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7 Keys to Profitable Growth

Planning for growth is something every business owner will say they do, but not all business owners will do this effectively and with a focus that will generate profitable growth.

Many businesses plan for growth, but not profitable growth. Some businesses focus on growing sales without a focus on margins while others build infrastructures to support sales and growth that never materialize.

Michael Porter said, “If your goal is anything but profitability – if it’s to be big, or to grow fast, or to become a technology leader – you’ll hit problems.”

A business must focus on profitable, scalable and sustainable activities if it is to grow. Profit and the generation of cash to re-invest in your business must be made a priority, as it is an essential part of the financial strategy and structure of a successful business. Profit and a clear business plan will create a focus and the alignment of the organization, as well as attract investors and other sources of funds to fuel growth – all of which impacts the underlying business value of the business.

CFO Centre has identified 7 Keys to Profitable Growth:

Define your business goals & objectives
Produce a formal plan from which you can articulate a vision
Critically review your business
Identify competitive advantage, scalability & sustainability
Establish a financial plan
Identify milestones, KPIs & dashboards
Create organizational alignment
Nurture your culture, hire the right people & communicate the vision
Identify the financial resources required
Support the business with systems & processes to optimize performance
Measure, review, evaluate & course correct
Be proactive & prepared to be reactive

If you follow these 7 Keys and plan for profitable growth, you will ultimately:

Improve and grow profits
Maximize the scalability of your business
Enhance management team and organizational structure
Attract investors and other sources of funds
Increase business value

To enhance the value of your business and grow successfully, follow the 7 Keys and Plan for Profitable Growth.

Understanding Business Risk – How to Avoid the Road to Ruin

Entrepreneurship means taking risks, such as launching new products, entering new markets, or using new processes. Because this involves uncertainty, there are always chances that things will go wrong.

Our experience at the CFO Centre has been that the most successful companies take the time to understand the downside of the risks they take, and then find a way to compensate for those downsides.

As the CFO Cente’s book “Scale Up” says, a lot of business owners spend an unhealthy amount of time worrying about what might go wrong, but don’t have a formal risk management framework in place. One of the most dangerous positions to be in is not knowing what might harm you. That’s why “Scale Up” suggests starting with a comprehensive risk analysis, to identify potential risks to your business.

This post talks about how you can understand the risks your company faces, and develop a way to manage those risks.

Why is business risk analysis important to you?

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.

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 result of a detailed analysis of 18 business crises during which enterprises failed revealed that directors were often unaware of the risks they faced.[1]

“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.”

“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 too often 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.

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 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, the global financial crisis, changes in government legislation or policies.[2]

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

What is needed is 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 assess your business and identify potential risks. Once you understand the extent of possible risks, you will be able to develop cost-effective and realistic strategies for dealing with them. 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.). Doing this assessment will help you to work out which aspects of your business could not operate without.

Identify the risks

Look at your business plan and determine what you cannot 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?

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?

Analyzing the level of risk

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.

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

Conclusion

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.

This is actually one of the most critical roles in any business and your part-time CFO will support and guide you through the process.

At the CFO Centre, our CFOs have an intimate understanding of every conceivable risk that growing businesses face. This means that we can help you build a much stronger business by knowing how to navigate through the growth stages of the business cycle confident that you are equipped to meet the challenges as they present themselves.

It is never possible to eliminate all risks in a business, 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 just click here.

[1] ‘The Road to Ruin’, Punter, Alan, Financial Director, www.financialdirector.co.uk, Aug 18, 2011

[2] Source: https://toolkit.smallbiz.nsw.gov.au

Is your business idea disruptive enough?

Maybe you see ride-hailing services like Uber and Lyft as arrogant bullies. Or, to you, they’re a breath of fresh air in a world held victim by over-regulated dinosaurs.

But whatever your view, you can’t deny that ride-hailing upended an entire industry. Some taxi companies have tried to compete with the upstarts through rideshare-like mobile apps allowing customers to choose vehicle options, pre-book rides, and pay by smartphone.

Why have ride-sharing services succeeded against well-entrenched opposition? They’re a new idea – but more importantly, they offer real benefits over the traditional taxicab. In short, they’re disruptive.

As we’ll see later, just being disruptive isn’t enough on its own, but it’s an essential part of success.

Disrupt your way to a better customer experience

To see how being “disruptive” works, consider one of the world’s oldest skills – what some parts of the world call “joinery” and others “cabinetry.” It’s about making furniture, cabinets for kitchens and bathrooms, and other fine woodwork. It’s a slow, meticulous process in which skilled people use tools that have changed little in centuries.

That is until someone crashed into this tradition-bound environment with a radical new approach to the business. As entrepreneur Alex Craster recounts in The CFO Centre’s book “Scale Up”, he’d already helped disrupt one industry – travel agencies, with the then-new idea of people booking their own travel online.

Craster talks of how he’d been pulled into managing his father’s failing joinery business. But he came to see opportunities for the firm to provide better services and meet new needs. He started using suppliers in Eastern Europe who were able to do highly skilled work at a fraction of the cost of UK suppliers. He also switched the focus of the firm, from making products into providing solutions to customer problems.

The result has been spectacular growth and even an invitation to supply services to Buckingham Palace.

Why is disruption like this such an important part of business success today? It has to do with two concepts – something that’s new, and something that’s better.

Grab the attention of people you want to attract

Let’s start with “new.”

One well-made kitchen cabinet is pretty much like any other well-made kitchen cabinet. In some ways, cabinetry is a commodity – it’s hard for a customer to tell one company’s offering from another’s. So it becomes a race to the bottom regarding prices.

To catch the attention of potential customers, Alex Craster’s company had to offer something that was new to the market – providing a service in which company representatives sat down with potential customers to get an idea of their problems. That might involve a hotel that wanted to attract a higher level of clientele. This approach made the company newsworthy, so it gained more word-of-mouth publicity.

The company’s approach made it more attractive to the traditional media. But it also had the potential to attract what is becoming a more important kind of attention, from social media including bloggers and Instagrammers.

This meant that just having a new approach put the company’s name in front of potential customers.

Holding the attention of prospective customers

Once you have the attention of the people you want to attract, how do you hold them? By offering something they will value – something that’s not just new, but demonstrably better than what they have now.

Alex Craster’s approach, which included a consultation and understanding customers’ business objectives, was a big step towards helping a hotel meet its goals. Those may have included being able to charge a higher room rate and improving the hotel’s all-important RevPAR (Revenue Per Available Room) metric.

So too, you need to be sure that your business idea offers real benefit to the people you want to serve.

Start by understanding their situation – some of the most pressing problems they are facing. That matters, because unless you can present them with a solution to one of their most pressing problems, or a step towards a solution, they’re not going to pay attention.

Then, instead of choosing a service or product to offer, you choose a problem to work on – such as increasing a hotel’s RevPAR.

Your approach must then revolve around solving that problem, with your product or service being part of that solution. If you’re offering something that is distinctly better than the solutions your prospective customers have on hand, you’ll have a much greater chance of success.

Planning is essential

All of this – finding something new and better – doesn’t just happen. You need to think it through. It takes time to match the assets you have – your skills, the skills of the people you work with, experience, and other factors – to the needs of potential customers.

A big part of that is the financial resources you have access to. With a good understanding of your financial picture, you can understand your financial strengths and limitations, so you know how much you can spend and still pay your rent and your staff.

Many growing companies find that the best way to make sure they have the financial resources they need is through a skilled finance professional – a Chief Financial Officer – who can help them understand their financial picture, and if necessary, get access to other financing that can help to seize on the opportunities to grow in a “disruptive” way.

For many companies, their best option is to have an experienced CFO available to them, on a long-term basis, but without the need to pay the compensation that a full-time professional would expect. By utilizing a part-time CFO, they have the skill set they need available to them, but in a much more cost-effective manner.

To make sure you’re being disruptive within your market, planning is key. Failing to plan is like planning to fail. To learn more about how you can take your business to the next level, please download our e-book, “Business planning & strategy implementation,” which will walk you through the steps involved in business planning.

How to start building your “dream team” for helping your company Scale Up

Venture Capitalists, angel investors, bankers and private-equity managers may not agree on much, but there is one idea they share. They’d rather put their money behind a stellar management team even if it has a just-okay idea than put it into a brilliant idea implemented by a ho-hum management team.

If your company is seeking to break out of startup mode and into a period of aggressive growth, how do you go about building that stellar management team? You may need people with skill-sets, experience, and connections that are a few levels above those of the people who have helped you get this far.

It’s sort of like when you graduated from university and its pajamas-friendly environment and had to buy your first real ‘work’ outfit to start your “grown-up” wardrobe. What should be the first piece to add to your ‘collection’ of your management team that will take your company to the next level?

A CFO is the key to unlocking your future

You might think it’s best to start by recruiting top-level talent in Operations, Sales or R&D. And those functions are vital. But the foundation to it all is finance. Remember that “money makes the world go ’round.”

Looked at another way, a lack of money can stop your world from turning. What signs could exist to indicate that money issues might hold you back?

Your bank keeps calling to say that you’re close to violating your covenants on existing credit
Your head of Accounting shows up at your door a few too many times asking where the cash to cover payroll is
You don’t have a clear idea of what financial resources you have available in the near or long term, to fund working capital or investments
The account manager you’ve worked with for years gets transferred – and you find you have nobody at your bank to advocate for you

If you have the money issue solved, you’re free to implement your growth ideas – research new products, expand into new markets, offer new products to existing customers – confident that you have the financing to allow those ideas to happen. But how do you meet your financial needs in a way that works for your still-growing company?

3 ways to get the CFO you need

There are several ways to sweeten a cup of coffee – sugar, honey or a vast array of artificial and “natural” sweeteners. In the same way, there’s more than one way to get the financial expertise you need.

Promote from within: You can take someone who knows your financial picture – your head of Accounting, say – and move this person into the CFO role. You need to be sure that the person has the right skills and connections, because what makes a good CFO is different from what makes a good Controller. And, you need to back-fill the role that this person was promoted from.

Hire a CFO from outside: The second way involves hiring a full-time CFO from outside your organization. This person will come with the skills and connections you need, but at a cost – literally. The amount you must pay to attract top talent can throttle your company’s cash flow, exactly the problem you want to solve. And, top CFO talent may well be wasted on a midsize company. After the setting-up process is complete, your new CFO may get bored and start taking calls and meetings with search consultants.

Hire a part-time CFO: This solution (which is one that The CFO Centre provides) can give you the best of both worlds. You get an experienced CFO, often with a track record in your industry, and you don’t need to pay anything like the salary and benefits package expected by a full-time employee. Many experienced CFOs like having a part-time position – it gives them the flexibility and work-life balance they want, while still being able to get the satisfaction of helping great businesses succeed.

Our experience at The CFO Centre is that any company can benefit from someone in the CFO role, whether it is part-time or full-time. How that role is provided depends on the circumstances.

Feel free to contact us to see what we can contribute towards your thoughts regarding your company’s future.

How your business can fly away from cash problems

Do you ever feel that growing your business is like being a bird in a cage? Even if it’s a big cage, it’s still got its limits. For your business, that “cage” can be a lack of cash needed to let your business fly as high as it can.

It shows up when you’re hit with a lack of cash to hire new people, to move to larger premises, or to invest in R&D to upgrade your products. It’s your accountant warning that you’re short on money to make payroll or pay the rent, or your bank asking you to replenish your accounts.

Sometimes, cash flow issues intrude if business is slow, and your fixed payments such as rent and utilities eat up too much of the small amount of revenue that comes in.

But cash can also be a problem if your wildest dreams come true and you have too successful a business. If you need to hire staff, buy inputs like parts and raw materials, and buy and install equipment, that means a lot of cash going out if you’re to meet your customers’ needs (see our post on “Hypergrowth” for more on that).

Even if your customers pay right away, you’re still left holding your financial breath until that money’s in your bank. And you may need to hold your breath a lot longer if your customers take 30, 60 or even more days to pay.

Success-induced cash flow problems are particularly problematic for scale-up companies, because their cash shortages are often much larger than those of startups. Smaller companies can dig into their home equity, a personal line of credit or friends and family. But scale-ups’ cash demands are often too big for those startup-type solutions.

It’s like learning to swim – in the shallow end of the pool you can always put your feet on the bottom. But at the deep end, that’s not an option.

Learning how to deal with those deeper waters starts by understanding how your company can get into cash flow problems in the first place.

What causes cash flow problems?

According to the CFO Centre’s e-book “Cash Flow,” the main causes of cash flow issues are:

Slow-paying customers: Customers may be facing their own cash flow problems and may be inclined to drag their heels on paying your company. There’s often a gap between the time you pay for the inputs to your product – including paying your staff – and when your customers pay you. You may be reluctant to press for payment, partly because you don’t want to alienate or lose a customer, but some customers will take advantage of that.

High fixed costs: You may be paying too much in rent or payroll, because in the optimism of entrepreneurship, you expect to need that capacity sooner rather than later. But your “sooner” may be taking its time arriving. When in growth mode, you’re likely paying more for inputs and fixed costs than you’re bringing in as revenue, so all costs need to be monitored regularly to ensure that you’re not spending too much.

Your prices are too low: You may be trying to win customers, particularly in a market where prices are easily comparable, but if you’re not covering your costs or giving yourself a healthy margin, you risk running out of cash. Customers who choose only based on prices will likely jump to a competitor if you increase what you’re charging. Understanding your costs and developing your pricing model accordingly is critical.

Other common reasons include low sales volume, too-generous payment terms, bad debts and too much old inventory.

How to get the help you need to avoid cash flow problems

Most entrepreneurs would rather focus on growing the business than watching over the finances. That’s even more so as the business gets bigger, and the cash flow picture becomes more complex.

This means that growing companies can benefit from specialized financial expertise. Sometimes, that expertise is available within the company, but more often, it’s necessary to look outside.

A professional with financial expertise can help you recognize warning signs you may have missed as you focused on growing your business. This person can then help you find ways to deal with those issues, such as pressing customers for faster payment. There may also be opportunities for other ways to deal with your financial crunch such as vendor financing or R&D tax credits, that you may not have fully explored.

For many companies, that means a need for the skills of a Chief Financial Officer, but maybe without the price tag of a full-time CFO’s salary. A part-time CFO may be the answer – someone who is fully part of your leadership team, but on a basis that may range from a few days a month to a few days a week.

The CFO Centre’s “Cash Flow” book provides some suggestions on how to deal with possible cash flow problems, as well as describing your options as regards a part-time CFO.

Is the problem your company solves BIG enough?

If you have ambitions to grow your small company into a large one, you need to make sure it has room to grow.

To see how that works, consider that humble box of baking soda in your refrigerator. Baking soda was originally developed for, well, baking. It solved a baker’s problem – the difficulty of getting baked goods to rise. But then, people discovered other problems the product solved – diaper rash, kitchen fires, grease stains … and refrigerator odors.

Manufacturers such as Arm & Hammer found demand for their product that was quite unrelated to their company’s original idea.

But what Arm & Hammer found out indirectly about solving wider and bigger problems, you need to do intentionally. How do you do that? Here’s a three-step process.

1. What problem(s) are you solving now?

You may have started your business to provide a specific product (such as baking soda) or service. But your customers may look at the situation quite differently. They’re looking to buy a solution to a problem they’re facing, like diaper rash or a carpet stain. Sometimes, it’s more than one problem – a box of baking soda helps bake cookies and helps clean the kitchen counter.

So, you need to get a clear idea of what problems you’re solving for your customers now. To do this, consult with your customers directly, get input from your sales team, and see what people are saying about you on social media.

Then ask yourself: are the problems we’re solving now the problems that will help us continue to grow? Should we be solving different, maybe bigger, problems?

2. Find the right bigger problems to solve

The world is full of bigger problems – climate change, overpopulation, civil unrest, and many more. But how do you find the right bigger problems? Some ideas that may guide your quest:

Do people with money feel this problem? If you’re running a business, you need to earn revenue – so the problems you solve must involve people who have the money to pay you. And, the problems must be pressing – those ideal customers must actually feel the pain and urgency enough to want to pay you to solve those problems for them

Does this problem give meaning and urgency to your life? As well as pressing on your customers, the problems you’re solving must motivate you. They have to help you get going in the morning and stay at it all day. Only then will you be able to motivate others on your team, even those who don’t interact directly with customers, to help solve those problems too.

Does this problem have staying power? You need a problem that will continue – and better yet, continue to grow. Only then will you have the basis for a business that has sustainability.

Now, let’s consider how you can bake that sustainability into your business.

3. Develop a solution that’s disruptive

If your answer to the problem of refrigerator odors is another box of baking soda, you may need to re-think your approach. You’ll be struggling against a well-entrenched competitor.

Instead, the solution you offer must be disruptive – in other words, it must be unusual and offer new solutions to existing problems. One reason is that if it’s a big enough problem, it won’t be solvable by current thinking, or someone would have solved it already. And, you need to seize attention, and offer an advantage compelling enough so that potential customers will say, “I want some of that.”

Our work at the CFO Centre is something like that. We saw a problem – entrepreneurs whose dreams crash to earth because they don’t have the financial lift they need under their wings. And we saw that many companies can’t afford a full-time experienced CFO (that cash problem again), and what’s more, they don’t need one.

What many (we like to think all) growing companies can use is ongoing access to a CFO’s ability to clear away the financial stumbling blocks, but without a full-time CFO’s cost. So was born our “fractional” CFO – a permanent, but part-time, financial advisor.

That’s our disruptive solution.

One thing we’ve found out is the importance of having the cash you need to build a way to solve the “big problem” you’ve decided to focus on. Without cash, it’s like you’re trying to walk when you need to fly. To learn more about the importance of cash flow, the reasons for it (such as slow-paying customers, high fixed costs), and some steps you can take to resolve them, download our free e-book, simply titled “Cashflow.”

Become a world class leader with a strategic plan

By Chris Carl
Regional Director at The CFO Centre

A part-time CFO is to an SME what a doctor, a physical trainer, and a world-class coach is to a superstar athlete. The superstar athlete will always be good – but they will only be great if they are healthy (the doctor makes sure of that), they are in great physical shape (the trainer takes care of that) and that they can compete at a world-class level (the world-class coach takes care of that). In a business setting, the CFO Centre refers to these same three levels of conditioning as Business Support (being healthy), Operational Skills (getting in great physical shape), and Strategic Planning (competing at a world class level).

The highly experienced and successful part-time CFOs from The CFO Centre can help make a company flourish in every respect. From increased profitability, to growth through financing or mergers and acquisitions, to increased happiness in the C-suite and all employees, a part-time CFO can literally help perform miracles. But, these results can only be achieved through sound business practices and a great strategic plan. A successful experienced CFO, that costs only a fraction of a full-time CFO, can make all of these happen.

This article (part 4 of 4) discusses developing and implementing a Strategic Plan to make your company able to compete in any market.

Read Part 1 | Part 2 | Part 3

Strategic Planning

In our final comparison to becoming a world-class athlete, regardless of how strong an athlete you may be, you will never compete at a world-champion level without a great coach. That coach helps you develop your plan to get to the top of the podium – from taking stock of where you stand today, to figuring out what actions might hurt you if not attended to, to laying out a timetable to achieve each part of your overall goal. That coach ensures that you have all of the right resources around you that you will need to win that championship, he/she does a lot more than sit on the sidelines and clap when you perform well.

In business terms, to be able to achieve all of your business goals, (and maybe some you thought were beyond your wildest dreams) you need a Strategic Plan. Don’t confuse this with a wish list. A Strategic Plan involves setting very high goals but it also requires taking stock of your current situation, identifying the risks you need to overcome to achieve your goals, a step-by-step path and resources required to get you there, and a definitive timetable for each step to make sure it all happens. Once in place, it also requires execution.

At The CFO Centre, we believe the highest value we can bring to any client is to help them develop, and execute a “Strategic Plan” that takes the company well beyond what the CEO even thought possible. By following the path of the four key elements, a part-time CFO will bring financial abundance to the company. At the CFO Centre, we define these 4 key elements as:

Strategic Planning can sound lofty and somewhat irrelevant to a company that is in the trenches every day just fighting to survive. But it is exactly what the company needs to get them out of the trenches and on to a much better playing field. A Strategic Plan is like a roadmap and without one, the company will wander aimlessly without direction. And when communicated properly, it helps great alignment and purpose within an organization.

For example, one company I worked with as an investor had world-class technology to help other companies optimize cleanliness and environmental compliance in a manufacturing setting. The small management team was very strong and had great breadth between technical, marketing and financial experience and skill. And while they knew they had a world-class technology, they could not generate the marketing and sales dollars sufficient for them to access and educate the larger customers they desired. By selling to smaller customers, their unit sizes were smaller and they had to keep prices (and therefore margins) low just to be able to make the sale. The result: they were losing money or barely breaking even month after month and year after year.

When I met them through a fellow investor, I found a team that was capable, very focused on getting the job done, and who really knew exactly what they wanted in the long term. BUT, they were stuck in a low margin rut and couldn’t find a way out. So I suggested we take a few more hours out of their life for a few weeks and develop a Strategic Plan.

This plan had to be real, but it also had to lay out a path for them to get to point that they could be selling this amazing equipment to the large customers who needed it most. We sat down and recorded all of the possible goals (crazy ones and real ones), and we looked at all the things that could stop us. While there were many small issues we solved, or developed a plan for, in this process, one of the best examples of how a great Strategic Plan could work was in deciding how to increase product awareness and sales to the desired customers.

Everyone at the company felt that they needed to bring on a couple of top-notch sales people who could cover the continent. The problem was that, just like a full time CFO, highly qualified experienced sales people are expensive to employ full-time and for this company the selling process could take up to a year. That was an added overhead the company just could not afford. So instead we looked to how we could leverage the skills of others and decided that if we could possibly find distributors who already sell products to our desired large customers, maybe they could be our conduits to sales.

So we laid out a plan, and a timetable (the most critical element is that you MUST have a timetable). We decided that we wanted a distributor in 50 States and 12 provinces. I suggested to the team that we set a goal of 1 year to achieve this and I was almost laughed out of the room. “Impossible” they said. But, not wanting to leave and still wanting to become an investor, I asked them not to think about it as 50 new distributors in the US and 12 in Canada a year, but rather 4 distributors in the US and 1 in Canada each month. I suggested that by breaking this seemingly insurmountable plan down into bite sized pieces that not only might we get there, we might just get there faster than we think.

After much debate, not only did we agree to give this a try, but with everyone being so busy we asked everyone on the team to contribute just a little bit. That meant sharing our plan with other customers and contacts, getting on line to research who might be out there, and start making calls. The admin assistant of the company drove the process by recording and organizing everyone’s efforts and new contacts daily, and by doing lots of outreach on her own as well. The team developed financial terms that were good for the distributor that would also be great for the company, and the sales manager found a draft Distributor Agreement that was only 2 pages and had the lawyer sign off.

In month one we signed off on 2 of the 5 that was our goal, and in month 2 we got 4 of 5. The numbers increased every month and by the end of month 10 we had a distributor in all 50 States and 12 provinces in Canada. We achieved this “unachievable goal” in 10 months instead of the year – even when the team thought getting it done in a year was impossible.

The result of setting the strategic goal to eastablish a network of Distributors was the company increased the value of the average sale from $20,000 per sale to $125,000, margins increased from 20% per sale to almost 50%, and the customer profile went from a privately owned business with under $5 million in sales to 80% of customers now being listed on the Fortune 500 – and three of them on the Dow 30.

To be fair, there were lots of fits and starts to get to this point, and there were times that it all seemed like it would come crashing down. But, by having that strategic plan to keep going back to and to measure themselves by, and by having a month to month plan of something achievable rather than a one year plan that seemed impossible, the Company did achieve what seemed like impossible goals. And today the same team is still working their butts off to continue growing the company – but they smile a lot more than they used to – and they know their now larger paychecks can be cashed.

There are dozens of stories like this from our CFOs at the CFO Centre. Strategic Planning may seem like fluff when you can barely make payroll next Friday. But in reality, a strategic plan is exactly the tool that a company with great products or services needs. Whether you are barely breaking even, or making millions in profit, EVERY company will grow and improve with a well developed, and well executed, Strategic Plan. The part-time CFO is the perfect resource to help an already busy team make this happen.

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Chris Carl has a 30-year career growing manufacturing based companies with novel technologies both as start-ups and within Fortune 500 companies. Having held both CFO and CEO roles, he has raised a combined $500 million in debt, mezzanine and equity financing in private and public companies listed in Canada, the US and Europe.

The CFO Centre provides highly experienced, part-time CFOs to small and mid-market organizations at a fraction of the cost of a full-time CFO. We are committed to helping companies work through complex financial issues, in order to maximize profit and provide senior financial leadership.

Our global team has over 400 CFOs across 13 countries; our services include business and strategic plan development, financial reporting, cash flow management, internal control, risk assessment and mitigation, training and development, and negotiations.

www.thecfocentre.ca
1-800-918-1906 or email: [email protected]

Part-Time CFO Adds Value to a SME

By Chris Carl
Regional Director at The CFO Centre

The highly experienced and successful part-time CFOs from the CFO Centre can help make a company flourish in every respect. From increased profitability, to growth through financing or mergers and acquisitions, to increased happiness in the C-suite and all employees, a part-time CFO can literally help perform miracles. But, these results can only be achieved through sound business practices and a great strategic plan. A successful experienced CFO, that costs only a fraction of a full-time CFO, can make all of these happen.

This article (part 3 of 4) discusses how to improve your financial fitness through improving your Operational Skills.

Operational Skills

To continue with the analogy of a becoming a world-class athlete, one needs to be healthy to be able to perform, but to operate at a high competitive level you also need to be continually improving your level of top physical fitness.

In business terms, you need to ensure that your business is healthy by making sure critical business tasks are done correctly and not falling through the cracks. You also need to know that your current operations are running smoothly and at peak financial performance. The best news is that this does not require added cost. Instead, and without fail, improving your Operational Skills will always add tremendous value to your profitability.

At the CFO Centre, we reference operating at peak day-to-day financial performance as “Operating Skills.” If the four key Operating Skills are at peak performance, that means your company is operating at peak performance and you are therefore ready to handle any growth, or new projects, that you may desire for your business. These Operating Skills include (click on the links below for more information):

By assuming leadership for the Finance function and by implementing these key Operational Skills, a part-time CFO provides the business owner with TIME to focus on the business and CASH through a focus on operational efficiencies, by providing timely analysis and insights on the business to drive profitability and better cash and working capital management. Having more TIME and CASH, two much needed resources for any SME, eliminates some of the stress of operating your business and allows the business to be physically fit and healthy for the next level of growth.

As any owner or senior executive of a small to medium sized business knows, “cash is king.” That doesn’t mean sitting in the safe counting your money, but rather being constantly aware of your day-to-day cash flow. If something unexpected occurs, or you suddenly have a new opportunity that you must decide on quickly, you must be able to access, and to trust, the cash flow information of your company quickly.

In my experience working with SMEs, with clients or that I have run myself, it is an inability to access internal cost information quickly, and to be able to believe in the information you are getting, that can really slow a CEO down.

As an example, if you are running a business averaging $1 million per month in sales, and you get a call to take on $100,000 per month of new business at a 25% gross margin can your company handle this? Do you have an internal cost reporting system that allows you to accurately determine if this will be profitable for you? At the surface, the answer seems obvious: who wouldn’t want $25,000 more margin each month? But there are many things you need to know before you can say yes, such as:

How does the new business affect expediting of current sales?
How many more people do I need to fulfill this business?
Do I have enough working capital to manage the new receivable?
How many months of setup is required and at what cost before I start to see incoming cash?
Could taking on this business reduce the quality of the products or services I am already selling?
What is the credit risk of this new receivable?

The list of questions you want to be comfortable with is extensive but the point is made: without having Operating Skills that are in top financial fitness, you may spend hours trying to figure all these things out, and even then, you might make the wrong decision. But, the opposite is also true. If you have great Operating Skills and you trust them completely, not to mention having a part-time CFO who is a phone call away to share ideas with, you can make this decision in good conscience and feel great about the decision you just made. Does your finance function have the leadership and skillset to help drive your business forward? See how your finance functions rates (take the F Score).

While this is but one example of thousands to choose from, the point is clear. If your Operating Skills are in great shape, you will be able to make new decisions quickly and accurately. Just as importantly, while you are getting these systems in top shape, your part-time CFO will find areas where cash flow can be improved, and profitability will be be increased. This is just one of the ways that a part-time CFO will pay for themselves, or more likely, generate new profitability and cash flow far in excess of the cost of he or she being there.

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www.thecfocentre.ca

1-800-918-1906 or email: [email protected]