Well, with 2018 in our rear-view mirror and as we move forward along the 2019 highway, it is a great time to reflect on the past year’s journey. For us at The CFO Centre Canada, the last 12 months have been rich in opportunities to help SMEs thrive as well as our overall growth. Our road was paved with outstanding relationships, both new and growing, from clients to collaborators.
We are pleased to have welcomed several talented individuals to our team. It is our great pleasure to spotlight the following CFOs who joined our ranks:
If you’ve ever looked through a storage box holding clothes you wore as a child, you may have wondered, “How did I ever fit into something that small?”
Your company may be in the same situation. The equipment, personnel, and premises that fitted well when the company was starting out, may be constraining its growth as it matures.
One of the most pressing areas for change may not be your production system, office space or loading dock. If you find that cash shortages are constraining your business, if you don’t know if you can afford to expand your product offering, or you have no real idea which of your products are the most profitable, you may have outgrown your finance function.
Child-sized clothing might have fitted you well when you were small, and it could be that the financial system you had when your company was young, did what you needed it to do. Most companies start out with the founder keeping track of everything, maybe with the help of a bookkeeper or accountant, later growing into a department with a controller at the head.
But there is a world of difference between the “controller” mindset and the benefits available through someone who is able to help you take your company to a higher level – a Chief Financial Officer, or CFO.
Having access to those skills is important. As noted in the CFO Centre’s e-book, How a CFO Centre top level part-time CFO can transform your business, a CFO brings enormous practical financial and strategic skills and knowledge to your company.
A report by the International Federation of Accountants quotes James Riley, Group Finance Director and Executive Director, Jardine Matheson Holdings Ltd.:
A good CFO should be at the elbow of the CEO, ready to support and challenge him/her in leading the business. The CFO should, above all, be a good communicator — to the board on the performance of the business and the issues it is facing; to his/her peers in getting across key information and concepts to facilitate discussion and decision making; and to subordinates so that they are both efficient and motivated.
In this post, you’ll learn about the difference between a controller and a CFO, and why it may be time you made the change – and how you can do that without putting an undue cost burden on your company.
The controller mindset: accuracy, compliance, tactics
All companies need someone with a controller mindset, even if they don’t have that specific title on their business card. The controller watches the details, so you don’t have to. The controller focuses on making sure that financial records are accurate, prepares monthly financial reports, ensures payroll is made on time, invoices are issued and collected and ensures compliance with regulations.
Essentially, the controller manages the company’s books and records and is responsible for the transaction processing in a company and reporting on those transactions. With the focus on recording and reporting on past events, the controller’s role is mainly backward-looking.
And just to repeat – you need someone who makes sure all of these issues are covered.
But your company, even if it’s small, also needs someone able to watch the big picture. And as it grows, that need becomes more acute.
By comparison, the role of the CFO is to provide forward-looking financial management. It’s a proactive role since it is concerned with the company’s future financial success.
What are the signs that you may need more than what a controller mindset can provide? Maybe — if you need to understand the risks your company is facing, or you need to know which of several possible ways forward is best to improve performance or help you grow profitability, or it could be that you need to someone to help align the organization by establishing performance metrics and mindset throughout the organization, or perhaps you need to know how to finance your growth.
In short, you don’t just need someone to provide a utility function – you need a combination of coach/advisor regarding the resources you need to make your intended future happen.
The CFO mindset: big-picture, advisor, strategy
The role and responsibilities of a CFO have expanded in the past two decades, according to the International Federation of Accountants. That expansion it says has been driven by complexity as a result of globalized capital and markets, regulatory and business drivers, a growth in information and communications, and changing expectations of the CFO’s role. Whereas the CFO was once seen as a company’s ‘gatekeeper’, he or she is now expected to participate in driving an organization towards its goals.
The CFO still has the responsibilities for overseeing the Controllers role in record keeping to safeguard the company’s assets and reporting on financial performance
By contrast with a controller, the CFO expands that role to focus on improving the operating performance of a company, analyzing the numbers and presenting solutions on how to make those numbers better. This can include higher sales, lower costs or greater margins.
A CFO will focus on strategy, helping to shape the company’s overall strategy and direction, as well as a catalyst, instilling a financial approach and mindset throughout the organization to help other parts of the business perform better.
The controller looks to the short term, the CFO is long-term. The controller helps make sure your company is compliant with issues such as environmental reporting and taxes; the CFO helps you design and implement a strategy. The controller seeks to maintain what you have; the CFO helps you expand.
If your company is in a growth phase – or you want it to be in a growth phase, the controller has your back – and the CFO helps you move forward. It means together you can achieve better results, faster.
Feel free to reach out to us here at the CFO Centre. We’ll sit down and have a talk, even if it’s phone or video call, to get an idea of where you want to take your company, and what your options might be to support the growth you want.
Many of the issues in this post are covered in the CFO Centre’s e-book “Financial Reporting,” which goes into detail about the insights that you can gain from a CFO’s strategic view of your company’s financials.
THE ROLE AND EXPECTATIONS OF A FD: A Global Debate on Preparing Accountants for Finance Leadership, the International Federation of Accountants (IFAC), October 2013, www.ifac.org
‘Four Faces of the FD’, Perspectives, Deloitte, http://www2.deloitte.com
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.
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.
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.
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.
Implement. The rest is up to you and your team. Delegate tasks, outsource, do it yourself – but be sure to stay with your timeline.
Entrepreneurship means taking risks, such as launching new products, entering new markets, or using new processes. Because this involves uncertainty, there are always chances that things will go wrong.
Our experience at the CFO Centre has been that the most successful companies take the time to understand the downside of the risks they take, and then find a way to compensate for those downsides.
As the CFO Cente’s book “Scale Up” says, a lot of business owners spend an unhealthy amount of time worrying about what might go wrong, but don’t have a formal risk management framework in place. One of the most dangerous positions to be in is not knowing what might harm you. That’s why “Scale Up” suggests starting with a comprehensive risk analysis, to identify potential risks to your business.
This post talks about how you can understand the risks your company faces, and develop a way to manage those risks.
Why is business risk analysis important to you?
Business risk analysis is an essential part of the planning process. It reveals all the hidden hazards, which occupy the business owner’s mind on a subconscious level but which have not been carefully considered and documented on a conscious level.
Not understanding the risks your company faces can bring your company to its knees, as a 2011 report, ‘The Road to Ruin’ from Cass Business School revealed.
Alan Punter, a visiting Professor of Risk Finance at Cass Business School, said the result of a detailed analysis of 18 business crises during which enterprises failed revealed that directors were often unaware of the risks they faced.
“Seven of the firms collapsed and three had to be rescued by the state while most of the rest suffered large losses and significant damage to their reputations,” he said.
“About 20 Chief Executives and Chairmen subsequently lost their jobs, and many Non-Executive Directors (NEDs) were removed or resigned in the aftermath of the crises. In almost all cases, the companies and/or board members personally were fined, and executives were given prison sentences in four cases.”
“One of our main goals was to identify whether these failures were random or had elements in common.”
“And our conclusion? To quote Paul Hopkin of Airmic, the Risk Management Association that commissioned the research: ‘This report makes clear that there is a pattern to the apparently disconnected circumstances that cause companies in completely different areas to fail. In simple terms, directors are too often blind to the risks they face.’”
A lot of business owners spend an unhealthy amount of their time worrying about what might go wrong but don’t have a formal risk management framework in place. It is dangerous not knowing what might go wrong.
What are the risks facing your business?
Business risks can be broken up into the following:
Strategic risks – risks that are associated with operating in a particular industry
Compliance risks – risks that are associated with the need to comply with laws and regulations.
Financial risks – risks that are associated with the financial structure of your business, the transactions your business makes, and the financial systems you have in place
Operational risks– risks that are associated with your business’ operational and administrative procedures.
Market/Environmental risks – external risks that a company has little control over such as major storms or natural disasters, the global financial crisis, changes in government legislation or policies.
The ‘shoot, fire, aim’ approach favored by many entrepreneurs is great for making things happen quickly but often jeopardizes the long-term stability of the business.
What is needed is balance.
Once the business understands the risks, it means that it can move forward decisively and confidently. It’s hard to do this when there is a cloud of confusion hanging over the business.
Where to start?
You need to assess your business and identify potential risks. Once you understand the extent of possible risks, you will be able to develop cost-effective and realistic strategies for dealing with them. Consider your critical business activities, including your staff, key services and resources, and the things that could affect them (for example, illness, natural disaster, power failures, etc.). Doing this assessment will help you to work out which aspects of your business could not operate without.
Identify the risks
Look at your business plan and determine what you cannot do without and what type of incidents could have an adverse impact on those areas. Ask yourself whether the risks are internal or external. When, how, why and where are risks likely to occur in your business? Who might be affected or involved if an accident occurs?
Assess your processes
Evaluate your work processes (use inspections, checklists, and flow charts). Identify each step in your processes and think about the associated risks. What would stop each step from happening? How would that affect the rest of the process?
Analyzing the level of risk
Once you’ve identified risks relating to your business, you’ll need to analyze their likelihood and consequences, and then come up with options for managing them. You need to separate small risks that may be acceptable from significant risks that must be managed immediately.
You need to consider:
How important each activity is to your business
The amount of control you have over the risk
Potential losses to your business
The benefits or opportunities presented by the risk
By managing the company’s risk profile and the risk profiles of the shareholders the whole business can be brought into alignment and can operate as a unit rather than as a set of individual parts.
This is actually one of the most critical roles in any business and your part-time CFO will support and guide you through the process.
At the CFO Centre, our CFOs have an intimate understanding of every conceivable risk that growing businesses face. This means that we can help you build a much stronger business by knowing how to navigate through the growth stages of the business cycle confident that you are equipped to meet the challenges as they present themselves.
It is never possible to eliminate all risks in a business, but it is possible to create a framework and implement systems which lower your exposure to risk. That, in turn, allows you to focus primarily on growing your business.
Knowing that you have a framework in place to mitigate risk means that you can free up time and mental energy.
Lower your risk today
Let one of The CFO Centre’s part-time CFOs help you with business risk analysis. To book your free one-to-one call with one of our part-time CFOs just click here.
 ‘The Road to Ruin’, Punter, Alan, Financial Director, www.financialdirector.co.uk, Aug 18, 2011
Any business owner will eventually be faced with the need to sell their business.
It could happen when a medical change or injury makes it impossible to continue, and you need to sell to secure your family’s future. Or maybe an offer comes along that’s just too good to refuse.
Regardless of the reason, it’s always a good idea to take steps to make your business ready for sale at any time. And as Chapter Seven of the CFO Centre’s book “Scale Up” points out, many of those steps will help make your business life easier, less complicated and with fewer unpleasant surprises, right now and ongoing.
The CFO Centre report “Heading for a big exit”goes into detail on some of the steps you can take now to get the best possible offer for your business when the time comes – and make your life easier now as well. Here are five key points covered in more detail in that report:
A potential purchaser will want clarity around the question of who currently owns the business. If you’re the sole decision-maker in the company, it may be best to have all the shares in your name.
But if you want to reward long-time employees, and support their continued loyalty, you may want to grant or sell some shares to them. If that’s the case, a potential buyer will want to see that there is an effective shareholder’s agreement in place. This reduces uncertainty for the buyer.
If your business owns real estate, you need to understand that a buyer may view this as a problem – particularly if owning the land is not essential to the success of the business. Consider separating the property from the business, so that a potential owner has the option of avoiding a commitment to an asset that they may not want. One way to deal with this is to put the land into a holding company controlled by you, and then set up a lease agreement for the business to use the property.
Over the years your company has likely developed trademarks, patents, brands, and industrial processes that are important to the success of the business. You may not think of them as something that has value, however, anyone considering buying the company will want to be sure about the ownership of this intellectual property and its value. So, it may be good to have your company’s IP valued professionally – you may be able to increase the purchase price based on that valuation.
Many potential buyers will base their purchase decision on the expected ongoing cashflow of the business. So, they’ll want to know about how much of that cashflow comes through dependable contracts. But they’ll also need to know if those contracts will transfer to the new owner – and if a high proportion of the company’s income is due to the customer’s personal loyalty to the owner. Accordingly, it’s good to carry out an analysis of the company’s major customer contracts to see if the future business is sound. Because cashflow is so important in putting a value on a business, consider some of the points raised in our blog post “How your business can fly away from cash problems.”
Many owner-operated businesses are operated in a fairly ad-hoc way. If an idea sounds good, the owner relies on their intuition and experience to decide on the next steps.
Potential buyers need to know that there is a plan in place – including a budget each year that they can see closely matches what was actually spent. They need to know that there are not a lot of unnecessary expenses, such as a local softball team sponsorship that is due largely to the owner’s personal interest, rather than its marketing value.
This is one of the areas where an experienced financial professional from the CFO Centre can help. This person can work with you well ahead of time to build a business that is financially successful and therefore attractive to a potential buyer. You’ll also get help with finding out what potential problem areas might cause a potential buyer to lower their offer or just walk away, so you gain the most benefit from the hard work of building your company.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.”
Leaving lucrative and secure C-suite positions mid-career to build a part-time portfolio might seem crazy but many of those who’ve done it say it is one of the sanest decisions they’ve made.
Take Michael Citroen, who at 58 years old is a 14-year veteran of the part-time portfolio job world. The former Group Finance Director (CFO) relishes the challenge and excitement of working with half a dozen SMEs in his role as a part-time CFO. “It’s nice going into different businesses and meeting different people and having different challenges to deal with. There’s so much more variety every day.”
He particularly likes that the businesses he deals with are all at different stages of growth. Some are very new, others are more established, and a couple has been guided through a sale with his help.
Citroen had been working full-time as the Group CFO of a large privately-owned company when he made the decision to go freelance.
“It was getting very political,” he recalls of his former company. “And I also wanted to be in control of my own diary,” he says.
So, in 2003, he resigned and joined FD UK, a company that offered part-time CFOs to SMEs. When that company was bought out by the FD Centre (parent company of The CFO Centre) five years later, Citroen stayed on and is still working with them today—part of an expanding international network of part-time portfolio CFOs.
“That’s another great aspect of working within a network of part-time CFOs: there’s massive backup. If there’s anything you need to know, you just ask the network, and you’ll get answers back really fast. I wouldn’t have that if I was working alone.”
Besides the enjoyment of working flexibly with entrepreneurs and with other part-time CFOs, Citroen says he values the security that being a part-time CFO with half a dozen clients brings.
“You don’t have all your eggs in one basket,” he says, explaining that if one client leaves he knows he can attract and retain another, so his income isn’t at risk.
“The FD Centre is very focused on helping its part-time CFOs to win new clients,” Citroen says. “I could never have done as well as I have if I’d had to do it on my own. I had no idea about marketing and the technical aspect of things like websites when I first began.”
Like many people starting out on the part-time path, Citroen had been worried about giving up a salary with perks initially. “To begin with it was a little insecure, giving up a regular job.”
He quickly discovered that the financial return you get is contingent on the amount of energy you’re willing to expand.
He realized early on the new lifestyle would enable him to spend more time with family whilst maintaining a good level of income.
“It gave me time to be with them without having to answer to anybody.”
It’s something that another part-time CFO Neil Methold has appreciated about this way of working. Being a part-time CFO for the past six years has meant he’s been able to play a large role in his teenage son’s life: getting him settled into senior school and being able to attend almost every one of his sporting events.
“If I’d been working full-time I wouldn’t have been able to do that. And that’s priceless,” says 53-year-old Methold.
Like Citroen, Methold has found the move into the part-time portfolio world beneficial in so many ways. Not only has he been able to enjoy more family and leisure time but he’s had the pleasure of coaching and mentoring people working within his clients’ companies.
“My greatest satisfaction comes from coaching and mentoring people within these companies so they become self-sufficient and can do more and more of the work themselves.
“Nowadays I say to clients ‘My success here will be inversely proportionate to the number of days I charge you. In other words, the more I can get your people to do the work on a daily basis the less I have to do’. I see it as my responsibility to ensure the work is done, not necessarily to do it all myself. I think that has a significant impact on client retention.”
So too does learning to adapt your style of working to each client, says Methold. It wasn’t something he was aware of when he first started out, he confesses.
“But one day, I was mowing the lawn and thinking it all through in my head. That’s when I realized I was being too harsh, too demanding, too assertive, too telling. You have to be direct in a big company because there are shareholders and high expectations.
“But that doesn’t work with SMEs. You have to use a different style—you have to be softer and more accepting that things don’t necessarily move as quickly as they do at large corporations and that there are going to be different priorities.”
It was when he began to adapt his style of working to suit each client rather than going in “full guns blazing” that he started to enjoy much better relationships. It’s why he has retained his clients for so long, he says.
“You can’t go in and be all corporate. SMEs don’t want that. They want someone they can trust and rely on and build a good relationship with. A friendly face. Not just a very clever big shot. You need to be down to earth and people-focused.”
“When I really accepted that and started to slow down my own pace I become more accepted. You have to adjust and be a bit of a chameleon to suit how they are and not how you think they should be.”
Citroen says the ability to communicate is critical to your role as a part-time CFO. “You have to have the ability to talk to your clients on a personal level and to be able to relax with them. Clients will call you late at night or on a weekend because they’ve had an idea they’re excited about and want to share with you. People who can’t handle that aren’t successful as part-time CFOs.”
Both he and Methold agree that time management is key to success in the part-time portfolio environment.
“Although I’m not in contact with my clients every day, I do keep in touch with them every week, whether it’s a phone call, text or email,” says Citroen. “It’s all part of the relationship I have with my clients.”
Successful part-time CFOs need to take the initiative when it comes to client contact, says Methold. “You have to work really hard at proactive communication with your clients. It’s easy then for them to see you are valuable. I will go to see a client, and on the way home has three 20-minute conversations with three other clients who I haven’t been with that day just to keep moving them forward.
“You have to commit to doing that extra stuff. You can’t just go in for a day, leave and send a bill.”
This obviously takes a lot of organization, and that’s another skill a successful part-time CFO must have (or develop!), he says.
“I have various lists, so I know what I have to do and at what point each week to make sure I don’t drop any balls because when you have lots of clients doing different things, it’s very easy to forget stuff.
“You need to be aware of what’s happening with each client and what you last spoke about. You can’t go, ‘Ah, can’t remember that last meeting. Sorry.’ When they are talking to you, you are their CFO.”
Being willing to deliver such high-quality service is something that makes a difference when it comes to client retention, he says.
“Clients really do value that you put yourself out to ring them at the weekend or speak to them late at night or when you’re on your holiday. That’s when you and the clients really do start to cement the relationship.”
The relationships you have with clients is what helps to make this such a rewarding way of life, he says.
Citroen agrees, adding that working full-time for one company pales in comparison with working part-time across a number of growing businesses. “The job satisfaction you get working as a part-time CFO is enormous. I would definitely never go back to full-time employment.”