Outsource To Free Up Your Time And Save Money

Outsource To Free Up Your Time And Save Money

Outsourcing is nearly always cheaper, more efficient, and more flexible than hiring in-house staff. You can use outsourcing to tap into expertise and experience not available in-house (technical or managerial) or to identify and then reduce the costs of support services.

But concerns about the potential pitfalls of outsourcing stop SMEs from seeing the many benefits of outsourcing (which would allow their full-time employees to work on the company’s core competencies).

A part-time CFO can help you to leverage outsourcing, allowing you to operate a leaner, more efficient business and use the savings to drive growth. In these articles, you will see:

  • The benefits of outsourcing
  • What can be outsourced
  • How to use outsourcing in your organization
  • The main reasons companies don’t outsource
  • How a part-time CFO can help you to leverage outsourcing

A desire to focus on core activities is one of the main reasons companies of any size choose to outsource one or more of their support functions. 

You can use outsourcing to tap into expertise and experience not available in-house (technical or managerial) or to identify and then reduce the costs of support services. But outsourcing is something that worries many SME owners. They fear that outsourcing non-core aspects of the business like finance, HR, IT or managing customer relationships will lessen their overall control of the company. Or that it will be restrictive or expensive.

You might feel that not being able to see and talk to your team will mean that you are less in control and that you lack the visibility to spot potential problems and take decisive action.

You might worry too about the track record of your chosen outsourced provider. Will they maintain the high standards you insist on and deliver quality within the deadlines you prescribe?

Or maybe you worry about costs: will the prices quoted by your provider be set in stone or as the relationship develops, will a number of hidden costs emerge (licence fees, annual renewal fees, maintenance fees, etc.)?

Perhaps the reliability of your outsourced provider concerns you. Will your provider respect your company’s confidentiality? Will your data and other assets be safe in someone else’s hands? Will your ideas be stolen or will your customers’ sensitive data be hijacked by the people you hire?

What will happen if things go wrong with your provider? Are they happy to share a detailed contingency plan with you so that you can feel assured that you will not be hung out to dry if a serious problem arises?

What level of importance does your provider attach to compliance?

How can you be sure that laws and regulations will be adhered to and that you will not be held liable for infringements?

It’s these kinds of concerns that stop business owners from seeing the many benefits of outsourcing (which would allow their full-time employees to work on the company’s core competencies).

One such owner was Simon Wakefield, Managing Director of green bean coffee importers DRWakefield. His bank was asking some pretty tough questions at the time and he knew he needed help.

“Not having enough background information, data and statistics to lay out for the banks to see what we were doing, we soon realized we needed someone who could manage those and help us make those decisions,” he says.

But at first, he was reluctant to hire an CFO on a part-time basis.

“Part-time was something I’d never have considered before because I like to have people in-house that work with us and understand our business. It sounds simple, but when you start drilling into the way we work with multiple currencies, multiple countries, it becomes quite detailed.

“In my previous experiences of part-time employees, they would come, they would be freelance, they would go and it didn’t work with us.”

He eventually overcame his reluctance to outsource and hired a part-time CFO from The CFO Centre.

“The CFO Centre offered us something: if our first CFO didn’t work out, they would quickly put in another one. If the CFO they installed didn’t have the answer to some information that we needed, he was part of a bigger pool that he could get information from and bring to us.”

Not only did his part-time CFO Nick Thompson help improve his relationship with the bank by bringing in a permanent management accountant to take care of the finances but he also helped update the company’s accounting software packages and credit control procedures, so that it had a far better cash flow than it did beforehand.

“In the five years Nick’s been here, we’ve grown about 30% in numbers. He’s helped bring in new software and changed our auditors so that we have a more professional auditor looking after us now. So there have been very clear targets and goals that have been achieved. From the other side, it’s meant that I can sleep better.”

Any functionality that is not core to your business should be outsourced at the best cost and quality, says Kevin D. Johnson, author of The Entrepreneur Mind: 100 Essential Beliefs, Characteristics and Habits of Elite Entrepreneurs.³

“In the majority of cases, trying on your own to produce everything that your business needs is unrealistic and highly inefficient,” he says. “If you have believed the negative hype about outsourcing, quickly disabuse yourself of it and implement the process into your business strategy.

“If you’re subscribing to the propaganda and refusing to even consider outsourcing, your competitors are meanwhile outsourcing and working hard to put you out of business.”

Outsourcing is nearly always cheaper, more efficient, and more flexible than hiring in-house staff. The benefits include:

  • Access to expertise that you would otherwise not be able to afford
  • Time savings for you and your in-house staff
  • Opportunity to focus on revenue-boosting areas of your business
  • Lower costs
  • More predictability in costs
  • Maximizing efficiencies
  • Enabling a sharper focus on core competencies
  • Increasing business productivity.

What can be outsourced? Outsourced services can be categorized into the following two groups:

tech services and business process

Technology services

Companies require advanced IT and communication technologies for their regular operations. Rapid changes in the technology sector bring new capabilities to use for companies that need to select the right kind of vendor to get the best technology at the cheapest cost. The following technology services are generally outsourced:

  • Software and applications
  • Infrastructure
  • Telecommunications
  • E-commerce
  • Web security and solutions
  • Web hosting, website designing, development and maintenance
  • Logistics, procurement and supply chain management
  • Research and analysis
  • Product development
  • Legal services
  • Intellectual property research and documentation
  • Tech support
  • Customer help desk functions
  • On-site maintenance
  • Email management
  • Data centre operations
  • Disaster recovery
  • Security management
  • Virus protection
  • Data backup and recovery
  • Wireless support
  • Purchase consulting
  • Network architecture

Business Processes Human Resources

  • Payroll services (including payroll statements, bonuses, commissions, tax payments, etc.)
  • Benefits administration
  • Recruitment
  • Training
  • Expense management
  • Management of travel and employee records (personnel forms, policies, procedures, performance management, etc.)

Finance

  • Managing accounts payable/receivable
  • Bank reconciliation
  • Fixed asset management
  • Cash management
  • Financial reporting
  • Risk management

Customer service

  • Marketing support
  • Technical help
  • Advice or disbursing information
  • Processing sales order entry, claims, loans,
  • applications, credit cards and reconciliation.

How to use outsourcing in your organization You can avoid many of the issues related to hiring and training in-house staff and build a much more agile, flexible and cost efficient business as long as you adopt the right approach.

In fact, enlisting the services of an experienced part-time CFO from The CFO Centre is one example of how outsourcing can add value, increase efficiency and maximize opportunities.

You want your outsource suppliers to possess all the benefits of a high-quality, reliable in-house team but without any of the drawbacks. There are never any firm guarantees of success, but the right approach can prevent major headaches and save you a lot of money.

The key to successful outsourcing is preparation. By understanding what your requirements are and by spending sufficient time during the selection process to ensure that you find suppliers who share your values and will truly add value to your business (rather than becoming an expensive risk) it will usually follow that you will build a highly efficient outsourced team.

The main reasons companies don’t outsource:

  • Reluctance to lose control and flexibility
  • A given function is too critical to outsource
  • Anticipated adverse reaction by customers
  • Employee resistance

¹‘Whitbread renews outsourcing contract with 14% cost cut’, Flinders, Karl, Computer Weekly www.computerweekly.com, Feb 13,2013

²  ’Whitbread signs five-year HR and payroll outsourcing deal with Ceridian’, Berry, Mike, Personnel Today, http://www.personneltoday. com, Dec 11, 2008

³ ’The Entrepreneur Mind: 100 Essential Beliefs, Characteristics and Habits of Elite Entrepreneurs’, Johnson, Kevin D., Johnson Media Inc., Mar 2013, The benefits of outsourcing 

Is This Essential Element Missing From Your Business Plan?

Is This Essential Element Missing From Your Business Plan?

In building your business, do you ever:

  • Feel out of control – you’re getting by, dealing with one crisis after another, but just barely hanging on?
  • Find that your longstanding products and services just aren’t selling like they used to, but you can’t find time to develop new offerings?
  • Think about retiring after selling out to a group of your employees, but you know that they (and you) are nowhere near to making that possible? (see our post on exiting your business for more on that)

A big step towards resolving these issues, and many others, is to have a business plan – an effective business plan.

Many businesses get by without one. “It’s in my head,” you might say. Or, it could be a document you put together years ago, maybe because your bank required it to extend financing, and you haven’t looked at it since.

According to a survey by business and finance software provider Exact, companies that have a business plan in place were more than twice as successful at achieving their goals than those that did not (a 69% success rate versus 31%).

What’s wrong with many business plans?

If having a business plan is so important, how can your company get the best possible benefit out of the work that goes into preparing one?

Our work here at the CFO Centre has found that while having a business plan helps, there are some important elements to success (many of these are presented in more detail in the e-book).

One is that the plan must be a living document – it needs to be something that you review frequently, updating it as circumstances change, and using it to provide guidance on what your daily, monthly and yearly priorities should be.

Another aspect of success, believe it or not, involves packaging. You may be aware that a business plan that is used as a finance-obtaining tool will succeed more if it features attractive layout and design. But having a document that’s pleasant to look at – not just text on a page – will work better even if it’s just used internally. That’s because the people who read it, including you, will have a greater sense of confidence that the ideas in it can be made to happen.

How a timeline helps make it all happen

But the one important aspect, that many business plans miss, is the element of time. Without a clear picture of what is to happen by what time, a business plan is just a wish-list.

The best way to help make sure that the business plan stays alive – and more importantly so that what’s in it comes to pass – is through including a timeline.

A timeline (or timetable, if you prefer) sets out the milestones of your business plan – the number of employees, number of locations, sales targets, net revenue expected and other targets – and indicates what date they are expected to be reached.

For example, let’s say you have a winning retail concept that you want to turn into a franchise. Maybe even a national franchise.

To do that, you need to determine what processes need to be implemented in order to manage a store like yours effectively. That, in turn, leads to a set of written procedures –  such as the steps to be taken upon opening the store or on closing, how to make each of the products that are sold, and other aspects of success. Maybe then you need to establish a time by which you expect to have that first satellite operation running, maybe as a corporate-owned location, just to see what happens when you’re not on site to trouble-shoot all the time.

It could be that this sounds so complicated and intimidating that you never actually get your franchising idea off the ground.

Here’s how a timeline helps make your business plan happen:

  • It breaks down big, scary projects into smaller, bite-sized chunks you can actually do
  • It reassures you by pointing out that you don’t need to do everything right now
  • It moves you along because you see a deadline for one of those “chunks” coming up, so you can get working on it

Start with the end in mind, then work backward

This involves a  5  step process.

  1. Get a firm image of your goal. Established business wisdom says to consider first where you want to be (say, 20 franchise outlets across the country, ten years from now) and then spell out in detail what that will look like. Going into detail gives you a more clear idea of what needs to be in place for that to happen. Set a date for that to happen.

 

  1. Determine the big milestones along the way. This might include writing out the elements of success in your current business, creating written procedures, testing those procedures to see if they cover all reasonable contingencies, opening a second outlet to further test those procedures, selling your first franchise to someone you know already, and onwards.

 

  1. Think of the resources you’ll need. For example, at some point, you’ll need to engage a franchise lawyer to consult and help in the preparation of a franchise agreement. Think of the finance you’ll need to have in place, maybe from a bank or friend-or-family source, to make the rest happen (to learn more about how to avoid cash-flow problems that might drag you down, see our post here).

 

  1. Write out your timeline. It might be on paper, on a computerized document, on a calendar program that will remind you about deadlines, or whatever works for you. Maybe multiple formats will be a good way to keep you on track.

 

  1. Implement. The rest is up to you and your team. Delegate tasks, outsource, do it yourself – but be sure to stay with your timeline.

CONTACT US

  • Select multiple options
  • Select multiple options

5 key factors to help you sell your business

5 key factors to help you sell your business

Any business owner will eventually be faced with the need to sell their business.

It could happen when a medical change or injury makes it impossible to continue, and you need to sell to secure your family’s future. Or maybe an offer comes along that’s just too good to refuse.

Regardless of the reason, it’s always a good idea to take steps to make your business ready for sale at any time. And as Chapter Seven of the CFO Centre’s book “Scale Up” points out, many of those steps will help make your business life easier, less complicated and with fewer unpleasant surprises, right now and ongoing.

To get the best possible offer for your business when the time comes – and make your life easier now as well, here are five key points on help you sell your business:

  1. Ownership

A potential purchaser will want clarity around the question of who currently owns the business. If you’re the sole decision-maker in the company, it may be best to have all the shares in your name.

But if you want to reward long-time employees, and support their continued loyalty, you may want to grant or sell some shares to them. If that’s the case, a potential buyer will want to see that there is an effective shareholder’s agreement in place. This reduces uncertainty for the buyer.

  1. Real property

If your business owns real estate, you need to understand that a buyer may view this as a problem – particularly if owning the land is not essential to the success of the business. Consider separating the property from the business, so that a potential owner has the option of avoiding a commitment to an asset that they may not want. One way to deal with this is to put the land into a holding company controlled by you, and then set up a lease agreement for the business to use the property.

  1. Intellectual property

Over the years your company has likely developed trademarks, patents, brands, and industrial processes that are important to the success of the business. You may not think of them as something that has value, however, anyone considering buying the company will want to be sure about the ownership of this intellectual property and its value. So, it may be good to have your company’s IP valued professionally – you may be able to increase the purchase price based on that valuation.

  1. Customer contracts

Many potential buyers will base their purchase decision on the expected ongoing cashflow of the business. So, they’ll want to know about how much of that cashflow comes through dependable contracts. But they’ll also need to know if those contracts will transfer to the new owner – and if a high proportion of the company’s income is due to the customer’s personal loyalty to the owner. Accordingly, it’s good to carry out an analysis of the company’s major customer contracts to see if the future business is sound. Because cashflow is so important in putting a value on a business, consider some of the points raised in our blog post “How your business can fly away from cash problems.”

  1. Financial records

Many owner-operated businesses are operated in a fairly ad-hoc way. If an idea sounds good, the owner relies on their intuition and experience to decide on the next steps.

Potential buyers need to know that there is a plan in place – including a budget each year that they can see closely matches what was actually spent. They need to know that there are not a lot of unnecessary expenses, such as a local softball team sponsorship that is due largely to the owner’s personal interest, rather than its marketing value.

This is one of the areas where an experienced financial professional from the CFO Centre can help. This person can work with you well ahead of time to build a business that is financially successful and therefore attractive to a potential buyer. You’ll also get help with finding out what potential problem areas might cause a potential buyer to lower their offer or just walk away, so you gain the most benefit from the hard work of building your company.

Hiring Best Practices: What to Look for When Hiring a Part-Time CFO

Hiring Best Practices: What to Look for When Hiring a Part-Time CFO

 

Are you looking to hire a CFO that will oversee the financial side of your business?

As you start to consider what to look for in a CFO and who would be the best fit for your business, your first instinct might be to interview full-time candidates only. However, you’ll be missing out on the many benefits that qualified, part-time CFOs bring to the table.

 

The Benefits of Hiring a Part-Time CFO

 

Immediacy for Urgency

When the needs of a business are urgent, it is usually easier and quicker to hire a part-time employee to help out, instead of instigating a full-time position. Given the nature of their role, part-time CFOs can act quickly on fulfilling specific needs, whether it is identifying business pain points or ways to make the business more profitable. Although you may only request your part-time CFO to work once a week, they will be ready to help whenever you need them, and they are always just a call or email away.

 

Financial Leadership

Other than solving immediate challenges, a part-time CFO can also act as a strategic business partner and help grow your business in a sustainable way. For example, they can prepare financial forecasts, develop annual plans for revenues and expenses, and assess the competitive landscape and long-term cash flows. As a result, this would help free up any business owner’s time, so they can focus on other aspects of the business.

 

Affordability

Aside from solving a company’s short and long term goals, one of the biggest benefits of hiring a part-time CFO is that you can have access to an experienced CFO at a fraction of the cost of a full-time CFO. A full-time CFO delivers all the benefits of a part-time CFO but at an increased cost and financial commitment, and most SMEs do not require that skillset or experience every day of the week. Instead of investing in extra recruitment and hiring costs to find a full-time candidate, your business can reap the benefits of a part-time CFO who has practical, financial, and strategic skills to offer.

 

Flexible & Customizable Work

Flexibility is becoming more acceptable in today’s business landscape, allowing for part-time CFOs to fit right in with their varying schedules. Once you hire a part-time CFO, they will take on a variety of different tasks, based on what and when you need them for. Depending on the part-time CFO’s experience, they can also cater to different business markets and fulfill various needs. Overall, this results in an efficient solution for both parties, where clear roles and responsibilities are established and no time is wasted.

 

Open & Honest Dialogue

An advantageous quality that most part-time CFOs (and part-time employees in general) have is their ability to be candid with their employers. You can expect a qualified, part-time CFO to challenge you in ways that a full-time employee might feel uncomfortable doing. An employee’s honesty and transparency tend to lead to meaningful discussions that push businesses towards their goals and bring clarity in times of confusion. Since part-time CFOs are independent workers, you can also confide in them about any departmental issues you may be facing.

 

Expertise in Local and International Markets

Depending on your business needs, you may require a part time-CFO who is familiar with the local and international markets – companies such as the CFO Centre provide access to a network of local, national and international teams to support a diverse variety of needs that an individual CFO cannot offer. There are also over 60 experienced part-time CFO’s to choose from who have expertise in various sectors.

 

Finding A Suitable Candidate

 

There are many qualities to look for in a CFO, however, we have outlined some of the most important below:

 

Big Picture Thinking

A CFO who can see beyond the numbers would be a valuable asset to your company. This individual would be able to interpret data in a meaningful way and provide analysis that encourages positive growth for the company.

 

Communicative Team Player

Considering that a part-time CFO will not operate within a consistent schedule, they should be able to communicate often with others and provide extensive detail whenever necessary. It is also important that they are a team player who gets along with other employees, otherwise, they will not be able to work efficiently and successfully with your team.

 

Multi-Faceted Experience

To make the most of your part-time CFO’s skill set, you should consider how much experience they have with different companies and within various industries. Individuals with an impressive range of previous experience can provide valuable perspectives on different problems, strategies, and goals that other employees may fail to see.

 

Life-Long Learner

Ideally, your part-time CFO should be excited about building upon their skills and developing their career, to ensure that they stay up-to-date in their respective fields. Without this attitude, your business will not be able to grow and progress from a financial standpoint.

 

Interested in hiring a part-time CFO of your own? Browse our selection of Canada’s most qualified, part-time CFOs.

The difference between a CFO and a Controller

The difference between a CFO and a Controller

If you’ve ever looked through a storage box holding clothes you wore as a child, you may have wondered, “How did I ever fit into something that small?”

Your company may be in the same situation. The equipment, personnel, and premises that fitted well when the company was starting out, may be constraining its growth as it matures.

One of the most pressing areas for change may not be your production system, office space or loading dock. If you find that cash shortages are constraining your business, if you don’t know if you can afford to expand your product offering, or you have no real idea which of your products are the most profitable, you may have outgrown your finance function.

Child-sized clothing might have fitted you well when you were small, and it could be that the financial system you had when your company was young, did what you needed it to do.  Most companies start out with the founder keeping track of everything, maybe with the help of a bookkeeper or accountant, later growing into a department with a controller at the head.

But there is a world of difference between the “controller” mindset and the benefits available through someone who is able to help you take your company to a higher level – a Chief Financial Officer, or CFO.

Having access to those skills is important. A CFO brings enormous practical financial and strategic skills and knowledge to your company.

A report by the International Federation of Accountants[1]  quotes James Riley, Group Finance Director and Executive Director, Jardine Matheson Holdings Ltd.:

A good CFO should be at the elbow of the CEO, ready to support and challenge them in leading the business. The CFO should, above all, be a good communicator — to the board on the performance of the business and the issues it is facing; to his/her peers in getting across key information and concepts to facilitate discussion and decision making; and to subordinates so that they are both efficient and motivated.

In this post, you’ll learn about the difference between a controller and a CFO, and why it may be time you made the change – and how you can do that without putting an undue cost burden on your company.

The controller mindset: accuracy, compliance, tactics

All companies need someone with a controller mindset, even if they don’t have that specific title on their business card. The controller watches the details, so you don’t have to. The controller focuses on making sure that financial records are accurate, prepares monthly financial reports, ensures payroll is made on time, invoices are issued and collected and ensures compliance with regulations.

Essentially, the controller manages the company’s books and records and is responsible for the transaction processing in a company and reporting on those transactions.  With the focus on recording and reporting on past events, the controller’s role is mainly backward-looking.

And just to repeat – you need someone who makes sure all of these issues are covered.

But your company, even if it’s small, also needs someone able to watch the big picture. And as it grows, that need becomes more acute.

By comparison, the role of the CFO is to provide forward-looking financial management.  It’s a proactive role since it is concerned with the company’s future financial success.

What are the signs that you may need more than what a controller mindset can provide? Maybe — if you need to understand the risks your company is facing, or you need to know which of several possible ways forward is best to improve performance or help you grow profitability, or it could be that you need to someone to help align the organization by establishing performance metrics and mindset throughout the organization, or perhaps you need to know how to finance your growth.

In short, you don’t just need someone to provide a utility function – you need a combination of coach/advisor regarding the resources you need to make your intended future happen.

The CFO mindset: big-picture, advisor, strategy

The role and responsibilities of a CFO have expanded in the past two decades, according to the International Federation of Accountants.  That expansion it says has been driven by complexity as a result of globalized capital and markets, regulatory and business drivers, a growth in information and communications, and changing expectations of the CFO’s role. Whereas the CFO was once seen as a company’s ‘gatekeeper’, he or she is now expected to participate in driving an organization towards its goals.

The CFO still has the responsibilities for overseeing the Controllers role in record keeping to safeguard the company’s assets and reporting on financial performance

By contrast with a controller, the CFO  expands that role to focus on improving the operating performance of a company, analyzing the numbers and presenting solutions on how to make those numbers better. This can include higher sales, lower costs or greater margins.

A CFO will focus on strategy, helping to shape the company’s overall strategy and direction, as well as a catalyst, instilling a financial approach and mindset throughout the organization to help other parts of the business perform better[2].

The controller looks to the short term, the CFO is long-term. The controller helps make sure your company is compliant with issues such as environmental reporting and taxes; the CFO helps you design and implement a strategy. The controller seeks to maintain what you have; the CFO helps you expand.

If your company is in a growth phase – or you want it to be in a growth phase, the controller has your back – and the CFO helps you move forward. It means together you can achieve better results, faster.

Feel free to reach out to us here at the CFO Centre. We’ll sit down and have a talk, even if it’s phone or video call, to get an idea of where you want to take your company, and what your options might be to support the growth you want.

Many of the issues in this post are covered in the CFO Centre’s e-book “Financial Reporting,” which goes into detail about the insights that you can gain from a CFO’s strategic view of your company’s financials.

[1] THE ROLE AND EXPECTATIONS OF A FD: A Global Debate on Preparing Accountants for Finance Leadership, the International Federation of Accountants (IFAC), October 2013, www.ifac.org

[2] ‘Four Faces of the FD’, Perspectives, Deloitte, http://www2.deloitte.com

Business risk analysis – Part II

Business risk analysis – Part II

How a Part-Time CFO Will Conduct Risk Analysis on Your Business

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.

This means you will have:

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

With all that support and expertize 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 work closely with you to take on the burden of designing the roadmap for the business.

Although our review process will reveal areas of weakness you specifically require help with, we take a very proactive approach to finding out where we can best help you. In other words, we don’t expect you to tell us what you need because that way, you are left to do the thinking. We work through a detailed methodology to ensure that no stone is left unturned.

Your part-time CFO will work with you to understand the risk profile of the business and of the shareholders. Too many initiatives launching or running concurrently can be problematic.

By managing the company’s risk profile and the risk profiles of the shareholders the whole business can be brought into alignment and can operate as a unit rather than as a set of individual parts.

When our part-time CFOs look at ‘risk’ in your business, they also work with you to:

  • Identify future risk areas across the business and share that information with key employees.
  • Include significant risk areas in the business plan.
  • Test assumptions to find weaknesses in the business plan.
  • Evaluate alternative scenarios and approaches which may lead to improved outcomes.
  • Consider contingency plans in case things go wrong.
  • Provide forecasts based on risk analysis.
  • Provide your organization with an elevated sense of credibility (with a high calibre CFO as part of the team) your organization will be perceived by funders and other third parties as a much ‘lower risk’.
  • Act as a sounding board to discuss and critique your plans.
  • Liaise with funders when circumstances change.
  • Test the effectiveness of your marketing.
  • Test the effectiveness of your operating procedures.
  • Identify problem areas before they become unmanageable.
  • Correct mistakes quickly before they cost too much.
  • Develop incentive schemes for staff to lower the risk of losing key members of the team. After all, replacing employees is a costly enterprise. The average fee for replacing a departing staff member is £30,614 [$56,000], says Oxford Economics and income protection providers Unum.
  • Coach you and your department heads through the implementation process.
  • Safeguard all intellectual property including patents.
  • Implement hedging strategies where there are financial risks such as currency or interest rate exposure.
  • Improve resourcing to strengthen performance.
  • To re-engineer the business as and when the competitive landscape changes.
  • Improve customer relations where they pose a threat to the business.
  • Use our own experience and the experience of the wider CFO Centre team and expanded contact network to help surround you with the best possible team.
  • Help you achieve your work/life balance objectives (careful planning is key to freeing up your time and energy).
  • Guide you through the business growth stages so you know what to expect and how to deal with changes.
  • Help create a clear roadmap for delegating responsibilities and tasks out to your team to create more time and space for developing the business.
  • Help communicate the business objectives to your family where appropriate (it can often help to have a third party involved who understands the needs and concerns of your family).
  • Devise a reporting structure which acts as an early warning system for problems.
  • Liaise with lawyers to understand possible legislative changes and ensure compliance.
  • Investigate existing insurances and make sure that you are adequately covered if things do not go according to plan.
  • Look into hedging strategies for borrowing abroad for example to fund overseas subsidiaries.
  • Reduce your personal risk by looking into other types of security/funding.

Conclusion

It is never possible in business to eliminate risk or worry, but it is possible to create a framework and implement systems which lower your exposure to risk. That in turn allows you to focus primarily on growing your business.

Knowing that you have a framework in place to mitigate risk means that you can free up time and mental energy.

Lower your risk today!

Let one of The CFO Centre’s part-time CFOs help you with business risk analysis. To book your free one-to-one call with one of our part-time CFOs get in touch on:
tel: 1-800-918-1906
email: [email protected]
www.thecfocentre.ca

Business Risk Analysis

Business Risk Analysis

Business risk analysis is an essential part of the planning process. It reveals all the hidden hazards, which occupy the business owner’s mind on a subconscious level but which have not been carefully considered and documented on a conscious level.

Conducting and regularly reviewing business risk analysis brings huge benefits to a company. In this article, you will see:

  • What are the risks facing your company?
  • How to conduct a business risk analysis
  • How a part-time CFO will conduct a risk analysis on your business

Not understanding the risks your company faces can bring your company to its knees, as a 2011 report, ‘The Road to Ruin’ from Cass Business School revealed. 

Alan Punter, a visiting Professor of Risk Finance at Cass Business School, said the detailed survey of 18 business crises during which enterprises came badly unstuck revealed that in simple terms, directors were often unaware of the risks they faced.¹

This report makes clear that there is a pattern to the apparently disconnected circumstances that cause companies in completely different areas to fail. In simple terms, directors are often too blind to the risks they face.

“Seven of the firms collapsed and three had to be rescued by the state while most of the rest suffered large losses and significant damage to their reputations,” he said.

“About 20 Chief Executives and Chairmen subsequently lost their jobs, and many Non-Executive Directors (NEDs) were removed or resigned in the aftermath of the crises. In almost all cases, the companies and/or board members personally were fined, and executives were given prison sentences in four cases.”

“One of our main goals was to identify whether these failures were random or had elements in common. We studied a wide range of corporate crises, including those suffered by AIG, Arthur Andersen, BP, Cadbury Schweppes, Coca-Cola, EADS Airbus, Enron, Firestone, Independent Insurance, Northern Rock, Railtrack, Shell, and Société Générale.”

“And our conclusion? To quote Paul Hopkin of Airmic, the Risk Management Association that commissioned the research: ‘This report makes clear that there is a pattern to the apparently disconnected circumstances that cause companies in completely different areas to fail. In simple terms, directors are often too blind to the risks they face.’”

A lot of business owners spend an unhealthy amount of their time worrying about what might go wrong but don’t have a formal risk management framework in place.

It is dangerous not knowing what might go wrong:

  • When the money might run out.
  • Whether a new product launch is viable.
  • Whether a competitor has the resource and motivation to drive you out of business.
  • What risks are involved in penetrating a new market.
  • How the market is changing (and how it will react to your future plans/products/services).
  • Whether a recession will change the playing field.

It is also dangerous not knowing your internal risks:

  • What products are delivering the greatest profit?
  • What happens if key members of your team decide to leave?
  • Are you likely to reach market saturation?

What are the risks facing your business?

Business risks can be broken up into the following:

  • Strategic risks – risks that are associated with operating in a particular industry.
  • Compliance risks – risks that are associated with the need to comply with laws and regulations.
  • Financial risks – risks that are associated with the financial structure of your business, the transactions your business makes and the financial systems you already have in place.
  • Operational risks – risks that are associated with your business’ operational and administrative procedures.
  • Market/Environmental risks – external risks that a company has little control over such as major storms or natural disasters, global financial crisis, changes in government legislation or policies.²

The ‘shoot, fire, aim’ approach favoured by many entrepreneurs is great for making things happen quickly but often jeopardizes the long-term stability of the business.

What is needed is a balance.

Once the business understands the risks, it means that it can move forward decisively and confidently. It’s hard to do this when there is a cloud of confusion hanging over the business.

Where to start…

You need to identify potential risks to your business. Once you understand the extent of possible risks, you will be able to develop cost-effective and realistic strategies for dealing with them.

Categories of risk

  • Financial: This category includes cash flow, creditor and debtor management, budgetary requirements, tax obligations, remuneration and other general account management concerns.
  • Organizational: This relates to the internal requirements of a business and issues associated with its effective operation.
  • Equipment: This covers the equipment used for the conduct and operations of the business. It includes equipment maintenance, general operations, depreciation, safety, upgrades, and general operations.
  • Legal & regulatory compliance: This category includes compliance with legal requirements such as legislation, regulations, standards, codes of practice and contractual requirements. It also extends to compliance with additional ‘rules’ such as policies, procedures, or expectations, which may be set by contracts, customers or the social environment.
  • Security: This category includes the security of the business premises, assets and people, and extends to the security of technology, information and intellectual property.
  • Operational: This covers the planning, operational activities, resources (including people) and support required within the operations of a business that result in the successful development and delivery of a product or service.
  • Reputation: This entails the threat to the reputation of the business due to the conduct of the entity as a whole, the viability of product or service, or the conduct of employees or other individuals associated with the business.
  • Service delivery: This relates to the delivery of services, including the quality and appropriateness of service provided, or the manner in which a product is delivered, including customer interaction and after-sales service.
  • Commercial: This category includes the risks associated with market placement, business growth, diversification and commercial success. This relates to the commercial viability of a product or service and extends through establishment to retention and then the growth of a customer base.
  • Project: This includes the management of equipment, finances, resources, technology, timeframes and people associated with the management of projects. It extends to internal operational projects, projects relating to business development, and external projects such as those undertaken for clients.
  • Safety: This category includes the safety of everyone associated with the business. It extends from individual safety to workplace safety, public safety and to the safety and appropriateness of products or services delivered by the business.
  • Stakeholder management: This category relates to the management of stakeholders (both internal and external) and includes identifying, establishing and maintaining an appropriate relationship.
  • Strategic: This includes the planning, scoping and resourcing requirements for the establishment, sustaining and/or growth of the business.
  • Technology: This includes the implementation, management, maintenance and upgrades associated with technology. This extends to recognizing the need for and the cost benefit associated with technology as part of a business development strategy.

Before you begin to identify the types of risks you face, you need to assess your business. Consider your critical business activities, including your staff, key services and resources, and the things that could affect them (for example, illness, natural disaster, power failures, etc.).

In particular, consider:

  • The records and documents you need every day
  • The resources and equipment you need to operate
  • The access you need to your premises
  • The skills and knowledge your staff have that you need to run your business
  • External stakeholders you rely on or who rely on you
  • The legal obligations you are required to meet
  • The impact of ceasing to perform critical business activities
  • How long your business can survive without performing these activities.

Doing this assessment will help you to work out which aspects your business could not operate without.

Identify the risks

Look at your business plan and determine what you could not do without and what type of incidents could have an adverse impact on those areas. Ask yourself whether the risks are internal or external. When, how, why and where are risks likely to occur in your business? Who might be affected or involved if an accident occurs?

Ask ‘What if?’ questions. What if your company’s critical documents were destroyed? What if you lost access to the internet? What if you lost your power supply? What if one of your key staff members resigned? What if your premises were damaged? What if one of your best suppliers went out of business? What if services you rely on, such as communications  or roads, were closed?

Think about what possible future events could affect your business. Consider what would lead to such events happening. What would the outcome likely be? This will help you identify risks that could be external to your business.

Assess your processes

Evaluate your work processes (use inspections, checklists, and flow charts). Identify each step in your processes and think about the associated risks. What would stop each step from happening? How would that affect the rest of the process?

Consider the worst case scenario

By thinking of the worst possible things that could affect your company can help you to deal with smaller risks. Once you’ve identified risks relating to your business, you’ll need to analyze their likelihood and consequences and then come up with options for managing them. You need to separate small risks that may be acceptable from significant risks that must be managed immediately.

Analysing the level of risk

To analyse risks, you need to work out the likelihood of it happening (frequency or probability) and the consequences it would have (the impact) of the risks you have identified. This is the level of risk, and you can calculate it using the following formula: Level of risk = consequence x likelihood

Level of risk is often described as low, medium, high or very high. Assign each risk a likelihood rating from 1 (being very unlikely) up to 4 (being very likely). You can use a rating level higher than 4.

You should also assign each risk a consequence rating from 1 (being low) to 4 (being severe). Again, you can use more than four levels.

Once you’ve assigned each risk a likelihood and a consequence rating, calculate the level of risk. You then need to create a rating table for evaluating the risk (which means making a decision about its severity and ways to manage it).

You need to consider:

  • How important each activity is to your business
  • The amount of control you have over the risk
  • Potential losses to your business
  • The benefits or opportunities presented by the risk

When you’ve identified, analysed analysed and then evaluated your risks, you need to rank them in order of priority. You can then decide how you will treat unacceptable risks. To do that, you will need to consider.

To do that, you will need to consider:

  • The method of treating the risk
  • The people responsible for the treatment
  • The costs involved
  • The benefits of the treatment
  • The likelihood of success
  • The ways to measure the treatment’s success

To do that, you will need to consider:

  • Avoid the risk
  • Reduce the risk
  • Transfer the risk
  • Accept the risk

¹ ‘ The Road to Ruin’, Punter, Alan, Financial Director, www.financialdirector.co.uk, Aug 18, 2011One of our main goals was to identify whether these failures were random or had elements in common.

Establish Internal Controls – Part II

Establish Internal Controls – Part II

How a part-time CFO can create internal controls for you 

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. This means you will have:

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

Which financial ratios should you track?

Running head here xxx In particular, your part-time CFO will help you to create the necessary controls framework in your business. He or she will:

  • Explain what ‘internal controls’ are and how they will benefit the business going forward.
  • Share proposals about the delegation of duties and responsibilities to employees.
  • Build a plan which creates more time for you to devote to your strengths.
  • Work closely with you to suggest the most appropriate role/responsibilities for you to take on.
  • Create systems across the business for managing various procedures.
  • Install systems for monthly control accounts.
  • Establish monthly KPIs (Key Performance Indicators).
  • Establish processes for creating monthly management accounts.
  • Review computer systems and software to ensure that they are robust and will allow for growth in line with the plan.
  • Establish a system for expenditure and associated authorization/sign-off.
  • Design systems for investment approval.
  • Design systems for new customer approval.
  • Implement control procedures to ensure customers are paying you correctly and on time.
  • Design systems for meetings, including board meetings.
  • Create reports for customer and product profitability analysis.
  • Create a system for cash flow forecasting and monitoring, including early warning system for peaks and valleys.
  • Establish and review budgeting forecasts.
  • Review government grants and incentives regularly.
  • Design a system for receiving quality advice from third parties regarding tax, Human Resources, IT, and Health and Safety on a regular basis.
  • Review insurances to ensure the best possible coverage to limit risk.
  • Establish Human Resource systems.
  • Design and implement relevant Shareholders Agreement.
  • Design and implement credit control procedures.
  • Translate all figures and data in a way which makes sense to you.
  • Ensure brands and IP are protected.
  • Oversee the installation of new systems.

Conclusion

Putting the right systems in place allows you to see the business from a much clearer vantage point. Decisions to grow the business can be made in the knowledge that the underlying model is scalable and robust.

A part-time CFO from The CFO Centre will work with you to redesign your company’s architecture and give you some space to move in. That will allow you to go from working in a job to managing a stable, healthy business.

 

Establish internal controls to protect your company now!

Without internal controls, your company is vulnerable. A part-time CFO can help you to create a strong internal control environment. Book your free one-to-one call with one of our part-time CFOs now:
tel. : 514 906-8839
email : [email protected]
www.thecfocentre.ca