Hire a CFO Call us 1300 447 740
Hire a CFO Call us 1300 447 740

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The Role of a Fractional CFO in Navigating Economic Uncertainty for SMEs

Published: by lauramills
The Role of a Fractional CFO in Navigating Economic Uncertainty for SMEs

In times of rising costs, uncertain market conditions, and labour constraints, the role of a Fractional CFO (Chief Financial Officer) in SMEs has never been more critical. CFOs are instrumental in guiding businesses.  They work alongside the internal finance teams and external accountants to shield risks, while identifying growth opportunities. Here’s how a CFO’s expertise can be a game-changer for your business.

  1. Strategic Planning

Strategic planning provides clarity and confidence in navigating economic volatility. CFOs, with their in-depth understanding of the financial landscape, steer this process, aligning financial goals with broader business strategies. This involves:

  • Scenario Planning: The challenges presented by the COVID pandemic is a great example of the need for effective planning. At The CFO Centre our fractional CFOs successfully prepared best and worst-case scenarios which helped our clients navigate the uncertainty created around customers, supply chain, labour, and cashflow issues. Economic uncertainty continues, as does the need for scenario planning.
  • Cash Flow Management: CFOs ensure that businesses maintain adequate liquidity, implementing strategies like optimising working capital and exploring flexible financing options. Refer to our blog “Successful Cash Flow Management: A Comprehensive Guide”
  • Cost Management: Fresh eyes combined with year of experience, allows CFOs to identify areas where efficiencies can be improved, ensuring resources are allocated to high-return initiatives. Quite often it is the sum of small improvements that add up to make a material impact on the business’ bottom line.

  1. Financial Oversight & Risk Management

The CFO’s role is vital in ensuring that the business’s financials are continuously monitored and managed. This encompasses:

  • Budgeting and Forecasting: Regularly updated and accurate budgets and forecasts provide a roadmap for financial decision-making. Refer to our blog “The Power of Budgeting”
  • Reporting and Performance Analysis: CFOs have the expertise to analyse financial data to uncover insights into the company’s performance, identifying trends that may impact future growth or stability. At The CFO Centre we have unlocked the power of financial analysis for countless clients, including the insights that come from gross margin analysis by product / service stream.
  • Risk Management and Compliance: CFOs oversee compliance, mitigating financial and reputational risks.  This often involves working alongside other professionals such as tax accountants, lawyers, insurance brokers, and financiers to ensure a co-ordinated and comprehensive approach for the client.

  1. Opportunity Identification

Economic and/or market uncertainty often brings not just challenges but opportunities. A strategic CFO can guide SMEs to:

  • Invest in Growth Areas: By identifying emerging trends, backed by data.
  • Innovate and Diversify: Encouraging innovation and exploring new markets or products, backed by market research.
  • Strategic Acquisitions: CFOs play a key role in identifying and evaluating strategic acquisition opportunities, including financial due diligence.

Conclusion

The role of a fractional CFO in navigating economic uncertainty is multifaceted, combining strategic foresight with practical, hands-on financial management. CFOs can guide SMEs through the differing stages of their journey, ensuring not just survival but a thriving business.

 

At The CFO Centre, we provide highly experienced, commercial CFOs on a part-time or “fractional” basis for SMEs looking for expert guidance with respect to strategic financial management. If you’re seeking help to steer your business, whether that be to improve its financial performance, to grow, or to ready itself for investment or an exit , then reach out to us – 1300 447 740 or [email protected]

Improving Cash Flow Management With Innovative Strategies

Published: by lauramills
Improving Cash Flow Management With Innovative Strategies

Small and medium-sized enterprises (SMEs) operate in a competitive ever-changing market where maintaining a healthy cash flow is both a priority and a challenge. As most SMEs are constantly expanding their business, cash flow management is a constant challenge to the long-term success of their business.

However, with the right strategies, businesses can significantly enhance their cash flow management, ensuring stability and paving the way for smooth funding of their future growth. This blog explores practical advice on optimizing inventory, improving payment terms, and leveraging technology to bolster cash flow.

Optimising Inventory for Better Cash Flow

Inventory management plays a crucial role in cash flow optimization. Excess inventory ties up capital that could otherwise be used for growth initiatives, while too little inventory can lead to lost sales and unhappy customers. Here are innovative strategies to optimise inventory:

  • Just-in-Time (JIT) Inventory: If possible, adopt the JIT approach to reduce inventory costs by receiving goods only as they are needed in the production process, thus minimising inventory levels. Drop shipping: Consider drop shipping for certain products to eliminate the need to keep them in stock, as the supplier directly ships orders to customers.
  • Inventory Analysis: Optimise your inventory to prioritise items that are high volume, high-margin items for better cash flow and higher profitability. Ensure seasonal inventory items are carefully ordered and sold before the end of their season. This will minimise inventory holding costs and while ensuring you have the inventory your customers require.

Enhancing Payment Terms with Customers and Suppliers

Negotiating favourable payment terms with both customers and suppliers can significantly impact your cash flow. Here’s how:

  • Faster Customer Payments: Encourage quicker payments by setting up automated payment reminders, or using digital payment solutions that simplify the process for customers. Ensure a dedicated staff member is responsible for managing Customer Payments and follow up. Having consistent clear communication with Customers will minimise disputes and reduce delays in receiving payments.
  • Extended Supplier Terms: Negotiate longer payment terms with suppliers to keep cash in your business longer. This might include 30 or 60 day terms, giving you more time to sell inventory and collect receivables before payment is due.
  • Electronic Invoices and Payments: Transition to electronic invoicing and payment systems to reduce the time between billing and payment collection, speeding up cash inflows.

Leveraging Technology for Enhanced Cash Flow Management

Technology offers powerful tools for improving cash flow management, providing real-time insights and automating financial processes:

  • Cloud-Based Accounting Software: Implement cloud-based accounting solutions that offer up-to-date financial information, helping you make informed decisions quickly.
  • Automated Receivables and Payables: Use software that automates invoicing and bill payments, ensuring you manage receivables and payables efficiently, improving cash flow predictability.
  • Cash Flow Forecasting Tools: Utilise cash flow forecasting tools that integrate with your accounting software to predict future cash flow based on historical data and current trends.

Additional Strategies for Cash Flow Enhancement

  • Lease, Don’t Buy: Leasing equipment rather than purchasing it can free up cash for other uses, though it’s important to weigh the long-term cost implications.
  • Re-evaluate Operating Expenses: Regularly review and cut unnecessary operating expenses. Even small reductions can free up significant cash over time.
  • Increase Sales with Marketing: Invest in targeted marketing efforts to increase sales volume, focusing on high-margin products or services that contribute positively to cash flow.

Conclusion

Improving cash flow management is an ongoing process that requires attention to detail, strategic planning, and a willingness to adapt to new methods. By optimizing inventory management, enhancing payment terms, and leveraging technology, SMEs can create a robust framework for managing cash flow effectively. Implementing these strategies can not only stabilise cash flow but also fund your businesses ongoing growth and ensuring success in the competitive business environment.

 

Planning, forecasting and optimising cash flow is the lifeline of any thriving business. At The CFO Centre, our strategies and seasoned CFOs help SMEs improve their cash flow management, ensuring a healthier, more sustainable financial future. Whether it’s preparing a multi-year 3-way forecast (Cash Flow, Income Statement and Balance Sheet) for your Bank, refining payment terms, inventory management, or leveraging technology, we’re ready to assist. Connect with us to explore how our tailored cash flow solutions can benefit your business.

The Power of Budgeting: Building a Financial Roadmap for Success

Published: by lauramills
The Power of Budgeting: Building a Financial Roadmap for Success

Budgeting, often seen as a mere accounting exercise, is in fact one of the most powerful strategic tools at a business’s disposal. For SMEs, creating a comprehensive budget provides your business with visibility to achieve your goals and is not just about tracking expenses and revenues. This blog will dig into the essentials of effective budgeting, offering insights into cost management, revenue forecasting, and the critical aspect of risk planning.

Crafting a Comprehensive Budget

An effective budget is a reflection of your annual Strategic Plan and should outline your desired outcomes and key deliverables to achieve that Plan. A well-crafted budget should show the allocation of resources consistent with your plan and serve as a blueprint for business operations. The process begins with understanding your business’s financial status and objectives, then translating this knowledge into actionable financial strategies.

Before leaping straight into the budgeting exercise, at The CFO Centre we first take our clients through a review of the last twelve months in terms of what worked, what didn’t, any key learnings and any new opportunities. We get our clients to re-consider their Why? or in other words, their purpose for being in business and their personal goals, and how that translates into what the business needs to look like. With that clarity and a clear Plan, a meaningful budget can then be prepared.

Aligning with Business Goals

Start with your strategic goals, ideally, they should include a revenue target and a profit target to help shape your budget.

Expense Management

Prioritise Spending: Not all expenses offer the same return on investment. Prioritise spending on areas that directly contribute to growth or efficiency.

Review Regularly: Regular review of your expenses to reveal opportunities for cost savings or reallocation of funds to higher priority areas.

Revenue Forecasting

Analyse Historical Data: Data from your underlying systems such as inventory and sales can help set the expectations going forward. However, be sure not to simply “add x%” to last year’s sales result as the process requires more thought and analysis. Reviewing historical margins by product or service stream will assist with the strategic direction you wish to take. Promotions and New Product Development (NPD) may also impact your budgets.

Consider Market Conditions: Stay informed about market trends and economic conditions that could impact your business, adjusting your forecasts to reflect these realities. HOW?

Set Realistic Expectations: Budgets should be achievable. Prepare a realistic budget that your team believes can be achieved and you can hold them accountable to. Goals are set to be met.

Contingency Planning

Identify Risks: Spend time considering the risks your business may face, from market downturns to operational challenges, and consider these in your budgeting process.

Allocate Reserves: Set aside a portion of your budget as a contingency fund to cover unexpected expenses.

Flexible Planning: Ensure your budget allows for flexibility, adapting to changes in the business environment with minimal disruption to your operations. The impact of risks and opportunities can be shown separately as increases or decreases to the profit in your core budget. Often these are referred to as upside or downside risks or sensitivities that inform the business of the potential impact of say a higher sales volume or an increase in costs. Flexible planning is a useful risk management tool to help plan for risks so you can embrace them.

Engaging the Team

Involve key team members in the budgeting process. This not only provides insights from different areas of the business but also ensures commitment to achieving budget targets. Departmental budgets will be appropriate for certain businesses and ensure any KPI’s for staff are linked to areas they can directly influence.

Monitoring and Adjusting

A budget is not set in stone; it should be a living document that evolves. Your budget can provide you with insights into which levers to pull to achieve the outcomes you want. It’s an opportunity to look at pricing, volumes and your costs. Regular analysis and adjustment is necessary.

The Benefits of Well-Planned Budgeting

  • Clarity: A budget provides a clear picture of the expected financial position of the business and guides decision-making processes. It allows a business owner to work on the business as well as in the business.
  • Control: It puts you in control, allowing for proactive management of resources and expenses.
  • Confidence: With a solid budget in place, you can have confidence that your desired business outcomes are more likely to be realised.
  • Communication: A budget facilitates communication with stakeholders, from employees to investors, providing a transparent overview.

Conclusion

The power of budgeting lies in its ability to transform financial decision-making from a reactive to a proactive process. It helps you focus on the future by building a financial roadmap that aligns with your business goals, so you can navigate the complexities of the business landscape with confidence and agility. A sound budget will also inform you of your cash flow outlook and help with funding decisions essential for facilitating working capital and supporting business growth. Effective budgeting is not just about numbers; it’s about setting a vision for the future and laying down the financial foundations to turn that vision into reality.

 

The CFO Centre guides its clients all over the world with respect to strategic financial management, including the development of comprehensive budgets that align with their business goals. From expense management to revenue forecasting, our expertise ensures your financial planning is on track. Ready to build a financial roadmap for success? Reach out to discover how we can help.

Do You Have The Capabilities And Capacity For Scaling Your Business?

Published: by lauramills
Do You Have The Capabilities And Capacity For Scaling Your Business?

Scaling your business

Scaling your business depends on two factors: your company’s capability and its capacity to deal with growth.

To scale up your business, your company must be capable of dealing with a growing amount of work or sales and of doing it cost-effectively.

You need to know that your company can achieve exponential growth without costs rising uncontrollably as a result. It’s vital too, that performance doesn’t suffer as your company scales up.

You also need to be sure that your business systems, employees, and infrastructure can accommodate growth. For instance, if you get a sudden surge in orders, will your company be able to cope? Will you be still able to manufacture and deliver products or services on time? Do you have enough employees to deal with a surge in work or sales?

Scaling a business requires careful planning and some funding. To be successful, you’ll need to have the right systems, processes, technology, staff, finance, and even partners in place.

1. Identify process gaps

Audit your business processes (core processes, support processes, and management processes) to find their strengths and weaknesses. Find the process gaps and address them before you start to scale up.

Keep the processes simple and straightforward. Complex processes slow things down and hinder progress.

2. Boost sales

Decide what your company needs to do to increase sales. How many new customers will you need to meet your scaled-up goals?

Create a sales growth forecast that details the number of new clients you need, the orders, and the revenue you want to generate.

Examine your existing sales structure and decide if it can generate more sales. Can you increase your flow of leads? Do you need to offer different products or services? Is there an untapped market? Do you have a marketing system to track and manage leads? Is your sales team capable of following up and closing more leads?

Make sure you have enough staff to cope with an increase in sales. If you don’t have enough staff, consider hiring new employees, outsourcing tasks, or finding partners that may be able to handle functions more efficiently than your company.

3. Forecast costs

Once you’ve done the sales growth forecast, create an expense forecast that includes the new technology, employees, infrastructure and systems you’ll need to be able to handle the new sales orders. The more detailed your cost estimates, the more realistic your plan will be for scaling your business.

4. Get funding

If you need to hire more staff, install new technology, add facilities or equipment, and create new reporting systems, you’ll need funds. Consider how you will fund the company’s growth.

5. Make delighting customers a priority

To reach your sales forecasts, your company will need loyal customers. You’ll win their loyalty by delivering outstanding products or services and customer service every time you interact with them.

6. Invest in technology

Invest in technology that will automate tasks. Automation will bring costs down and make production more efficient.

Ensure that your systems are integrated and work smoothly together.

7. Risk management

Every growth opportunity comes with inherent risks. You should identify potential financial pitfalls, ensuring that the company takes calculated risks. Evaluating contracts, overseeing compliance, managing debts, and setting up internal controls help to safeguard assets.

8. Ask for help

Don’t be afraid to ask for help from experts who have experience in scaling up companies.  In an interview, Apple’s co-founder, Steve Jobs, said, “I’ve never found anybody who didn’t want to help me when I’ve asked them for help. – I just asked.”

A solid strategic plan is also essential when scaling your business to align your financial goals with the operational objectives. Failing to plan is planning to fail.

In today’s dynamic business environment, scaling a business requires more than just a great idea or product; it demands strategic financial oversight. For many small and medium-sized enterprises (SMEs), the expense of a full-time Chief Financial Officer (CFO) can be prohibitive. Enter the part-time CFO, an innovative solution to meet this challenge.

Unveiling the Cash Flow Conundrum: Insights from our Business Survey

Published: by lauramills
Unveiling the Cash Flow Conundrum: Insights from our Business Survey

Cash flow, the lifeblood of any business, often serves as a barometer for its financial health and stability. In a recent business survey, we asked participants to assess the state of their cash flow, and the results shed light on the diverse experiences and concerns faced by entrepreneurs. Let’s delve into the data and explore the implications it holds for businesses of all sizes. 

Analysis of the Results 

The majority of respondents (56%) reported having mostly healthy cash flow. This is undoubtedly encouraging, suggesting a level of stability and financial robustness within these businesses. However, it is crucial not to become complacent, as maintaining healthy cash flow requires ongoing attention and proactive management. 

Interestingly, the responses were equally divided between those who considered their cash flow a concern and those who perceived it as healthy (both at 19%). This result reveals the challenges faced by businesses, where even seemingly successful ventures can experience occasional cash flow hurdles. It highlights the importance of adopting effective strategies to safeguard against potential disruptions and maintain financial resilience. 

Furthermore, 6% reported that cash flow was always a concern. Although this percentage may seem relatively small, it represents a significant portion of entrepreneurs whose businesses are perpetually grappling with cash flow issues. Understanding the underlying causes behind this persistent concern will enable us to address them more effectively and provide valuable guidance to those in need. 

Cash Flow Insights and Recommendations 

  1. Cash Flow Management – Regardless of the current state of your cash flow, it is essential to adopt robust financial management practices. Regularly reviewing your cash flow statement, forecasting potential gaps, and implementing strategies to improve collections and manage expenses can help you navigate through turbulent times.
  2. Diversify Revenue Streams – Relying heavily on a single source of income can leave your cash flow vulnerable. Explore opportunities to diversify your revenue streams, expanding your client base or offering complementary products or services. This will help mitigate the impact of any fluctuations in demand or payment delays.
  3. Seek Expert Advice – Engaging with financial professionals or consulting firms, such as The CFO Centre, can provide you with the expertise required to optimise your cash flow management. Their insights and experience can help identify areas for improvement and tailor strategies to suit your specific business needs. Find out How it Works.

Cash flow is a critical aspect of any business, and the responses from our business survey highlights the diverse experiences and concerns faced by entrepreneurs. Whether your cash flow is mostly healthy, sometimes a concern, or always a concern, it is crucial to proactively manage and optimise your financial position. We encourage you to take our Scale-up & Exit Business Assessment to gain personalised insights into your business’s financial health and uncover tailored strategies to enhance your cash flow management. 

Take the survey now and unlock a wealth of knowledge to propel your business towards financial prosperity. 
[Disclaimer: The results mentioned in this blog post are based on a specific business survey conducted by our organisation and may not represent the overall business landscape. The recommendations provided are general in nature and should be adapted to suit individual business circumstances.]

What are the 4 Financial Reporting Ratios?

Published: by lauramills
What are the 4 Financial Reporting Ratios?

Understanding your numbers

To interpret and understand the numbers contained in your financial statements, you can use financial ratios. The numbers for ratios are taken from the Profit and Loss Account and the Balance Sheet, but not the Cash Flow Statement. 

They measure performance in percentage terms rather than raw numbers. This means you can compare your company’s performance with other businesses in your industry, with your previous results and with your projections. They can help you to answer questions such as – are your operating expenses too high, is the business carrying excess debt or inventory/stock, and are your customers paying according to terms? Banks and other lenders will want to see your ratios to see how your business performs in comparison with other businesses they’re lending to and with the standards they’ve set for lending. 

The four categories of ratios

  1. Liquidity ratios (which reveal your company’s ability to meet its financial obligations including debt, payroll, taxes, payments to vendors/suppliers)
  2. Profitability ratios (which help you evaluate your company’s ability to generate profits)
  3. Leverage ratios (which shows you how – and how extensively—your business is using debt)
  4. Efficiency ratios (which reveal how efficiently your company is managing certain key balance sheet assets and liabilities).

Which financial ratios should you track?

Some ratios will be more applicable to certain industries and businesses than others. If you provide a service rather than sell products, then ratios like return on assets and inventory turnover are unlikely to be relevant to your company whereas the receivables turnover is critical to your business operations. It’s best to choose the five most relevant ratios to your business and track those as part of your monthly management operating plan. It’s crucial to look at your ratios on a monthly basis so that you can spot trends as they develop

Get your numbers in track with The CFO Centre

Informed and insightful decision making can only be made if the magic finance numbers are accurate and informative. Reporting should thus be tailored and customised for the type of organisation (large, medium, and small enterprises). This is where a CFO can truly add immense value. A ‘one size fits all’ approach just does not work in today’s challenging, diverse and financially demanding business environment. 

 The CFO Centre can provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO.   

With their 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. 

If you’d like to speak with us about how we can help you better understand your numbers to accelerate your growth, please get in touch here.

4 Top Tips for Cash Flow Management

Published: by lauramills
4 Top Tips for Cash Flow Management

Cash Flow Management is pivotal in any business. All too many business owners think that the battle is won once the marketing rolls out and the product is sold. They see that their investment of time and resources has paid off and therefore, assume that their goal has been achieved.

However, the fruit of these hard-won victories can quickly run out. Your working capital (debtors, creditors and inventory) should be carefully maintained with a structured cash-flow management plan.

Here are some key points for businesses to keep in mind when managing cash flow:

Analyse cash flow history and identify patterns

This is particularly useful for businesses that have been in operation three years or more. The past can prove a helpful guide for predicting future ups and downs. Therefore, you can more consistently capitalise on the ‘ups’ while preparing for the ‘downs.’

Review your cash flow management systems and processes

Who have you invoiced? Who has paid? And have you made your payments? Without reliable systems and processes in place, you simply cannot accurately ascertain what your monthly cash flow is, let alone manage it.

Ensure your customers pay before suppliers are paid

With each new business relationship, decide with your debtors a credit plan that will ensure you get paid on time. If a particular arrangement is not working, try something different, such as a payment plan. A partial payment now is better than no payment at all. Make it easy and convenient for the customer, by having all the necessary information on the invoice, and offer various payment options.

As for creditors, try to get as extended an arrangement as possible. As a result, this can help ensure that you’ve been paid by your debtors first. You will reduce the risk of default and help ensure you make payments on time.

Be transparent with your bank

Your bank is your most important creditor. It can also be your best ally if your cash flow projections and business plan inspire confidence. Communicating with your bank about your payment status will also engender greater confidence and lessen the negative impact should a surprise late payment or default arise.

The above key points are all necessary elements in managing your cash-flow well, but they are not sufficient in and of themselves. They is no replacement for tailored advice from an experienced professional. The CFOs at the CFO Centre are all highly experienced in cash-flow management and are dedicated to helping ambitious businesses meet their strategic objectives. For more information, contact the CFO Centre on 1300 447 740.

 

Photo by Riccardo Annandale on Unsplash

The CFO as a ‘Leader’

Published: by lauramills
The CFO as a ‘Leader’

In the context of the 4 Roles of the CFO, the role of ‘Leader’ is viewed as the catalyst. They bring the other 3 roles of Strategist, Operator & Guardian together to support & deliver the business owner’s expectations of long term growth. They will look to:

  • Challenge/Shift the thinking of small business owners
  • Look to drive competitive differentiation
  • Deliver funding through profit growth to drive long term value

 

Our CFO’s deliver this role of Leader by providing the following:

 STRATEGIC PARTNER TO THE BUSINESS OWNER and ADVISORY BOARD

  • Performing the role of a trusted sounding board and strategic partner to the business owner and advisory board.
  • Through their vast experience gained in their various roles in Finance functions, they are able to apply their knowledge and expertise to the whole of business in an “End to End” whole of revenue approach.
  • This role of the CFO opens up opportunities to constructively challenge the business owner’s mind to improve decision making, by using their influence and persuasion.

STRONG SALES & CUSTOMER FOCUS

  • In the role of Leader our CFO’s will prioritise spending time building relationships with the organisation’s Head of Sales and other business unit general managers, taking ownership of some of the performance related activities
  • The CFO will ensure that a Balanced Scorecard measures the human resource effectiveness, innovation, customer satisfaction and loyalty as well as the financials.
  • Adopting “whole of business” approach enables the CFO to remain focused on prioritisation and time allocation. The CFO uses these activities to protect one scarce resource – cash. As well as using it to protect an equally scarce resource – time.
  • The discussion with the business owner is then how to derive the best return on those scarce resources.

 FIGHT ‘SCOPE CREEP’

  • In the Leader role the CFO will remain focused on operating at an optimum level of resources. They understand and control the hidden costs of introducing too much organisational complexity. This complexity can be caused by proliferation of products, and or channels to market, or adding layers of management.

SET ASIDE A ‘WAR CHEST’ FOR CRITICAL STRATEGIC ACTIVITIES

  • The Leader works with the business owner, implementing a plan to set aside a cash reserve in order to fund the most strategic initiative. Or, alternatively, to keep an existing project on track or accelerated to take advantage of a new opportunity.

 

The success of the Leader role delivering value for the business owner is dependent on developing and maintaining good relationships with the business owner and employees.

In addition, the CFO will also have to ensure the strategic, operational and business support aspect of the business are well attended. They will help SME owners achieve their goals whilst building a more profitable and valuable business.

 

Written by Greg Yon – CFO and Regional Director at The CFO Centre – Sydney West region