All too many business owners think that the battle is won once the marketing rolls out and the product is sold. They see that their investment of time and resources has paid off and therefore, assume that their goal has been achieved.
However, the fruit of these hard-won victories will quickly run out if the accounts receivable, as well as the accounts payable, is not carefully maintained with a structured cash-flow management plan.
Here are some key points for businesses to keep in mind when managing cash flow.
Analyse cash-flow history and identify patterns
This is particularly useful for businesses that have been in operation three years or more, as the past can prove a helpful guide for predicting future ups and downs. You can more consistently capitalize on the ‘ups’ while preparing for the ‘downs.’
Review your cash-flow management systems and processes
Who have you invoiced? Who has paid? And have you made your payments? Without reliable systems and processes in place to keep track, you simply cannot accurately ascertain what your monthly cash flow is, let alone manage it.
Ensure accounts receivable receives before accounts payable pays
With each new business relationship, decide with your debtors a credit plan that will ensure you get paid on time. If a particular arrangement is not working, try something different, such as a payment plan. A partial payment now is better than no payment at all. Make it easy and convenient for the customer, by having all the necessary information on the invoice, and offer various payment options.
As for accounts payable, try to get as extended an arrangement as possible. This will help ensure that you’ve been paid by your debtors first. You will reduce the risk of default and help ensure you make payments on time.
Be transparent with your bank
Your bank is your most important creditor. It can also be your best ally if your cash flow projections and business plan inspire confidence. Communicating with your bank about your payment status will also engender greater confidence and lessen the negative impact should a surprise late payment or default arise.
The above key points are all necessary elements in managing your cash-flow well, but they are not sufficient in and of themselves. They are no replacement for tailored advice from an experienced professional. The CFOs at the CFO Centre are all highly experienced in cash-flow management and are dedicated to helping ambitious businesses meet their strategic objectives. For more information, contact the CFO Centre on 1300 447 740.
Ask any bank manager who their worst customers are and they will quickly tell you: the people who have no idea what is going on in their business. Some customers ask for finance or expect to maintain an overdraft, yet they cannot even produce up-to-date accounts!
As a business grows, it will need to delegate key tasks to experienced and qualified team members. The areas the business owner will seek help in first will be determined by the focus and needs of the business; either sales, operations, admin or finance might be given priority. If we look at the finance function, it is traditional to break it down into 4 roles:
Many business owners think the finance role is transactional in nature, so they concentrate just on producing accurate accounting records. This is essential, yes, but it’s not enough to manage and develop a growing business. When focusing on the CFO role specifically, what are the key tasks of this role and what does the CFO bring that the other finance roles do not? Why would you need a CFO? We suggest the following 3 main areas of expertise and input:
Strategic – Coordinating and developing long-term business plans; defining implementation timetables; assessing the risks involved and seeking the funding required to deliver the proposed plans.
Operational – Developing internal controls; managing and developing the reports needed to run the business; improving profit levels; managing cash flows.
Support – Tax planning and legal issues; compliance issues; managing external relationships.
The modern CFO needs to be able to develop all this and more. There are also many other considerations that go beyond the pure “job description” above. Here are some of the main ones:
Financial or management accounting: Management accounting looks forward and financial accounting looks backwards. It’s where your business is going that matters as the past cannot be changed.
Experience: It is important that a CFO has a wide range of commercial experience, not just financial. Good CFOs do not learn their skills from textbooks alone; they learn by doing, and yes, sometimes by making mistakes. Commercial experience means leaving the ivory tower and talking to customers and engaging with the production and operations teams.
Qualifications: Although a good accountancy institute qualification is important, it will not stand up by itself without the backing of a strong track record.
Personality: A CFO must be able to communicate at all levels. Communication with peers needs to be collegiate. An effective CFO grows beans and gets team members to count them! A delegating personality is therefore essential.
Full or part-time: It is clear that in an SME environment, there is not always enough to keep an experienced full-time CFO busy. There is an increasing trend towards flexible, part-time CFO services. This helps entrepreneurs keep costs down but at the same time enjoy the benefits of a high-calibre CFO directing the company’s finance function.
Wrapping Up: 5 Key Things to Consider
Do you need a full or part-time CFO?
Make sure the CFO has a commercial mind-set formed from real life rather than textbook experience.
Some experience in general management is useful.
In a business, management accounting experience is more relevant than financial accounting experience.
Remember: the CFO should be involved in all major strategic decisions. Many good businesses fail not through a lack of ideas, but a lack of finance.
CFO Centre is the global number 1 provider of part-time CFOs to SMEs. For more information call us on 1300 447 740.
Despite some analysts’ grim financial forecasts, 2016 can be a year of exponential growth for your business. The key is to think big and to think outside the box.
Instead of making a list of all the ways you can cut back, make a list of all the ways you can increase your revenue tenfold. Once you have done this, narrow it down to the best three.
Now, you will need a plan of action. You will need to identify all of the risk that your plan entails and then find ways of eliminating or mitigating it.
This is where a good, strategic CFO is indispensable. A strategic CFO analyses not only where the money is coming from and where it is going but also where it should be coming from, where it should be going, and how to achieve this.
So how, exactly, will a strategic CFO help double your business in 2016? At the very least, he or she will do the following.
– Identify growth vectors open to your company and ensure that the necessary capital and resources are available to pursue them.
– Ascertain what constraints – financial or otherwise – are holding back your company’s growth and suggest ways of overcoming them.
– Gather information useful for resolving risk and liability uncertainties which are paralysing decision-making.
– Point out areas where your return on spending is not being adequately quantified and recommend more concrete methods for assessing it.
– Highlight potentially disruptive external changes (in competition, technology, industry) and describe what financial measures your business can take to respond and adapt.
– Bring attention to those underperforming areas which are needlessly tying up capital and management resources and should be disposed of.
Most of all, a strategic CFO will not be satisfied with insufficiently ambitious business goals. He or she will be pragmatic but also proactive, viewing finance as more than just a ledger to be balanced but as a tool to be leveraged. A strategic CFO will push you to think bigger, and then bigger still, and then show you how finance can help you get there.
At the CFO Centre, strategically minded CFOs are the only kind we work with. Before you tighten your belt and batten down the hatches for 2016, contact us to find out how investing in a part-time CFO can make this a year of exponential growth for your business.
In today’s business world, the job of a CFO is not simply to keep track of a company’s cash-flow but also to find ways of improving it. The CFO analyses accounts and contracts, identifies those which are reaping returns, those that could reap better returns and those which should be pruned. In other words, the modern CFO is not just a “bean counter” but a “bean grower,” as well.
Although the CEO may be in charge of drawing up the big picture, a good CFO helps establish its strategic foundation. This is done by providing crucial financial knowledge, advice and experience. A good CFO, for example, may recommend a best mix of products for improved revenue, provide skillful management of invoices and accounts payable to optimize cash-flow or leverage professional connections to open up business opportunities.
How can you determine if someone will be a “bean-growing” CFO? Here are some questions to ask yourself when considering a CFO candidate.
– How much experience – real-life, financial experience – does this person have?
– Has this experience produced industry connections that can be capitalized upon?
– Can this person think strategically and communicate in everyday language? More to the point, can he or she formulate a business plan and explain it to others without relying on complex, financial jargon?
– Does this person truly understand what it takes for a business to succeed?
– And, will this person be a motivated-yet-pleasant team player?
None of this is to say that good old-fashioned bean counting isn’t important or is less important. The skill-set of a good bean counter CFO is an unquestionable prerequisite.
– Does this person have strong financial or accounting qualifications?
– Is he or she a member of a professional accounting body?
– Has he or she served as a CFO before?
Making sure the candidate you choose meets all of these requirements is a daunting task. But it’s exactly the sort of thing we specialize in at the CFO Centre. Every CFO we recruit more than fulfills these key expectations, and we are experts at matching the right people, having the right skill-sets and experience, with the right organizations. Feel free to contact the CFO Centre to see how we can help your organization optimize and enhance its cash-flow for a better bottom line.
The CFO Centre has developed a quick and efficient tool for rating your company’s finance function: the ‘F Score’ test. This test takes around 7 minutes to complete, covers the 12 key areas of your finance function and provides you with a detailed eight page report.
The purpose of this report is to provide you with your ‘F Score’ profile, from which you will learn about the role of the finance function in the wider context of your business as well as highlighting key areas where significant and valuable improvements can be made.
Your F Score is a terrific aid in identifying opportunities for improvement – not just in the performance of your financial function but, indeed, of your business itself. It will help you maximise your chances of success and minimise the costs of failure. By starting your journey here, you will find yourself better equipped to build a robust, strategic plan for your company, as well as squeeze more cash flow out of your operations.
The CFO Centre has extensive experience, a vast knowledge base, and a powerful set of tools and frameworks to facilitate sustainable and meaningful change in the financial performance of your business.
Not only do we provide ambitious companies with part-time Chief Financial Officers, we also serve as mentors to current CFOs who, although struggling with the changing economic landscape, are nevertheless driven by a desire to become “experienced, entrepreneurial CFOs”.
The comedian Barry Cryer tells a story about a Finance Director walking down the street. The FD is approached by a homeless man. “Excuse me, mate” says the man “can you spare me a few quid, I haven’t eaten for two weeks”? “ I see” says the FD “And how does that compare with the same period last year”?
Of course, no FD would be that heartless but the story also hides a deeper truth – most of us think in fixed periods of time, mainly years and months. This puts us in a situation where we measure financial performance by the distinctly non-financial yardstick of how long it takes the Earth to revolve around the Sun. This is understandable as we measure our lives in the same way – but is it the best way to plan a business?
There has been some movement away from the annual forecasting and planning cycle; I work with several businesses that use rolling forecasts , for example. According to a study by CIMA about 20% of businesses use them – but what do the other 80% do? Fixed annual forecasts, presumably.
The idea of a fixed annual forecast includes the following assumptions:
• A year is the ideal planning period
• We can get a good fix on revenues, costs and profits over that period
• We can reasonably predict how external economic, political and social factors will turn out.
Let’s think about this a little more. Why is a year the ideal planning period? What if we consider, for example, a five quarter forward planning period instead? Firstly this gets us away from what I call “the January factor”. By this I mean that a forecast is prepared and January, (or Q1), shows a marked change from the end of the previous year. Revenues shoot up; costs are magically under control.
In reality less changes in most businesses between December and January than at any other time of the year; staff, directors, customers and suppliers are all off for Christmas!
Yet this happens. Perhaps businesses, like people, make New Year Resolutions – and perhaps they break them too. The fact is, a business is a continuous process; the last quarter of one year flows in to the first quarter of the next. Businesses don’t stop and start with a jolt and unless we make changes they will stay the same, yet the planning process often suggests otherwise.
If we choose a different planning period we automatically start to look at the business in a different way. The selected forecasting period needn’t be longer than a year – we might wish a six or nine month period if we feel that this reflects the nature of the business. A restaurant might have a very different planning cycle from the manufacturer of Oil Rigs, for example. But the selection of an appropriate planning period is key.
This brings us on to the next part of the change in the planning process: if we break away from the notion of the annual planning cycle we can then take it to the next stage, rolling forecasts.
Businesses spend time and resources preparing annual forecasts that run January to December. That means that at the start of the year they look forward to the next twelve months of activity, but as the year progresses the horizon shrinks. Rolling forecasts enable the business to keep looking up and thinking about the future rather than focussed inward on a set of assumptions that are all too quickly outdated.
What underpins this idea is that in uncertain times (and I would argue that businesses always face uncertain times) the forecasting and planning process needs to be nimble enough both to predict and react to changes in the business environment. A rolling non-annual based forecasting process enables us to do just that. The non-annual part acknowledges that a business is a continuous process and the rolling part keeps it focussed on change and development.
This is not to suggest that the business should be purely reactive or incapable of setting long-term strategic objectives but that such a mechanism is the best way of reaching those objectives.
You might well know how to grow (i.e. do more of the things that are working for you, and do them better) but as a seasoned entrepreneur, you tend to instinctively want to hold back a bit…
It’s chiefly a case of paranoia…
Business owners tend to be more paranoid than they let on. They don’t like to be regarded as paranoid so they often hide it.
What are the causes of success? Is it luck or talent? Is it genius or hard work? Is it creativity or plain diligence?
Jim Collins, the veteran author of Good to Great, and Morten Hansen believe that it comes down to control and discipline in the face of inevitable change. Luck, both good and bad, will befall us, circumstance will be as fickle as the weather. But if we put our heads down, we can thrive.
Their book starts with a definition of what the authors call ’10X’ companies, those that outperform their industry averages by at least 10 times. These companies display three fundamental and distinctive behaviours: ‘fanatic discipline’ and ‘monomaniacal’ focus on achieving their goals; ’empirical creativity’, an obsession with facts rather than opinion and a readiness to ignore conventional wisdom once armed with these facts; and ‘productive paranoia’, constant worry which fuels relentless preparation and precautions against even the most improbable bad events.
They draw on examples from business and beyond to illustrate 10Xers at work, such as Amundsen and Scott’s race to the South Pole. While Scott took a relaxed, somewhat cavalier approach to his expedition, Amundsen prepared for every eventuality, even having back-up plans for his back-up plans. He was a relentless ‘tester’ – he ate raw dolphin meat to see if it could provide a decent energy supply. He loaded up with far more supplies than Scott to serve a much smaller team. And, tellingly, for Collins and Hansen, Scott took just one thermometer, which disastrously broke, whereas Amundsen brought four.
Amundsen reached the pole more than a month before Scott and made it back alive. ‘Amundsen and Scott achieved dramatically different outcomes,’ Collins and Hansen write, ‘because they displayed very different behaviours.’
The same applies to companies and helps explain why Southwest Airlines thumped its discount rivals and why Microsoft thumped Apple in the mid-1980s to 1990s. Bill Gates used to keep a photograph of Henry Ford in his office to remind himself of how Ford had been overtaken by General Motors in the early days of the car industry. Gates wanted the constant reminder that, however well Microsoft did, there was almost certainly some younger version of himself toiling in obscurity to one day knock him from his perch.
Armed with these behaviours, 10X companies set off on what Collins and Hansen call the ’20 mile march’, a long period of sustained growth, characterised by hitting well-defined performance targets and demonstrating both resolve and control. Through the discipline of behaving consistently over time and proving resistant to a changing marketplace, an organisation discovers self-control. And this, far more than more nebulous ideas such as innovation or creativity, is what determines 10X success.
They compare the process of successful innovation to firing bullets in order to zone in on your target, then heaving a cannonball at it to do the job properly. Disasters happen when one uncalibrated cannonball after another is fired, each big, reckless bet made in the hope of recovering from the last one.
One of the most important lessons in the book is that innovation is not always the surest route to success. In their comparisons of companies in the same industry, notably the biotech firms Amgen and Genentech, Collins and Hansen found that it was the less innovative firm, Amgen, that generated better returns for investors over 20 years. Sometimes, it serves companies to be ‘one fad behind’.
Consistent with this idea is the authors’ assertion that the 10X companies are not the brash risk-takers, but the ones that prepare rigorously for what they cannot predict, the antithesis of many Wall Street banks before the financial collapse. These companies hoard cash and keep comfortable buffers in every area of their business, just in case. They are hyper-realists, who act according to Collins and Hansen’s ‘SMaC’ methodology, being ‘Specific, Methodical and Consistent’.
‘Luck is not a strategy,’ the authors conclude. What determines any organisation’s success is how it prepares for both good and bad luck. They call this getting a ‘positive return’ on luck and, if Good to Great’s four million-plus sales are anything to go by, this idea will be embedded in corporate-speak before you know it.
The FD Centre divides a finance department into 12 areas (we call the ‘12 Boxes’). One of these boxes is ‘Risk Management’. Amundsen’s success reaching the South Pole was largely down to the exceptional way in which he managed his downside/risk to stack the cards heavily in favour of him succeeding.
If you would like to book a 30 min call with one of the top FDs in the country to discuss ‘Risk’ and how you can create a powerful risk management strategy in your business to help you grow much faster and make bolder decisions because you know you have your back covered follow the link below:
Colin Mills – Founder & CEO, The FD Centre Limited (www.thefdcentre.co.uk)
So, to be a highly effective FD in your business, you have to be up to date on all the latest accounting standards, be really up to speed on the latest developments in tax legislation and spend long hours in your office reviewing reconciliations and signing off VAT returns. That’s right isn’t it?
Our experience over ten years suggests that highly effective FDs need a rather different set of skills to be effective and “make a difference” in the businesses they work for. With over 100 FDs providing FD services to a number of SME’s each on a part time basis, we understand what it takes to be a great FD!
Here are the top 7 Habits for effective FDs:-
2. “Bean Growers” not “Bean Counters”
3. Build a team outside the business as well as in it
4. Manage up as well as down
5. Communication is everything
7. Sharpening the Saw
There’s no getting away from it that an Accounting qualification and experience gained being a real life FD counts for a lot. FDs will be judged initially on how well they keep the score, solve financial problems in the business and direct management attention to the things that matter financially. Although it starts here, this is not where it stops! Other key habits are:- Bean Growing, not Bean Counting
Highly effective FDs should come with Business, Commercial and Strategic skills that are super strong. Super financial skills are merely a pre-requisite.
Teamwork is key for the modern day FD. As well as the ability to build their own team, highly effective FDs must be able to work effectively with the management team of the business and develop relationships outside the business to provide a strong network of support professionals.
“Soft skills” are the hard skills these days. Managing down, across and most importantly up to MDs and business owners is key. Being a great FD and doing the FD “stuff” is not sufficient in adding real value to the business. People need to be brought with you. Communication
The way you communicate and get your point across is critical to making a difference. Influence and persuasion skills are massively important to be highly effective.
Yes “passionate”. High energy levels and having some fun is an important factor in effectiveness. What FDs do is a serious business, but it doesn’t have to be dour, and nobody likes a bore!
Sharpening the Saw
Keeping fresh and finding time to keep up to date is vital in this fast moving world. This relates to all the effectiveness habits not just technical skills!
FDs who want to make a difference to their businesses should work on these habits to become highly effective. Those that can master all these skills will find themselves in very high demand!