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How a part-time CFO will strengthen your banking relationship

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. This means you will have:

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

With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.

In particular, your part-time CFO will help you to improve your relationship with your bank. This is what happened to green bean coffee importers DRWakefield. When the global financial crisis hit, the company found its bank was asking some pretty tough questions.

The company’s Managing Director Simon Wakefield soon realized the company needed help.

“Not having enough background information, data and statistics to lay out for the banks to see what we were doing, we soon realized we needed someone who could manage those and help us make those decisions,” he says. At first, he was reluctant to hire a CFO on a part-time basis.

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

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

SIMON WAKEFIELD, MANAGING DIRECTOR, DRWAKEFIELD

“In my previous experiences of part-time employees, they would come, they would be freelance, they would go and it didn’t work with us. However, The CFO Centre Group offered us something: if our first CFO didn’t work out, they would quickly put in another one. If the CFO they installed didn’t have the answer to some information that we needed, he was part of a bigger pool that he could get information from and bring to us.”

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

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

Your part-time CFO will help you to form a highly beneficial, trusted relationship with your bank, which will pay dividends over the years as you grow your business.

He or she will take on the responsibility of the bank relationship for you so the bank becomes a valuable asset. This will free up your time to allow you to focus on building the business.

Your part-time CFO will also save you from excessive bank charges as was the case for a West Australian company a few years ago.

When one of our West Australian CFOs started working with the company, it was poorly organized financially and was being overcharged by its bank. Our part-time CFO was able to sort out the company’s finances. This resulted in an immediate savings of $137,000 CAD a year in bank fees.

Your part-time CFO will:

  • Develop a relationship with key personnel at your bank.
  • Share information about your business with the bank and keep the bank fully updated. The more trust that can be built the more the bank will be willing to help.
  • Provide the bank with a credible business plan which takes into account previous track record including debt and cash flow history.
  • Provide you with independent advice on bank products and their suitability.
  • Negotiate the best deal on bank facilities.
  • Provide access to senior contacts in the bank where required.
  • Introduce new banking options if needed and negotiate terms.

Your part-time CFO will work hard to forge a strong relationship with your bank so that when you need access to any of the bank’s services your request is treated as a priority.

What’s more, your part-time CFO has many years of banking experience so can advise you on the best banking deals.

Your part-time CFO knows where to go for supplementary funding to complement your bank finance (if necessary) and how to benchmark funding deals for your peace of mind.

CFOs can skillfully communicate your needs in a way that appeals to bank managers. That helps to add further credibility to your credit application.

What’s more, your CFO understands how banks reach their decisions and can, therefore, position your application for funding so that it has the highest chance of success.

Conclusion

Your bank can play a significant role in your company’s future growth, both in terms of providing necessary funding and strategic advice.

That will only happen if you take the necessary time and energy to foster a relationship with your bank manager. The benefits of doing so, however, make it one of the best investments you’ll make.

Don’t miss the many benefits a close relationship with your bank can bring.

Book a free call with one of our part-time CFOs now.

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

 

 

Improve your banking relationship

“The time to speak to your bank manager is when you don’t need them, not when you do”.
Colin Mills, Founder, The FD Centre

As banks deal with SMEs in every industry, they are also an excellent source of information and advice about marketing, expansion, fraud prevention, and e-commerce. Some banks take the initiative and offer their customers business ideas and opportunities. So if you don’t have a strong relationship with your bank, you’re missing out in many ways that could help your business to prosper.

In this 2-part article, we will see why you should develop a strong relationship with your bank and how a part-time CFO will strengthen your banking relationship.

Introduction

Very few business owners appreciate the value of having a strong relationship with their bank.

“Many executives still view a bank as a vendor, selling money, rather than a partner, providing ideas and solutions to improve their business,” says Steve Rosvold, Founder and CEO of KRM Business Solutions.¹

A recent survey of UK SMEs found that a staggering 73% have no contact with their bank relationship manager.² . The survey commissioned by cloud services provider BCSG, found that few SMEs had personal contact with their banks either face to face or via digital channels. Forty-one percent never visited a bank branch.

Too often business owners leave getting acquainted with their bank manager until their finances are in such a mess the situation is desperate. That is the worse time to approach a bank. For as Bob Hope once joked, a bank is a place that will lend you money if you can prove that you don’t need it.

Why you should develop a strong relationship with your bank

Having a borrowing history and a solid relationship with your bank will make it easier for you to get credit.

It’s important to educate the bank on your business, your strategy and your financials so that they are fully aware of your business and the vision you have for it, says banking expert, Peter Black of Snowball Consulting.³

“You need to have a good relationship with your bank,” says Black. “If you treat the bank as a commodity and don’t tell them anything, then when you need them most, they may not be there.”

Banks need to know:

  • Who your customers are
  • Who your vendors are
  • What is going on in your industry.

For that to happen, you need to establish regular communication with your bank manager.

“Tell the bank the good and the bad news in equal measure, as and when it occurs,” recommends Black. “If you have a new contract or a good story, tell the bank about it. Many don’t do this.” There’s more to it than regular phone calls, however. You also need to demonstrate that you have a coherent strategy and follow it, says Black. That will help to establish your credibility too.

“Continually changing the strategy or appearing to move from one to another does not give the bank confidence,” says Black. “The worst situation to be in is one where the bank does not even understand your strategy.”

Make sure the forecasts you provide are realistic and credible, recommends Black. “The bank will build up a history of how accurate the forecasts are that a business provides. No forecast can ever be totally accurate, but the banks see no end of forecasts showing a massive increase in profits and cash just to underpin the latest request.”

  • Let your banker know about regulatory changes that could have an impact on your company’s growth opportunities.
  • Share your company’s long-term strategy with the bank. Your bank may be able to provide additional resources to help you achieve your goals.
  • Schedule regular meetings with your bank throughout the year so that he or she gets an accurate picture of your business. It will also make it more likely the bank will respond faster when needs or opportunities occur.

The stronger your relationship is with your bank, the better they will be able to understand your business when you come to them for advice and solutions to help it grow.

Banks know things don’t always go as planned. They want to be comfortable that they understand your ability to deal with these situations and make good decisions to improve, building a track record with them based on trust, sharing information and debate. It’s astonishing how many business owners don’t invest in building a track record and strong relationship with their bank.

If you don’t have a good relationship with your bank manager, you’re missing out on more than a possible future credit facility. You’re missing a valuable free resource for advice and information.

At a recent event focusing on how to build a world-class finance function, CFO Centre Group CEO, Sara Daw, found only four out of 50 business owners who attended considered their bank was a strategic partner to their business. This is far too low. At The CFO Centre, we make building a strong value-adding relationship with your bank a priority.

Your bank can provide a regular evaluation of your business and financial strategy, as well as ideas and solutions to overcome many challenges you might face.

Banks also offer a wide array of services including:

  • Cash management tools
  • Credit card processing
  • Online and mobile banking services

Since banks deal with SMEs in every industry, they are also an excellent source of information and advice about marketing, expansion, fraud prevention, and e-commerce.

They can walk you through your balance sheet and explain how they perceive your finances and business. They can also learn more about where and when you’re likely to need the money to grow the business.

Giving information and asking for advice helps to build trust between you and your bank manager. Gradually, you learn to trust their advice and they begin to trust in your ability to repay your loans.

Banks hate surprises so if your business is encountering problems, it’s important to let your bank manager know as soon as possible. If you know that you’re likely to miss payments or be late in paying vendors, let your bank manager know in advance so they can assess the situation and provide you with options.

This will also demonstrate to your bank manager that you can manage the business and also be trusted to inform the bank before the problem gets worse. Your bank manager might even be able to extend your line of credit or temporarily waive your fees.

You can increase your chances of getting a loan or credit extension by demonstrating your ability to repay, whether it is a short-term overdraft or a longer term loan. The bank will expect to see the proof so you’ll need to provide the following documents:

  • Your track record
  • Your previous results
  • A business plan (which needs to cover how the company started, your products/services; the management of the business and its plans for the future; market research undertaken to support assumptions and forecasts; and your financial requirements)
  • Your last audited accounts
  • Current and up-to-date management accounts Accounts Receivable and Accounts Payable lists A budget for the current/next trading year
  • A cash flow forecast

Follow us for part II of this article and discover how a how a part-time CFO will strengthen your banking relationship.

____________________

1 ‘Why Your Company Needs a Good Banking Relationship’, Rosvold, Steve, KRM Business Solutions, http://businessfinancialconsulting.com, Feb 26, 2014
2 ‘73% of UK SMEs have no contact with their bank relationship manager’, BCSG, www.bcsg.comSep 17, 2015
3 ‘How to get the most out of your banking relationship’, Black, Peter, Forum of Private Business, www.fpb.org

Profitable Growth

PROFIT IMPROVEMENT – Driving profitable growth – Part II

How a part-time CFO will help to boost your profits

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO.

This means you will have:

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

With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.

In particular, your part-time CFO will help you to boost profits.

There are four things you can do to increase your company’s profitability:

  • Sell more
  • Increase margins
  • Sell-more frequently
  • Reduce costs

If you can do all four at once, your profits will increase dramatically. Even changing one of these four factors will boost your profits.

Your CFO will help you to identify the ways in which you can sell more, sell more frequently, increase margins (without losing customers) and cut your costs.

Selling more and selling more frequently

Driven by a need to make more sales, most business owners will chase new customers.

This can be a costly exercise since it will often involve more expenditure on marketing and advertising. Acquiring new customers can cost as much as five times more than satisfying and retaining current customers, according to Management Consultants Emmett Murphy and Mark Murphy.

That’s because convincing people to buy from you for the first time is difficult. Prospective clients are scared of making a mistake: of choosing the wrong supplier and wasting their money.

If your sales are low, it’s better to focus attention on your existing and previous customers and find ways to encourage those people or companies to buy more and to do so more often.

Your existing and previous clients do not have the prospective clients’ fears and objections to doing business with you. You’ve already demonstrated that you can deliver the benefits they want from your products or services.

On average, loyal customers are worth up to 10 times as much as their first purchase.1

There are other benefits to selling to existing and past clients too: it cuts your refund rate, raises the likelihood of positive word-of-mouth, and lessens the risk of your clients buying from your competitors.

A 2% increase in customer retention has the same effect as decreasing costs by 10%.

Even better, a 2% increase in customer retention has the same effect as decreasing costs by 10%, according to Emmett and Mark Murphy. Cutting your customer defection rate by 5% can raise your profitability by between 25% and 125% depending on the industry.2

Customer profitability tends to increase over the life of a retained customer. In  other words, the longer your clients are with you, the more they will spend.

When working with you and your management team, your part-time CFO will investigate ways to get customers to return to you more often and buy more when they do make a purchase. The methods include:

  • Using a strong follow-up sequence.
  • Leveraging scarcity by using time-limited or limited availability offers.
  • Using up-sells, down-sells and cross-sells.

Raising prices

All too often, business owners believe their prices must be lower than their competition. They also believe if they increase their prices, they will lose customers. Both assumptions are false.

It all comes down to the perception of value. People will happily pay more for a product or service they perceive as having added value.

If your products or services are on par with your competitors, your prices should be similar or higher.

Even a small price rise will have a positive impact on your profit margins. After all, the larger the difference between the cost of a product or service and the price it sells for, the higher the profit.

Reducing costs

Companies that fail to control their costs are often forced to borrow but then find that servicing that debt erodes their profits still further.

The benefit of cutting your costs is that it will have a direct short-term impact on your bottom line since a dollar saved in expenses might mean an extra dollar in profit.

Your CFO will encourage you to consider the likely impact of any cost cutting on the quality of the products or services you provide before you take any action.

Your CFO will also help you to identify the major cost centres in your company. These might be:

  • Purchasing
  • Finance
  • Production
  • Administration

Your CFO will also help you to identify the profit drivers in your company.

Typically, profit drivers will be to increase sales, reduce the cost of sales and to reduce overhead expenses but they could be any of the following:

Financial drivers (which have a direct impact on your finances)

  • Pricing
  • Variable costs (cost of sales)
  • Sales volume (for example, generate more prospects, convert more prospects to customers, retain current customers, increase the size of each purchase, increase the sales price, etc.)
  • Fixed costs (for example, overhead expenses)
  • Cost of debt (for example, interest rates on debt)
  • Inventory

Non-Financial drivers

  • Staff training
  • Product innovation
  • Market share
  • Productivity
  • Customer satisfaction
  • Product/service quality
  • Analyze every area of gross profit to understand where the biggest opportunities lie and to determine how to reduce less profitable activities.
  • Find your most profitable customers (those who consistently spend more with you).
  • Find the customers who you are currently serving but who are not profitable.
  • Analyze return on investment on capital and product development expenditure.
  • Ensure your management information is up to date and in a format that is useful and reliable.
  • Educate the senior team about the importance of Critical Success Factors (CSFs). These are the  activities that your business must do to survive. You can determine your CSFs by answering the following questions:
    • How is our business better than our competitors?
    • What do our customers like about our products or service and the way in which we operate?
    • What don’t our customers like?
    • What would make our customers stop buying from us?

You measure your CSFs by using Key Performance Indicators (KPIs)

  • Systematically analyze relevant KPIs and trends to identify potential hazards before they become a problem.
  • Review arrangements with your main customers to see if there is a more profitable way to supply them.
  • Review pricing arrangements with existing suppliers.
  • Research alternative suppliers across all areas of the business.
  • Research sources of grant funding.
  • Determine your company’s eligibility for Research and Development (R&D) tax credits.The tax relief will either reduce your tax bill or provide a cash sum. To receive R&D tax credits, you must show that your company is carrying on a project that seeks an advance in science or technology and how it will achieve it. The advance being sought must constitute an advance in the overall knowledge or capability in a field of science or technology, not just your company’s own state of knowledge or capability.
  • Develop effective incentive schemes for staff to encourage productivity and to manage risk.
  •  Prepare customer surveys to understand what the market really wants (and then sell it to them).
  • Analyze competitors to find out what is working well and what isn’t and course correct accordingly.
  • Review significant overheads and isolate opportunities to reduce expenditure.
  • Investigate exchange rate hedging and planning.
  • Create a realistic and achievable action plan then communicate it to all your employees.
  • Increase prices.
  • Explore online selling.
  • Explore more cost-effective ways of marketing by forming strategic alliances and joint ventures with companies that deal with your prospective clients.
  • Arrange for business mentors to give advice and share experiences with you.
  • Review organizational structure and delegation procedures to maximize efficiency.
  • Develop customer retention strategies to prevent loss of revenue.
  • Evaluate business location and determine possible alternatives (to save costs on production, delivery, etc.).
  • Outsource some functions (and so save on wages) or employ someone on a part-time rather than full-time basis.
  • Look at the viability of redundancies. If you’re making people redundant, you will need to fund redundancy payments. You will also need to ensure you meet current legislation and standards regarding consultations with employees, the grounds for redundancy and the selection of employees.
  • Introduce an expense control program. Your CFO will challenge expenses in all categories, large and small. Besides cost-cutting measures, your CFO will also ensure you tighten your control on costs. If you don’t already have a purchase order approval policy, for example, you’ll be encouraged to introduce one.
  • Look at your bank charges. Your CFO will question all bank fees on your statements and compare them with what other banks charge.
  • Check invoices from suppliers for overcharging (incorrect charges, missing discounts, double billing, etc.).
  • Get rid of inefficient systems (for example, paper-based systems).
  • Measure the return on all your advertising and stop using whatever hasn’t worked in the past
  • Replace frequent small orders with bulk buy discount orders.

As you can see from this, profit improvement is not an emergency fix. It’s something you and your organization need to plan for and follow consistently. If you don’t, there’s a very real danger that once you return to growth, you’ll get swept up with the day-to-day demands of running your business. That increases the risk you’ll find yourself back in an unprofitable position.

As with many challenges facing growth businesses, the solution lies in good planning for profit improvement on the one hand and an ability to stick to the plan, month in and month out, on the other.

Profit improvement should be seen as an ongoing project. It takes some time to establish systems, which enable your business to maximize its profitability, and then it takes focus and resources to maintain the monitoring process.

That’s where part-time CFOs can help. They can take care of the finance function and the support systems within your business, which frees up your time to focus on growing your business.

Profit improvement should be seen as an ongoing project. It takes some time to establish systems, which enable your business to maximize its profitability, and then it takes focus and resources to maintain the  monitoring process.

Conclusion

Most business owners say making a profit is the number one reason they are in business. Everything else (passion, purpose, mission) is subordinate.

Profit is an expression of getting the most out of your business for the least amount of effort. It is a reflection of your efficiency.

Building a large company and being able to cite impressive revenue figures are often the wrong drivers for business owners. Again, this is not to say that increasing sales is the wrong approach – on the contrary – it is merely to point out that selling lots of product without a full understanding of the profitability of the product can be a waste of valuable resource.

A compact, efficient business which operates under tight management procedures is nearly always a happier place to work than a chaotic business which is able to boast significant revenue figures.

Expanding overseas, taking on more staff and resourcing up may well be the right way for you to take your business. It could equally be the case that you may be able to enjoy increased profitability (and an improved lifestyle if this is an important driver) without expanding rapidly, but merely by improving profitability.

The path you follow will be determined by your objectives for the business and that’s something your CFO will help you to clarify and then achieve.

Increase your profits with the help of a part-time CFO

Don’t miss this opportunity to talk to a part-time CFO about how you can improve your profits. To book your free one-to-one call with one of our part-time CFOs:

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

__________________________________________

1. Source: White House Office of Consumer Affairs, ‘75 Customer Service Facts, Quotes & Statistics: How Your Business Can Deliver With the Best of the Best’, Help Scout, www.helpscout.net

2. Leading on the Edge of Chaos: The 10 Critical Elements for Success in Volatile Times’, Murphy, PH.D., Emmett C., Murphy, MBA, Mark A., Prentice Hall Press, June 15, 2002

Profitable Growth

PROFIT IMPROVEMENT – Driving profitable growth

“Without an understanding of profitability, every business, no matter how successful is a house of cards” – Mike Michalowicz, Entrepreneur and Author.

There are four ways you can improve your profits: sell  more, get customers to buy more frequently, increase margins and reduce costs. If you can do all four at once, your profits will increase dramatically. Even changing one of these four factors will boost your profits.

In these articles, we will cover the main reasons for low profits and  how a part-time CFO will help you to boost your profits.

Introduction

Profits are vital for your company’s growth for the following reasons:

  • They provide a return on your investment capital.  
  • They provide opportunities to reward staff.
  • They make it easier to attract investors and customers.
  • They make it easier to borrow money and negotiate a lower interest rate on the money it secures.
  • They can be reinvested in the business to expand into new markets, products and locations.
  • They provide a buffer against economic downturns and changes in market conditions.
  • They make it possible to hire more people.
  • They allow you to develop and test new products or services.

While many business owners experience a decline in their net profit margin (the percentage of total revenue that’s profit) at one time or another, they are usually able to continue to trade, albeit with the aid of a short-term loan and some heavy duty cost-cutting.

Sadly, unless you identify and address what’s causing your profits to shrink, the problems are likely to get worse. For it often follows that poor profitability leads to reduced cash flow. When profits are low and cash flow is weak, businesses can slip into a downward spiral.

Your profits tell you how well or how poorly your business is performing. For example:

  • Gross profit (the total amount your business makes minus the cost of goods sold (COGS) indicates how efficiently your business uses resources to produce your products or services.
  • Operating profit (gross profit minus operating expenses, depreciation,andamortization) indicates how efficiently you produce and sell your product or service.
  • Net profit (the amount of money left after paying all the business’ expenses including interest, taxation, etc.) indicates how well your business is generating healthy results.

These figures alone won’t give you the whole picture. You’ll need to compare them with previous annual and monthly profit results. That’s where ratios come in: they can be used as a benchmark against which you can measure your business’ performance.

Profitability ratios help you evaluate your company’s ability to generate profits.

They include gross profit margin; operating profit margin; and net profit margin.

  • Gross profit marginyour gross profit divided by your sales is a useful indicator of your company’s financial health. It shows how efficiently your business is using its materials and labour in the production process and gives an indication of the pricing, cost structure and production efficiency of your business.  The higher the gross profit margin, the better. That is because the higher the percentage, the more your business retains of each dollar of sales, which means more money for other operating expenses and net profit.
  • Operating profit margin – calculated by dividing your operating income by your net sales during a period reveals how much revenues are left over after all your company’s variable or operating costs have been paid. It also shows what proportion of revenues is available to cover non-operating costs like tax, interest, and distribution to your company’s owner.  It is useful because it shows you whether your operating costs are too high.
  • Net profit margin – calculated by dividing your after- tax net income (net profits) by your sales (revenue) shows the amount of each sales dollar left over after all expenses have been paid. The higher your net profit margin, the better because that shows your company is more efficient at converting sales into actual profit. A low net profit margin might mean that your business is not generating enough sales, your gross profit margin is too low or that your operating expenses are too high.

The main reasons for low profits

Falling revenue

Your sales or revenue slump could be due to internal and external factors such as:

  • Inadequate marketing programs. To be effective, your marketing needs to convey  the right message to the right target audience and convince them to take a desired action like call your company to purchase a product or book your service.
  • Poor pricing strategies.  
  • Increased competition.
  • An inability to keep up with market changes.

Excessive expenses

Budget overruns or unexpected costs will chip away at your net profit.

High variable costs

The higher your variable costs, the lower your net profit margin will be. High production costs or purchase costs can result in insufficient funds to cover expenses. When variable costs rise to the point that there are not enough funds left to support all expenses for the period, a net loss will occur.

Follow us in part II of the profit improvement article to learn how a Part-time CFO can help you drive profitable growth!  Coming up soon.

The CFO Centre - Exit Planning

Heading for the big exit: How a part-time CFO can help maximize value when you sell your business

The CFO Centre will provide you with a highly experienced senior CFO with ‘real-world experience’ for a fraction of the cost of a full-time CFO. This means you will have on your team:

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

With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.

In particular, your part-time CFO will help you to ensure that your business has planned and prepared for an exit. They will ensure that your sales process is managed in an efficient way to minimize challenges on price and prevent advisors’ fees from eating up too much of the sale price. He or she will, for example:

  • Help you to implement your strategy for growth and exit    
  • Identify where value can be maximized and eliminate unprofitable or low profit activities
  • Ensure that shareholders’ interests are protected and consistent with the shareholders’ agreement
  • Explain and introduce incentive arrangements available for key management. These could include bonus plans aligned to the business objectives or option plans
  • Ensure that property is held in the most appropriate manner for the business and any potential acquirer i.e. freehold or leasehold and length of tenancy
  • Review pension arrangements to identify any funding or future liability issues
  • Protect intellectual property and ensure that SR&ED tax credit claims are made to help fund new intellectual property
  • Review contracts and trading terms to ensure they are in place, up to date, compliant and enforced
  • Identify risks to the business from suppliers and customers on whom the business may have become reliant and plan to mitigate the risk
  • Improve the accuracy and timeliness of management information
  • Introduce systems and controls to increase confidence in the integrity of the accounting information
  • Improve and/or introduce forecasting processes and procedures so that budgets and forecasts can be used as dynamic planning tools
  • Identify means of improving margins and reducing overheads to improve profitability
  • Ensure compliance with GST/PST/HST, Employee Source Deductions, Income Tax and Corporation Tax legislation while seeking ways to reduce the overall tax burden to you and your business
  • Introduce you to corporate finance, legal and other advisers to help with all aspects of the exit preparation and process
  • Project manage the exit process internally so that it minimizes disruption to other staff and their continuing responsibilities
  • Create confidence in the acquirer and their advisers so that they have limited opportunity to attempt to negotiate the price down or increase warranties from you
  • Help you achieve the freedom you want after the efforts that you have invested in growing the business.

A successful exit can be very rewarding, but planning is critical to maximizing overall value. By planning ahead, you will be able to sell faster, for more money and ensure that you can plan your tax position to reduce the tax cost to shareholders. You keep a greater proportion of the sale price.

By demonstrating that you and your team have reliable information that allows you to report and forecast accurately, you will be able to instill confidence in an acquirer and their advisors. You will also minimize possible price reductions.

A part-time CFO from The CFO Centre works with you to make your plans a reality by shouldering some of the burden. We give you the opportunities to grow your business further, from a position of strength, in the

knowledge that you will be able to market your business, or take advantage of an offer to acquire it.

Book your free one-to-one call with one of our part-time CFOs now.

tel: 1-800-918-1906

Heading for a big exit : Due Diligence

Due diligence

Due diligence is the process the potential acquirer goes through, usually with a raft of analysts, accountants, lawyers, and the occasional industry specialist advising.

It is normally an extremely extensive check of all aspects of the business, can be time-consuming and stressful, and happens while you still have a business to run.

Advance preparation is essential as it will reduce the workload, give confidence to the acquirer, reduce professional fees and make attempts to reduce the offer price less likely to succeed.

The acquirer needs to know whether what they have been shown is supported by fact. They’ll look at any papered- over omissions and whether the hopes and expectations for future profits are realistic. While appearing to be similar to an audit it can be far more comprehensive and onerous.

The starting point for due diligence is the data room. The data room is a collection of everything that is relevant to the past, present and future running of the company. It will normally include at least:

  • Corporate articles and minute book
  • Property deeds and leases, fire certificates, environmental reports
  • IP registrations – patents and trademarks Product specifications
  • Fixed asset registers
  • Insurance – property, employer’s liability, product liability, vehicles, business continuity, etc.
  • Customer and supplier contracts
  • Debtors and creditors loan agreement and liens search
  • Employee contracts and details including pension and severance obligations
  • Statutory and management reports for the last three years, budgets and forecasts
  • Audit letters and recommendations
  • Detailed accounting policies and procedures Employee Deductions, GST/PST/HST and corporation tax returns and any compliance visits or CRA audits
  • Bank accounts, loans, mortgages, foreign currency (or hedging) and interest rate exposure
  • Commitments and contingent liabilities

Depending on the nature of the business there could be much more.

Do not underestimate the pressure that will be placed on you and the senior team, especially finance, during a sale.

It takes a thorough understanding of the business to know what belongs in a secure data room and significant time scanning documents or copying files to set one up. It should, therefore, be part of the exit planning process to create, over a period of time, a repository for all these documents (in soft copy as the data room will ultimately be a virtual, online room).

In addition to being prepared for the due diligence process, the act of putting a data room together will identify what records do not exist or where copies are missing. It also highlights areas where attention is needed – perhaps a lease needs to be reviewed or IP registered.

The actual sale process can be disruptive for staff and anything out the ordinary can create concern and rumors. A low profile gathering of data will become accepted practice whereas a flurry of activity looking for missing paperwork is likely to disturb the office workforce in particular.

Finally, do not underestimate the pressure and resources required from you and your senior team, especially in finance. Anyone who has been through the process will tell you that they never expected it to be so onerous.

There is a real danger that focuses on the sale process will take the effort away from running the business. It might be advisable to bring in professional assistance to project manage the transaction internally to minimize the impact on the senior team.

Not all offers for businesses go all the way to completion. The worst scenario for a distracted team is to have the business slip and then suffer the emotional backlash of a failed sale; particularly having adjusted to a probable change in ownership and management.

A successful exit can be very rewarding, so planning it is critical to maximizing that reward.

The CFO Centre - Exit planning

Heading for a big exit : Why does one company sell for more than another? Part I

Introduction

Most of us have bought or sold a house and understand that many factors determine the price we pay.

We are attracted by the size of the house, the location, and the proximity to schools, restaurants, and work. We have concerns about the purchase price, a higher mortgage, increased utilities and maintenance costs and what a home inspection might reveal.

It should be no surprise that a business purchaser also has to balance the excitement and ambition of expanding the business with the cost of acquiring it, the availability of finance, future profitability, and unexpected liabilities.

The key to maximizing value is to package your business as attractively as possible for potential purchasers. Once a buyer is found, business owners need to ensure there are no surprises or disappointments leading to a change of heart on the purchase price, extra restrictive conditions on the purchase or the sale falling through.

The price paid for a business is often quoted as a multiple of historical earnings. If a purchaser is buying the expectation of future earnings, the multiple tends to be higher in fast-growing industries and fast-growth companies. This is why many businesses move from low value-added buy/sell business models into higher value-added consulting/service models where profitability and opportunities for growth appear better.

There are many advisers around who claim to be able to sell your business for the maximum price.  You need to be able to select an advisor with the credentials and experience in your industry, in your market and in your size of the business, to work with you over a period of months or years to achieve your goals. The right choice should maximize what is important to you: price, post-tax cash, the future of your staff, or the continuation of your culture and the values of the business. The wrong choice could end up losing a sale and wasting a lot of time and emotional energy that might even damage the business for a few years if handled incorrectly. The house sale analogy is relevant here. We can help with the information and introductions to make the correct choice for you.

The key to maximizing value is to package your business as attractively as possible for potential purchasers.

Planning an exit

Much of exit planning is actually implementing good business practices. As a business owner, you will exit at some time, hopefully on your own terms and at a time of your choosing.  To achieve this, it is necessary to plan ahead to ensure the business you are selling or passing on is in good shape to generate future profits for your successor.

It’s equally important that as much cash as possible remains in the business to be distributed to its owners and employees rather than paid in taxes.

It is an often-quoted truism that you sell a business when someone wants to buy, not necessarily when you want to sell. If the dream buyer turns up with an unsolicited offer tomorrow, would you be in a position to maximize that opportunity? Probably not, but forward planning would make life a lot easier should that call come. When a sale takes place it is often the finance team that is placed under the most pressure, due to the need to prepare documents and analyses. It is, therefore, the finance team that is best placed to help you plan in advance.

Ownership, shares, options
Starting with the basics, look at who owns the business. The simplest structure is for all shares to be owned by one person who makes all the decisions and receives all dividends and payments (after tax) for selling the business.

If you have more than one shareholder, do you have a Shareholders’ Agreement? An agreement governs the relationship between shareholders, as well as if an exit opportunity arises, what happens if there is no unanimous agreement on the terms of the exit. It also includes the procedures to be followed, the valuation method and rights of shareholders during an exit, whether by way of a business sale or the death or critical illness of a shareholder.

Are there others who are expecting to become shareholders, perhaps have been promised that they will be? Would it make commercial sense to reward some members of management with shares or options so that they have an incentive to help add value to the business and remain with it? New shares or options may require a valuation of the business if you are going to take advantage of tax-saving opportunities. The basics of option plans have stayed the same for some time but the detailed rules change in most budgets so it is wise to get professional advice before implementing a plan.

Property
Property can be a major sticking point for a purchaser. Assume it will be regarded by purchasers as a large liability which will be a drain on the benefits they are planning on for their business after the acquisition.

If the company owns the property, has it been appraised recently and is the value reflected in the balance sheet? If a buyer is interested in the property, then it is better to have an appraisal available to include in the accounts rather than have uncertainty when sale negotiations have already started. That said, unless the premises are critical to the business and it has to be included in a sale of the business, many buyers do not want to take on a freehold property. You may need to consider how to dispose of property or lease it to another business going forward.

It is worth considering the sale or transfer of property  to a holding company owned by yourself and/or a family member. The property can then be used by the company on a commercial lease and generate ongoing retirement income. As with any property transfer, there are complications: primarily the interaction of a number of provincial and federal taxes that require proper advice sooner rather than later.

A lease may be viewed the same way by a purchaser, regardless of the owner. It is, in their eyes, a long- term commitment that may be restrictive to a growth company or to a buyer who may want to consolidate operations. Clearly, you need to continue running your business and need some security of tenure but is a ten-year lease with upward only rent reviews the right thing to enter into when you might be wanting to sell within three years?

Pensions
When defined benefit pension plans were the norm, employee pension plans were treated with extreme caution by all buyers.

It is unlikely that you have such a plan but if you do, the funding position and the plan valuation will be major considerations. If there is likely to be a problem, it should be addressed sooner rather than later. There have been many instances of pension funding deficits exceeding the business value, which is not a good place to be.

Pension plans are a terrific incentive for employees, but as a business owner, a defined contribution plan eliminates many of the risks.

Intellectual property
Where intellectual property (“IP”) is obvious – physical inventions such as the bigger and better mousetrap – some businesses have registered patents and/or trademarks to protect the unauthorized use of their IP.

Have you considered what you have developed over time in your business? What products, processes or brands do you use that might be capable of being protected and would be worth spending time and money on to protect? Buyers need to know that if your business relies on particular IP to continue to operate, the IP is protected and the business will not be undermined by a competitor who can copy, produce at lower cost and sell in greater volumes.

Have you considered what you have developed over time in your business, be it a product, process or brand, that might be capable of being protected and would be worth spending time and money on?

Contracts
Do you have formal contracts or Terms and Conditions with all your suppliers and customers? If so, have they been reviewed for any legislative changes? Do you know what happens if you sell? Can the contract be replaced by the new owner (or will it remain in place after a change of ownership)?

It is another case of the buyer gaining confidence that the business will continue to enjoy the same or better terms of sale and purchase post-acquisition.

On a similar theme, are there any significant customers or suppliers (over 20% of sales or purchases) and how might they react to a change of ownership? A highly concentrated customer or supplier base can create risk, not only if they fail but also if they might refuse to deal with a potential acquirer for competitive or other more emotional reasons. If it is possible to reduce customer concentration risk by increasing sales, it’s worth doing (and doesn’t require professional advice).

Numbers
Do you budget and forecast the business? If so, how successful have you been at achieving your forecasts? If not, why not? How do you plan for the resources required to achieve your targets? Buyers can be helped to assess your business by reviewing your budgets and forecasts and gain confidence from your ability to achieve expected results.

Also important is to be able to show a rising trend of profits, profitability and cash flow. This should be demonstrated over several years if possible and is not something that can be done overnight. Any “blips” need to be explained honestly and consistently to be credible.

There may be one or two expenses or assets that are likely to be unattractive to a purchaser. Rather than have an embarrassing discussion during sale negotiations, consider removing anything that has dubious business benefit – company housing, overpaid relatives not contributing to the business, the nanny, gardener or handyman who never come to the office but can be found at the business owner’s home, the sponsorship of the local cycling club because it is a personal passion from which the business gets little reward.

Costs such as these indicate that personal and business expenses tend to get mixed together, leading to a suspicion that there could be more and that the taxman might be interested at some future date when it could be the acquirer’s responsibility.

It is also sound financial sense – the business should sell for a multiple of profits, but if those profits are deflated by extraneous costs, the reduction in the sale price will be several times the benefit from a few personal expenses.

Come back for the second part of this article, detailing the due diligence process, available soon!

How a part-time CFO can help you to resolve your cash flow problems

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. This means you will have:

With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision- making. After all, you’ll have access to expert help and advice whenever you need it.

In particular, your part-time CFO will assess your company’s cash flow position and take the following steps:

Identify all the immediate threats to your business

A part-time CFO will look for all those things that could plunge your company into serious financial trouble if they’re not addressed immediately.

These could be factors such as the payment of wages or salaries, the payment of taxes or the payment on a due date for vital goods, etc.

Address those imminent threats

Your CFO will look for ways you can meet your most pressing financial requirements and buy the company more time. This might involve:

  • Chasing late-paying customers. To encourage those customers to pay, consider offering a discount for immediate payment or asking them to pay immediately by credit card.
  • With invoice discounting and factoring, you’ll receive up to 85% of the value of the outstanding invoice, sometimes within 24 hours. You’ll receive the remaining 15% minus a fee once your customer has paid the outstanding invoice.  An invoice discounting service can be confidential so that your customer will be unaware of the financier’s involvement. Factoring companies, however, undertake a full collection service (including sending out statements, making reminder calls and collecting payment), so your customers will be aware that you’re using their services.
  • Arranging short-term loans or operating line of credit with your bank.
  • Considering other funding sources besides banks and other lending institutions such as self-finance, or loans from family and friends, partners, investors and alternative finance like peer–to–peer lending.
  • Asking for better terms from creditors. You may find they’re open to extending your repayment schedule.
  • Identifying and addressing the underlying problem.
  • Assess the business to identify the cause of the cash flow problems. Address those issues to avoid a similar situation occurring again.

Prevent cash flow problems from recurring

As well as identifying and resolving the imminent threats to your business, your CFO will review all inflows and outflows of cash to determine where improvements and savings can be made. This is likely to involve:

  • Working out your break-even sales figure (the number of sales required to cover total expenses without making a net profit).
  • This will mean reviewing your sales figures for the past six months to check that you exceeded that breakeven point. It’s then possible to calculate how much you’re likely to make in sales for the next two months. If you’re unlikely to break even, you’ll need to plan how to increase sales and reduce costs.
  • Looking for ways to increase your profit margins such as raising prices. You can do this without losing valuable customers by offering packages or bundles of goods or services.
  • Reducing your salary or personal draws from the business until your revenue improves.
  • Cutting costs. The beauty of cost-cutting is that it can be done in hours or days, unlike revenue-boosting measures which take longer to implement and to take effect. Such cost-cutting measures might include doing any of the following:
    • Stopping work on non-critical capital projects.
    • Reviewing your inventory and selling off obsolete, damaged, or discontinued products.
    • Eliminating slow-moving products or less popular services from your line since selling unprofitable goods or services is likely to send you out of business faster.
    • Negotiating price discounts for volume purchases from your suppliers.
    • Consider downsizing. Bigger is not better if your company is always struggling to stay afloat. If your profit margins are consistently small, reassess your business goals. Rather than expansion, focus instead on profit.
    • Ditching products or services with the lowest profit margins. This change of focus may mean you can also reduce the size of your borrowings, staff, advertising, and marketing campaigns, premises, etc.
    • Reducing labor costs (without triggering a drop in productivity). Any cost-cutting measure that triggers a drop in staff morale will have negative consequences for productivity. Your CFO may advise you to defer salary increases and bonuses or to cut salaries from the top-down. You might also consider introducing a temporary freeze on overtime. Other measures might include lowering the number of employees through attrition or redundancies.
  • Speeding up the sales process. Your CFO will encourage you to accelerate the speed with which your customers’ purchase orders are converted into cash. In particular, you’ll be asked to consider what steps in the sales process can be combined or eliminated. For example, asking for payment at the time of the order, accepting credit card payments, or offering automatic account debiting.
  • Lowering miscellaneous expenses. You’ll be encouraged to find ways to make small savings on things like insurance policies, office rent, bank service charges, utilities, etc. Lots of small savings across the board can have a significant impact.
  • Refinancing your debt obligations. Your CFO might suggest approaching your lenders to see if you can lower your monthly payments on your term debt obligations by taking the remaining principal amount and spreading it out over a longer period.
  • Analyzing if you can outsource jobs or services. You’ll be asked to look at your operations to determine if any of your activities, services, or functions could be provided at less cost by an outside company or contractor.
  • Holding a sale of surplus or slow-moving inventory.
  • Approaching suppliers to negotiate better deals.
  • Asking your suppliers to take back excess inventory.
  • Selling off your underused assets and renting the equipment instead.¹

With all that support and expertise at your fingertips, you will achieve better results, faster.  It means you’ll have more confidence and clarity when it comes to decision-making.

Improving credit control.

Your CFO will help you to get tighter controls over your credit. That will mean:

  • Getting written agreement to your credit terms before taking on new clients.
  • Many businesses are not clear about credit terms with their clients and often simply set out conditions on the face of the invoice, but that’s too late in the process. Instead, you should always ensure that an authorized representative of your customer has agreed to your credit terms in writing before you agree to supply products or services.
  • Carrying out credit checks on all new customers, no matter how large or influential they may appear.
  • Invoicing at the time of a sale or close to it. Instead of waiting for the month’s end to issue invoices do it daily or weekly.
  • Making sure your sales invoices are accurate. Unfortunately, some customers will use any excuse for not paying invoices on time and any inaccuracies (such as an incorrect address or date or no purchase order number) could be enough for them to justify delaying payment.
  • Treating the collection of monies owed as a high priority. If you haven’t already done so, set up a computerized system to provide notification of late payments.
  • Setting up an invoice dispute resolution process. It’s important that your company records any documentation related to invoice-related disputes. You should also keep a record of those customers who challenge their invoices or raise questions so it’s possible to see if any do this regularly as a way of avoiding settling their accounts.²

Investigate the use of regular cash flow forecasts

Your CFO will encourage you to use regular cash flow forecasts so you know how much cash is going to be needed in the coming months. It means you’ll know in advance if you’re likely to face a cash shortfall and can make arrangements for extra borrowing, or take other appropriate action.

It will also make it easier for you and your senior team to make decisions such as whether or not to:

  • Hire more staff
  • Change your prices
  • Move premises
  • Tender for a large contract
  • Find new suppliers.

You’ll be able to see at a glance the impact such decisions might have on your cash flow.

Cash flow forecasts can also highlight potential problems so that you have time to take action to avoid them.

Conclusion

Your cash flow keeps your business alive. Having control of your company’s cash flow which allows you to operate within your means, and move away from a ‘feast and famine’ situation is usually a huge relief to everyone within the business.

It means that decisions can be made and checked against the cash flow forecast to determine whether they are viable. This increased visibility can be introduced quickly and can have a hugely positive impact on the whole business.

It also means that reserves can be built up gradually to give the business a cushion and alleviate the stress of not knowing what lies around the next corner.

Having the right cash flow management processes in place and being able to spot peaks and troughs in trading to improve cash flow is one of the most critical components of any finance function.

Put an end to your cash flow problems now by calling The CFO Centre today.

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

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1 ‘How to manage a cash crisis’, NAB (National Australia Bank) Ltd., 2011

2 ‘Top Tips for Enhancing Your Invoicing Process – and Avoiding Problems with Your Business Cashflow’, Finlay, Mitch, Talk Business magazine, www.talkbusiness.co.uk, Jan 2015

STOP WORRYING ABOUT CASH!

Poor cash flow management can cause huge problems for even the most profitable businesses. Until you find and fix the cause of cash flow problems in your business and put systems in place for managing it, your company can be at risk of failure.

For the stark truth is without cash, your business will be unable to meet its payroll obligations, be more likely to default on payments to suppliers and creditors, and in the worse case, be forced to cease trading.

Without well-defined and well-managed strategies to avoid running into cash flow problems and a plan to improve cash flow if such problems should arise, many companies will flounder, yours included.

In our 2-part article, we will be covering:

  • The main cause of cash flow problems in any business
  • How a part-time CFO can help you to avoid or resolve your cash flow problems and prevent them from recurring

Introduction

It doesn’t matter if your product or service is outstanding, your market share is bigger than your competitors’, your team is highly productive or if you have a steady stream of new clients, your company is at risk of going under if you don’t have a firm grip on your cash flow.

Even if your business is experiencing a high level of growth, you can risk issues: expansion can exacerbate the problems caused by poor cash flow management.

Cash really is the oxygen on which every business depends. Without a steady supply of it, your business cannot survive.

That applies even if your company is profitable. Business consultant Bill McGuiness says, “The sad fact is that the majority of failing firms are profitable as they enter bankruptcy.”¹

Without clearly defined and well-managed strategies to avoid running into cash flow problems and a plan to improve cash flow if such problems should arise, many companies will flounder, yours included.

Cash flow management is not a short-term fix to a problem but should be part of the fabric of the business.

It is like an internal insurance policy for your business. Getting to grips with your income and expenditure and understanding where you stand today as well as in the months and years ahead gives you and the rest of your senior team a great sense of clarity and peace of mind.

It also makes it easier for you and your team to plan and make decisions.

For that to happen, you need to analyze and then manage the flow of cash in and out of your company on a weekly, monthly, and annual basis. You also need to create a cash flow forecast for at least three months ahead so you and your senior team are aware of when cash shortfalls are likely to occur. This will allow you to cover your working capital requirements.

The main reasons for cash flow problems

Essentially, your cash flow problems are likely to be the result of one or more of the following:

Slow-paying customers

According to a 2015 report by Taulia Inc. in the US, “for the majority of respondents, Days Sales Outstanding (DSO) averaged 30 to 40 days, with more than 25% of suppliers waiting more than 40 days to receive payment.

Small business suppliers are waiting longer and longer to be paid after delivering goods. This trend greatly impacts their operation as cash flow is one of the biggest concerns facing today’s small and mid-sized businesses. According to Forbes Magazine, a lack of readily available working capital is the main reason many small and mid-sized businesses fail to succeed.

To fill this cash flow gap, suppliers often have to borrow at costly rates between payments – and that only works if they can qualify for a loan.

From a broader perspective, paying later negatively affects the financial health of the supply chain.“²

Similarly in the UK, according to a report by Bacs Payment Schemes Ltd (Bacs),³ more than three-quarters of respondents (76%) are being forced to wait at least a month beyond their agreed contract terms before getting paid.

The knock-on effect of this is that business owners have to make tough decisions to make it through the month. Some 20% of directors in companies that experience late payments say they have taken a cut in salary in order to keep cash inside their businesses.

Over a quarter (26%) use their operating lines to make ends meet and one in ten are experiencing one or more of the following challenges every month:

Some 23% claim the late payment situation is forcing them to pay their own suppliers late.

Poor collection from customers

Many companies don’t issue invoices quickly enough. They’re even worse when it comes to chasing up invoices.

If this is the case in your company, it’s important to realize that every sale has already cost your business something in terms of labor, purchase of raw material, warehousing, advertising, etc. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.

American entrepreneur Nolan Bushnell is fond of saying that a sale is a gift to the customer until the money is in the bank. 4

Your fixed costs are too high

If it is to survive, your business needs to bring in more cash than it spends. If it doesn’t, its long-term survival is unlikely.

Three of your biggest fixed costs (expenses) are likely to be payroll, capital expenditure (equipment, hardware, and plant) and office costs.

Your prices are too low

It’s quite common for businesses to set their pricing levels at the low end of the market in a bid to win customers.

If their expenses rise, their profit margins get smaller. Unfortunately, if they raise their prices, they risk alienating customers who have become accustomed to the low prices.

Your sales are too low

The way many business owners tackle the problem of low sales is to look for new clients. That inevitably incurs more costs since it involves spending more on advertising and marketing to attract those new clients.

There are other more cost-effective ways of boosting sales. They involve encouraging your existing or dormant customers to spend more and to do so more often.

You’re giving customers too generous payment terms

If your payment terms are overly generous (say, 60 or 90 days rather than 30), you could find that your business is constantly having to make up the cash shortfall.

Allowing customers to pay in arrears for goods or services received is similar to offering those companies short-term unsecured loans, says financial advisor John Toppin, MA FCA.5

“This form of financing is a fabulous deal for the customer as it is commonly unsecured, interest-free and the customer can pay its debt well beyond the agreed credit terms if it likes,” he says.

“What is more, unlike bank lending, the customer rarely has to pass any form of credit check to obtain these generous and virtually unlimited credit facilities.”

You’re overtrading

This happens when your business experiences rapid growth (which forces you to invest in more inventory, equipment, buildings, staff, etc.) but you don’t have the working capital to match that growth.

You have too many bad debts

Even a couple of bad debts may be enough to put your own business in jeopardy. That’s why it’s best not to rely too heavily on one or two big clients.

You’re holding too much old inventory

Accumulation of old inventory can tie up your cash reserves and prevent you from buying more up-to-date inventory. If this is the case, you should look for ways to sell off as much of that inventor as quickly as possible.

Joins us in part II of this article to find out How a part-time CFO can help you to resolve your cash flow problems.

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1 ‘Cash Rules: Learn and Manage the 7 Cash flow Drivers for Your Company Success’, McGuiness, Bill, The Kiplinger Washington Editors, Inc., 2000

2 “Empowering Suppliers, Insight into What Suppliers Use, Want and Expect from early Payment Programs” Taulia White Paper Q1 2015

3 ‘Late payments are forcing businesses to make tough decisions’, Bacs, www.bacsservices.co.uk, Feb 16, 2015

4 ‘Finance for the Non-Finance Manager’, Siciliano, Gene, McGraw-Hill Companies, Inc., 2003

5 ‘Cash Flow: Advice For Business Owners And Finance Managers’ Toppin MA FCA, John, Nomizon Business Publishing, Kindle edition, Sep 30, 2014-09-30

The importance of a business plan and how to create one – Part II

In our previous article, we have highlighted the importance of creating a business plan.  In this article, we will focus on the key elements of a business plan, the sections it should contain and how a part-time CFO can help you to create your business plan and implement it.

The key elements of a business plan

The most important part of your business plan is its financial information. Your financial forecasts should include your cash flow predictions for the next 12 months or more. You’ll also need to provide monthly sales estimates and costs to prove the business has enough working capital or to show that you understand you need to arrange additional financing.

You need to explain all assumptions in the business plan, with best and worst case scenarios. Detail the risks you’re likely to face and how they will be dealt with.

The Business Plan Sections

Executive Summary
The executive summary is usually the first section of any business plan and provides a condensed overview of what the business is and how you intend to reach your goals. If you’re seeking funding, you should detail the terms of the financing and the amount needed. It’s best to leave writing this section until after you’ve completed the rest. It should be less than 1,400 words.

Company description
This is like an extended elevator pitch. You need to explain your company history, business goals and how you satisfy the needs or wants of your market. You will also need to explain your competitive advantage.

Market analysis
You will also need to provide market analysis, size and expected growth as well as, industry participants, distribution patterns, competition and buying patterns, and your main competitors.

Organization and management
In this section, you need to detail your management team (and plans to fill any gaps within that team), your organizational structure, your Board of Directors, as well as a personal plan.

Service or product line
You need to describe your product or service and any associated copyright information or research and development activities.

Marketing and sales
You need to detail your marketing strategy (including pricing, promotion) and your sales strategy (including sales forecasts, programs, and techniques). Your costs, services, and support will also need to be included in this section.

Financial projections
This section outlines what you expect your business to achieve financially over the next three to five years. It needs to include your projected financial statements, expected cash flow and break-even analysis as well as key financial indicators and ratios. Don’t be tempted to overstate your numbers or expectations to obtain financing. It’s likely to harm rather than help you get that funding.

Funding request
If you plan to ask for a loan or capital, you need to include a formal funding request as part of your business plan. You need to include details of how much money you need now and how much you’ll need in the future.

 

How a part-time CFO can help you to create your business plan and implement it

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. This means you will have:

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

With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.

In particular, your part-time CFO will work closely with you to develop your business plan and your timetable for implementation to:

  • Gain a full understanding of the business and its operating
  • Work through the existing strategic plan with you and make necessary changes to build a plan which clarifies how the company’s objectives can be realistically achieved.
  • Agree on milestones and break down the plan into annual and quarterly targets.
  • Conduct a fresh SWOT (Strengths, Opportunities, Weaknesses, Threats) analysis, bringing the plan up to date.
  • Conduct a new PEST (Political, Economic, Social and Technological) analysis, bringing the plan up to date.
  • Carry out a full competitor analysis to understand in detail what is and isn’t working in the market.
  • Explore opportunities for effective market research to enable innovation and development of new products/ channels to market/operating procedures
  • Identify key players in the business
  • Identify skill gaps in the business
  • Agree financial incentive structures to retain and motivate key members of the team
  • Identify five key metrics for determining what the future course of the business should look like
  • Agree on the exit or succession strategy
  • Develop a clear, coherent message (vision/ mission/purpose) to staff and to customers
  • Work with the senior team to ensure individual department goals are aligned with the big picture strategy
  • Agree on a who/what/when set of objectives for all department heads
  • Implement accountability protocol for every member of staff
  • Determine methodology which allows the senior team to course correct periodically when a change in strategy is required
  • Agree on delegation of authority to department heads to spread responsibility across the business and to free up the CEO/business owners time
  • Create a feedback route so that strategic goals are regularly shared with staff
  • Develop a set of relevant KPIs (Key Performance Indicators) and a system which allows for regular (daily/ weekly/monthly/annual) monitoring and reporting
  • Develop a long-term efficient tax structure for the business and for key employees
  • Identify key outsource suppliers/advisors and, in particular, corporate finance contacts

This process will instill a deep feeling of confidence both within the senior team and throughout the rest of the business.

 

Conclusion

Installing an up to date business plan or ‘roadmap’ in your business will allow you to experience a sense of control, which may have been absent since the day you started your company.

The business plan (and the methodology for updating the business plan) will remove a significant amount of confusion from your operating procedures. There will always be challenges contained within new projects but you will have a proper framework against which all decision-making can take place.

The plan provides the blueprint for delegating responsibility to your team and allows you to create some space in your own environment to work on growing your business, with your part-time CFO as a constant guide and sounding board.

You will move out of the chaos and into a more serene working environment where each of the gears, which make up the bigger system, is able to move in harmony.

Potential hazards will have been identified in advance and dealt with before they become unmanageable. You will be able to move from a culture of fire-fighting to a culture of fire-prevention and the benefits will be felt by each member of your team and most probably by your customers too.

The business plan is the first key to profitable growth!

 

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