Business control is vital – at both ends of the business spectrum
After the first flush of start-up, many business owners find themselves faced with common problems caused by business control. Those problems tend to polarise into coping with potential failure or run-away success – the ‘zero or hero’ scenario.
The heroes are fast-growing, successful businesses, usually with considerable drive and enthusiasm from business owners. Heroes are clearly going in the right direction, and appear to be getting there rapidly. However, like a fast train, without good control systems, knowing when to slow down or accelerate and understanding all the signals – a hero-business can easily run out of track and suffer a spectacular crash.
The zeros are those businesses that for some reason are finding life difficult. These can often be potentially great businesses, but they find themselves in a situation where their viability may be threatened, again by poor business control.
It is immaterial whether businesses fail with a huge fall or sink slowly and uncontrollably, the result is always the same.
Issues facing the business hero
Hero-business owners are often extremely enthusiastic, have great business ideas, products or services and are consumed with ambitions for growth. Such businesses, led by their highly driven business owners, are usually great to work in, customers and suppliers alike are impressed with the never say die attitudes.
Prime amongst the issues for the fast growing start up is being under-capitalised – the great idea can often die as a result of just not having enough cash. The enthusiastic owner whose vision drives the business can suffer from a lack of vision for coping with growth.
Dealing with the zero scenario
Zero businesses are strugglers. They can be fallen heroes; however they are usually businesses that have striven to survive almost from day one. They often adopt a wait and see policy, hoping that things will get better.
They are usually characterised by a lack of profitability and cash. The constant pressure of trying to juggle cash to make ends meet overshadows the viability of the business and the potential success that lies within.
Driving up the zero and controlling the hero
As with the medical profession, prevention is always better than cure. However, even business cases that may appear terminal can often be rescued.
The solution lies in business-based financial support and advice. The problem facing both heroes and zeros is finding and funding that advice. Frequently, business owners bemoan the difficulty in finding and sourcing affordable advice. However, in some cases they cannot afford to be without that advice.
Finding advisors with the right track record
As with so many other things, the business owner should go for experience. Someone who has “been there seen it and done it”. One immediate response is to hand the problem to the accountant. This can provide a solution, but in reality, most external accountants are not experienced in running a business.
An experienced chief financial officer (CFO) is invaluable in recognising the danger signals and providing solutions, they know how to finance a business, deal with growth, present meaningful monthly numbers and get the best deals from banks. At some point both heroes and zeros need this experience but they probably don’t need it full time – this is where an outsourced CFO provides the best solution. Watch a 3 minute video here to find out how you can take on one of USA’s leading CFOs for a fraction of the cost of a full-time employee.
Access financial management skills at a fraction of the cost of a full-time resource
Owners of hero to zero businesses are prime candidates for an outsourced part time CFO solution. With the outsource option, business owners can access a financial management skill set, that is experienced in dealing with problems and opportunities, able to organise both the in-house and external accounts functions and provide the necessary business advice.
The outsourced CFO has the skill set to plan and implement the controls needed to help the zero business survive and the hero business to grow positively. Additionally, an outsourced or virtual solution does not impact payroll or headcount with the business only charged for the days worked – which may only be a few days per month.
Business owners – zeros or heroes – cannot afford to be without business-based financial advice. The outsourced CFO should be their first priority, before they hit the problems, after all the more time a business has to rectify a situation the more chance of success. Watch our 60 second video on how our outsource model works: www.thecfocenter.com
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.
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 have 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 calendar,” 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 Center) 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 expend. He realized early on the new lifestyle would enable him to spend more time with family while 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 in 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 have 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 call them on the weekend or speak to them late at night or when you’re on your vacation. That’s when you and the clients really do start to cement the relationship.” The relationships you have with clients are 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.”