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Thriving in the New World Guardian

Thriving in the New World Guardian

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.

Future Proof Your Business

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The Operator Highlights

Thriving in the New World Operator

In this series of Thriving in the New World, The CFO Centre explores what exactly it means to be an operator in the “new world” and essential elements that allow your business to thrive.

Most owner-operated businesses would agree that increased cash and more access to capital would help them exceed their business objectives.   Recent societal and economic realities have strained or even exhausted cash resources for many companies.   Even those companies enjoying unprecedented growth are scrambling to fund unexpected expansion.   The essential building block for liquidity has always been Operational Excellence, defined as consistent and reliable execution of each business’ unique processes to acquire and satisfy customers.

High performing operations processes have always been the foundation for generating cash from within the business.  Equally important for those business owners seeking to thrive in a post Covid world is the critical need to demonstrate operational excellence to third party financing sources.  Seeking to expand your credit line with your bank or pursuing additional investors will require the business owner to present a clear and compelling story for how the company will produce profits, cash and sufficient return on capital.

The traditional role for a CFO in Operational Excellence is to provide accurate financial information and act as leading voice in cost reduction.   Creating a truly reliable foundation for generating cash and profits; often requires financial leaders to contribute more than they have ever before.  The experience, attributes and mindset of many CFO’s positions them to act as a catalyst for delivering cash and profit maximization across the full range of business processes.

Fix the Finance Foundation

The processes and practices of the finance function must be viewed as rock solid by the owner and the rest of the organization to create a path for participation or preferably leadership of broader operational improvement initiatives.

There are three key functional outcomes that must be in place to give the finance team the credibility to extend its involvement to other operational processes.  Without these deliverables in place, the organization’s ability to undertake deeper process review will be severely impaired.

The first base level capability is timely, accurate and useful financial reporting.  If the leaders of the company are not receiving this level of financial reporting, then it is unlikely that the finance leader has earned the right to apply their team’s expertise to general operating processes.

The second must have competency from the finance team is an understanding of the cost drivers for the business. The understanding of costs does not have to be perfect; however, there must be a methodology in place to capture and analyze the complete range of items that form the cost of  products or services

The third requirement for finance team effectiveness is to have a solid grasp of the company strategies that will drive future growth and success.   If your finance staff are seen just as number crunchers it will be difficult for them to contribute to operational initiatives.   The first installment of our CFO contribution series suggests a practical approach to engage your finance leader in developing future proofing strategies.

Own Cash Flow

The responsibility of generating positive cash flow clearly belongs to the CEO and the entire organization; however, expanding the mindset of your financial leader to thinking and acting as the owner of cash flow can be a powerful tool.   Finance and accounting staff have historically only been tasked with producing cash flow forecasts based on inputs from other leaders.

We suggest making a clear organization signal showing reliance on the finance team to go beyond analyzing cash inputs and outputs. The new expectation should include concrete actions aimed at increasing the amount or timing of cash inputs while reducing the amount or timing of cash outputs.  One example of a high impact cash inflow recommendation is to convert the finance team’s experience with both external and internal obstacles to timely collection of receivables into operational practices that eliminate these obstacles in advance.

Refine and Revolutionize Business Processes

Each organization varies in complexity of business processes, capabilities of process analysis, and often very different levels of CEO interest or prioritization of process improvement initiatives.  Given the nature of many small to medium-sized organizations, there can often be aptitude and attitude gaps leading to under prioritizing  detailed data-driven process review work.

Even a small finance team can become the internal champions for generating improved results achieved through documenting and enhancing your most critical processes.   Elevating the CFO to, at minimum, a shared level of ownership with the firm’s operational leaders will apply complementary expertise to process review efforts.  Converting process improvements into additional cash and profit can often involve just a few additional questions that may be missed by other functional areas.

Create Compelling Capital Acquisition Content

There is a high probability that pursuing operational excellence will lead to capturing more cash from optimized processes and deliver positive returns in the short term.

The longer-term benefit of intense CFO involvement in the operational aspects of the company is the ability to work with the owner to put a more convincing investment case forward to potential sources of debt or equity financing.   Revenue growth is understandably the primary focal point for future investment; however,  the business case is significantly strengthened by a tangible action plan showcasing gross margin enhancement, profit improvement and positive cash generation.

Reviewing, examining and revising processes has always been part of running a successful enterprise.  Although most companies have made improvements over the life of their business; there is often a substantial opportunity to further optimize the organization’s capability to convert every dollar of revenue into more profit and more cash.   One of the positive byproducts of the turmoil related to the pandemic is that business owners, management and employees are more aware and likely more open to the need for change than ever before.   The time is right for businesses to count on their CFO to bring a thorough, disciplined methodology to deliver operational excellence and improved financial results. Uncover more.

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Thriving in the New World Strategist

Thriving in a New World Strategist

In the introduction to our CFO Contribution Series, Thriving In the New World Strategist, we suggested that most business owners may not be well served by high-level, third party driven, divergent strategic exercises. Certainly, there is significant value in undertaking far reaching, blue sky thinking. Most small to medium size organizations will be better served by incorporating their own foresight into targeted, most probable future scenarios developed by highly engaged participants directly linked to the success of the business.

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

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

Owner operators will particularly benefit by injecting their full time or part time CFO into idea

generation and implementation planning to future proof their business using the following four-step process.

Developing Most Probable Future Scenarios

The insight of the CEO along with sales and market-oriented management will understandably be

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

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

Leveraging Emerging Technology

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

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

Stress Testing Scenarios and Strategies

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

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

Commitment to Highest Impact Initiatives

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

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

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

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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

Banking relationship | The CFO Centre

Improve your banking relationship

Baking Relationship | The CFO Center

Developing a strong relationship with your bank provides tremendous benefits including offering necessary funding, preferential rates, and better terms. Your bank can provide expert financial  advice and help you to find solutions to financial challenges. It can also help you to grow your business and reach your financial objectives.

Since your bank works with a wide variety of businesses, it can also be an excellent source of prospective vendors, partners, and customers for your business.

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.

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

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.1

Banking Relationship | The CFO Centre“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.”

“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.

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.

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.

Baking Relationship | The CFO CentreThe 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.

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.

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.

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.

Banking Relationship | The CFO CentreThey 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

How a part-time CFO will strengthen your banking relationship

Baking Relationship | The CFO CentreMany business owners are uncomfortable speaking with their bank manager. Owners and CEOs often do not know how to communicate their business strategy and needs to the bank and do not know what information the bank needs to support their funding requests. This is where an experienced CFO can be an essential part of your team; someone who understands how banks make their decisions and can, therefore, position your application for a greater chance of success.

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.

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.

1 ‘How to get the most out of your banking relationship’, Black, Peter, Forum of Private Business, www.fpb.org

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