While much uncertainty still remains after the craziness of 2020, our Chairman Colin Mills talks about his process on how to significantly grow your business.
“The best advice I ever received for ‘doubling’ the size of our business, was to list down the Top 20 things we could do to increase the revenue by 10 times. You can then identify the Top 3 activities to concentrate on for the following year” says Colin.
So let’s say you’re a $4million business. Spend a few hours listing out the 20 things you could do to turn this into a $40million business over the next 12 months. This will force you to think outside the box and away from small incremental changes you can make.
I suggest you then spend another hour or so considering the Top 3 activities. These will be the activities that are most likely to get you towards your goal of $40m.
You then have the top 3 activities to focus on over the next 12 months that may well enable you to double your turnover.
For each of those top 3 activities, develop clear action plans on how you are going to achieve results.
Next, get input from your management team (including your CFO of course) in developing these action plans.
Don’t forget to consider the risk and downsides to each of your priorities. Then develop strategies to mitigate the risks you identify.
Above all, ensure your plans are realistic and find capacity that can support your ideas. Your CFO should be able to support you in developing finance and funding to ensure your growth plan is realistic.
The overall economic climate won’t allow all business to double their size this year. However, this radical approach for business growth will hopefully enable some to change their thinking from doom & gloom towards optimism and growth. As Henry Ford famously said “If you think you can, or think you can’t, either way you’ll be right!”
The CFO Center is the global No.1 provider of part-time CFOs. We are dedicated to making a real difference for our clients and their businesses. Rate your company’s finance function here. You’ll receive a valuable 8 page bespoke report on the 3 main areas for improvement.
The CFO Center will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. This means you will have:
One of USA’s leading CFOs working with you on a part-time basis
A local support team of the highest caliber CFOs
A national and international collaborative team of the top CFOs sharing best practice
Access to our national and international network of clients and partners
With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision- making. After all, you’ll have access to expert help and advice whenever you need it.
In particular, your part-time CFO will assess your company’s cash flow position and take the following steps:
Identify all the immediate threats to your business
A part-time CFO will look for all those things that could plunge your company into serious financial trouble if they’re not addressed immediately.
These could be factors such as the payment of wages or salaries, the payment of taxes or the payment on a due date for vital goods, etc.
Address those imminent threats
Your CFO will look for ways you can meet your most pressing financial requirements and buy the company more time. This might involve:
Chasing late-paying customers. To encourage those customers to pay, consider offering a discount for immediate payment or asking them to pay immediately by credit card.
With invoice discounting and factoring, you’ll receive up to 85% of the value of the outstanding invoice, sometimes within 24 hours. You’ll receive the remaining 15% minus a fee once your customer has paid the outstanding invoice. An invoice discounting service can be confidential so that your customer will be unaware of the financier’s involvement. Factoring companies, however, undertake a full collection service (including sending out statements, making reminder calls and collecting payment), so your customers will be aware that you’re using their services.
Arranging short-term loans or operating line of credit with your bank.
Considering other funding sources besides banks and other lending institutions such as self-finance, or loans from family and friends, partners, investors and alternative finance like peer–to–peer lending.
Asking for better terms from creditors. You may find they’re open to extending your repayment schedule.
Identifying and addressing the underlying problem.
Assess the business to identify the cause of the cash flow problems. Address those issues to avoid a similar situation occurring again.
Prevent cash flow problems from recurring
As well as identifying and resolving the imminent threats to your business, your CFO will review all inflows and outflows of cash to determine where improvements and savings can be made. This is likely to involve:
Working out your break-even sales figure (the number of sales required to cover total expenses without making a net profit).
This will mean reviewing your sales figures for the past six months to check that you exceeded that breakeven point. It’s then possible to calculate how much you’re likely to make in sales for the next two months. If you’re unlikely to break even, you’ll need to plan how to increase sales and reduce costs.
Looking for ways to increase your profit margins such as raising prices. You can do this without losing valuable customers by offering packages or bundles of goods or services.
Reducing your salary or personal draws from the business until your revenue improves.
Cutting costs. The beauty of cost-cutting is that it can be done in hours or days, unlike revenue-boosting measures which take longer to implement and to take effect. Such cost-cutting measures might include doing any of the following:
Stopping work on non-critical capital projects.
Reviewing your inventory and selling off obsolete, damaged, or discontinued products.
Eliminating slow-moving products or less popular services from your line since selling unprofitable goods or services is likely to send you out of business faster.
Negotiating price discounts for volume purchases from your suppliers.
Consider downsizing. Bigger is not better if your company is always struggling to stay afloat. If your profit margins are consistently small, reassess your business goals. Rather than expansion, focus instead on profit.
Ditching products or services with the lowest profit margins. This change of focus may mean you can also reduce the size of your borrowings, staff, advertising, and marketing campaigns, premises, etc.
Reducing labor costs (without triggering a drop in productivity). Any cost-cutting measure that triggers a drop in staff morale will have negative consequences for productivity. Your CFO may advise you to defer salary increases and bonuses or to cut salaries from the top-down. You might also consider introducing a temporary freeze on overtime. Other measures might include lowering the number of employees through attrition or redundancies.
Speeding up the sales process. Your CFO will encourage you to accelerate the speed with which your customers’ purchase orders are converted into cash. In particular, you’ll be asked to consider what steps in the sales process can be combined or eliminated. For example, asking for payment at the time of the order, accepting credit card payments, or offering automatic account debiting.
Lowering miscellaneous expenses. You’ll be encouraged to find ways to make small savings on things like insurance policies, office rent, bank service charges, utilities, etc. Lots of small savings across the board can have a significant impact.
Refinancing your debt obligations. Your CFO might suggest approaching your lenders to see if you can lower your monthly payments on your term debt obligations by taking the remaining principal amount and spreading it out over a longer period.
Analyzing if you can outsource jobs or services. You’ll be asked to look at your operations to determine if any of your activities, services, or functions could be provided at less cost by an outside company or contractor.
Holding a sale of surplus or slow-moving inventory.
Approaching suppliers to negotiate better deals.
Asking your suppliers to take back excess inventory.
Selling off your underused assets and renting the equipment instead.¹
With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making.
Improving credit control.
Your CFO will help you to get tighter controls over your credit. That will mean:
Getting written agreement to your credit terms before taking on new clients.
Many businesses are not clear about credit terms with their clients and often simply set out conditions on the face of the invoice, but that’s too late in the process. Instead, you should always ensure that an authorized representative of your customer has agreed to your credit terms in writing before you agree to supply products or services.
Carrying out credit checks on all new customers, no matter how large or influential they may appear.
Invoicing at the time of a sale or close to it. Instead of waiting for the month’s end to issue invoices do it daily or weekly.
Making sure your sales invoices are accurate. Unfortunately, some customers will use any excuse for not paying invoices on time and any inaccuracies (such as an incorrect address or date or no purchase order number) could be enough for them to justify delaying payment.
Treating the collection of monies owed as a high priority. If you haven’t already done so, set up a computerized system to provide notification of late payments.
Setting up an invoice dispute resolution process. It’s important that your company records any documentation related to invoice-related disputes. You should also keep a record of those customers who challenge their invoices or raise questions so it’s possible to see if any do this regularly as a way of avoiding settling their accounts.²
Investigate the use of regular cash flow forecasts
Your CFO will encourage you to use regular cash flow forecasts so you know how much cash is going to be needed in the coming months. It means you’ll know in advance if you’re likely to face a cash shortfall and can make arrangements for extra borrowing, or take other appropriate action.
It will also make it easier for you and your senior team to make decisions such as whether or not to:
Hire more staff
Change your prices
Tender for a large contract
Find new suppliers.
You’ll be able to see at a glance the impact such decisions might have on your cash flow.
Cash flow forecasts can also highlight potential problems so that you have time to take action to avoid them.
Your cash flow keeps your business alive. Having control of your company’s cash flow which allows you to operate within your means, and move away from a ‘feast and famine’ situation is usually a huge relief to everyone within the business.
It means that decisions can be made and checked against the cash flow forecast to determine whether they are viable. This increased visibility can be introduced quickly and can have a hugely positive impact on the whole business.
It also means that reserves can be built up gradually to give the business a cushion and alleviate the stress of not knowing what lies around the next corner.
Having the right cash flow management processes in place and being able to spot peaks and troughs in trading to improve cash flow is one of the most critical components of any finance function.
Put an end to your cash flow problems now by calling The CFO Center today.
Are you looking to hire a CFO that will oversee the financial side of your business?
As you start to consider what to look for in a CFO and who would be the best fit for your business, your first instinct might be to interview full-time candidates only. However, you’ll be missing out on the many benefits that qualified, part-time CFOs bring to the table.
The Benefits of Hiring a Part-Time CFO
Immediacy for Urgency
When the needs of a business are urgent, it is usually easier and quicker to hire a part-time employee to help out, instead of instigating a full-time position. Given the nature of their role, part-time CFOs can act quickly on fulfilling specific needs, whether it is identifying business pain points or ways to make the business more profitable. Although you may only request your part-time CFO to work once a week, they will be ready to help whenever you need them, and they are always just a call or email away.
Other than solving immediate challenges, a part-time CFO can also act as a strategic business partner and help grow your business in a sustainable way. For example, they can prepare financial forecasts, develop annual plans for revenues and expenses, and assess the competitive landscape and long-term cash flows. As a result, this would help free up any business owner’s time, so they can focus on other aspects of the business.
Aside from solving a company’s short and long term goals, one of the biggest benefits of hiring a part-time CFO is that you can have access to an experienced CFO at a fraction of the cost of a full-time CFO. A full-time CFO delivers all the benefits of a part-time CFO but at an increased cost and financial commitment, and most SMEs do not require that skillset or experience every day of the week. Instead of investing in extra recruitment and hiring costs to find a full-time candidate, your business can reap the benefits of a part-time CFO who has practical, financial, and strategic skills to offer.
Flexible & Customizable Work
Flexibility is becoming more acceptable in today’s business landscape, allowing for part-time CFOs to fit right in with their varying schedules. Once you hire a part-time CFO, they will take on a variety of different tasks, based on what and when you need them for. Depending on the part-time CFO’s experience, they can also cater to different business markets and fulfill various needs. Overall, this results in an efficient solution for both parties, where clear roles and responsibilities are established and no time is wasted.
Open & Honest Dialogue
An advantageous quality that most part-time CFOs (and part-time employees in general) have is their ability to be candid with their employers. You can expect a qualified, part-time CFO to challenge you in ways that a full-time employee might feel uncomfortable doing. An employee’s honesty and transparency tend to lead to meaningful discussions that push businesses towards their goals and bring clarity in times of confusion. Since part-time CFOs are independent workers, you can also confide in them about any departmental issues you may be facing.
Expertise in Local and International Markets
Depending on your business needs, you may require a part time-CFO who is familiar with the local and international markets – companies such as the CFO Center provide access to a network of local, national and international teams to support a diverse variety of needs that an individual CFO cannot offer. There are also over 60 experienced part-time CFO’s to choose from who have expertise in various sectors.
Finding A Suitable Candidate
There are many qualities to look for in a CFO, however, we have outlined some of the most important below:
Big Picture Thinking
A CFO who can see beyond the numbers would be a valuable asset to your company. This individual would be able to interpret data in a meaningful way and provide analysis that encourages positive growth for the company.
Communicative Team Player
Considering that a part-time CFO will not operate within a consistent schedule, they should be able to communicate often with others and provide extensive detail whenever necessary. It is also important that they are a team player who gets along with other employees, otherwise, they will not be able to work efficiently and successfully with your team.
To make the most of your part-time CFO’s skill set, you should consider how much experience they have with different companies and within various industries. Individuals with an impressive range of previous experience can provide valuable perspectives on different problems, strategies, and goals that other employees may fail to see.
Ideally, your part-time CFO should be excited about building upon their skills and developing their career, to ensure that they stay up-to-date in their respective fields. Without this attitude, your business will not be able to grow and progress from a financial standpoint.
In this series of Thriving in the New World, The CFO Center explores what exactly it means to be an operator in the “new world” and essential elements that allow your business to thrive.
Most owner-operated businesses would agree that increased cash and more access to capital would help them exceed their business objectives. Recent societal and economic realities have strained or even exhausted cash resources for many companies. Even those companies enjoying unprecedented growth are scrambling to fund unexpected expansion. The essential building block for liquidity has always been Operational Excellence, defined as consistent and reliable execution of each business’ unique processes to acquire and satisfy customers.
High performing operations processes have always been the foundation for generating cash from within the business. Equally important for those business owners seeking to thrive in a post Covid world is the critical need to demonstrate operational excellence to third party financing sources. Seeking to expand your credit line with your bank or pursuing additional investors will require the business owner to present a clear and compelling story for how the company will produce profits, cash and sufficient return on capital.
The traditional role for a CFO in Operational Excellence is to provide accurate financial information and act as leading voice in cost reduction. Creating a truly reliable foundation for generating cash and profits; often requires financial leaders to contribute more than they have ever before. The experience, attributes and mindset of many CFO’s positions them to act as a catalyst for delivering cash and profit maximization across the full range of business processes.
Fix the Finance Foundation
The processes and practices of the finance function must be viewed as rock solid by the owner and the rest of the organization to create a path for participation or preferably leadership of broader operational improvement initiatives.
There are three key functional outcomes that must be in place to give the finance team the credibility to extend its involvement to other operational processes. Without these deliverables in place, the organization’s ability to undertake deeper process review will be severely impaired.
The first base level capability is timely, accurate and useful financial reporting. If the leaders of the company are not receiving this level of financial reporting, then it is unlikely that the finance leader has earned the right to apply their team’s expertise to general operating processes.
The second must have competency from the finance team is an understanding of the cost drivers for the business. The understanding of costs does not have to be perfect; however, there must be a methodology in place to capture and analyze the complete range of items that form the cost of products or services
The third requirement for finance team effectiveness is to have a solid grasp of the company strategies that will drive future growth and success. If your finance staff are seen just as number crunchers it will be difficult for them to contribute to operational initiatives. The first installment of our CFO contribution series suggests a practical approach to engage your finance leader in developing future proofing strategies.
Own Cash Flow
The responsibility of generating positive cash flow clearly belongs to the CEO and the entire organization; however, expanding the mindset of your financial leader to thinking and acting as the owner of cash flow can be a powerful tool. Finance and accounting staff have historically only been tasked with producing cash flow forecasts based on inputs from other leaders.
We suggest making a clear organization signal showing reliance on the finance team to go beyond analyzing cash inputs and outputs. The new expectation should include concrete actions aimed at increasing the amount or timing of cash inputs while reducing the amount or timing of cash outputs. One example of a high impact cash inflow recommendation is to convert the finance team’s experience with both external and internal obstacles to timely collection of receivables into operational practices that eliminate these obstacles in advance.
Refine and Revolutionize Business Processes
Each organization varies in complexity of business processes, capabilities of process analysis, and often very different levels of CEO interest or prioritization of process improvement initiatives. Given the nature of many small to medium-sized organizations, there can often be aptitude and attitude gaps leading to under prioritizing detailed data-driven process review work.
Even a small finance team can become the internal champions for generating improved results achieved through documenting and enhancing your most critical processes. Elevating the CFO to, at minimum, a shared level of ownership with the firm’s operational leaders will apply complementary expertise to process review efforts. Converting process improvements into additional cash and profit can often involve just a few additional questions that may be missed by other functional areas.
Create Compelling Capital Acquisition Content
There is a high probability that pursuing operational excellence will lead to capturing more cash from optimized processes and deliver positive returns in the short term.
The longer-term benefit of intense CFO involvement in the operational aspects of the company is the ability to work with the owner to put a more convincing investment case forward to potential sources of debt or equity financing. Revenue growth is understandably the primary focal point for future investment; however, the business case is significantly strengthened by a tangible action plan showcasing gross margin enhancement, profit improvement and positive cash generation.
Reviewing, examining and revising processes has always been part of running a successful enterprise. Although most companies have made improvements over the life of their business; there is often a substantial opportunity to further optimize the organization’s capability to convert every dollar of revenue into more profit and more cash. One of the positive byproducts of the turmoil related to the pandemic is that business owners, management and employees are more aware and likely more open to the need for change than ever before. The time is right for businesses to count on their CFO to bring a thorough, disciplined methodology to deliver operational excellence and improved financial results. Uncover more.
In the introduction to our CFO Contribution Series, Thriving In the New World Strategist, we suggested that most business owners may not be well served by high-level, third party driven, divergent strategic exercises. Certainly, there is significant value in undertaking far reaching, blue sky thinking. Most small to medium size organizations will be better served by incorporating their own foresight into targeted, most probable future scenarios developed by highly engaged participants directly linked to the success of the business.
There can be no doubt the Covid-19 pandemic has led to unprecedented change for most businesses. Revenue levels have plunged for some firms while others are experiencing unexpected increases in new customers and unforecasted demand levels. Supply Chains have been disrupted. Optimizing employee productivity and satisfaction have become more art than science. Short-term cash availability and long term capital requirements are highly uncertain. Even the most confident experts are reluctant to make a call on the economic climate we are likely to experience a year from now or even six months from now.
Success in this uncharted New World requires business owners to make effective decisions to address today’s challenges and to establish a strong market position in an uncertain future. We call this Future Proofing your business. The path forward will be unique for every enterprise. For most businesses, the contribution of an integrated senior financial leader can be a major factor in making the best decisions for steering the business towards a successful future.
Owner operators will particularly benefit by injecting their full time or part time CFO into idea
generation and implementation planning to future proof their business using the following four-step process.
Developing Most Probable Future Scenarios
The insight of the CEO along with sales and market-oriented management will understandably be essential to develop and select three or four most likely market scenarios. Important dimensions for assessing your business’ future would include revenue outlook, new revenue sources, changes in access to customers or preferences of customers, competitive forces, regulatory factors and assessment of staff effectiveness. Identifying these factors specific to your business and your industry should be considered in conjunction with the team’s projections of potential future operating environments.
Involving a holistic professional with the ability to stretch the team’s future thinking to include the full spectrum of potential obstacles often leads to more robust, more complete future scenarios. Team members should expect the organization’s financial leader to embrace the uncertainties inherent in guessing at potential futures while also expecting them to act as a catalyst to describe the leading scenarios with sufficient clarity to facilitate resiliency testing and implementation planning.
Leveraging Emerging Technology
The pace of change over the past five to ten years combined with the recent accelerated societal and economic changes linked to the pandemic forces all businesses to adapt and respond quicker and more intensively than ever before. Adapting and responding effectively requires timely and appropriate application of emerging technology solutions to uncover new connections to customers and to unlock methods to streamline and enhance business processes.
A few of the more pervasive and perhaps highest potential technology trends destined to shape the future are Artificial Intelligence, Blockchain Technology and Internet of Things. Finance leaders bring essential analytical skills, as well as opportunity and risk assessment expertise. These attributes will help the business select the most advantageous solutions and deploy these applications to deliver favourable returns.
Stress Testing Scenarios and Strategies
Once the business has collaboratively generated their high probability future scenarios and articulated corresponding strategies to maximize results; a critical need emerges for disciplined evaluation to ensure the selected paths forward can stand up to expected obstacles and deviations.
The CFO’s involvement in scenario testing is likely to be most accepted and welcomed by the business owner and the future proofing team. A New World CFO is one that passionately embraces uncertainties and optimism while maintaining their proven ability to rigorously apply a check and balance approach to the team’s chosen future scenarios and strategies.
Commitment to Highest Impact Initiatives
The hardest decision for many organizations undertaking future proofing activities during today’s tumultuous environment will be to commit the necessary financial and human resources to those chosen few initiatives expected to best position the business over the next six months to five years.
Creating the internal and external confidence to act now often hinges on the development of concise, compelling business cases to define the initiative, its costs and expected profits. The involvement of your financial leader in the entire future proofing process will significantly enhance the quality and effectiveness of these strategic business cases. In situations where the organization is seeking external financing or participation from partnering organizations; the voice of an informed, engaged, credible CFO will be a significant factor in securing the desired external support.
Business owners and their management teams have the responsibility to navigate the firm through today’s urgent challenges and opportunities. They also bear the greater responsibility to establish direction and take action to prepare the organization to succeed for many years ahead. A New World CFO welcomes this responsibility and possesses the knowledge and dedication needed to deliver results today and in the future. Discover more.