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:
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.
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.
Instilling a financial approach and mind-set throughout the organisation to help other parts of the business perform better
The modern CFO provides oversight on tax and compliance issues, develops and maintains key relationships and much 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.
Written by Peter O’Sullivan, Regional Director, Victoria
Business control is vital – at both ends of the business spectrum
After the first flush of start-up, many business owners find themselves faced with common problems caused by business control. Those problems tend to polarise into coping with potential failure or run-away success – the ‘zero or hero’ scenario.
The heroes are fast-growing, successful businesses, usually with considerable drive and enthusiasm from business owners. Heroes are clearly going in the right direction, and appear to be getting there rapidly. However, like a fast train, without good control systems, knowing when to slow down or accelerate and understanding all the signals – a hero-business can easily run out of track and suffer a spectacular crash.
The zeros are those businesses that for some reason are finding life difficult. These can often be potentially great businesses, but they find themselves in a situation where their viability may be threatened, again by poor business control.
It is immaterial whether businesses fail with a huge fall or sink slowly and uncontrollably, the result is always the same.
Issues facing the business hero
Hero-business owners are often extremely enthusiastic, have great business ideas, products or services and are consumed with ambitions for growth. Such businesses, led by their highly driven business owners, are usually great to work in, customers and suppliers alike are impressed with the never say die attitudes.
Prime amongst the issues for the fast growing start up is being under-capitalised – the great idea can often die as a result of just not having enough cash. The enthusiastic owner whose vision drives the business can suffer from a lack of vision for coping with growth.
Dealing with the zero scenario
Zero businesses are strugglers. They can be fallen heroes; however they are usually businesses that have striven to survive almost from day one. They often adopt a wait and see policy, hoping that things will get better.
They are usually characterised by a lack of profitability and cash. The constant pressure of trying to juggle cash to make ends meet overshadows the viability of the business and the potential success that lies within.
Driving up the zero and controlling the hero
As with the medical profession, prevention is always better than cure. However, even business cases that may appear terminal can often be rescued.
The solution lies in business-based financial support and advice. The problem facing both heroes and zeros is finding and funding that advice. Frequently, business owners bemoan the difficulty in finding and sourcing affordable advice. However, in some cases they cannot afford to be without that advice.
Finding advisors with the right track record
As with so many other things, the business owner should go for experience. Someone who has “been there seen it and done it”. One immediate response is to hand the problem to the accountant. This can provide a solution, but in reality, most external accountants are not experienced in running a business.
An experienced chief financial officer (CFO) is invaluable in recognising the danger signals and providing solutions, they know how to finance a business, deal with growth, present meaningful monthly numbers and get the best deals from banks. At some point both heroes and zeros need this experience but they probably don’t need it full time – this is where an outsourced CFO provides the best solution. Watch a 3 minute video here to find out how you can take on one of Canada’s leading CFOs for a fraction of the cost of a full-time employee.
Access financial management skills at a fraction of the cost of a full-time resource
Owners of hero to zero businesses are prime candidates for an outsourced part time CFO solution. With the outsource option, business owners can access a financial management skill set, that is experienced in dealing with problems and opportunities, able to organise both the in-house and external accounts functions and provide the necessary business advice.
The outsourced CFO has the skill set to plan and implement the controls needed to help the zero business survive and the hero business to grow positively. Additionally, an outsourced or virtual solution does not impact payroll or headcount with the business only charged for the days worked – which may only be a few days per month.
Business owners – zeros or heroes – cannot afford to be without business-based financial advice. The outsourced CFO should be their first priority, before they hit the problems, after all the more time a business has to rectify a situation the more chance of success. Watch our 60 second video on how our outsource model works: www.thecfocentre.ca
Jim Collins, the veteran author of Good to Great, believes that “10x companies” – i.e. those which outperform their industry average by 10 times or more – possess 3 fundamental and distinctive traits:
1. Fanatic discipline and monomaniacal focus on achieving goals.
2. Empirical creativity: an obsession with facts over opinion and a readiness to ignore conventional wisdom once armed with these facts.
3. Productive paranoia: constant worry which fuels relentless preparation and precautions against even the most improbably bad events.
To illustrate 10Xers at work, Collins, along with his co-author Marten Hansen goes on to give some wonderful examples.
“Even his contingencies had contingencies”.
Drawing from outside of the business world, he tells the story of Scott and Amundsen’s race to the South Pole. While Scott took a somewhat relaxed and cavalier approach to the expedition, Amundsen’s level of preparation was truly extraordinary.
Even his contingency plans had contingencies. In some cases there were even contingencies to the contingencies within the contingency plans! He was the personification of productive paranoia which gave him the confidence to march forward, with a sense of knowing that when the inevitable challenges arose, his obsessive levels of preparation – the way in which he managed his risk – would be forgiving when mistakes were made or unforeseen circumstances arose.
Amundsen was a relentless ‘tester’ – In preparation for his journey, 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.’
By looking ahead and forecasting potential issues and pitfalls Amundsen engendered in himself and his team a reassuring sense of confidence. By doing the hard work up front, they made the journey somehow ‘easier’ for themselves, in the best sense of the word.
Why Microsoft thumped Apple in the mid 1980s to 1990s
The same applies to companies and helps explain why US company Southwest Airlines trounced 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.
The 20 mile march
Armed with these behaviours, 10X companies set off on what Collins and Hansen call the ’20 mile march’, a long period of sustained growth, characterized 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 organization 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, and only 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, with little or no time taken to test the waters.
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 2008 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’.
Purpose vs Discipline – 10Xing the 10Xers
In 2004, the All Blacks were beaten convincingly by the Springboks.
The incoming All Blacks coach, Graham Henry, found a team that had lost its mojo, its sense of togetherness and most importantly its purpose.
As the number 1 team in the world for so many years, what did they have left to achieve?
Henry inspired the team with a new vision that went beyond the individual players themselves.
The vision was to create a values based, purpose driven team, playing for something bigger than themselves.
His watchword was ‘legacy’: for every single player to leave their jersey in a better place.
His philosophy: “when you’re on top of your game, change your game.”
The culture he created, defined by a collective sense of purpose was like none other in All Blacks history.
They reached a totally new level of success. With a staggering 87% win rate they went on to win every possible piece of silverware.
Firms of Endearment
In his seminal book, Firms of Endearment, Raj Sisodia, charts the rise of the purpose driven business.
He shows that organizations aligned around their true purpose exponentially outperform their competition.
In fact, he argues that ‘purpose’ is the magic fuel that can break the bonds of conventional growth and take companies to a whole new space, outperforming Collins’ Good to Great companies.
When times are tough and external circumstances are beyond our control, often the best place to look is inwards.
When we remind ourselves of what our true purpose is, in life and in business, we tap into an energy that gives us the fuel to change the world, or at least some small part of it.
At The CFO Centre our mission is to help companies define their true purpose – what they really want from their life/business – and build the plan to actually make it happen.
In fact, we help you bring the discipline described by Collins into your business to give you the space to tap into your true purpose and build a legacy you can be proud of.
One of the toughest challenges for owners of SMEs is to be able to stand back, to look at their business through a wide-angle lens and identify what it is they really have.
Because quite often, the day-to-day distractions and diversions that inevitably surround the running of a successful business – particularly when there’s a global pandemic pulling the rug from under everyone’s feet – get in the way of sensible, objective evaluation and strategic decision-making. Crucially, that can mean that really important opportunities to grow and develop go at best un-exploited and at worst, un-noticed.
This is where the role of Chief Financial Officer becomes so vital. And where the specific advantages of joining forces with a part time (and often virtual) CFO are brought sharply into focus.
Allow yourself to dream…
What does your CFO do for you as the owner of an SME? Hopefully, they’ll make sure that everyone gets paid the right amount at the right time; sort out your internal reporting, compliance and tax planning, and probably run your relationship with your bank.
While that (along with a few other bits and pieces) is probably enough to keep a business ticking over, it’s not a reasonable platform on which to base a sound growth strategy.
Of course, things look even worse if you don’t have a CFO on your team. Whatever your business and whatever your own specific talent, it’s almost certain that you didn’t get into business to spend your life doing cashflow projections or dealing with taxes! No dreaming for you – you’re more likely to be waking up at 3 am in cold sweats.
A CFO Center CFO can help make your dreams come true
When you started your company, you almost certainly allowed yourself to dream – every successful business operator needs ambition. But as we’ve seen, all too often those aspirations become bogged down in the everyday grind of keeping a business afloat.
The CFO Centre team provides CFO expertise of a very high caliber – the top 1% of talent in the marketplace. These are people who know their stuff – the operational finance stuff, which keeps the wheels in motion and the strategic finance stuff, which brings the dream to life.
In many cases they’re able to draw on their own business success to guide others.
A CFO Centre CFO will help decode the dream and turn it into a plan and be the one to hold you to account to make it happen. He or she will bring forward the target by showing you how to come at it from a different angle. Great CFOs are catalysts and can help you break the pattern of linear growth and get you what you really want on an expedited timetable. And that’s essential if the dream is still to come true.
The CFO Centre ‘Entrepreneur Journey’: our ‘secret sauce’
All CFO Centre CFOs operate within an environment that provides comprehensive support and expertise. The CFO Centre has a global network – a Collective Intelligence Engine – of more than 700 individuals, each of whom has achieved success as a CFO and often as an MD or CEO, themselves. What’s more, they are uniquely able to access and deploy the limitless potential locked up in your business model. And they talk to each other, share expertise, experiences, and contacts.
In brief, a CFO Centre CFO will guide the entrepreneur on a three-stage journey to achieve clarity about what it is they really want from their business. To take them from where they are now, to where they want to be.
And to be clear: ‘where they want to be’ is an individual choice for the business owner. It might involve scaling up significantly; it could mean launching new products in new markets around the world; perhaps it means ratcheting up your multiple as you prepare for exit. Whatever form it takes, it’s invariably about making that dream a reality by refashioning the plan and making sure it actually happens.
Stage One on the journey covers the process of achieving operational excellence. In other words enabling an organisation to do what it does best, to the best extent possible.
Stage Two, strategic opportunity, involves preparing the springboard. This is where the strategy to achieve those dreams is forged. Perhaps it’s a question of entering new markets; evaluating risk, raising new funds. Whatever the strategy, it’s based on sound experience and, yes, that ‘secret sauce’ that blends the logic with a little magic and know how.
Stage Three, game-changing performance is, simply, what happens when stages one and two are complete.
The dream is achieved by developing a concise roadmap based on what the business owner wants to achieve. The role of the CFO Centre CFO is to identify and unlock that potential – thus freeing the dream and making it a reality.
Fly like a bird
Of course, this is not to suggest that success comes easily. Business challenges are usually complicated and risky. That’s another reason why potential isn’t always realised; why many business owners end up working late nights on mundane tasks.
So, one of the first conversations a CFO Centre CFO will have with a client is to understand what it is that motivates them to be in business, and what they want to achieve from it. What really matters to them. There are numbers, many numbers, in the life of a CFO, but it’s identifying and understanding the numbers that really matter in the client’s life that is crucial.
A CFO Centre CFO aims to unlock that potential and give wings to the dream.
While much uncertainty still remains after the craziness of 2020, our Chairman Colin Mills talks about his process on how to significantly grow your business.
“The best advice I ever received for ‘doubling’ the size of our business, was to list down the Top 20 things we could do to increase the revenue by 10 times. You can then identify the Top 3 activities to concentrate on for the following year” says Colin.
So let’s say you’re a $4million business. Spend a few hours listing out the 20 things you could do to turn this into a $40million business over the next 12 months. This will force you to think outside the box and away from small incremental changes you can make.
I suggest you then spend another hour or so considering the Top 3 activities. These will be the activities that are most likely to get you towards your goal of $40m.
You then have the top 3 activities to focus on over the next 12 months that may well enable you to double your turnover.
For each of those top 3 activities, develop clear action plans on how you are going to achieve results.
Next, get input from your management team (including your CFO of course) in developing these action plans.
Don’t forget to consider the risk and downsides to each of your priorities. Then develop strategies to mitigate the risks you identify.
Above all, ensure your plans are realistic and find capacity that can support your ideas. Your CFO should be able to support you in developing finance and funding to ensure your growth plan is realistic.
The overall economic climate won’t allow all business to double their size this year. However, this radical approach for business growth will hopefully enable some to change their thinking from doom & gloom towards optimism and growth. As Henry Ford famously said “If you think you can, or think you can’t, either way you’ll be right!”
The CFO Centre is the global No.1 provider of part-time CFOs. We are dedicated to making a real difference for our clients and their businesses.
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Thriving in the New World requires a CFO to expand their Guardian role for the organization. The CFO must see themselves driving the organization’s efforts to harness increasing levels of complexity while embedding behaviours and systems to defend against existing and emerging threats to business continuity.
Organizations of all sizes have relied on their financial leaders to develop internal control systems and financial compliance with taxation and regulatory bodies. The business owner and key stakeholders will better navigate the future by ensuring their financial leader is accountable for maximising the organization’s overall information integrity and for broadening the compliance framework.
Successfully achieving this broader mandate will require the CFO to elevate their collaboration and partnership with other functional leaders. Success will also depend on how intensely the leadership team commits to sharpening their ability to convert information into insight. There are two initiatives your CFO can pursue to create greater visibility of information related opportunities and potential compliance challenges.
Harnessing Digital Transformation
The recent pandemic has accelerated the digital transformation for every business. Over the past year, it has become clear that companies who want to win must consistently adopt emerging technologies to exploit the opportunities offered by digitization. Businesses who select the right solutions will convert the promise of richer information into higher revenue and lower costs.
It is likely your business is headed towards larger technology investment. Business leaders must, of course, rely on their technology advisors and their market oriented leadership to drive digital transformation; however, the contribution of the CFO should not be overlooked. Owners and CEOs should seek to pair their technology advisor with their financial advisor to ensure the technology selection process is sufficiently thorough and holistic.
Decision makers often desire greater amounts of information; however, there is no guarantee it leads to better decisions. For most organizations, their finance teams have the most experience in digesting large amounts of information and structuring it to make recommendations. Fostering collaboration between finance staff and your digital marketing leaders will promote more streamlined, more accurate, more actionable information.
Creating a Compliance Culture
The reality is that discussions regarding “compliance” are low on the excitement list for most individuals, and almost certainly not the driving force for most CEO’s or owner operators. For finance and operations teams, compliance may not be their primary passion; however, their functional success links directly to processes that ensure compliance requirements are visible and achieved. The challenge for compliance in a post pandemic world has grown. Workers remotely accessing business systems and confidential data puts greater pressure on protecting customer information and maintaining adherence to internal practices.
It is no surprise that the first step to creating a compliance culture begins with the leadership team. For many business the choice to task the CFO to take on compliance culture responsibilities will reinforce to employees the organization’s commitment to a disciplined overall compliance framework. Your CFO should bring a compliance mindset to the organization. Equally importantly, they should bring proven methods to establish compliance systems.
Once the initial building blocks of leadership commitment and senior level accountability are established, the CFO can work with their colleagues to put in place three additional elements that have proven effective in financial compliance. These elements are Visibility, Review and Corrective Action. These three elements have been essential for every finance leader to demonstrate a reliable compliance framework to tax authorities, regulatory bodies, and financial stakeholders.