There’s a reason we’re the Global Number 1 provider of part-time CFOs

Call us on 0800 422 121

Why SME’s shouldn’t ignore Risk Management

Many people think that risk management is only for large corporations. This is not correct!  Risk management is a NECESSITY FOR  EVERY BUSINESS. The hard part is to properly align risk management processes to each unique individual organisation.

 

The world is undeniably riskier. Change was increasingly ever more rapidly, and this is accelerated by COVID. Increasing digitisation of business processes will inevitably increase cybersecurity risk. The world is still highly connected, and McKinsey estimate that supply chain shocks will reduce profits by 42% of annual EBITDA profits every 10 years. Increasing compliance and legislative requirements, climate change, increased stakeholder scrutiny, geopolitical risk, border closures and business disruptors (new business models, social media etc) etc etc…

 

SMEs need robust simple processes appropriate for the business.

 

  • RISK MONITORING

Don’t let risk slip off the radar. Be aware of possible issues. Talk to people in your industry. Ensure you are not sucked into day to day operations with no time to think about strategy and risks. When thinking about strategies ensure that related risks are also considered. Monitor and analyse your business and industry trends. Talk to a CFO Centre principal, who with a wealth of experience from his clients and colleagues’ clients, and a fresh pair of eyes, may give you new perspectives and insight!

 

  • RISK APPETITE

Decide how much risk you are willing to accept. This depends on the operational and financial resiliency of the organisation, business strategy and your risk versus return profile. Take away ….risk is part of doing business, but make sure it is within your limits, and you are in control.

 

  • RISK MANAGEMENT

Understand how to mitigate risk, e.g. insurance, experts, financial tools or internal controls. Work on simple scenario modelling to understand implications and remedial plans for critical business interruptions. Simple cyber security audits can be useful. Curtail activities that exceed your risk limits. Restructure staffing so that owners/managers have some time to think about risks and strategy. Ensure risk management is embedded in the organisation. Ensure internal controls are in place so you have confidence that risks are controlled and reported.

 

Risk management is a must do. To be successful it needs to be correctly sized and use appropriate techniques. Too small / not done and risks can damage or destroy the business. Too complex and it will detract from the real world task of running the business (and probably wont get done anyway!).

 

Author Gary Campbell – Gary is a CFO Centre Principal based in Melbourne, Australia, advising SMEs on finance, strategy and governance.  He is a qualified accountant, MBA, and graduate of Australian Institute of Company Directors. 

Strategic Management – A Simple Guide

Strategic Management – A Simple Guide

David King, CEO, Eastern Australia and NZ, is a Newcastle-based CFO with extensive experience in a variety of industries, including manufacturing, industrial, property and professional services. Here at The CFO Centre, we interviewed David and tapped into his knowledge on Strategic Management…

What is the definition of “Strategic Management”?

It’s a process that allows the business owner or manager to clarify their purpose, their goals and their vision, from which a Strategic Plan (sometimes called a Business Plan or Business Strategy) can be formulated and implemented. The on-going monitoring and tweaking of the Plan gives the business the best chance of delivering on the owner’s long-term goals and Vision.

Strategic Management is not about trying to predict the future, there’s no crystal ball! Rather it’s about preparing for the future and knowing the steps the business will have to take to achieve its goals and objectives and to remain competitive.

What is the difference between Strategic Management and Strategic Planning?

Both terms are used interchangeably. I personally prefer the reference ‘Strategic Management’ as it encapsulates the on-going implementation and evaluation process, which is vital, rather than just the planning stage itself.

Strategic Management or Planning answers the key questions:

  • Where is the organisation at the moment? (The SWOT analysis – strengths, weaknesses, opportunities and threats – is useful here)
  • Where does the owner want to go? (Purpose, Vision and Goals)
  • What does the business need to look like to support the above?
  • How can the company get to this point? (Consider the long term strategic plan)

Why is Strategic Management important to all business owners?

From my own experience in the business environment, and from the clients we work with, I know how easy it is to get “stuck in the trenches” with the day-to-day operational stuff. Business owners have so many balls to juggle that time and focus for strategic management may never be made.

However this is the reason why strategic management is so important. It enables the business to evolve and strengthen, so the owner and/or managers can focus on the things that really matter and put steps in place to make the business less reliant on them for lots of the “other stuff”. Long-term success rarely happens without sound planning and execution, whether that’s to grow, sell or pass the business to the next generation.

What are the factors which are involved?

There are typically five stages in the Strategic Management process which involve utilising a balanced scorecard:

  •         Clarify your Purpose, Vision and Goals
  •         Gather and analyse information – both internal and external
  •         Formulate a Strategy (and KPIs)
  •         Implement Your Strategy – Asking questions like what, who or when.
  •         Monitor and evaluate – remain agile.

Do you have any tips or insights for owners / managers for introducing strategic analysis into their business?

 I suggest that an external facilitator is used in the process who can guide the owner / managers, keep them accountable, challenge them, and assist in the formulation of the Strategic Plan. For example, our CFO’s within The CFO Centre assist our clients with the Strategic Management process from which financial forecasts and KPI’s can be set and monitored.  We often hear our clients talk of the comfort and motivation that comes from the strategic clarity unlocked by the process!

Whilst it’s a good thing to challenge ourselves and evolve, make sure the Strategic Plan is achievable and realistic with clear action steps and time-frames. Ensure the available resources (people, funding, systems etc) can deliver on the Strategic Plan, or that the Plan includes steps to bolstering the necessary resources.

Monitoring progress against the Strategic Plan, and tweaking the Plan when necessary, is really important. The last thing you want is to see the Plan gather dust on a shelf and not be a key document in the running of the business. 

At The CFO Centre we often introduce and chair the monthly management meeting for our clients, covering the strategic, financial and operational matters of the business. Our clients find it an effective way to keep on track and to hear from their part-time CFO as to how the execution of the Strategic Plan translates into financial performance.

Lastly, I encourage business owners and managers to make the time for Strategic Management as it will pay dividends (figuratively and literally). One must be open to the process and enjoy the journey!

Thriving in the New World

There can be no doubt the Covid 19 pandemic has led to unprecedented change for most businesses. Revenue levels have plunged for some firms while others are experiencing unexpected increases in new customers and unforecasted demand levels. Supply Chains have been disrupted. Optimising employee productivity and satisfaction have become more art than science.  Short-term cash availability and longer term capital requirements are highly uncertain. Even the most confident experts are reluctant to make a call on the economic climate we are likely to experience a year from now or even six months from now.

Success in this uncharted New World requires business owners to make effective decisions to address today’s challenges and to establish a strong market position in an uncertain future. We call this future proofing your business. The path forward will be unique for every enterprise. For most businesses, the contribution of an integrated senior financial leader may be the critical success factor in making the best decisions for steering the business towards a successful future.

Most small to medium size organisations will be best served by incorporating their own foresight into targeted, most probable future scenarios developed by highly engaged stakeholders directly linked to the success of the business.

Owner operators will particularly benefit by injecting their full time or part time CFO into idea generation and implementation planning to future proof their business using the following four-step process.

Developing Most Probable Future Scenarios

The insight of the CEO, alongside other leaders within the business, will be essential to develop and select three or four most likely market scenarios. Important dimensions for assessing your business’s future would include: revenue outlook, new revenue sources, changes in access to customers or preferences of customers, competitive forces, regulatory factors and assessment of staff effectiveness. Identifying these factors specific to your business and your industry should be considered in conjunction with the team’s projections of potential future operating environments.

Involving a holistic professional with the ability to stretch the team’s future thinking to include the full spectrum of potential obstacles often leads to more robust future scenarios. Team members should expect the organisation’s financial leader to embrace the uncertainties inherent in guessing at potential futures while also expecting them to act as a catalyst to describe the leading scenarios with sufficient clarity to facilitate resiliency testing and implementation planning.

Leveraging Emerging Technology

The pace of change over the past five to ten years combined with the recent accelerated societal and economic changes linked to the pandemic, forces all business to adapt and respond more quickly and more intensively than ever before. Adapting and responding effectively requires timely and appropriate application of emerging technology solutions to uncover new connections to customers and to unlock methods to streamline and enhance business processes.

A few of the more pervasive and perhaps highest potential technology trends destined to shape the future are Artificial Intelligence, Blockchain Technology and Internet of Things. Finance leaders bring essential analytical skills, as well as opportunity and risk assessment expertise. These attributes will help the business select the most advantageous solutions and deploy these applications to deliver favourable returns.

Stress Testing Scenarios and Strategies

Once the business has collaboratively generated their high probability future scenarios and articulated corresponding strategies to maximize results; a critical need emerges for disciplined evaluation to ensure the selected paths forward can stand up to expected obstacles and deviations.

The CFO’s involvement in scenario testing is likely to be most accepted and welcomed by the business owner and the future-proofing team. A New World CFO is one that passionately embraces uncertainties and optimism while maintaining their proven ability to rigorously apply a check and balance approach to the team’s chosen future scenarios and strategies.

Commitment to Highest Impact Initiatives

The hardest decision for many organisations undertaking future proofing activities during today’s tumultuous environment will be to commit the necessary financial and human resources to those chosen few initiatives expected to best position the business over the next six months to five years.

Creating the internal and external confidence to take action now often hinges on the development of concise, compelling business cases to define the initiative, its costs and expected profits. The involvement of your financial leader in the entire future proofing process will significantly enhance the quality and effectiveness of these strategic business cases. In situations where the organization is seeking external financing or participation from partnering organisations; the voice of an informed, engaged, credible CFO will be a significant factor in securing the desired external support.

Business owners and their management teams have the responsibility to navigate the firm through today’s urgent challenges and opportunities. They also bear the greater responsibility to establish direction and take action to prepare the organisation to succeed for many years ahead. A New World CFO welcomes this responsibility and possesses the knowledge and dedication needed to deliver results today and in the future.

Exit Planning: What do I need to Consider?

One of the areas often overlooked by business owners in their planning is an exit plan. Whilst they may not be considering exiting the business in the near future, there will possibly come a time when you are considering it’s time to move on and you will want to ensure to the business is in good stead when you walk away which is why exit planning is so important.

There are any number of reasons the owner may wish to exit a business that they have invested (not just financially) so heavily into. The most common are retirement, realising the current value of the company, to start a new challenge / venture to name but a few.

Types of Exit

The main options an owner can exit their business are:

  • Selling the business to realise it’s valuation
  • Selling it or passing it on to the next generation
  • Creating a succession plan; or
  • Closing the business
Why the Plan is so Important

Whichever exit plan you decide on, to avoid complications it is imperative that there is a propr plan in place.

Failure to have a proper exit plan in place can not only put the stability and future success of the company at risk, but it can also put your own financial health at risk, so it is obvious that planning is incredibly important from both a business and personal standpoint. When you have a clear plan in place for your exit, it allows you to maximise the amount of money that you get from the business, ensure a smooth handing over and help the company to be in a good position moving forward.

The Exit Plan

Creating a high-quality exit plan is hard and the best type will depend on the size of your company, individual’s (yours and other employees) circumstances and the type of exit that you are opting for. For such a complex business plan, it is advisable to use an independent financial advisor who can assist with the financial planning around your departure as well as setting you up for the future whether this is constructing an investment portfolio or retirement planning.

Business owners tend not to think about what will happen when they walk away from the business but this is a time that needs to be planned for. Having a proper exit plan in place is important in terms of a smooth changeover, safeguarding the future of the business and ensuring that you are in a good financial position following your departure.

Need help? Contact the CFO Centre on 0800 422 121

Why every business needs a CFO

Why every business needs a CFO

A typical company finance function can be divided up into 3 areas, however many businesses believe the finance role is principally to produce accurate accounts.

Ask any bank manager and he or she will tell you the bank’s most problematic customers are those who don’t truly understand what is going on in their business. Some customers ask for finance or expect to maintain an overdraft, yet cannot even produce up to date accounts.

Most SME business owners want to focus on the business and not the numbers. The business is their baby and they want it to be their sole focus – not financials!

The areas which the business owner will seek help in first will be determined by the focus and needs of the business whether in sales, operations, admin or finance. If we look at the finance function, it is traditional to break it down into 3 roles:

1. Finance direction – the CFO

2. Finance control – the Accountant

3. Book-keeping/basic accounting/ AP & AR – the Finance Department Staff

Many business owners think the finance role is transactional in nature and so concentrate just on producing accurate accounting records. This is essential in itself, but not enough to manage and develop a growing business. When focusing on the CFO role specifically then, 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?

I suggest the following four main areas of expertise and input:

  1. Strategic
    Co-ordinating and developing long term business plans; defining the implementation timetables; assessing the risks involved and seeking the funding required to deliver the proposed plans.
  2. Operational
    Developing internal controls; managing and developing the reports needed to run the business; improving profit levels; managing cash flows. Does the business owner fully understand the profitability of each product / service they offer? Often the answer is no.
  3. Leader
    Instilling a financial approach and mind-set throughout the organisation to help other ​parts of the business perform better ​
  4. Support
    Tax planning and legal issues; compliance issues; managing external relationships; outsourcing relationships.

 

The modern CFO needs to be able to develop all this and more. There are many other considerations that go beyond the pure “job description” above.

What’s the difference between an accountant and a CFO? A CFO looks forward and financial accounting looks backwards; it’s where your business is going that matters as the past cannot be changed – but learnings can be made and changes made so that past mistakes not repeated.

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, in fact they learn very little from textbooks – they learn by doing. Commercial experience means leaving their offices and talking to customers and engaging with the production and operations teams.

Personality: a CFO must be able to communicate at all levels be it the production teams, sales teams, marketing teams to board level. The CFO must be able to relate to people on all levels of a business.

The CFO Centre provides high calibre CFOs to SMEs on a part time basis, allowing organisations to benefit from the expertise of a highly experienced Chief Financial Officer without incurring the expense of hiring someone full-time. We don’t tie you in with a long term contract.

Whether the business in in fast growth mode and needs control or has hit a brick wall and needs survival solutions to get through a tough patch, our CFO’s can cope with both ends of the spectrum.

For more information about the CFO Centre’s service go to www.thecfocentre.co.nz or call us on 0800 422 121.

 

Article written by Peter O’Sullivan – Regional Director – CFO Centre, Victoria

How Much Cash Reserve Cover Should Your Business Have?

How much cash reserve cover should your business have?

Recently in discussions with clients the focus is still on effective reporting, strategy, banking relationships and the 4 levers that drive a business, but in these uncertain times a new question is being asked… how much cash cover should our business have? We currently have ($ x) based on an internal theory and are building with multiple bank accounts for key items etc. Is this the right amount and how will this affect us long term in meeting our core strategic goals?

In past reviews of annual dividend and repatriation polices, the focus is on forecast cashflow (key inflows and outflows), required capital expenditure and potential investment strategies aligning to regulatory requirements. Whilst this still holds true, business owners are now more focussed on what they should be holding as a reserve – and equally maintaining.

A good conversation starter with your financial advisor / CFO / Board advisor is; what is comfortable to the key stakeholders in maintaining? Consideration in the conversation must be given with transparency and thought towards:

  1. Reserve amounts and best use effectively: Focus on building the reserve to comfortable or adequate levels.
  2. Historical Cash flow forecast review: How much do you spend each month and seasonality effect of that spend required. Regular review of what you are spending and timing, especially with key items such as taxes etc.
  3. How much is right for your business? 3 months or 6 months – keeping in mind that a large reserve may also limit potential growth and profits
  4. How to build it? This is where your CFO / Board Strategic advisor will best to help in ways to do this and maintain via Financial scenarios including factoring and additional bank lines of credit.

If you would like any help with determining how much cash reserve cover you should have please feel free to reach out to us via [email protected] 

 

Article written by Brendan Raftery – CFO at The CFO Centre. 

Is your business in good shape for 2021?

Is your business in good shape for 2021?

Well what a year that was!

Many businesses will have had to make some significant changes to their strategy during 2020, and now can be a good time to reflect on these and see what has happened, whilst at the same time, looking to stabilise the business in preparation for moving forward in 2021 post Covid-19.

Peter O’Sullivan, Regional Director for The CFO Centre in Victoria provides a checklist for businesses on how to ‘stabile’ for the future:

  1. The best businesses know exactly where they stand. Does your financial reporting provide you with an accurate view of the financial performance of your business within a short period from each month end? These could contain:-

    *Historic balance sheet, profit and loss and cash-flow together with a set of key performance indicators (KPIs) that the management team use to run the business on a day to day basis.
    *Rolling forecast balance sheet, profit and loss and cash-flow driven by the same KPIs.

  2. Have you analysed all of your products or service offerings and identified those that should be invested in and those which should be scaled back to improve the performance of the business.
  3. Have you reviewed all of your costs and identified all of those costs where alternative suppliers can be identified and current deals can be renegotiated? This helps to minimise your cost base and refine your negotiation skills.
  4. Have you reviewed all your customers and identified the good ones form the bad ones i.e. those that take ages to pay etc.? Use those negotiation skills to make the most of your customers.
  5. Have you assessed all of the obvious risks in your business and made sure that you have a contingency plan in place to avoid those with the highest likelihood and most significant impact?
  6. Do you have a clear operational plan for the future of the business broken down to show you the steps required to implement hat plan? If you do not have this is will be impossible to identify those opportunities that arise next year that fit your plan for the business.

Most of our clients have been through this process during the last 6 months of Covid. As a result many are now looking to exploit the opportunities, post recovery, to expand their markets and recruit key staff to help drive their businesses forward in 2021.

The CFO Centre is dedicated to helping businesses meet their strategic objectives.  To get your business in the best shape for 2021, contact The CFO Centre on 0800 422 121.

 

Under the Spotlight – The Leader

The CFO as a ‘Leader’

In the context of the 4 Roles of the CFO  (Chief Financial Officer), the role of Leader is viewed as the catalyst who brings the other 3 roles of Strategist, Operator & Guardian together to support & deliver the business owner’s expectations of long term growth. They will look to:

  • Challenge/Shift the thinking of small business owners
  • Look to drive competitive differentiation
  • Deliver funding through profit growth to drive long term value

 

 

 

 

Our CFO’s deliver this role of Leader by providing the following:

 STRATEGIC PARTNER TO THE BUSINESS OWNER and ADVISORY BOARD

  • Performing the role of a trusted sounding board and strategic partner to the business owner and advisory board.
  • Through their vast experience gained in their various roles in Finance functions, they are able to apply their knowledge and expertise to the whole of business in an “End to End” whole of revenue approach.
  • This role of the CFO opens up opportunities to constructively challenge the business owner’s mind to improve decision making, by using their influence and persuasion.

STRONG SALES & CUSTOMER FOCUS

  • In the role of Leader our CFO’s will prioritise spending time building relationships with the organisation’s Head of Sales and other business unit general managers, taking ownership of some of the performance related activities
  • The CFO will ensure that a Balanced Scorecard measures the human resource effectiveness, innovation, customer satisfaction and loyalty as well as the financials.
  • Adopting “whole of business” approach enables the CFO to remain focused on prioritisation and time allocation. The CFO uses these activities to protect one scarce resource – cash- and using it to protect an equally scarce resource – time.
  • The discussion with the business owner is then how to derive the best return on those scarce resources.

 FIGHT ‘SCOPE CREEP’

  • In the Leader role the CFO will remain focused on operating at an optimum level of resources to understand and control the hidden costs of introducing too much organisational complexity. This complexity can be caused by proliferation of products, and or channels to market, or adding layers of management.

SET ASIDE A ‘WAR CHEST’ FOR CRITICAL STRATEGIC ACTIVITIES

  • The Leader will work with the business owner to implement a plan to set aside a cash reserve in order to fund the most strategic initiative or alternatively to keep an existing project on track or accelerated to take advantage of a new opportunity.

 

The success of the Leader role delivering value for the business owner is dependent on developing and maintaining good relationships with the business owner and employees.

In addition, the CFO will also have to ensure the strategic, operational and business support aspect of the business are well attended in order to help SME owners achieve their goals whilst building a more profitable and valuable business.

 

Written by Greg Yon – CFO and Regional Director at The CFO Centre  (Sydney)

When Does a Business Need a CFO?

Recently, I read a great and thought challenging article from a few years ago, highlighting the key message around why organizations need a good CFO in their business – especially in these trying times in being able to provide sound stewardship in developing structures and creating sustainable financial success for the business that aligns with the pillars of success.

Key to this success is in developing the CFO role and understanding the business operating mode. A CFO has the ability to work with the key stakeholders (board of directors, auditors, bankers, insurance providers), providing detailed financial and management reports, as well as tax planning and policies of compliance controls (budgeting and forecasting, managing mergers or acquisitions, and compliance issues).

Determining the type of CFO or what level of skill is needed is dependent on the state of the company, and where its aspirations lie.

In summary, a good value adding and pro-active CFO would be required when your organization is faced with periods of:

  • Rapid growth
  • M&A opportunities, potential busines re-organization or debt rearrangement
  • When profitability is not at a desirable level, and you don’t know why.
  • Needing a better and more complete understanding of business drivers
  • Tax planning
  • Developing a Financial Model that highlights your strategy
  • Visibility of future cash flows and risks
  • Provision of detailed financial data, critical to making sound business decisions

If this describes your business or if you are facing a period of uncertainty concerned with Covid 19, government assistance or intervention, foreign exchange markets outlooks and effect on your supply chain pricing or even what the next 3 months holds for you then please reach out as we have a number of options available to assist you.

New Zealand contact:

Richard Justice – Regional Director, Auckland

[email protected]

0800 422 121

 

Article written by Brendan Raftery CFO at The CFO Centre Australia

Under the Spotlight – The Guardian

A CFO can act as a guardian for your business, by forecasting your cashflow and profitability, setting meaningful targets and helping you monitor your progress against them so you achieve your goals.

Looking Ahead – Forecasts

While most accountants are very good at telling you what has happened, not everyone is good at looking ahead. Historical accounting records are vital to any business, but so is a forecast. A forecast acts as a red flag, highlighting where profitability or cashflows are under threat. Forecasts need to be informed by well- thought out assumptions, and be capable of being updated quickly. These days numerous cloud-based forecasting tools are available, that are updated continuously from accounting systems.

ZZZZZ and Improving Your Business – KPIs

We all know the cliché that to improve something you have to measure it. To improve a business, you need clear targets or measure – key performance indicators (KPIs).
But how do you go about setting KPIs?
Here are some tips on setting KPIs. I call them the 5 Zs (I’m using American spelling – apologies to all of us using British spelling).

CustomiZe – KPIs must be relevant to your company. If you trade in inventory in different product categories, you need margin and turnover KPIs for your inventory categories. If you are a professional services company, inventory is irrelevant – you need labour utilization and efficiency measurements.
PrioritiZe – It is tempting to want to choose 100 goals, but don’t. If you or your staff are faced with 100 KPIs, you very quickly become overwhelmed and lose focus. Select 5-10 KPIs. Each manager or department will have their own KPIs.
VisualiZe – KPIs need to be visible and visually appealing. People need to see how they are progressing on a regular basis – every day or every week. Only by monitoring their progress constantly can they make changes to their behaviour to improve their performance. It is no use waiting until budget time at the end of the year to review how well you and your team have done.
OrganiZe – People need to be held accountable for achieving the targets. Each KPI needs a manager who is accountable for achieving that particular goal.
OptimiZe – Constantly monitor and improve your performance. This means regular reviews and making the changes needed to stay competitive in your environment. This is particularly important in our current environment, where COVID19 has disrupted many industries and changed the operating environment.

Systems
A key element in monitoring your performance against KPIs is a system that gives accurate and reliable data, quickly. There is no one-size-fits-all system; you need to select a system that relates to your business needs. It’s critical that the setup and implementation of the system takes into account your business needs and your goals.

The Role of a CFO
Of course, you can try and do all of this yourself, but it is much easier to have an experienced person do it for you. A part-time CFO will be able to assess your business and set meaningful KPIs. Your CFO can take thorough look at how you are using your system, and whether changes need to be made. Regular meetings to review your forecasts and how you are performing against your KPIs will ensure you achieve your goals.

Written by Andrew de Bruyn, Princpal – The CFO Centre

fd-heart

Book in for a free financial health check

Book Now
fd-stars

Rate your company finance function in nine minutes

Take The F Score
fd-speech

Do you have a burning finance question? Ask one of the country’s top CFOs now

Ask The CFO
fd-money

Book yourself in for a complimentary 30 minute finance breakthrough session

Book Now