sme Archives - The CFO Centre Australia

How to Outsmart Your Competitors with a Business Plan

May 17, 2022 by lauramills

Most business owners know that without a comprehensive, up-to-date business plan and an implementation timetable, they may be missing out on opportunities for growth and not realising their full potential. However, around 30% of SMEs don’t have one. To ensure you’re ahead of your competitors, it’s imperative to find the time and/or resources to create and implement a plan for the start of the new financial year.

A formal plan can be an extremely valuable tool for managing and growing a business. It allows a company to recognize its strengths and weaknesses. Furthermore, research has shown that SMEs that have a business plan in place are consistently more profitable than those who don’t.

A Formal Plan

Planning is the key to the success of any business, no matter its size or age. Yet many SMEs don’t have a plan. The majority of those without such a plan say they don’t believe it’s necessary or that they keep their plans in their head.

It’s concerning that so many small and medium-sized businesses don’t have a formal business plan. Without clear direction, they may be missing out on opportunities for growth and not realizing their full potential. A plan is invaluable and should see out the company’s:

Strategic direction
Main operating and financial targets;
Actions it will take to achieve those targets,
New initiatives and investments planned;
And their impact on the company’s performance

Creation and Implementation

Creating a well thought-through, comprehensive business plan is an arduous task. Thinking through objectives and likely outcomes which may occur many years down the line is challenging. But it is the hard work up front which makes for lighter work down the road as all of our team of part-time CFOs will attest to.

Most CEOs and business owners simply don’t have the time to spend on quality strategic thinking or 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 and getting it right brings a real sense of clarity and direction to business – this is where an experienced part-time CFO can make a significant contribution.

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’.

Proper business planning is very liberating for the business owner, whatever their objective might be. A well-constructed and regularly reviewed business plan will instil real confidence that the goal is indeed achievable.

Key Benefits

Writing a business plan has many benefits for businesses of any size and in any industry. It can help owners and senior managers to:

Clarify objectives and develop suitable strategies.
Understand the market.
Identify and overcome internal and external threats
Organise the company
Access external funding

Key Elements

The most important part of your business plan is its financial information. Your financial forecasts should include your cash flow predictions for the next 12 months or more. You’ll also need to include sales estimates and costs to ensure the business has enough working capital or to ensure you understand any needs to arrange additional financing.

You need to explain all assumptions in the business plan, with best and worst case scenarios. Detail the risks you’re likely to face and how they will be dealt with.

Conclusion

An up-to-date business plan or ‘roadmap’ in your business will allow you to experience a sense of control, which may have been absent since the day you started your company.
The business plan will remove a significant amount of confusion from your operating procedures. There will always be challenges contained within new projects but you will have a proper framework against which all decision-making can take place.
The plan provides the blueprint for delegating responsibility to your team and allows you to create some space in your own environment to work on growing your business.
You will move out of the chaos and into a more serene working environment where each of the gears, which make up the bigger system, is able to move in harmony.
Potential hazards will have been identified in advance and dealt with before they become unmanageable. You will be able to move from a culture of fire-fighting to a culture of fire-prevention and the benefits will be felt by each member of your team and most probably by your customers too.
A part-time CFO can assist with creating, implementing and reviewing your Business Plan, as well as be a constant guide and sounding board for you.

The business plan is the first key to profitable growth!

Photo by fauxels: https://www.pexels.com/photo/photo-of-people-doing-handshakes-3183197/

Protect Your Company from Late Payments

March 8, 2022 by lauramills

When your company is facing yet another cash flow crisis caused by late-paying customers, it can be hard to believe there might be a solution. But there are steps you can take to overcome the problems delinquent payments cause and to avoid them happening again.

Late payments are something that hundreds of thousands of SMEs experience. They can threaten SMEs ability to trade, and stifle appetite for growth and recruitment. In worst cases, it can lead to insolvency.

The amount of time SMEs are kept waiting beyond their previously agreed payment terms can be a big issue. Almost a third of companies face delays of at least a month beyond their terms. Additionally, nearly 20% are having to wait more than 60 days before being paid.

Fortunately, there are measures you can take to protect your company from the worst effects of late payments. Furthermore, ensure that you are paid promptly in the future.

Some of these measures include:

Research prospective clients – Before accepting a new client, carry out a credit check and find out if the company has a reputation for paying on time.
Agree on prompt payment terms – Create contracts and terms & conditions that specify when they must pay your invoice and any overdue fees. Include your payment terms on every invoice.
Send invoices promptly – Don’t delay in sending out invoices. Check that the details are correct to avoid delays.
Offer a range of payment options – Make it easy for customers to pay you. Offer them a variety of payment options such as Direct Debit, PayPal, and credit card. If your clients are based in a different country, accept payment in their currency.
Use invoice finance – Invoice finance will give you essential working capital (up to 90% of the approved total invoice) while you wait for the outstanding invoice to be paid. You’ll receive the remaining 10% when your client pays your invoice.
Use an invoice tracker system – You’ll receive an alert when invoices are overdue.
Keep to a schedule – Invoice on the same date every month so that your clients know when to expect your invoices.
Set up internal invoice reviews – Hold regular weekly or monthly internal finance meetings to review your invoices.
Don’t back down – If you have late fees for overdue invoices then make sure you follow through and charge them. By law, you can claim interest and debt recovery costs if another business is late paying for goods or services.
Hire a part-time CFO – For a fraction of the cost of a full-time CFO, the CFO Centre provides highly experienced senior CFOs. Your part-time CFO will assess your company’s cash flow position and take the following steps:

Identify and address all the immediate threats to your business
Determine where improvements and savings can be made.
Instigate the use of regular cash flow forecasts. This way you’ll know in advance of a cash shortfall, and can therefore, make arrangements for extra borrowing, or take other action.

What is the North Star?

December 16, 2021 by lauramills

In the 1950s, strategic planning was around budgetary planning and control, then we jumped to 1970s which focused on corporate planning; 1980s focussed on strategic positioning, 1990s strategic competitive advantage; 2000s strategic and organisational innovation; 2010 complexity and rapid change.

Now, we are talking about North Star Metrics (NSM). The term has been in around since the 2000s and was used primarily in Silicon Valley. It has taken a while to reach Perth.

Here is our view of what the North Star means for SMEs.

If you are not familiar with North Star, it is another form of goal setting. Remember SMART goals (specific; measurable; achievable; realistic; and time-based)? And what about vision boards, or stepping stone goals or even a more recent fad of bullet journaling?

A North Star goal, in its basic form, has also been referred to as the Big Hairy Audacious Goal. It is a goal so big, so far out there and it is not about the destination but more about the journey.

One article recommends to think of them “the way sailors view the North Star: A way to stay on course, no matter where you are. And if you don’t know where to go or what to do, all it takes is a quick glance to get back on track”.

If that is the basic form, let’s have a look at the metric in more detail.

Key steps for creating a North Star Metric

1. Start by Understanding How Customers Get Value

And not just any customers, but instead the “must have” customers who say they would be “very disappointed” if they could no longer use the product. Your goal is to expand this “must have value” across your existing and new customers. Your North Star Metric is how you quantify expansion of this value.

2. Should be Possible to Grow NSM “Up and to the Right” Over Time

A good rule of thumb is to choose a metric that can be “up and to the right” over a long period of time. This is why “Daily Active Users” is an example of a good NSM for consumer products like Facebook or online games.

3. Consider the Downsides of a Metric

Think through some scenarios where growing the metric could lead the team to behave in ways that are against the long-term interest of the business. For example, if you made your NSM “average monthly revenue per customer,” then the fastest way to grow this number would be to eliminate all customers that have a relatively low value — even if they are profitable customers. This would likely reduce your overall customer and revenue growth rate.

4. Keep it Simple

Remember that the point of the NSM is to align everyone on your team to work together to grow it. So, it’s important that it is simple enough for everyone to understand it and recall it.

5. Why Not Just Focus on Revenue Growth?

Revenue growth is very important, so this is a natural question that many people, especially business owners, ask. The challenge is that if revenue growth outpaces growth in the aggregate value that your product delivers to customers, it will not be sustainable. Revenue growth will eventually stall and start to decline. But if we can continue to grow aggregate value delivered to customers over time, then it becomes possible to sustainably grow revenue.

For example, let’s take the CFO Centre (CFOC).

How customers get value: CFOC provides highly experienced CFOs to SMEs on a part-time basis.

Grow NSM: the number of active clients

Downsides: CFOC needs to be able to service active clients and this is directly related to number of CFOs

Keep it simple: CFOC wants every SME to have access to a part-time CFO.

This is a big hairy audacious goal. We understand that the number of clients is limited by the number of CFOs but a North Star Metric isn’t necessarily pragmatic or utilitarian. It does, however, provide a direction for the SME and the business owner.

What is the North Star Framework?

In addition to the metric, the North Star Framework includes a set of key inputs that collectively act as factors that produce the metric. Product teams can directly influence these inputs with their day-to-day work.

This combination of metric and inputs serves three critical purposes in any company:

It helps prioritise and accelerate informed, but decentralised, decision-making.
It helps teams align and communicate.
It enables teams to focus on impact and sustainable, product-led growth.

Personally, I would add to this:

Imagine you have your North Star Metric, next you define sub-metrics (break down big goal to smaller goals), define the outputs (key elements of success) of those goals, define how you will achieve those outputs (needs to be measurable) and finally, what are the inputs to reach the outputs.

The CFOC question

At the CFO Centre, we ask our clients: what do you want your business to do for you?

This is an important question as our goal is to build a relationship with a business owner and the questions starts our journey to better understand what is important to them.

The answer to this question can also be the basis of your North Star.

Is the North Star relevant to SMEs?

Overall, I like the concept of setting a North Star for a business but I much prefer the more basic approach: Big Hairy Audacious Goal.

I was in conversation with one business owner who had his North Star, or rather his Big Hairy Audacious Goal. He wants his business to be valued at $1bn by 2029. I thought this was brilliant and I think this is what North Stars are about.

Set your big goal but remember, it is more about the journey than the destination!

Final words

To qualify as a “North Star,” a metric must do three things: lead to revenue, reflect customer value, and measure progress.

Make it bold, tap into your dream and start the journey.

Sources:

Types of Goal Setting – From North Star Goals to SMART to Bullet Journals – Leanne Calderwood; The North Star Approach to Goal Setting | by Patrick Ewers | Better Humans; What is a North Star metric? | Mixpanel; About the North Star Framework – Amplitude; North Star Metric: What Is It and How To Find It For Your Company – Kissmetrics; How To Find Your Company’s North Star Metric (forbes.com); Finding the Right North Star Metric | by Sean Ellis | Growth Hackers; What is the North Star Metric? Theory, benefits and examples | toolshero; What is the North Star for your Strategic Planning? | Insigniam Quarterly; Strategic guardrails for digital transformation | Deloitte Insights

Growing a Business

April 6, 2021 by lauramills

A client recently said to me: “I want to grow our business and stop the cash burn – how do we do this? When is it the right time to invest and grow?”

What a tough question to answer. Each business is at a different stage.

We spent a day examining his business and determining what the growing pains were. He had started the business a few years ago and it grew from scratch to $750k turnover last financial year. This year they may potentially reach a turnover of $1.2m.

It was generating a great turnover and growing but they never had any cash.

“Why?” he asked.

After reviewing the business financials it was quite clear that the internal systems were not in place. He could not possibly understand the profitability of the products they were selling due to these inadequate systems.

Therefore they could not take the next step.

The first question I asked was: “Where do you want to take this business – what’s your goal? To build up the business and exit down the line, or are you looking to exit now? Or is this business a keeper if we can generate a great RoI?”

The response was: “We don’t know the numbers or where this business could get too as we have no clarity on the numbers”.

Something I see very commonly here in the SME businesses I work with – no clarity around the financials.

Next Steps

Step one for this particular client was to build a reporting framework around their products to determine what was profitable and what as not. If there were non profitable products (or those that deliver little profitability), should we dump them or only include them bundles in the online offering?

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

The right time for a business to grow is when they can balance new customer demand with their internal systems and processes. Moreover, in the instance of this client, increasing recurring revenue streams. Growing faster generally costs more per customer as they need to engage more expensive channels within the business model.

Scalability is about continuing to engage customers with new offerings, and to engage new customers with your offering to the market.

To scale a business one must consider how the business model will affect the bottom line when you expand operations. If you have low capital expenditure and can grow your business with the same revenue / expense % it is much easier to deliver greater numbers in the long term and provide greater options to your customers.

It is early days working with this client but the potential is endless.

Merger and Acquisition Strategies for Rapid Growth

February 24, 2020 by charlottenoble

If you want your company to enjoy fast, explosive growth, then consider merging with or buying a target company.

If you use the right merger and acquisition strategies your company could gain many competitive advantages and transform from a scale-up to a large firm.

It could also benefit from new technologies or skill sets, increased output, and more fixed assets. It could achieve an increased market share like Disney achieved with its $71.3 billion merger with 20th Century Fox in early 2019. The merger meant Disney boosted its domination of cinema with the newly merged company commanding 35% of the industry.

Your company could enter or expand into other markets or territories by merging with or acquiring a company that already has a strong presence there.

Acquiring firms can get substantial cost or revenue synergies from the merger or acquisition. For example, the company could benefit from the increased buying and negotiating power it has, thanks to the merger or acquisition.

It could achieve vertical integration, with potential cost and efficiency savings. Some of the business units within the merged firm could be consolidated.A successful merger or acquisition could mean that your company could raise prices, sell more products or services, and even change market dynamics.

With an expanded business, you could benefit from internal economies of scale. Your business could get access to raw materials or gain control of your supply chain.

Your business could achieve a virtual monopoly in your market through horizontal integration. That is, acquiring or merging with a company that is on the same level in the production supply chain as your own.

A successful M&A in another country could provide substantial tax benefits too. Many governments offer substantial tax benefits to companies that merge with or acquire local companies.

All of this can be achieved in the short term rather than the years it might take if you rely solely on organic growth.

However, before you start looking for target companies, it’s essential to undertake strategic planning. You and your Board of Directors need to consider your company’s goals, resource allocation, business portfolio, and plans for growth.

You can then better decide if merging with or buying another business fits with your company’s strategy and goals.
It’s far better to do this early on rather than after you’ve acquired companies.

Raising finance to fund the merger or acquisition

If you decide that a merger or acquisition will fit with your goals, then you’ll need to consider how to finance your merger and acquisition (M&A) deals.

Borrowing from third party lenders makes an acquisition or merger possible for growing SMEs. There are of course other ways to finance a merger or an acquisition. They include exchanging stocks, taking on debt, issuing an IPO, using cash, and issuing bonds. Some of these might not be feasible for SMEs.

Banks are still the main source of primary loans, but there are several alternatives to consider. They include direct lending funds and private placement markets.

You can use debt capital, equity capital, mezzanine capital, or convertible debt to complete your merger or acquisition.

The benefit of using debt capital in which you borrow against any debt-free assets is that you won’t have to give up equity in your company.

With equity capital, you sell a portion of the equity you own in your company. Private equity groups will offer to fund you in return for a stake in your company.

You could consider applying for a private placement loan. With that, you sell shares in your company to a select group of investors. The advantage of a private placement loan is that it can be a cheaper and quicker process than a public share offering. It is less regulated too.

The benefit of getting an asset-backed loan from a direct lending fund is that the fund manager may offer a more flexible deal structure than a bank. You will also keep control of your business.

Mezzanine capital is a hybrid of debt and equity capital. Lenders will look at your cash flow and your company’s future growth rather than its assets.

If your company is classified as high risk and you’re unable to get credit, you could raise funds through convertible debt. A creditor will loan you the money in return for a mix of equity in your company and debt-free assets.Use experts

Many financial and legal factors need to be considered before merging or acquiring a business. Mergers and acquisitions require analysis of the following:

Market opportunity
Company resources
Company’s liquidity (to ensure it can make and sustain the investment
Statutory and regulatory restrictions (especially linked to competition)
The speed of the process
Impact on customers (especially if the M&A results in market domination and a price hike)

In the medium and long term, the success of the operation depends on three things:

The size and global scope of the resulting business
The capacity of the management team
The integration of strategic and operational functions.

It’s crucial that you understand the market your target company is in, identify entry barriers, and evaluate its potential for growth.

Your due diligence should include the company’s intellectual property, its contracts, balance sheet, management, staff, benefits packages, property, leases, and stock.

That’s why a successful merger or acquisition relies on the help of external M&A advisors who have expertise in this area. They can carry out due diligence, provide advice, and even negotiate on your behalf. They can also save you from making a costly mistake.

Many mergers and acquisitions fail due to factors like poor research of the target company and due diligence being carried out by buyers who have no experience in M&A transactions.

They can also suffer from too much focus on post-merger cost-cutting rather than growth, as was the case with the merged Kraft Heinz.

A mismatch of cultures or even IT systems and other technology can also result in M&A failure. This was the case when the German car manufacturer Daimler Benz bought the American Chrysler car company for $36 billion in 1998.

While the German company catered to an affluent market, Chrysler offered its cars at competitive prices.

The union didn’t work and in 2007, Daimler Benz sold Chrysler to Cerberus Capital Management for $650 million.

That’s why it is so vital to use advisors who are well-versed in M&As. They’re likely to be doing M&A deals on a day to day basis.

So, if you want your company to grow dramatically, acquire new customers, and enjoy a sustainable competitive advantage, start looking for target firms that are ripe for acquisition or a merger. But talk to the M&A experts at the CFO Centre first. Call 0800 169 1499 now.