cfo services Archives - The CFO Centre Australia

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

Published: April 26, 2024 by lauramills

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.

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.

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.

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]

Top 7 Advantages of a Part Time CFO

Published: November 29, 2023 by lauramills

A part time CFO is the ideal solution for SME businesses looking to scale, who can’t afford or don’t need a full time resource. One of our clients recently said “it’s the best money I’ve ever spent”.

That’s because a part-time CFO will provide your company with the high-level financial expertise necessary to increase profit, improve cash flow and scale up, for a fraction of the cost of a full-time CFO.

Here are the top seven advantages you can expect when you hire a part-time CFO.

1. Increased Profit

The number one thing most business owners want! Having a part time CFO on your team, with their years of commercial experience across many industries, they can increase profits of most businesses by tweaking the levers every business has to increase profit. For this reason alone, it’s worth considering a part time CFO.

2. Strategic advice

Your part-time CFO will provide you with strategic analysis and support on every financial aspect of your business. A report from the Financial Executives Research Foundation (FERF) found CFOs play key roles in not only managing a company’s finances but also in setting broader strategic goals and establishing and achieving financial and non-financial milestones. What’s more, part time CFOs can highlight potential threats or risks of which you and your team may be unaware or perhaps don’t know how to deal with.

3. Flexibility

You can use the services of your part time CFO for what you need, when you need it. That could be for a variety of different financial functions or a specific project. This means you and your CFO can tailor the role to suit your company’s needs at any time.

4. Multiple industry experience

Although you can choose to work with part time CFOs who have direct experience in your given industry, you can also opt to work with those that have experience across multiple industries. The advantage will be that your CFO will provide you with access to networks and multi-layered insights that you might not otherwise have.

5. Sounding board

Running a company can often be a lonely and stressful experience for CEOs, according to The CFO Centre’s Chairman Colin Mills in his book ‘Scaling Up How to Take Your Business to the Next Level Without Losing Control and Running Out of Cash’. He’s seen first-hand what pressure does to business owners.

“I’ve sat in sales meetings with entrepreneurs who had literally been brought to tears by stress and frustration and the feeling that it’s all too much.”

That’s where a part-time CFO can help. He or she can act as an independent sounding board for the over-burdened, stressed-out business owner. With their ‘big business’ experience, it’s more than likely CFOs can provide solutions to what can seem like overwhelming problems to the CEOs of growing businesses.

6. Access to a national and international network

If you choose a part-time CFO from an organisation like The CFO Centre, you’ll benefit from the expertise from all the CFOs in its worldwide network. That’s hundreds of years of experience in every aspect of finance—all for a fraction of the cost of employing a single full-time CFO.

7. Enjoy life through your business, sooner

With the help of a part time CFO, your business will start delivering on what’s really important to you so you get to live the life you choose (eg. more time with family, more time on rather than in your business).

To discover how the CFO Centre will help your company, please call us on 1300 447 740, contact us or watch our short video How it Works.

Photo by Headway on Unsplash

The Ultimate Guide To Strategic Planning

Published: October 20, 2023 by lauramills

The Importance of Strategic Planning

Strategic Planning is the key to the success of any business, no matter its size or age. The strategic plan sets out:

the company’s direction and priorities;
its main operating and financial targets,
the actions it will take to achieve those objectives,
the new initiatives and investments planned, and
their impact on performance.

Some SME owners keep plans in their head, but a formal plan is an extremely valuable tool for managing and growing a business, as it:

clearly communicates the company’s priorities
ensures all key staff are working towards common goals
sets the focus on key objectives
delegates actions and accountabilities amongst employees
ensures that decisions made will benefit the long-term company goals
highlights strengths and weaknesses.

Failing to plan is like planning to fail

Not spending quality time on strategic planning usually leads to a chaotic working environment. Our clients often talk about ‘not feeling in control’ and ‘not really knowing what is coming around the next corner’. When the plan is weak, business owners tend to operate without the same sense of conviction as those who allocate time and expertise to the planning process. Our CFOs often find that their clients have done some good planning and strategic thinking but need a devil’s advocate to ask the right questions and help to steer the ship in the right direction.

4 Mistakes Business Owners Can Make

They don’t have a plan at all
They don’t have a formal plan, it’s in their head which is difficult to share with others
They don’t have an implementation timetable attached to their plan
They don’t have a mechanism in place to conduct regular reviews

Without a comprehensive, up-to-date strategic plan and an implementation timetable, companies may be missing out on opportunities for growth and not realising their full potential. A formal plan can be an extremely valuable tool for managing and growing a business, as it allows a company to recognise its strengths and weaknesses.

The Importance of Reviewing Your Plan

Strategic Planning is integral to business success, however a plan is only useful if it is reviewed regularly to ensure it meets the current and future needs of the business.  It’s vital business owners regularly review their financial strategy to ensure they have the right funding in place to meet the needs of their business, at its current stage of the business lifecycle.

Most CEOs simply don’t have the time to spend on quality strategic thinking and to document and communicate that thinking in a way which allows the whole business to buy into the vision. Harder still is managing and implementing the business plan. Significant strategic course corrections are commonplace in fast-growing companies. These should therefore, be embraced. The tricky part though is in managing regular change. That requires a combination of time and specialist knowledge.

There is an art and science to effective strategic planning. Getting it right brings a real sense of clarity and direction to a business – this is where an experienced part-time CFO can make a significant contribution.

Creating Your Plan

Step 1: Analysis

1. Analysis of Existing Situation – Organisational Philosophy & Mission & Value

Does it reflect what you stand for?
Do your people understand its true meaning?
Does it make it clear as to how you have to compete and against whom?
Is it simply written? Is it clear and unambiguous? Is it believable and realistic?
Does it motivate people? Does it attract pride or cynicism?
Does it give us some indication of what we should be doing and how we should be doing it?
Do all the constituent parts fit and hang together?
“Identity Pyramid” – do you have clarity around all the issues?

2. Internal Appraisal of Company

SWOT analysis – revisit previous analysis & ensure it is complete & current
Distinguish between endowments and core competencies
Assess and audit core capabilities.
Gauge fit between external environment and core capabilities
Identify fit between customer requirements and core capabilities

Having identified what you perceive to be your competences ask yourself the following questions:

Will this give us any source of long term sustainable competitive advantage? Clarify the how? (ie. how relevant is it to the needs of our customers (actual and potential)).
Do customers (broadly) agree with our findings (ie. the market place)?
Can competitors (present/future) emulate or do better? Do they share our perception?
How was this list of core competences arrived at (eg. Training, innovation etc)?
Any weaknesses/shortfall still? If so, what further investments will be required?
Is there any impact on the strategic balance sheet (ie. Intangible and human assets)?
Can it be levered, onto other applications and/or markets?
What happens next?

3. Competitive Analysis

What is the current process for this task?
The Positioning Statement (competitive positioning) – refer below
Scan present competitive position but focus also on future competition.
Do you really know your competitors strategy?
Understand changing face of competition
Who could be a future competitor?
Is your strategy and your competitors becoming more alike or more divergent?
What is the most radical thing that your competitor(s) could do?

4.Value Proposition

Consider or revisit the current Unique Sales Proposition within your Marketing plan & ensure it is complete and up-to-date.
Do you know why your customers buy from you and not you competitor(s)?
Have you asked them?
How can you improve customer experience?

5. Environmental & Industry Analysis

Consider legal, social, political, economic, technological, markets, labour position, society, pressure groups, and any other environmental issue.
Assess potential impact of any change(s) and consider timing implications.
Conduct intensive industry analysis.
What is the long-term viability of the industry as a whole?
What could change the industry dynamics?
What is the nature of current industry changes i.e. radical, creative, intermediate or progressive?
What could be the impact on your strategy and source of competitive advantage of such changes?
Five years or so from now how will the industry leaders look and act?

Step 2: Strategic Thinking

1. Identify Strategic Alternatives

All options to be examined – growth, acquisitions, alliances, JV’s, innovation.
Upside and downside risks identified

2. Strategy Evaluation & Selection

Clear choice to be made
How will we compete?
Evaluate impact of each option
Will it give unique competitive advantage?
Can it last? Can it be sustained?
Will it differentiate us from our competitors?
Can it be converted easily into a set of business objectives / KPI’s?
How will competitors react?
Easy to implement?
Contingencies in place?
What about the next wave?
Is it consistent with customer requirements and industry changes?
Will it create shareholder value?
Is it financially viable?

Step 3: Implementation

1. Matching Strategy & Organisational Structure

Do we have the necessary resources?
Is there a logical fit?
Is current structure adequate? Assess extent of change. Do not ignore culture effect.
What about the organisation’s values?
Is strategy personalised enough? Assess flexibility and robustness.

2. Allocation of Resources & Responsibilities

Planning, Plans, budgets, controls, appraisals etc….. all to be consistent with strategy
Strategy well translated into clear objectives
Priorities and constraints identified
Time horizons clearly laid out
Management information systems to dovetail strategic choice

3. Regular Reviews & Adjustments

Planning, plans, budgets, controls, appraisals etc…all to be consistent with strategy

Strategic Planning – How a CFO Will Guide You

Under The Spotlight – The CFO as a Strategist

Photo by Rohan Makhecha on Unsplash

The Value of Understanding Your Numbers Through Reporting

Published: May 23, 2023 by lauramills

The benefits of having regular access to high-quality financial management reporting is far-reaching. Good reports reveal the efficiency (or otherwise) of the constituent parts of the business. They enable you to deal with potential threats and take advantage of opportunities to grow your business. The compound effect of making regular, quick and high-quality decisions based on a strong set of data and reports cannot be overestimated.

Most businesses have some level of reporting in place but in most cases existing procedures are insufficient to allow for rapid growth.

The Importance of Reporting is Twofold

To have retrospective visibility over past performance (that is, to analyse performance data and use it as a tool to course correct for the future).

To have visibility into the future (knowing what is likely to happen around the corner)

What are Management Reports

Management reports are tools for the management team to make decisions from. Having your bookkeeper run a monthly P&L and Balance Sheet is fine, however to run a business efficiently you need to understand those reports and dig deeper to really see what’s going on.

Base Level Reporting

At the very least you need to have regular access to three key financial statements. They are:

The Balance Sheet

The Cash Flow Statement

The Profit and Loss

4 Steps to Take Your Reporting to the Next Level

Step one:  build a reporting framework around your products to determine what is profitable and what is not. If there are non-profitable products (or those that deliver little profitability), should you consider dumping them or only include them in bundles with other products?

Step two: Build a fully flexible 3-way financial model (P&L, Cash Flow and Balance Sheet) for the next 3 years. Play around with the assumptions, i.e what other products can we put into the offering to customers?

Step three: Build a 3-year plan based on your findings from Step one and two.

Step four: Monthly reviews against the plan – what worked, what didn’t work and the whys around both.

Need Help?

Most SME’s don’t have the internal experience to action these four steps, nor does the owner have the time. That’s where a part-time CFO comes in. At The CFO Centre, we don’t just focus on the business numbers – profit and loss, balance sheet, ratio’s, forecasts, but also the less visible “numbers” – what you want from your business – your financial goal for the business, the number of days a month you’d like to work, the number of holidays you want to take, the value you want for the business when you sell, the number of years you want the business to continue (legacy), the number of years until your retirement.

Both sets of numbers play an important part in your overall success.

The CFO Centre will 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.

Understanding Your Numbers Through Ratios

How do I manage my business in an inflationary environment?

Published: April 5, 2023 by lauramills

The last time inflation was over 5% was early 2000’s. For the last 20 years the only business consequence of inflation was annual small CPI adjustments.

Now, the #1 business risk may be our new inflationary world. The most learned bankers and economists admit they don’t know how high or for how long inflation will be around for. Following could be useful guidance.

BUSINESS IMPERATIVES

Forecasting and scenario planning
Cashflows and working capital become even more important
Margin protection
Prioritise high profit customers and products

AREAS TO PAY ATTENTION TO

Loans/financing

Assess the potential impact of rising interest rates and business uncertainty. This includes loan headroom, ability to service the loan, and potential covenant breaches. Use stress tests and sensitivity analysis. Have an open line of communication with your banker and don’t hide any bad news from them. Make sure the amount and duration of financing is sufficient to weather the crisis and rollout any business plans. Ensure facilities can’t be called in. Consider replacing some overdraft with fixed term financing if things look tight.

Credit Control

Your customers may struggle. Ensure you have an on-going open collaborative dialogue with key customers. Review and assess credit limits, payment terms, and credit policies. Ensure you have timely reporting on receivables ageing and potential bad debts. Weekly reporting would be desirable. And ensure someone is reviewing these reports and taking action promptly.

Cash Forecasts

Implement monthly cash forecasting process if you don’t have one in place now. Review forecasts closely. Understand why variances occur, i.e., was it a business issue or inappropriate assumptions, and take appropriate action accordingly. Run regular scenario planning to understand potential problems.

Working capital

Don’t neglect this area. It can be quietly sucking up cash largely un-noticed. Setup processes to ensure invoices are sent out promptly, and customers pay on a timely basis. Review inventory turnover and under-utilised inventory, and setup action plans to improve this. If possible, negotiate better terms with suppliers. Ensure your regular reporting gives visibility of the $ value of receivables, payables and inventory, and also ageing and turnover.

Pricing and margins

THIS IS KEY. Protecting margins is paramount, and a key driver of overall business profitability.

Pricing is a quick and powerful lever to do this. It will need to become more dynamic. Price increases will likely be essential, but they need to be targeted and precise. Understand your customers and where you fit in their value chain. For example, how important and how expensive is your product in their overall costs. This will enable more appropriate and ultimately successful price increases to be made.
Make sure reporting systems give you margin by customers and products. Prioritise high margin products and customers. This is particularly important if the availability of resources, such as labour, is constrained.
Consider hedging mechanisms and contractual T&C allowing you to pass on input prices to customers.

Mix

Understanding, monitoring, and improving, the margin impact of changing customer and product mix is critical. The key is having the mix that maximises margin $. This process needs to be dynamic and correlated to changes in input prices, and internal resource availability.

Input prices

Monitor input prices closely. Understand impact on product margins. As relative prices change, consider input substitution or replacement. Renegotiate major input prices if possible, e.g., using volume discounts.

Overheads. Review, consider what is business critical and what is not. Try to have costs on a variable basis if possible.

Assets. Review all assets. If they don’t generate profit sell them off.

Business model. Run scenarios around inflation rate, interest rates, wage and input increases etc regularly. Is your business model appropriate?, should it be changed?, do you need to have new delivery models?

Risk management. Make sure you regularly monitor risks and take appropriate mitigation. Check insurance coverage is adequate. Don’t forget that uncertainty can create opportunities.

Improve profitability through innovation and efficiency enhancers such as IT. Can business processes be streamlined, removed or changed?

Gary Campbell is an experienced CFO, based in Victoria, working with the CFO Centre Australia. He is particularly successful at profit improvement, financial turnarounds, risk management and corporate governance for SMEs and NFP. If you would like to talk to a CFO like Gary, please contact us.

The Strategic Planning Checklist

Published: April 1, 2023 by lauramills

Our Ultimate Guide to Strategic Planning