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

Call us on 1 800 918 1906

Financial reporting | The CFO Centre Canada

Keys to Profitable Growth – Financial Reporting

Have you ever been so far off the grid – on a wilderness expedition, maybe – that your smartphone doesn’t know where you are? If you click on your “maps” app, your phone just shows you a blue dot, figuratively shrugs its shoulders and says, “You’re on the blue dot. But I have no clue what’s around you, where you’ve been or where you’re going.”

That uncomfortable “lost” feeling applies to more than just wilderness trekking. It can apply to your business – when you have no clear idea of which products or services are most profitable, how much you can afford to spend on new equipment, and whether you are on track to your goal (maybe, a comfortable retirement?).

So what’s the “maps app” for your business, so you can see how to get where you want to go? It’s your financial reporting system.

Financial Reporting – One Key to Profitable Growth

To be successful, you and your senior managers need regular access to accurate insights into your business. You need to be able to spot problems when they first emerge; measure and assess what’s working; identify and capitalize on opportunities, and recognize and manage threats.

When you know the reality of how your business is actually performing, you have a platform to confront the reality and can make decisions based on facts rather than speculation, bias and anecdotal evidence.

The importance of business reporting is twofold:

  1. To have visibility into the future (knowing what is likely to happen around the corner).
  2. To have retrospective visibility over past performance (that is, to analyze performance data and use it as a tool to course correct for the future).

A lot of businesses wait too long to introduce a proper business financial reporting structure. But without the right information collected in a timely way, effective analysis and robust planning is impossible.

Well-constructed business reports are the secret weapon for CEOs and business owners of ambitious growth companies. They will reveal how your company is performing and how far you are from reaching your goals.

Three key aspects to your financial GPS

While large companies have sophisticated financial systems tied to human resources metrics, production equipment, and inventory controls, you don’t need to get that elaborate – yet.

Start with mastery of three key financial statements:

  • The Balance Sheet
  • The Cash Flow Statement
  • The Profit and Loss Account

These reports can reveal such information as:

  • How effective your team is at controlling costs and deploying expenses to generate sales
  • Which of your products or services are the fastest growing and the most profitable
  • Your highest growth potential and most profitable customers
  • Where your break-even point is (how much sales the business needs to produce to cover all its costs)

Having all your business data at your fingertips means that you can spot gaps and weaknesses at a glance, have clear visibility over the future and course correct daily to ensure you are still en route to your destination.

Your company’s balance sheet: shows what your company owes and what it owes at a given time.  It reveals:

  • The net value of your company (which is useful if you plan to raise capital to finance future growth, sell your business, etc.)
  • Current and long-term debt obligations
  • Asset management (how effectively you’re managing your assets) and liquidity ratios

Lenders, investors and potential customers can use your balance sheet to assess your company’s creditworthiness, as well as its stability and liquidity – indicating its ability to fund growth without resorting to outside financing.

Profit and loss account: while the balance sheet is like a still image posted to Instagram, the P&L account is more like a video. It is the main way businesses determine how well they’re performing over time.

This is the main tool businesses use to gauge their profitability. It shows how well (or not) your company performed over a particular period of time in terms of revenue, expenses and earnings.

The Profit and Loss Account reveals the steps you can take to increase profitability (for example, whether to focus on more profitable product lines or services or to cut unnecessary expenses).

Investors will use your Profit and Loss Account to assess the ability of a Company to generate cash from operations, service current financing obligations and assess the level of risk involved in extending additional credit or venture capital to your company.

Cash flow statement: reveals how your company spends its cash (cash outflows) and where the money comes from (cash inflows) during a period of time. It is divided into three sections related to your company’s business operations: cash flow from operations, financing, and investing transactions.

Essentially, the Cash Flow Statement reveals whether or not your company has the cash to cover its daily activities, pay bills on time and maintain a positive cash flow. It also helps you to determine whether you’ll need additional working capital to buy inventory or to fund seasonal fluctuations.

Interpret your key financial statements using ratios

To interpret and understand the numbers contained in your financial statements, you should use financial ratios. The ratios are computed from numbers taken from the Profit and Loss Account and the Balance Sheet.

They measure performance in percentage terms rather than raw numbers. This means you can compare your company’s performance with other businesses in your industry, with your previous results and with your projections. _

Typically, owners, managers, and stakeholders look at four categories of ratios to analyze a company’s performance:

  • Liquidity ratios – show your company’s ability to meet its financial obligations
  • Profitability ratios – help evaluate your company’s ability to generate a return on its resources
  • Leverage ratios – show how your business is using debt, relative to capital
  • Efficiency ratios – reveal how effectively your company is managing assets.

Some ratios will be more applicable to certain industries and businesses than others. If you provide a service rather than sell products, then ratios like return on assets and inventory turnover are unlikely to be relevant to your company whereas the receivables revenue is critical to your business operations.

It’s best to choose the five most relevant ratios to your business and track those as part of your monthly management operating plan.

Conclusion

The benefits of having regular access to high-quality financial management reports are far-reaching. Good reports reveal the efficiency (or otherwise) of the constituent parts of the business and enable you to deal with potential threats and take advantage of opportunities to grow your business.

The compound effect of making regular, quick and high-quality decisions based on a strong set of data and reports cannot be overestimated.

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

Impementation Timetable | The CFO Centre

Why a timeline or timetable is essential for implementing your business plan

In building your business, do you ever:

  • Feel out of control – you’re getting by, dealing with one crisis after another, but just barely hanging on?
  • Find that your longstanding products and services just aren’t selling like they used to, but you can’t find time to develop new offerings?
  • Think about retiring after selling out to a group of your employees, but you know that they (and you) are nowhere near to making that possible? (see our post on exiting your business for more on that)

A big step towards resolving these issues, and many others, is to have a business plan – an effective business plan.

Many businesses get by without one. “It’s in my head,” you might say. Or, it could be a document you put together years ago, maybe because your bank required it to extend financing, and you haven’t looked at it since.

But as the CFO Centre’s e-book “Business planning and strategy implementation” points out, according to a survey by business and finance software provider Exact, companies that have a business plan in place were more than twice as successful at achieving their goals than those that did not (a 69% success rate versus 31%).

What’s wrong with many business plans?

If having a business plan is so important, how can your company get the best possible benefit out of the work that goes into preparing one?

Our work here at the CFO Centre has found that while having a business plan helps, there are some important elements to success (many of these are presented in more detail in the e-book).

One is that the plan must be a living document – it needs to be something that you review frequently, updating it as circumstances change, and using it to provide guidance on what your daily, monthly and yearly priorities should be.

Another aspect of success, believe it or not, involves packaging. You may be aware that a business plan that is used as a finance-obtaining tool will succeed more if it features attractive layout and design. But having a document that’s pleasant to look at – not just text on a page – will work better even if it’s just used internally. That’s because the people who read it, including you, will have a greater sense of confidence that the ideas in it can be made to happen.

How a timeline helps make it all happen

But the one important aspect, that many business plans miss, is the element of time. Without a clear picture of what is to happen by what time, a business plan is just a wish-list.

The best way to help make sure that the business plan stays alive – and more importantly so that what’s in it comes to pass – is through including a timeline.

A timeline (or timetable, if you prefer) sets out the milestones of your business plan – the number of employees, number of locations, sales targets, net revenue expected and other targets – and indicates what date they are expected to be reached.

For example, let’s say you have a winning retail concept that you want to turn into a franchise. Maybe even a national franchise.

To do that, you need to determine what processes need to be implemented in order to manage a store like yours effectively. That, in turn, leads to a set of written procedures –  such as the steps to be taken upon opening the store or on closing, how to make each of the products that are sold, and other aspects of success. Maybe then you need to establish a time by which you expect to have that first satellite operation running, maybe as a corporate-owned location, just to see what happens when you’re not on site to trouble-shoot all the time.

It could be that this sounds so complicated and intimidating that you never actually get your franchising idea off the ground.

Here’s how a timeline helps make your business plan happen:

  • It breaks down big, scary projects into smaller, bite-sized chunks you can actually do
  • It reassures you by pointing out that you don’t need to do everything right now
  • It moves you along because you see a deadline for one of those “chunks” coming up, so you can get working on it

Start with the end in mind, then work backward

This involves a  5  step process.

  1. Get a firm image of your goal. Established business wisdom says to consider first where you want to be (say, 20 franchise outlets across the country, ten years from now) and then spell out in detail what that will look like. Going into detail gives you a more clear idea of what needs to be in place for that to happen. Set a date for that to happen.

 

  1. Determine the big milestones along the way. This might include writing out the elements of success in your current business, creating written procedures, testing those procedures to see if they cover all reasonable contingencies, opening a second outlet to further test those procedures, selling your first franchise to someone you know already, and onwards.

 

  1. Think of the resources you’ll need. For example, at some point, you’ll need to engage a franchise lawyer to consult and help in the preparation of a franchise agreement. Think of the finance you’ll need to have in place, maybe from a bank or friend-or-family source, to make the rest happen (to learn more about how to avoid cash-flow problems that might drag you down, see our post here).

 

  1. Write out your timeline. It might be on paper, on a computerized document, on a calendar program that will remind you about deadlines, or whatever works for you. Maybe multiple formats will be a good way to keep you on track.

 

  1. Implement. The rest is up to you and your team. Delegate tasks, outsource, do it yourself – but be sure to stay with your timeline.
Scale up with the CFO Centre - Disruptive Ideas

Is your business idea disruptive enough?

Maybe you see ride-hailing services like Uber and Lyft as arrogant bullies. Or, to you, they’re a breath of fresh air in a world held victim by over-regulated dinosaurs.

But whatever your view, you can’t deny that ride-hailing upended an entire industry. Some taxi companies have tried to compete with the upstarts through rideshare-like mobile apps allowing customers to choose vehicle options, pre-book rides, and pay by smartphone.

Why have ride-sharing services succeeded against well-entrenched opposition? They’re a new idea – but more importantly, they offer real benefits over the traditional taxicab. In short, they’re disruptive.

As we’ll see later, just being disruptive isn’t enough on its own, but it’s an essential part of success.

Disrupt your way to a better customer experience

To see how being “disruptive” works, consider one of the world’s oldest skills – what some parts of the world call “joinery” and others “cabinetry.” It’s about making furniture, cabinets for kitchens and bathrooms, and other fine woodwork. It’s a slow, meticulous process in which skilled people use tools that have changed little in centuries.

That is until someone crashed into this tradition-bound environment with a radical new approach to the business. As entrepreneur Alex Craster recounts in The CFO Centre’s book “Scale Up”, he’d already helped disrupt one industry – travel agencies, with the then-new idea of people booking their own travel online.

Craster talks of how he’d been pulled into managing his father’s failing joinery business. But he came to see opportunities for the firm to provide better services and meet new needs. He started using suppliers in Eastern Europe who were able to do highly skilled work at a fraction of the cost of UK suppliers. He also switched the focus of the firm, from making products into providing solutions to customer problems.

The result has been spectacular growth and even an invitation to supply services to Buckingham Palace.

Why is disruption like this such an important part of business success today? It has to do with two concepts – something that’s new, and something that’s better.

Grab the attention of people you want to attract

Let’s start with “new.”

One well-made kitchen cabinet is pretty much like any other well-made kitchen cabinet. In some ways, cabinetry is a commodity – it’s hard for a customer to tell one company’s offering from another’s. So it becomes a race to the bottom regarding prices.

To catch the attention of potential customers, Alex Craster’s company had to offer something that was new to the market – providing a service in which company representatives sat down with potential customers to get an idea of their problems. That might involve a hotel that wanted to attract a higher level of clientele. This approach made the company newsworthy, so it gained more word-of-mouth publicity.

The company’s approach made it more attractive to the traditional media. But it also had the potential to attract what is becoming a more important kind of attention, from social media including bloggers and Instagrammers.

This meant that just having a new approach put the company’s name in front of potential customers.

Holding the attention of prospective customers

Once you have the attention of the people you want to attract, how do you hold them? By offering something they will value – something that’s not just new, but demonstrably better than what they have now.

Alex Craster’s approach, which included a consultation and understanding customers’ business objectives, was a big step towards helping a hotel meet its goals. Those may have included being able to charge a higher room rate and improving the hotel’s all-important RevPAR (Revenue Per Available Room) metric.

So too, you need to be sure that your business idea offers real benefit to the people you want to serve.

Start by understanding their situation – some of the most pressing problems they are facing. That matters, because unless you can present them with a solution to one of their most pressing problems, or a step towards a solution, they’re not going to pay attention.

Then, instead of choosing a service or product to offer, you choose a problem to work on – such as increasing a hotel’s RevPAR.

Your approach must then revolve around solving that problem, with your product or service being part of that solution. If you’re offering something that is distinctly better than the solutions your prospective customers have on hand, you’ll have a much greater chance of success.

Planning is essential

All of this – finding something new and better – doesn’t just happen. You need to think it through. It takes time to match the assets you have – your skills, the skills of the people you work with, experience, and other factors – to the needs of potential customers.

A big part of that is the financial resources you have access to. With a good understanding of your financial picture, you can understand your financial strengths and limitations, so you know how much you can spend and still pay your rent and your staff.

Many growing companies find that the best way to make sure they have the financial resources they need is through a skilled finance professional – a Chief Financial Officer – who can help them understand their financial picture, and if necessary, get access to other financing that can help to seize on the opportunities to grow in a “disruptive” way.

For many companies, their best option is to have an experienced CFO available to them, on a long-term basis, but without the need to pay the compensation that a full-time professional would expect.  By utilizing a part-time CFO, they have the skill set they need available to them, but in a much more cost-effective manner.

To make sure you’re being disruptive within your market, planning is key. Failing to plan is like planning to fail. To learn more about how you can take your business to the next level, please download our e-book, “Business planning & strategy implementation,” which will walk you through the steps involved in business planning.

Scale up with The CFO Centre

How to start building your “dream team” for helping your company Scale Up

Venture Capitalists, angel investors, bankers and private-equity managers may not agree on much, but there is one idea they share. They’d rather put their money behind a stellar management team even if it has a just-okay idea than put it into a brilliant idea implemented by a ho-hum management team.

If your company is seeking to break out of startup mode and into a period of aggressive growth, how do you go about building that stellar management team? You may need people with skill-sets, experience, and connections that are a few levels above those of the people who have helped you get this far.

It’s sort of like when you graduated from university and its pajamas-friendly environment and had to buy your first real ‘work’ outfit to start your “grown-up” wardrobe. What should be the first piece to add to your ‘collection’ of your management team that will take your company to the next level?

A CFO is the key to unlocking your future

You might think it’s best to start by recruiting top-level talent in Operations, Sales or R&D. And those functions are vital. But the foundation to it all is finance. Remember that “money makes the world go ’round.”

Looked at another way, a lack of money can stop your world from turning. What signs could exist to indicate that money issues might hold you back?

  • Your bank keeps calling to say that you’re close to violating your covenants on existing credit
  • Your head of Accounting shows up at your door a few too many times asking where the cash to cover payroll is
  • You don’t have a clear idea of what financial resources you have available in the near or long term, to fund working capital or investments
  • The account manager you’ve worked with for years gets transferred – and you find you have nobody at your bank to advocate for you

If you have the money issue solved, you’re free to implement your growth ideas – research new products, expand into new markets, offer new products to existing customers – confident that you have the financing to allow those ideas to happen. But how do you meet your financial needs in a way that works for your still-growing company?

3 ways to get the CFO you need

There are several ways to sweeten a cup of coffee – sugar, honey or a vast array of artificial and “natural” sweeteners. In the same way, there’s more than one way to get the financial expertise you need.

  1. Promote from within: You can take someone who knows your financial picture – your head of Accounting, say – and move this person into the CFO role. You need to be sure that the person has the right skills and connections, because what makes a good CFO is different from what makes a good Controller. And, you need to back-fill the role that this person was promoted from.

 

  1. Hire a CFO from outside: The second way involves hiring a full-time CFO from outside your organization. This person will come with the skills and connections you need, but at a cost – literally. The amount you must pay to attract top talent can throttle your company’s cash flow, exactly the problem you want to solve. And, top CFO talent may well be wasted on a midsize company. After the setting-up process is complete, your new CFO may get bored and start taking calls and meetings with search consultants.

 

  1. Hire a part-time CFO: This solution (which is one that The CFO Centre provides) can give you the best of both worlds. You get an experienced CFO, often with a track record in your industry, and you don’t need to pay anything like the salary and benefits package expected by a full-time employee. Many experienced CFOs like having a part-time position – it gives them the flexibility and work-life balance they want, while still being able to get the satisfaction of helping great businesses succeed.

Our experience at The CFO Centre is that any company can benefit from someone in the CFO role, whether it is part-time or full-time. How that role is provided depends on the circumstances.

Feel free to contact us to see what we can contribute towards your thoughts regarding your company’s future.

Scale Up with The CFO Centre - Cashflow

How your business can fly away from cash problems

Do you ever feel that growing your business is like being a bird in a cage? Even if it’s a big cage, it’s still got its limits. For your business, that “cage” can be a lack of cash needed to let your business fly as high as it can.

It shows up when you’re hit with a lack of cash to hire new people, to move to larger premises, or to invest in R&D to upgrade your products. It’s your accountant warning that you’re short on money to make payroll or pay the rent, or your bank asking you to replenish your accounts.

Sometimes, cash flow issues intrude if business is slow, and your fixed payments such as rent and utilities eat up too much of the small amount of revenue that comes in.

But cash can also be a problem if your wildest dreams come true and you have too successful a business. If you need to hire staff, buy inputs like parts and raw materials, and buy and install equipment, that means a lot of cash going out if you’re to meet your customers’ needs (see our post on “Hypergrowth” for more on that).

Even if your customers pay right away, you’re still left holding your financial breath until that money’s in your bank. And you may need to hold your breath a lot longer if your customers take 30, 60 or even more days to pay.

Success-induced cash flow problems are particularly problematic for scale-up companies, because their cash shortages are often much larger than those of startups. Smaller companies can dig into their home equity, a personal line of credit or friends and family. But scale-ups’ cash demands are often too big for those startup-type solutions.

It’s like learning to swim – in the shallow end of the pool you can always put your feet on the bottom. But at the deep end, that’s not an option.

Learning how to deal with those deeper waters starts by understanding how your company can get into cash flow problems in the first place.

What causes cash flow problems?

According to the CFO Centre’s e-book “Cash Flow,” the main causes of cash flow issues are:

Slow-paying customers: Customers may be facing their own cash flow problems and may be inclined to drag their heels on paying your company. There’s often a gap between the time you pay for the inputs to your product – including paying your staff – and when your customers pay you. You may be reluctant to press for payment, partly because you don’t want to alienate or lose a customer, but some customers will take advantage of that.

High fixed costs: You may be paying too much in rent or payroll, because in the optimism of entrepreneurship, you expect to need that capacity sooner rather than later. But your “sooner” may be taking its time arriving. When in growth mode, you’re likely paying more for inputs and fixed costs than you’re bringing in as revenue, so all costs need to be monitored regularly to ensure that you’re not spending too much.

Your prices are too low: You may be trying to win customers, particularly in a market where prices are easily comparable, but if you’re not covering your costs or giving yourself a healthy margin, you risk running out of cash. Customers who choose only based on prices will likely jump to a competitor if you increase what you’re charging.  Understanding your costs and developing your pricing model accordingly is critical.

Other common reasons include low sales volume, too-generous payment terms, bad debts and too much old inventory.

How to get the help you need to avoid cash flow problems

Most entrepreneurs would rather focus on growing the business than watching over the finances. That’s even more so as the business gets bigger, and the cash flow picture becomes more complex.

This means that growing companies can benefit from specialized financial expertise. Sometimes, that expertise is available within the company, but more often, it’s necessary to look outside.

A professional with financial expertise can help you recognize warning signs you may have missed as you focused on growing your business. This person can then help you find ways to deal with those issues, such as pressing customers for faster payment. There may also be opportunities for other ways to deal with your financial crunch such as vendor financing or R&D tax credits, that you may not have fully explored.

For many companies, that means a need for the skills of a Chief Financial Officer, but maybe without the price tag of a full-time CFO’s salary. A part-time CFO may be the answer – someone who is fully part of your leadership team, but on a basis that may range from a few days a month to a few days a week.

The CFO Centre’s “Cash Flow” book provides some suggestions on how to deal with possible cash flow problems, as well as describing your options as regards a part-time CFO.

Scale Up with The CFO Centre

Is the problem your company solves BIG enough?

If you have ambitions to grow your small company into a large one, you need to make sure it has room to grow.

To see how that works, consider that humble box of baking soda in your refrigerator. Baking soda was originally developed for, well, baking. It solved a baker’s problem – the difficulty of getting baked goods to rise. But then, people discovered other problems the product solved – diaper rash, kitchen fires, grease stains … and refrigerator odors.

Manufacturers such as Arm & Hammer found demand for their product that was quite unrelated to their company’s original idea.

But what Arm & Hammer found out indirectly about solving wider and bigger problems, you need to do intentionally. How do you do that? Here’s a three-step process.

1. What problem(s) are you solving now?

You may have started your business to provide a specific product (such as baking soda) or service. But your customers may look at the situation quite differently. They’re looking to buy a solution to a problem they’re facing, like diaper rash or a carpet stain. Sometimes, it’s more than one problem – a box of baking soda helps bake cookies and helps clean the kitchen counter.

So, you need to get a clear idea of what problems you’re solving for your customers now. To do this, consult with your customers directly, get input from your sales team, and see what people are saying about you on social media.

Then ask yourself: are the problems we’re solving now the problems that will help us continue to grow? Should we be solving different, maybe bigger, problems?

2. Find the right bigger problems to solve

The world is full of bigger problems – climate change, overpopulation, civil unrest, and many more. But how do you find the right bigger problems? Some ideas that may guide your quest:

Do people with money feel this problem? If you’re running a business, you need to earn revenue – so the problems you solve must involve people who have the money to pay you. And, the problems must be pressing – those ideal customers must actually feel the pain and urgency enough to want to pay you to solve those problems for them

Does this problem give meaning and urgency to your life? As well as pressing on your customers, the problems you’re solving must motivate you. They have to help you get going in the morning and stay at it all day. Only then will you be able to motivate others on your team, even those who don’t interact directly with customers, to help solve those problems too.

Does this problem have staying power? You need a problem that will continue – and better yet, continue to grow. Only then will you have the basis for a business that has sustainability.

Now, let’s consider how you can bake that sustainability into your business.

3. Develop a solution that’s disruptive

If your answer to the problem of refrigerator odors is another box of baking soda, you may need to re-think your approach. You’ll be struggling against a well-entrenched competitor.

Instead, the solution you offer must be disruptive – in other words, it must be unusual and offer new solutions to existing problems. One reason is that if it’s a big enough problem, it won’t be solvable by current thinking, or someone would have solved it already. And, you need to seize attention, and offer an advantage compelling enough so that potential customers will say, “I want some of that.”

Our work at the CFO Centre is something like that. We saw a problem – entrepreneurs whose dreams crash to earth because they don’t have the financial lift they need under their wings. And we saw that many companies can’t afford a full-time experienced CFO (that cash problem again), and what’s more, they don’t need one.

What many (we like to think all) growing companies can use is ongoing access to a CFO’s ability to clear away the financial stumbling blocks, but without a full-time CFO’s cost. So was born our “fractional” CFO – a permanent, but part-time, financial advisor.

That’s our disruptive solution.

One thing we’ve found out is the importance of having the cash you need to build a way to solve the “big problem” you’ve decided to focus on. Without cash, it’s like you’re trying to walk when you need to fly. To learn more about the importance of cash flow, the reasons for it (such as slow-paying customers, high fixed costs), and some steps you can take to resolve them, download our free e-book, simply titled “Cashflow.”

CFO Centre Blog - The F Word

If You Want To Succeed, You Need To Embrace The ‘F’ Word

What do Sir James Dyson, the Mercedes F1 team, Pixar, Google and the airline industry have in common?

They’re hugely successful, yes, but the thing that links them is they never shy away from the ‘F’ word—Failure. Instead, they face and learn from their mistakes, errors, and mishaps. So says Matthew Syed, award-winning Times journalist and best-selling author of ‘Black Box Thinking: Marginal Gains and the Secrets of High Performance’ (John Murray).

“We have an allergic attitude to failure,” he says. “We try to avoid it, cover it up and airbrush it out of our lives.

“For centuries, errors of all kinds have been considered embarrassing, morally egregious, almost dirty.

“This conception still lingers today. It is why … doctors reframe mistakes, why politicians resist running rigorous tests on their policies, and why blame and scapegoating are so endemic.”

This notion of failure needs to change, he writes. “We have to conceptualize it not as dirty and embarrassing, but as bracing and educative.”

That’s because success in business (as well as in sport and in our personal lives) can only happen when mistakes are confronted and learned from and there’s a climate in which it’s safe to fail.

It’s what the airline industry has done so successfully, he says. Instead of concealing failure, the aviation industry has a system where failure is inherently valuable and data-rich, says Syed.

In fact, his ‘Black box thinking’ refers to the black box data recorders that all aircraft must carry to provide information in case of accidents. One box records instructions that are sent to all onboard electronic systems and the other records the voices in the cockpit.

“Mistakes are not stigmatized, but regarded as learning opportunities,” he says. After a crash, an independent team investigates.

“The interested parties are given every reason to cooperate since the evidence compiled by the [independent] accident investigation branch is inadmissible in court proceedings. This increases the likelihood of full disclosure.”

What’s more, after an investigation into an accident is completed, the report is made available for everyone.

“Every pilot in the world has free access to the data,” writes Syed. “This enables everyone to learn from the mistake, rather than just a single crew, or a single airline, or a single nation.”

Syed gives the example of United Airlines Flight 173 which took off from JFK International airport in New York on December 28, 1978, bound for Portland Oregon.

Just before the airplane went to land, the flight crew became convinced the landing gear hadn’t locked into place. They then spent so long trying to fix the problem that they ran out of fuel and had to crash-land into a residential area, killing eight people onboard.

An investigation discovered that the flight engineer hadn’t been assertive enough in telling the Captain the fuel was running low. The Captain meantime was obsessed with trying to fix the landing gear problem and avoid giving passengers a bumpy landing.

As it turned out there had not been a problem with the landing gear in the first place.

Afterwards, new protocols were put in place and training methods were revised. As a result, nothing quite as bad has happened again.

So much so that flying on airplanes is now safer than any other form of travel because the industry investigates and learns from its mistakes.

“Openness and learning rather than blaming is the instinctive response – and system safety has been the greatest beneficiary,” Syed told Director magazine.

Dyson Vacuum Cleaners

Sir James, the designer, inventor, and entrepreneur, is another committed to learning from failure.

He made 5,127 prototypes of his bagless vacuum cleaner before he got it right. This practice has obviously paid off because Sir James is now worth more than £3 billion.

“Creative breakthroughs always begin with multiple failures,” says Sir James. “…True invention lies in the understanding and overcoming of these failures, which we must learn to embrace.”

Without them, innovations won’t happen, he says. “Failures feed the imagination. You cannot have the one without the other.”

Great inventors always develop their insights not from an appraisal of how good everything is, but from what is going wrong, Sayed wrote in the Daily Mail.

Using Failure To Grow Your Business

Obviously, failure is only useful if it’s acted upon. “You can build motivation by breaking down the idea that we can all be perfect on the one hand, and by building up the idea that we can get better with good feedback and practice on the other,” says Syed.

Some of the world’s most innovative organizations like Pixar, the Mercedes F1 Team, and Google “interrogate errors as part of their strategy for future success.”

Take Google’s decision to test which shade of blue in its advertising links in Gmail and Google search worked best, for example.

Rather than ask its designers to choose the shade of blue for those links, Google decided to run tests known as ‘1% experiments in which 1% of users were shown one blue and another in which 1% of users were shown another blue. Then Google went further and ran 40 other experiments showing all the shades of blue.

It paid off: Google found the perfect shade of blue (the one that users were more likely to click on) and made an extra $200 million a year in revenue.

Why Don’t Companies Embrace Failure?

One of the biggest problems in business is the collective attitude we have to failure, says Syed.

“We love to think of ourselves as smart people, so we find mistakes, failure and suboptimal outcomes challenging to our egos,” Syed said in an interview with Director magazine. “But the reality is, when we’re involved in complex areas of human endeavor—and business is very complex—our ideas and actions not being perfect is an inevitability.

“If we’re threatened by our mistakes, and become prickly when people mention them, we don’t learn from them. We need to eradicate the idea that smart people don’t make mistakes.”

To really be successful, businesses need to encourage a company-wide failure-embracing culture which in turn will create a “process of dynamic change and adaptation”.

“Success happens through a willingness to engage with, and change as a result of, our failings. Get that right and everything else falls into place,” he says.

If you would like to download the CFO Centre’s report on Risk you can do so here

You can also arrange a complimentary 1:1 Finance Breakthrough Session with one of Canada’s top CFO here

Become a world class competitor

Become a world class leader with a strategic plan

By Chris Carl
Regional Director at The CFO Centre

A part-time CFO is to an SME what a doctor, a physical trainer, and a world-class coach is to a superstar athlete.  The superstar athlete will always be good – but they will only be great if they are healthy (the doctor makes sure of that), they are in great physical shape (the trainer takes care of that) and that they can compete at a world-class level (the world-class coach takes care of that).  In a business setting, the CFO Centre refers to these same three levels of conditioning as Business Support (being healthy), Operational Skills (getting in great physical shape), and Strategic Planning (competing at a world class level). 

The highly experienced and successful part-time CFOs from The CFO Centre can help make a company flourish in every respect.  From increased profitability, to growth through financing or mergers and acquisitions, to increased happiness in the C-suite and all employees, a part-time CFO can literally help perform miracles.  But, these results can only be achieved through sound business practices and a great strategic plan.  A successful experienced CFO, that costs only a fraction of a full-time CFO, can make all of these happen. 

This article (part 4 of 4) discusses developing and implementing a Strategic Plan to make your company able to compete in any market.

Read Part 1 | Part 2 | Part 3

Strategic Planning

In our final comparison to becoming a world-class athlete, regardless of how strong an athlete you may be, you will never compete at a world-champion level without a great coach. That coach helps you develop your plan to get to the top of the podium – from taking stock of where you stand today, to figuring out what actions might hurt you if not attended to, to laying out a timetable to achieve each part of your overall goal. That coach ensures that you have all of the right resources around you that you will need to win that championship, he/she does a lot more than sit on the sidelines and clap when you perform well.

In business terms, to be able to achieve all of your business goals, (and maybe some you thought were beyond your wildest dreams) you need a Strategic Plan.  Don’t confuse this with a wish list.  A Strategic Plan involves setting very high goals but it also requires taking stock of your current situation, identifying the risks you need to overcome to achieve your goals, a step-by-step path and resources required to get you there, and a definitive timetable for each step to make sure it all happens.  Once in place, it also requires execution.

At The CFO Centre, we believe the highest value we can bring to any client is to help them develop, and execute a “Strategic Plan” that takes the company well beyond what the CEO even thought possible.  By following the path of the four key elements, a part-time CFO will bring financial abundance to the company.  At the CFO Centre, we define these 4 key elements as:

Strategic Planning can sound lofty and somewhat irrelevant to a company that is in the trenches every day just fighting to survive.  But it is exactly what the company needs to get them out of the trenches and on to a much better playing field. A Strategic Plan is like a roadmap and without one, the company will wander aimlessly without direction. And when communicated properly, it helps great alignment and purpose within an organization.

For example, one company I worked with as an investor had world-class technology to help other companies optimize cleanliness and environmental compliance in a manufacturing setting.  The small management team was very strong and had great breadth between technical, marketing and financial experience and skill.  And while they knew they had a world-class technology, they could not generate the marketing and sales dollars sufficient for them to access and educate the larger customers they desired.  By selling to smaller customers, their unit sizes were smaller and they had to keep prices (and therefore margins) low just to be able to make the sale.  The result:  they were losing money or barely breaking even month after month and year after year.

When I met them through a fellow investor, I found a team that was capable, very focused on getting the job done, and who really knew exactly what they wanted in the long term.  BUT, they were stuck in a low margin rut and couldn’t find a way out.  So I suggested we take a few more hours out of their life for a few weeks and develop a Strategic Plan.

This plan had to be real, but it also had to lay out a path for them to get to point that they could be selling this amazing equipment to the large customers who needed it most.  We sat down and recorded all of the possible goals (crazy ones and real ones), and we looked at all the things that could stop us.  While there were many small issues we solved, or developed a plan for, in this process, one of the best examples of how a great Strategic Plan could work was in deciding how to increase product awareness and sales to the desired customers.

Everyone at the company felt that they needed to bring on a couple of top-notch sales people who could cover the continent.  The problem was that, just like a full time CFO, highly qualified experienced sales people are expensive to employ full-time and for this company the selling process could take up to a year.  That was an added overhead the company just could not afford.  So instead we looked to how we could leverage the skills of others and decided that if we could possibly find distributors who already sell products to our desired large customers, maybe they could be our conduits to sales.

So we laid out a plan, and a timetable (the most critical element is that you MUST have a timetable).   We decided that we wanted a distributor in 50 States and 12 provinces.  I suggested to the team that we set a goal of 1 year to achieve this and I was almost laughed out of the room.  “Impossible” they said.  But, not wanting to leave and still wanting to become an investor, I asked them not to think about it as 50 new distributors in the US and 12 in Canada a year, but rather 4 distributors in the US and 1 in Canada each month.  I suggested that by breaking this seemingly insurmountable plan down into bite sized pieces that not only might we get there, we might just get there faster than we think.

After much debate, not only did we agree to give this a try, but with everyone being so busy we asked everyone on the team to contribute just a little bit.   That meant sharing our plan with other customers and contacts, getting on line to research who might be out there, and start making calls.  The admin assistant of the company drove the process by recording and organizing everyone’s efforts and new contacts daily, and by doing lots of outreach on her own as well.  The team developed financial terms that were good for the distributor that would also be great for the company, and the sales manager found a draft Distributor Agreement that was only 2 pages and had the lawyer sign off.

In month one we signed off on 2 of the 5 that was our goal, and in month 2 we got 4 of 5.  The numbers increased every month and by the end of month 10 we had a distributor in all 50 States and 12 provinces in Canada.  We achieved this “unachievable goal” in 10 months instead of the year – even when the team thought getting it done in a year was impossible.

The result of setting the strategic goal to eastablish a network of Distributors was the company  increased the value of the average sale from $20,000 per sale to $125,000, margins increased from 20% per sale to almost 50%, and the customer profile went from a privately owned business with under $5 million in sales to 80% of customers now being listed on the Fortune 500 – and three of them on the Dow 30.

To be fair, there were lots of fits and starts to get to this point, and there were times that it all seemed like it would come crashing down.  But, by having that strategic plan to keep going back to and to measure themselves by, and by having a month to month plan of something achievable rather than a one year plan that seemed impossible, the Company did achieve what seemed like impossible goals.  And today the same team is still working their butts off to continue growing the company – but they smile a lot more than they used to – and they know their now larger paychecks can be cashed.

There are dozens of stories like this from our CFOs at the CFO Centre.  Strategic Planning may seem like fluff when you can barely make payroll next Friday.  But in reality, a strategic plan is exactly the tool that a company with great products or services needs. Whether you are barely breaking even, or making millions in profit, EVERY company will grow and improve with a well developed, and well executed, Strategic Plan.  The part-time CFO is the perfect resource to help an already busy team make this happen.

 

 

 

 ____________________________________

Chris Carl has a 30-year career growing manufacturing based companies with novel technologies both as start-ups and within Fortune 500 companies. Having held both CFO and CEO roles, he has raised a combined $500 million in debt, mezzanine and equity financing in private and public companies listed in Canada, the US and Europe.   

The CFO Centre provides highly experienced, part-time CFOs to small and mid-market organizations at a fraction of the cost of a full-time CFO. We are committed to helping companies work through complex financial issues, in order to maximize profit and provide senior financial leadership.

Our global team has over 400 CFOs across 13 countries; our services include business and strategic plan development, financial reporting, cash flow management, internal control, risk assessment and mitigation, training and development, and negotiations.

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

Improve your operational skills

A Part-Time CFO Adds “Bottom Line” Value to a *SME

By Chris Carl 
Regional Director at The CFO Centre

A part-time CFO is to an SME what a doctor, a physical trainer, and a world-class coach is to a superstar athlete.  The superstar athlete will always be good – but they will only be great if they are healthy (the doctor makes sure of that), they are in great physical shape (the trainer takes care of that) and that they can compete at a world-class level (the world-class coach takes care of that).  In a business setting, the CFO Centre refers to these same three levels of conditioning as Business Support (being healthy), Operational Skills (getting in great physical shape), and Strategic Planning (competing at a world class level).  

The highly experienced and successful part-time CFOs from the CFO Centre can help make a company flourish in every respect.  From increased profitability, to growth through financing or mergers and acquisitions, to increased happiness in the C-suite and all employees, a part-time CFO can literally help perform miracles.  But, these results can only be achieved through sound business practices and a great strategic plan.  A successful experienced CFO, that costs only a fraction of a full-time CFO, can make all of these happen.  

This article (part 3 of 4) discusses how to improve your financial fitness through improving your Operational Skills.

Operational Skills

To continue with the analogy of a becoming a world-class athlete, one needs to be healthy to be able to perform, but to operate at a high competitive level you also need to be continually improving your level of top physical fitness.

In business terms, you need to ensure that your business is healthy by making sure critical business tasks are done correctly and not falling through the cracks. You also need to know that your current operations are running smoothly and at peak financial performance.  The best news is that this does not require added cost.  Instead, and without fail, improving your Operational Skills will always add tremendous value to your profitability.

At the CFO Centre, we reference operating at peak day-to-day financial performance as “Operating Skills.”  If the four key Operating Skills are at peak performance, that means your company is operating at peak performance and you are therefore ready to handle any growth, or new projects, that you may desire for your business.  These Operating Skills include (click on the links below for more information):

By assuming leadership for the Finance function and by implementing these key Operational Skills,  a part-time CFO provides the business owner with TIME to focus on the business and CASH through a focus on operational efficiencies, by providing timely analysis and insights on the business to drive profitability and better cash and working capital management.  Having more TIME and CASH, two much needed resources for any SME, eliminates some of the stress  of operating your business and allows the business to be physically fit and healthy for the next level of growth.

As any owner or senior executive of a small to medium sized business knows, “cash is king.”  That doesn’t mean sitting in the safe counting your money, but rather being constantly aware of your day-to-day cash flow.  If something unexpected occurs, or you suddenly have a new opportunity that you must decide on quickly, you must be able to access, and to trust, the cash flow information of your company quickly.

In my experience working with SMEs, with clients or that I have run myself, it is an inability to access internal cost information quickly, and to be able to believe in the information you are getting, that can really slow a CEO down.

As an example, if you are running a business averaging $1 million per month in sales, and you get a call to take on $100,000 per month of new business at a 25% gross margin can your company handle this?  Do you have an internal cost reporting system that allows you to accurately determine if this will be profitable for you?  At the surface, the answer seems obvious: who wouldn’t want $25,000 more margin each month?  But there are many things you need to know before you can say yes, such as:

  • How does the new business affect expediting of current sales?
  • How many more people do I need to fulfill this business?
  • Do I have enough working capital to manage the new receivable?
  • How many months of setup is required and at what cost before I start to see incoming cash?
  • Could taking on this business reduce the quality of the products or services I am already selling?
  • What is the credit risk of this new receivable?

The list of questions you want to be comfortable with is extensive but the point is made: without having Operating Skills that are in top financial fitness, you may spend hours trying to figure all these things out, and even then, you might make the wrong decision.  But, the opposite is also true.  If you have great Operating Skills and you trust them completely, not to mention having a part-time CFO who is a phone call away to share ideas with, you can make this decision in good conscience and feel great about the decision you just made. Does your finance function have the leadership and skillset to help drive your business forward?  See how your finance functions rates (take the F Score).

While this is but one example of thousands to choose from, the point is clear.  If your Operating Skills are in great shape, you will be able to make new decisions quickly and accurately.  Just as importantly, while you are getting these systems in top shape, your part-time CFO will find areas where cash flow can be improved, and profitability will be be increased.   This is just one of the ways that a part-time CFO will pay for themselves, or more likely, generate new profitability and cash flow far in excess of the cost of he or she being there.

 ____________________________________

Chris Carl has a 30-year career growing manufacturing based companies with novel technologies both as start-ups and within Fortune 500 companies. Having held both CFO and CEO roles, he has raised a combined $500 million in debt, mezzanine and equity financing in private and public companies listed in Canada, the US and Europe.  

The CFO Centre provides highly experienced, part-time CFOs to small and mid-market organizations at a fraction of the cost of a full-time CFO. We are committed to helping companies work through complex financial issues, in order to maximize profit and provide senior financial leadership. 

Our global team has over 400 CFOs across 13 countries; our services include business and strategic plan development, financial reporting, cash flow management, internal control, risk assessment and mitigation, training and development, and negotiations.

www.thecfocentre.ca 

1-800-918-1906 or email: [email protected]

fd-heart

Book in for a free financial health check

Book now
fd-stars

Rate your company finance function in nine minutes

Take The F Score
fd-speech

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

ask a cfo
fd-money

Book yourself in for a complimentary 30 minute finance breakthrough session

Book now