction, they may be missing out on opportunities for growth and not realising their full potential.”

A formal plan is an extremely valuable tool for managing and growing a business as it:

  • clearly communicates the company’s priorities
  • ensures all key staff are working towards common goals
  • sets the focus on key objectives
  • delegates actions and accountabilities amongst employees
  • ensures that decisions made will benefit the long-term company goals
  • allows a company to recognise its strengths and weaknesses.

Failing to plan is like planning to fail

Strategic Planning is an area SMEs should be focusing on.   Furthermore, a plan is only useful if it is reviewed regularly to ensure it meets the current and future needs of the business.  It’s vital business owners regularly review their financial strategy to ensure they have the right funding in place to meet the needs of their business, at its current stage of the business lifecycle.

Most CEOs and MDs simply don’t have the time to spend on quality strategic thinking and to document and communicate that thinking in a way which allows the whole business to buy into the vision. Harder still is managing and implementing the business plan. Significant strategic course corrections are commonplace in fast-growing companies. These should be embraced. The tricky part though is in managing regular change. That requires a combination of time and specialist knowledge.

There is an art and science to effective business planning. Getting it right brings a real sense of clarity and direction to a business. This is where an experienced part-time CFO can make a significant contribution.

There is an art and science to effective strategic planning. Getting it right brings a real sense of clarity and direction to a business.

Business Plan for Funding

It’s likely at some point in your business journey, that you need access to funding. Whether that be to scale faster, expand into other territories or buy other businesses.

External funding could be via banks, non-bank lenders, venture capitalists, and angel investors.  None of these are unlikely to look at any funding request that isn’t accompanied by a very solid business plan.  It defines exactly what you want to achieve, and how you plan to achieve it across a set time period. It’s a sure-fire way to ensure that growth targets and plans are being met.

However, business owners will struggle to formulate a concrete business plan without firstly ensuring that their strategic plan is solid and robust.

Our team can assist in creating and implementing a solid strategic plan and/or business plan that paves the journey for your business. Click here to find out more, or contact us on 1300 447 740.

What Is a CFO…And Why Do You Need One?

by lauramills
What Is a CFO…And Why Do You Need One?

Many of my SME and NFP clients ask me “What is a CFO? …. And why do I need one?”

What they are really asking is, “what value can a CFO bring, and what can a CFO do that my finance/accounting/book-keeping team cannot do?”.

BREADTH & COMMERCIALITY

A CFO (Chief Financial Officer) has responsibility for ALL the financial affairs of an organisation. It normally takes around 10+ years of diverse finance experience before they get their FIRST CFO role. Being the top finance person in these sizeable organisations means that they normally acquire commercial, operational and strategic experience.

The finance/accounting team or accountant/book-keeper has responsibility for the accounting system. In this context this typically involves processing invoices and transactions, making payments to suppliers and staff, compiling budgets, facilitating any audits, preparing P&Ls and balance sheets, and compliance work such as filing tax returns. It is an important and critical part of the overall financial system. It is the engine room, or the lifeblood of the financial ship, giving the ship energy, information and the ability to move. But it is not the entire financial operation. There are other parts of the metaphorical ship,e.g. navigation, steering and radar rooms.

CFO’s financial role. In addition to the accounting system, CFO may focus on:

  • Need forward looking reporting. Accounting system is generally historic (past transactions). We don’t drive our cars with eyes fixed on rear view mirror!
  • Tax planning (not filing)
  • Increased focus on cashflows rather than P&Ls (profitable businesses can go bankrupt)
  • Reporting that gives information on how different parts of the business are performing (rather than the information that ATO or auditors require)
  • Medium term business plans with milestones and KPIs (not annual budgets)

CFO’s commercially and strategic role:

  • Partnering with, and advising, the CEO/owner to drive business performance
  • Manage and mitigate risks
  • Linking financial and operational strategies
  • Evaluating and advising on projects, products, customers, pricing strategies

In a nutshell, a good CFO will have breadth at all areas of finance and accounting, but in addition have commercial and strategic acumen.

DO YOU REALLY KNOW WHAT YOUR BUSINESS IS DOING?

As businesses grow and become more complex it is more difficult for owner/managers to have comfort that everything is under control. No longer can they do it all, and see it all, but they don’t know how to setup systems and structures to delegate.

This is currently made more difficult by pandemics, geopolitical tensions, supply chain disruption etc.

Many good businesses fail at this early growth stage. We often call it “the first brick wall”!

It’s a vicious downward spiral. The business suffers, or worse case, runs out of cash.

SO, DO YOU NEED A CFO?

An experienced CFO knows how to setup these systems, to better enable profitable, crisis free growth. They can act as advisors, partners and mentors.

So YES, you may very well need a CFO.

Your finance team can also benefit. By working with the CFO they can up-skill and broaden their experience.

Win, win!!

“But I don’t need and can’t afford a full-time CFO”.

ABSOLUTELY CORRECT, but you do need help, just not full-time help.

SOLUTION….a Part Time CFO model. You pay for the CFO only when you need them!! On demand CFOs.

Written by Gary Campbell. Gary is an experienced CFO, based in Victoria,  working for the CFO Centre Australia. He is particularly successful at profit improvement, financial turnarounds, risk management and corporate governance for SMEs and NFP. He can be contacted here

17 Reasons Why You Need a CFO To Help You Exit

by lauramills
17 Reasons Why You Need a CFO To Help You Exit

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

This means you will have:

  • One of Australia’s leading CFOs, working with you on a part-time basis
  • A local support team of CFOs, plus
  • A national and international collaborative team of over 750 CFOs sharing best practice (the power of hundreds)
  • Access to our national and international network of clients and partners

With all that 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.

In particular, your part-time CFO will help you to ensure that your business has planned and prepared for an exit. The sale process would be managed efficiently to minimise challenges on price, and prevent advisors’ fees from absorbing too much of the sale price.

For example, your CFO will:

  1. Help you to implement your strategy for growth and exit
  2. Identify where value can be maximised and eliminate unprofitable or low profit activities
  3. Ensure that shareholders’ interests are protected through a shareholders’ agreement
  4. Explain what incentive arrangements are available for key management and introduce them. These could include bonus plans aligned to the business objectives or option plans
  5. Ensure that property is held in the most appropriate manner for the business and any potential acquirer, freehold or leasehold, length of tenancy
  6. Review pension arrangements to identify any funding or future liability issues
  7. Review contracts and trading terms to ensure they are in place, up to date and enforced
  8. Identify risks to the business from suppliers and customers on whom the business may have become reliant and plan to spread the risk
  9. Improve the accuracy and timeliness of management information
  10. Introduce systems and controls to increase confidence in the integrity of the accounting information
  11. Improve and/or introduce forecasting processes and procedures so that budgets and forecasts can be used as dynamic planning tools
  12. Identify means of improving margins and reducing overheads to improve profitability
  13. Ensure compliance with PAYG, Superannuation, GST, Income Tax and Company Tax legislation while seeking ways to reduce the overall tax burden to you and your business
  14. Introduce you to corporate finance, legal and other advisers to help with all aspects of the exit preparation and process
  15. Project manage the exit process internally so that it minimises the disruption to other staff and their continuing responsibilities
  16. Create confidence in the acquirer and their advisers so that they have limited opportunity to attempt to negotiate the price down or increase warranties from you
  17. Help you achieve the freedom you want after the efforts that you have invested in growing business

How much better would you feel when you engage a top calibre CFO to work with you on your exit/succession?  Get in touch with us today – 1300 447 740

 

Photo by fauxels

7 Ways To Increase Profit And Business Value

by lauramills
7 Ways To Increase Profit And Business Value

Have you ever wondered how your business is valued in the eyes of an external party? Then you need to know the seven (7) levers in your business.

With just a little additional focus on one or more of these 7 levers, you can directly improve the cash-flow, profitability and/or value of your business. There’s no smoke and mirrors, nor anything particularly difficult to undertake. However, many business owners do not take the time to appreciate how the financial performance of their business really works.  So, let’s break it down.

Often business owners will primarily focus on sales volume, in other words trying to sell more. However, whilst sales volume is important, it’s only one of the 7 levers available to you.

What are the 7 levers in a business that control your cash, profit and business valuation?

The first four levers are focused on your Profit and Loss and therefore directly impact the profitability (and cash-flow) of your business. As most, businesses are valued at a multiple of cash earnings. These levers also have a huge impact on the value of your business (along with other aspects such as Brand, customer base / income streams, and internal expertise / “keyman” dependence).

  1. Volume

Selling more – although increasing sales can grow your business, don’t forget to focus on the other levers below! How much of every extra $1 in revenue turns into profit and into cash in your bank account, and when?

Tip – formulate a sales & marketing plan, with a budget, which is aligned back to your  overall Strategy. Review and tweak the plan regularly.  This will help keep you focused on the right way to grow your top line.  Any growth needs to be sustainable!

  1. Pricing

can you increase your prices? Even a 1% increase can have a big impact. There can be a fear of losing customers by putting up your prices, which can often be unfounded.

Tip – review your margins by product / service stream / customer to ascertain which sales are making you money and which are not.  You need to know your break-even points!  Your part- time CFO can help – they love this stuff!

Tip – the results of your pricing analysis need to dovetail into the sales & marketing plan. It’s possible to make more profit from less turn-over!

  1. Cost of Goods Sold – reduction in % terms

This lever is most relevant to those businesses with direct costs such as manufacturers, construction, etc and places the focus on your gross margin.

Tip – revisit your direct purchasing arrangements and negotiate better terms and pricing. For example, bulk purchase discounts, early payment discounts, reduced freight.  Maintaining strong supply chain relationships is important but that doesn’t mean you can’t ask the question (or find potential alternatives).

Tip – review your direct labour-force using metrics such as labour utilisation, overtime levels, re-work, customer complaints, and down-time.  You may be able to re-deploy staff or reduce casual labour / overtime once you have this data.  Again, your part-time CFO can make this happen for you.

  1. Reducing Overheads

This may sound like an obvious one, but we always find at least some unnecessary “fat” in our client’s overhead expenditure.

Tip – someone needs to review the overheads line by line. Indirect / office wages, communications, insurance, utilities, freight, and advertising are the common ones where savings can be achieved. Even small reductions in certain areas can all add up over time!

These last three levers are focused on your Balance Sheet and are collectively called Working Capital. They have a significant impact on your cash-flow and therefore also on your funding requirements. Many businesses can avoid additional debt borrowings, or pay their existing debt faster by shortening their cash-conversion cycle.

  1. Reducing debtor days

This means improving the ageing profile of your Accounts Receivable function (i.e. getting your customers to pay you faster).

Tip – review your credit control policy and your payment terms as customers with poor payment histories should be carefully managed.  Review your collections process in terms of who chases the debt and when.  The introduction of direct debit may be an excellent solution for some businesses.

  1. Reducing stock days

This means a faster conversion of your inventory (if you carry it) into sold product, thereby reducing the amount of stock you hold.

Tip – introduce a stock-take process if you don’t have one. This can ensure that your financial records mirror what you actually have on the shop-floor. Then review the results of the stock-take for slow-moving or obsolete stock items – these may need to be discounted in order to convert them into cash.  Your purchasing policies may also need review if you are over-stocked with certain inventory lines.

  1. Increasing creditor days

This means taking longer to pay suppliers (without hurting the relationship or cutting off supply).

Tip – contact your suppliers to re-negotiate your settlement terms. It’s just a matter of asking the question – they may say “no” but then again, they may really value your business.

Now you know the what the 7 levers are, it’s time to do something tangible with them in order to make a real impact on your business. If you don’t have the internal expertise or time to make it happen, we would be happy to talk to you about how a part-time CFO can bring this to life. After all, as CFOs it’s what we do!

 

Photo by Monstera

Who is Working for Whom?

by lauramills
Who is Working for Whom?

A rhetorical question for you – “Is the business working for me or am I working for the business?”

Before you answer, perhaps it may be opportune to really reflect on where things stand for you and your business, and what you would like to achieve this year for both.

The thought of taking some time out for reflection may sound like a “nice thing to do”, however it can be a very powerful exercise.  Since Covid hit, have you made time (with no distractions) to REALLY reflect? Or have you been swept into the new financial year with hardly time to a take a breath?

Time to reflect

The practice of Reflection can be an excellent way to provide you with a sense of calm and clarity, allowing you to get clearer on:

  1. What is most important to me personally? (ie what do I value most?)
  2. Am I living the life I choose? If not, what is stopping me?
  3. Why did I start or buy the business?
  4. Are those reasons still valid and aligned with what I want now and for the future?
  5. What does the business need to look like to support my vision and goals?

When you are clear on what is most important to you and the life you would like to live, you can then look at your business through a different lens.  It allows you to honestly question whether the business, in its current state, is an enabler or distractor from achieving your personal goals.

Reflection paves the way for truly effective business planning. This starts with YOU and PURPOSE rather than the business itself. With renewed clarity you gain from personal reflection, your plans for the business may start to look very different. For example:

  • Reducing business dependency on you (or “key people”). This frees you up to spend more time with family or more time to pursue the things that make you truly happy.
  • Exit or succession planning to facilitate your retirement or next project. And we know this often takes longer to successfully implement than you think!
  • Realign the business to better reflect your personal values (such as ethical, social, or environmental considerations).

What’s next?

If “more of the same” doesn’t sound appealing to you, take time to reflect on your Why and personal goals. You can then consider and plan how your business will support you in achieving the life you desire.

CFO Centre is a worldwide group, united by the common Purpose: “To help you live the life you choose by defining and delivering on the numbers that REALLY matter”. Click here if you’d like to find out more about how it all works.

4 Signs That My Business Might Need CFO Services

by lauramills
4 Signs That My Business Might Need CFO Services

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.

  1. Internal – When information that helps in making important decisions is not timely or reliable.
  2. External – When improved respect must be gained outside the business. eg from investors, customers, suppliers, labour markets, regulators etc.
  3. Rapid Growth – Growth requires an expansion of systems, and usually additional capital to finance the growth.
  4. 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

Why Your Business Will Fail Without A Plan

by lauramills
Why Your Business Will Fail Without A Plan

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