Is This Essential Element Missing From Your Business Plan?

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In building your business, do you ever:

Feel out of control – you’re getting by, dealing with one crisis after another, but just barely hanging on?
Find that your longstanding products and services just aren’t selling like they used to, but you can’t find time to develop new offerings?
Think about retiring after selling out to a group of your employees, but you know that they (and you) are nowhere near to making that possible? (see our post on exiting your business for more on that)

A big step towards resolving these issues, and many others, is to have a business plan – an effective business plan.

Many businesses get by without one. “It’s in my head,” you might say. Or, it could be a document you put together years ago, maybe because your bank required it to extend financing, and you haven’t looked at it since.

According to a survey by business and finance software provider Exact, companies that have a business plan in place were more than twice as successful at achieving their goals than those that did not (a 69% success rate versus 31%).

What’s wrong with many business plans?

If having a business plan is so important, how can your company get the best possible benefit out of the work that goes into preparing one?

Our work here at the CFO Centre has found that while having a business plan helps, there are some important elements to success (many of these are presented in more detail in the e-book).

One is that the plan must be a living document – it needs to be something that you review frequently, updating it as circumstances change, and using it to provide guidance on what your daily, monthly and yearly priorities should be.

Another aspect of success, believe it or not, involves packaging. You may be aware that a business plan that is used as a finance-obtaining tool will succeed more if it features attractive layout and design. But having a document that’s pleasant to look at – not just text on a page – will work better even if it’s just used internally. That’s because the people who read it, including you, will have a greater sense of confidence that the ideas in it can be made to happen.

How a timeline helps make it all happen

But the one important aspect, that many business plans miss, is the element of time. Without a clear picture of what is to happen by what time, a business plan is just a wish-list.

The best way to help make sure that the business plan stays alive – and more importantly so that what’s in it comes to pass – is through including a timeline.

A timeline (or timetable, if you prefer) sets out the milestones of your business plan – the number of employees, number of locations, sales targets, net revenue expected and other targets – and indicates what date they are expected to be reached.

For example, let’s say you have a winning retail concept that you want to turn into a franchise. Maybe even a national franchise.

To do that, you need to determine what processes need to be implemented in order to manage a store like yours effectively. That, in turn, leads to a set of written procedures – such as the steps to be taken upon opening the store or on closing, how to make each of the products that are sold, and other aspects of success. Maybe then you need to establish a time by which you expect to have that first satellite operation running, maybe as a corporate-owned location, just to see what happens when you’re not on site to trouble-shoot all the time.

It could be that this sounds so complicated and intimidating that you never actually get your franchising idea off the ground.

Here’s how a timeline helps make your business plan happen:

It breaks down big, scary projects into smaller, bite-sized chunks you can actually do
It reassures you by pointing out that you don’t need to do everything right now
It moves you along because you see a deadline for one of those “chunks” coming up, so you can get working on it

Start with the end in mind, then work backward

This involves a 5 step process.

Get a firm image of your goal. Established business wisdom says to consider first where you want to be (say, 20 franchise outlets across the country, ten years from now) and then spell out in detail what that will look like. Going into detail gives you a more clear idea of what needs to be in place for that to happen. Set a date for that to happen.

Determine the big milestones along the way. This might include writing out the elements of success in your current business, creating written procedures, testing those procedures to see if they cover all reasonable contingencies, opening a second outlet to further test those procedures, selling your first franchise to someone you know already, and onwards.

Think of the resources you’ll need. For example, at some point, you’ll need to engage a franchise lawyer to consult and help in the preparation of a franchise agreement. Think of the finance you’ll need to have in place, maybe from a bank or friend-or-family source, to make the rest happen (to learn more about how to avoid cash-flow problems that might drag you down, see our post here).

Write out your timeline. It might be on paper, on a computerized document, on a calendar program that will remind you about deadlines, or whatever works for you. Maybe multiple formats will be a good way to keep you on track.

Implement. The rest is up to you and your team. Delegate tasks, outsource, do it yourself – but be sure to stay with your timeline.

The difference between a CFO and a Controller

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If you’ve ever looked through a storage box holding clothes you wore as a child, you may have wondered, “How did I ever fit into something that small?”

Your company may be in the same situation. The equipment, personnel, and premises that fitted well when the company was starting out, may be constraining its growth as it matures.

One of the most pressing areas for change may not be your production system, office space or loading dock. If you find that cash shortages are constraining your business, if you don’t know if you can afford to expand your product offering, or you have no real idea which of your products are the most profitable, you may have outgrown your finance function.

Child-sized clothing might have fitted you well when you were small, and it could be that the financial system you had when your company was young, did what you needed it to do. Most companies start out with the founder keeping track of everything, maybe with the help of a bookkeeper or accountant, later growing into a department with a controller at the head.

But there is a world of difference between the “controller” mindset and the benefits available through someone who is able to help you take your company to a higher level – a Chief Financial Officer, or CFO.

Having access to those skills is important. A CFO brings enormous practical financial and strategic skills and knowledge to your company.

A report by the International Federation of Accountants[1] quotes James Riley, Group Finance Director and Executive Director, Jardine Matheson Holdings Ltd.:

A good CFO should be at the elbow of the CEO, ready to support and challenge them in leading the business. The CFO should, above all, be a good communicator — to the board on the performance of the business and the issues it is facing; to his/her peers in getting across key information and concepts to facilitate discussion and decision making; and to subordinates so that they are both efficient and motivated.

In this post, you’ll learn about the difference between a controller and a CFO, and why it may be time you made the change – and how you can do that without putting an undue cost burden on your company.

The controller mindset: accuracy, compliance, tactics

All companies need someone with a controller mindset, even if they don’t have that specific title on their business card. The controller watches the details, so you don’t have to. The controller focuses on making sure that financial records are accurate, prepares monthly financial reports, ensures payroll is made on time, invoices are issued and collected and ensures compliance with regulations.

Essentially, the controller manages the company’s books and records and is responsible for the transaction processing in a company and reporting on those transactions. With the focus on recording and reporting on past events, the controller’s role is mainly backward-looking.

And just to repeat – you need someone who makes sure all of these issues are covered.

But your company, even if it’s small, also needs someone able to watch the big picture. And as it grows, that need becomes more acute.

By comparison, the role of the CFO is to provide forward-looking financial management. It’s a proactive role since it is concerned with the company’s future financial success.

What are the signs that you may need more than what a controller mindset can provide? Maybe — if you need to understand the risks your company is facing, or you need to know which of several possible ways forward is best to improve performance or help you grow profitability, or it could be that you need to someone to help align the organization by establishing performance metrics and mindset throughout the organization, or perhaps you need to know how to finance your growth.

In short, you don’t just need someone to provide a utility function – you need a combination of coach/advisor regarding the resources you need to make your intended future happen.

The CFO mindset: big-picture, advisor, strategy

The role and responsibilities of a CFO have expanded in the past two decades, according to the International Federation of Accountants. That expansion it says has been driven by complexity as a result of globalized capital and markets, regulatory and business drivers, a growth in information and communications, and changing expectations of the CFO’s role. Whereas the CFO was once seen as a company’s ‘gatekeeper’, he or she is now expected to participate in driving an organization towards its goals.

The CFO still has the responsibilities for overseeing the Controllers role in record keeping to safeguard the company’s assets and reporting on financial performance

By contrast with a controller, the CFO expands that role to focus on improving the operating performance of a company, analyzing the numbers and presenting solutions on how to make those numbers better. This can include higher sales, lower costs or greater margins.

A CFO will focus on strategy, helping to shape the company’s overall strategy and direction, as well as a catalyst, instilling a financial approach and mindset throughout the organization to help other parts of the business perform better[2].

The controller looks to the short term, the CFO is long-term. The controller helps make sure your company is compliant with issues such as environmental reporting and taxes; the CFO helps you design and implement a strategy. The controller seeks to maintain what you have; the CFO helps you expand.

If your company is in a growth phase – or you want it to be in a growth phase, the controller has your back – and the CFO helps you move forward. It means together you can achieve better results, faster.

Feel free to reach out to us here at the CFO Centre. We’ll sit down and have a talk, even if it’s phone or video call, to get an idea of where you want to take your company, and what your options might be to support the growth you want.

Many of the issues in this post are covered in the CFO Centre’s e-book “Financial Reporting,” which goes into detail about the insights that you can gain from a CFO’s strategic view of your company’s financials.

[1] THE ROLE AND EXPECTATIONS OF A FD: A Global Debate on Preparing Accountants for Finance Leadership, the International Federation of Accountants (IFAC), October 2013, www.ifac.org

[2] ‘Four Faces of the FD’, Perspectives, Deloitte, http://www2.deloitte.com

Ensure your business is compliant – Part II

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How a part-time CFO will ensure your business is fully compliant

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. This means you will have:

One of Canada’s leading CFOs, working with you on a part-time basis
A local support team of the highest calibre CFOs
A national and international collaborative team of the top CFOs sharing best practice (the power of hundreds)
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 help you to ensure your business is fully compliant.

Compliance is hugely beneficial to any organization but it is by no means a one-off exercise. It takes time, energy and money to ensure it works effectively.

Your part-time CFO can bridge the gap between money and risk and handle both legal and compliance issues for your company to ensure risk is managed and the bottom line is optimized.

That lifts an enormous burden from your shoulders, leaving you free to focus on the core activities of your business.

Our regional teams of part-time CFOs and our national collaborative network have all the latest regulatory knowledge at their fingertips.

There are many aspects of compliance but by way of a summary, your assigned part-time CFO will work with you to:

Ensure that your financial statements and annual returns are completed and filed on time.
Ensure that employment and related payroll taxes are completed and filed on time.
Use our national collaborative network to access information related to specific compliance issues for your industry.
Ensure compliance with all GST/PST/HST and other statutory filings.
Read and interpret bank/invoice finance covenants and ensure compliance.
Introduce HR checklist and sign off compliance.
Check insurance coverage, relevance and make sure paperwork is complete.
Ensure that all returns are accurate and up to date with CRA

Conclusion

When you allow a part-time CFO to lift the considerable burden of compliance from your shoulders so that you are no longer being sidetracked into time-consuming compliance activities, you are free to focus on the core activities of your business.

You can be confident that your part-time CFO provides an expert level of support in managing compliance functions and risk.

He or she will help you to cut back on expensive infrastructure so that compliance is managed in a cost-efficient way.

Critically, your CFO will give you peace of mind, leaving you free to concentrate on growing your business.

Protect your company now!

Unless you have an up-to-date compliance programme, your company is at risk. Allow one of The CFO Centre’s part-time CFOs to help you to ensure your company is fully compliant. To book a free one-to-one call with one of our part-time CFOs.

Ensure you’re tax and legally compliant – Part II

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How a part-time CFO will resolve your tax challenges

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.

This means you will have:

One of Canada’s leading CFOs, working with you on a part-time basis
A local support team of the highest calibre CFOs
A national and international collaborative team of the top CFOs sharing best practice (the power of hundreds)
Access to our national and international network of clients and partners.

In particular, since every CFO Centre CFO is a qualified accountant and has experience of the kind of challenges which many business owners may feel are beyond solving, he or she will help you with your tax and legal position.

It is always a great relief to our clients to know that this high-risk area is being looked after for them.

It was a problem with GST that led one family-owned business to contact The CFO Centre.

One of The CFO Centre’s part-time CFOs recalls his first meeting with the business owners well.

“They were in a dark place when I went for my first meeting,” he says. “They had a tax problem and they were paying that off. “ “The company had been operating at a loss, running out of cash and they were constantly cutting costs.“

“I asked them what they thought they needed to do and I replayed it to them at the end of the day and all I did was say ‘You do that, you do this’ etc. “ “They knew what they needed to do, but they just didn’t have the confidence to do it. “

“It took us about nine months to sort it out. We put a strategy together and sold off two showrooms.” “Now, in our second year, we have three showrooms instead of five and yet our revenue is greater than what it was when we had five.”

“The family is in a place where they love going to work. They like what they’re doing and they want me to keep going in because I give them the confidence to make decisions about the business.”

A software development client was another business that benefitted from specialist tax advice from one of our part-time CFOs.

“Our part time CFO sorted out the R and D tax credits, which has also been a big help particularly because it came along at a time where life could have got quite tough if we’d had to pay out a huge tax bill,” recalls the owner. “We hadn’t even considered the R and D tax credits so this was a big win.

“It really helps to know that the finances are being professionally looked after. Our CFO is able to come in and steady my nerves if we are going through a difficult patch.

“I can relax knowing that I’ve got somebody watching over the financial side of things. Because I recognize that I’m not a numbers person and that it could all go completely awry if it were left to me to look at the numbers and understand what was happening.

“Having our part-time CFO has given my confidence in the business an enormous boost. I have no worries at the moment because our CFO lets me know when I need to focus on something. His input has meant that I am free to think about all the other things that I’m trying to do without worrying too much about the financial health of the business. When I do need to look at something urgently he can bring the issue into sharp focus then.”

In certain cases where the structure and complexity of the business dictates, it may be necessary to seek out a tax specialist (or even tax experts) to work alongside your part-time CFO. It’s your CFO’s role to determine the requirements for your business and ensure that the plan is implemented in the most effective and efficient way possible.

A CFO Centre part-time CFO will work with you to:

Determine your requirements and devise a tax planning strategy and remove the fear of the unknown so that you and your senior team can offload the burden.

Work with our wider network of tax specialists to solve complex issues as and when required.
Undertake negotiations with CRA on your behalf.
Implement processes that ensure that tax deadlines are met.
Translate specialist terminology into language you will understand and explain the plan in plain English.
Prepare cash flow forecasts for CRA that support applications to defer payments.
Devise an optimal tax efficient exit strategy for the business.
Ensure the tax advice fits with the overall business strategy
Discuss the most efficient ways for you and your employees to be remunerated.
Ensure that your company is kept fully up to date with new tax legislation.
Establish systems that record data the most effectively for tax purposes.
Deal with day to day legal issues – such as terms and conditions – and make sure your company is compliant.
Work with our wider network of solicitors to solve important/complex legal issues.
Help interpret legal letters and contracts.

Ensure you’re tax and legally compliant – Part I

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Managing your tax and legal responsibilities effectively is a critical skill and one that few SME owners possess. This report explains why getting specialist tax and legal advice is crucial for all SMEs and how doing so can be hugely beneficial for businesses and their owners. In these articles, we will see:

The benefits of being tax and legally compliant
How a part-time CFO will resolve your tax and legal compliance challenges

Complying with tax legislation is “an uphill struggle” for many businesses and results in the wastage of precious management time, according to the CBI.¹

It’s estimated that mid-sized businesses spend 110 hours or nine days a year preparing, filing and paying corporation tax, labour taxes and goods and services tax, says PriceWaterhouseCooper.²

Most companies need to comply with at least eight categories of tax. That doesn’t include the industry-specific taxes (such as those in the construction, waste management, and oil & gas industries) that they must also pay.

“Each tax has its own legislation, associated case law that has built up over years of interpretation, varying thresholds for calculations and qualification of reliefs, and a myriad of payment dates, reporting deadlines and filing requirements,” says the CBI. “It is difficult to comprehend, let alone manage. It takes time and effort to ensure that a business is fully compliant in the taxes it needs to collect on behalf of the government and pay in terms of its liabilities – distracting it from commercial priorities and reducing management capacity for strategic decision-making.”

Mid-size businesses don’t have the resources or expertise that large companies possess to navigate tax rules and legislation, nor do they receive the targeted support that the Government directs at small businesses.

John Cridland, the former CBI Director-General, said: “Medium-sized firms are not able to benefit from the incentives that small firms do and, at the same time, most cannot afford to have an army of tax consultants on speed dial to help them wade through the complexities of the system.”³

It’s no doubt why tax worries so many owners of mid-sized companies. As is the case with most finance-related matters, the anxiety usually stems from not having a strategy in place to deal with the issues which arise.

Medium-sized firms are not able to benefit from the incentives that small firms do and, at the same time, most cannot afford to have an army of tax consultants on speed dial to help them wade through the complexities of the system.

As soon as the business owner accepts that they need a tax specialist as part of their team, the faster they can offload the burden knowing that their back is covered.

In other words, because tax is inherently complicated it really doesn’t make sense for CEOs and business owners to spend their own time trying to understand the detail. Accepting that this is the case and delegating out the responsibility to a capable, experienced part-time CFO removes an immense weight from the shoulders.

When we conduct reviews with our clients, we often discover a deep-seated anxiety about the pitfalls of failing to understand tax issues.

The primary concern is usually the idea that the business may be building up significant arrears of tax, which remain unpaid.

There are often worries about whether or not the accounting system used is recording information in the right way and will reveal significant holes in the event of a tax inspection.

Corporation tax, HST, GST, the implications of capital gains tax vs. income tax, failing to claim tax breaks, employment taxes and understanding R&D credits are common areas of discussion with our clients as is the desire to keep up to date with new legislation.

Most business owners simply want to know that their company (and personal) tax affairs and legal issues are being properly looked after; that they are as tax efficient as they can be and that all statutory requirements are being met. Most companies do a poor job of this because tax is inherently complicated and when things get complicated in business the most common reaction is to move onto something else!

Delegating your tax planning and legal responsibilities to a tax specialist is a must.

Knowing that you are not paying tax you don’t need to be paying and having peace of mind that all your tax deadlines will be met without you having to take on the responsibility personally will allow you to focus on growing the business while we take care of the details.

Come back for part II of our tax compliant article to find out how a part-time CFO can help you navigate the tax season!

____________

¹ « Stuck In The Middle: Addressing The Tax Burden For Medium-Sized Businesses ». CBI/Grant Thornton, www.cbi.org.uk, www.grant-thornton. co.uk. Juin 2014.
² « UK slips two places down league table of effective tax systems » Nicholson, Kevin, PwC (PriceWaterhouseCooper), www.pwc.com. 21 nov. 2014
³ «Medium-sized businesses need more support to stop them from falling over the tax cliff», Prosser, David, The Independent, Jun 23, 2014, www.independent.co.uk

STRATEGIC FUNDING – Where to find the capital your business needs – Part II

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In part I of the strategic funding article, we discussed the following sources of funding:

Bank Operating Line of Credit
Loans
Invoice Discounting (Factoring)
Asset Financing

Theres are also another variety of funding available for businesses: the Alternative financing.

Alternative finance is a general term to describe a variety of financing options that sit next to traditional bank facilities and factoring and invoice discounting products.

The alternative finance market includes a wide variety of new financing models including peer to peer lending, crowdfunding and specialist finance providers offering products such as selective invoice finance and invoice trading platforms.

Specialist providers have greater flexibility than the traditional sources and can often offer a faster turnaround on the right deals. Crowdfunding, peer to peer lending and invoice trading platforms greatly depend on online platforms bringing many investors and borrowers together.

The section below looks at the main options for the different and emerging alternative financing options:

Selective Invoice Financing

Unlike traditional factoring companies, invoice financing or invoice discounting, selective invoice finance allows businesses to choose which invoices or debtors should be put forward for funding. The business owner can choose when and how much they wish to draw from the selected invoices. The provider agrees upon an ongoing facility for the business. On presentation of a valid invoice, money can be accessed from the facility as soon as the validity of the invoice has been confirmed. For each invoice, an agreed percentage of the value becomes available to draw – typically 70% to 85%.

Selective invoice finance is a great option if you’re looking for flexibility as the business is not tied to any contract and can dip in and out of the facility as needed. Business owners have direct control over costs and the opportunity to repay early if additional funds become available from elsewhere.

Additional security is often required to support the facility. This could include a charge over business assets and a personal guarantee from the directors or owners.

Invoice Trading Platforms

Invoice trading is a short-term finance option where the borrower signs up to an online platform and submits an invoice for sale.

The invoice trading platform will pre-vet the invoice, looking to ensure the debtor is credit worthy. If satisfied with the quality of the debt, full details of the invoice will be posted on the platform and a bidding process begins.

Potential lenders start a reverse auction so the keener they are, the lower the interest rate for the borrower. If there is insufficient appeal, the trade will fail. It is exclusively web based due to the administration efficiencies involved.

When the invoice becomes due the debtor pays directly to the platform but the business remains responsible for making sure the invoice is paid.

On repayment the platform deducts its own charges and repays the capital and interest to the individual lenders. A shortfall in the repayment will mean the business will be asked to make up the difference.

Some trading platforms have now started to take additional security in the form of a charge on the business and a personal guarantee from the directors and/or shareholders.

Peer To Peer Lending

Peer to peer (P2P) lending enables numerous small investors to loan money directly to a business and could be a good solution for longer term funding.

The length of the loan is agreed by all parties upfront and as per a normal commercial loan, the business will have to pay interest, typically quarterly. In order to attract lenders the proposition needs to demonstrate a strong likelihood of both the interest and capital being repaid on agreed terms.

Failure to meet the repayments may result in penalties such as a demand for immediate repayment or an increased rate of interest if the loan remains in default.

The platform provider acts as middleman between lender and borrower and will ultimately enforce whatever security has been taken on behalf of the individual lenders.

Provided a loan has been properly serviced and there is adequate security available, it is often possible to return to the P2P lender for a second or later round of borrowing but each new loan has to be separately posted to the platform and must justify why the new lending is required.

Security will need to be offered, normally in the form of a charge over company assets (a debenture) and a personal guarantee. Investor money is at risk if the loan is defaulted.

Crowdfunding

Crowdfunding involves a business plan being posted to a specialist website where sufficient small investors offer funding to generate the target amount required by the business.

Crowdfunding is a good option for businesses not wanting ongoing interest costs. However, on completion investors will own shares and have certain rights in the business. For example they may require input such as audited financial statements and will need to be kept informed of how revenue is progressing. No personal security is needed from the current owners.

There are two main types of crowdfunding and the expectations of investors vary according to which they are looking at:

Special Interest Funding: Often used in the entertainment industry, for instance to pay a musician to produce a new album or to cover the production costs of a new show. In this case, the investor doesn’t necessarily expect a commercial return on the investment but will have some special rights, such as pre-release copies of a CD or discounted tickets to see a show.
Trade Finance: Money is advanced to enable goods to be purchased (typically from abroad) before they are sold. The lenders security is the goods purchased so these must either be easily saleable or in response to a confirmed order. Generally available to established businesses with good credit. Minimum transaction values and margin on the contract will apply.

Supply Chain Finance

The funder takes control of the supply chain, generally making payments direct to the supplier. Security is taken over goods purchased. There is usually a high degree of involvement and control over the borrower’s business and other security is invariably required.

Private Equity Firms

Private equity firms provide medium to long-term capital in return for an equity stake in companies with high-growth potential.

The investors’ return is dependent on the growth and profitability of the business. As a result, most private equity investors will seek to work with you as a partner to grow the business.

It is most suitable for firms looking for longer term capital to fund their expansion activities.

disadvantages private equity firms IPO (Public Offering for Shares)

This is where your business is publicly listed and shares can be bought and traded by the public. Typically this is only used for larger businesses.

In Canada, the Toronto Stock Exchange (TSX) is the senior equity market, while the TSX Venture Exchange is a public venture capital marketplace for emerging companies. The Montreal Exchange or Bourse de Montréal (MX) is a derivative exchange that trades futures contracts and options.

CONCLUSION

Funding is often the catalyst for taking your business to the next level.

It’s your choice whether you want to take on an equity partner or raise debt to finance the growth of the business. When raising equity, if the right partner can be found, it can make a profound difference to your business. It may be that the investor provides not only funding but also adds significant value to your business in terms of experience, expertise, infrastructure, and channels to market. However, it does mean you will lose partial or complete control in running your business. Something that for many is not appropriate.

Raising debt can be complex and frustrating, and the increasing array of alternative funding doesn’t make that process any easier, but it does mean you keep control as your business grows. However, if you’re like most business owners, you simply want the funds and are less interested in the detail of how to get hold of them!

That’s fine if your company has a full-time chief financial officer (CFO) with substantial experience in raising funds: however, as an SME, you probably don’t have a full-time CFO, or if you have they probably don’t have a vast range of fund raising experience, whether it be raising debt or equity. So what can you do?

You can hire a very experienced part-time CFO to manage the entire process for you. He or she will manage everything from determining your immediate and long-term objectives to finding the right kind of funding partner for the business.

Discover the funding options now

To discover your funding options, book your free one-to-one call with one of our chief financial officers who are funding experts:

tel: 1-800-918-1906
email: [email protected]
www.thecfocentre.ca

Strategic Funding – Where To Find The Capital Your Business Needs

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Funding growing businesses is one of the major challenges any entrepreneur and business owner will face, and while there is an increasingly vast array of options available, figuring out how to access these funds can be a very time consuming, frustrating experience, even for the most seasoned business owner.

Whether you need working capital to support your growth, raise funds for a push into a new market, introduce a new product range or even have a requirement to raise funds for a new business venture, figuring out what you need to do and where to go can be difficult. With the advantage of “doing this for a living”, this report summarizes the process and points you in the right direction in terms of funding providers and where to go to get the independent specialist advice you are likely to need.

Highlights

Which type of funding will suit your needs?
Sources of funding (including advantages and disadvantages of each one).
Where to get independent specialist advice on your funding options and presenting your case for the best chance of success.

Introduction
Whether you need $1,000 or $10 million, there are only two kinds of finance: equity, whereby you are raising money in exchange for for ownership of the company, and debt which is borrowed money. The first step in raising capital is to decide between equity or debt. In the SME world, the choice usually depends on the preference of the business owner and stage of the company.

If you want to maintain total control, you are typically going to prefer a debt driven funding route: however if you are less worried about control, bringing in equity funds can often mean you grow faster. This can be a good route, particularly where you have a very clear exit in mind and this exit lines up with other equity providers.

In most SMEs the entrepreneur or business owner is the person who looks for funding the business needs. When raising debt finance, our experience is that banks are still the most frequent form of funding used, but increasingly owners are hearing about and starting to use new forms of finance outside of traditional banks. This so called alternative funding market is growing rapidly, and has more than doubled in size year on year from £267 million in 2012 to £666 million in 2013 to £1.74 billion in 2014, according to the “UK Alternative Finance Industry Report”.¹

Equity financing can come from individuals, so called angel investors, and traditional venture capital firms. Depending on your ambitions, there is also the option to combine both debt and equity in a funding mix to provide the capital base for long term growth and the working capital to support working capital requirements in the business.

While there is copious advice for those businesses seeking to raise funds for start-ups, this report focuses particularly on the challenges facing mid sized companies who are past start up and need funds to continue to grow (those with annual revenues between £2M and £50M, or employing staff between 10 and 250 employees).

Sources of funding for mid-sized business

Bank Operating Line of Credit

For many businesses the bank operating line of credit remains the traditional form of funding, with relationships formed over many years.

Although lines of credit can be quick to set up, the biggest drawback is that they can be called in by the bank on demand. So when things aren’t going well and you need the facility, that’s just the time when the bank might demand repayment, particularly if you haven’t built a strong relationship with the bank, so they understand what’s going on in your business.

Loans

A bank term loan will have a maturity date and require principal repayments over a fixed period of time (typically 2 – 5 years). As long as you payback the money per the terms of the loan, the advantage is that the bank can’t demand repayment, although typically the business and usually the owner will need to offer strong security for the loan, usually secured on the assets of the business and often the owners personal assets, by way of a personal guarantee.

As with operating lines of credit, the irony is that the more profitable and cash generative your business is, the less likely the bank’s requirements for security.

The principle is straightforward: if your business has performed well over the years and the bank has confidence that performance will be continued, then the easier it is to borrow money against security, or in some cases simply the cash flows of the business.

Invoice Discounting (Factoring)

Invoice discounting, also referred to as factoring, has grown in popularity in recent years. Banks and other specialist invoice discounting firms lend money which is secured by your accounts receivable, so if the company fails, the bank or specialist firm has more security than in the case of a conventional credit line.

With invoice discounting, you effectively sell your outstanding business invoices to a third party. You get the cash flow benefit by receiving a percentage of the money immediately (usually around 80%) and the rest when the money is collected.

Invoice financing can be really beneficial for growing businesses and can help you to bridge the gap between the delivery of goods or services and the payment from your customer.

Asset Financing

An important consideration of financing, is the overall mix of funding a company uses. Asset financing can be used for funding fixed assets such as plant and machinery, equipment, computers and vehicles. All the main banks have asset financing arms and there are also many specialist companies in this space. The bank or finance company takes security of the asset as their protection. This form of financing has the benefit that it is pretty easy to arrange, assuming the assets you are buying are standard.

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1 ‘Understanding Alternative Finance: The UK Alternative Industry Report 2014’, Baeck, Peter; Collins, Liam; Zhang, Bryan, Nesta & The University of Cambridge, November 2014

The importance of a business plan and how to create one – Part II

Published: by cangoogle

In our previous article, we have highlighted the importance of creating a business plan. In this article, we will focus on the key elements of a business plan, the sections it should contain and how a part-time CFO can help you to create your business plan and implement it.

The key elements of a business plan

The most important part of your business plan is its financial information. Your financial forecasts should include your cash flow predictions for the next 12 months or more. You’ll also need to provide monthly sales estimates and costs to prove the business has enough working capital or to show that you understand you need to arrange additional financing.

You need to explain all assumptions in the business plan, with best and worst case scenarios. Detail the risks you’re likely to face and how they will be dealt with.

The Business Plan Sections

Executive Summary
The executive summary is usually the first section of any business plan and provides a condensed overview of what the business is and how you intend to reach your goals. If you’re seeking funding, you should detail the terms of the financing and the amount needed. It’s best to leave writing this section until after you’ve completed the rest. It should be less than 1,400 words.

Company description
This is like an extended elevator pitch. You need to explain your company history, business goals and how you satisfy the needs or wants of your market. You will also need to explain your competitive advantage.

Market analysis
You will also need to provide market analysis, size and expected growth as well as, industry participants, distribution patterns, competition and buying patterns, and your main competitors.

Organization and management
In this section, you need to detail your management team (and plans to fill any gaps within that team), your organizational structure, your Board of Directors, as well as a personal plan.

Service or product line
You need to describe your product or service and any associated copyright information or research and development activities.

Marketing and sales
You need to detail your marketing strategy (including pricing, promotion) and your sales strategy (including sales forecasts, programs, and techniques). Your costs, services, and support will also need to be included in this section.

Financial projections
This section outlines what you expect your business to achieve financially over the next three to five years. It needs to include your projected financial statements, expected cash flow and break-even analysis as well as key financial indicators and ratios. Don’t be tempted to overstate your numbers or expectations to obtain financing. It’s likely to harm rather than help you get that funding.

Funding request
If you plan to ask for a loan or capital, you need to include a formal funding request as part of your business plan. You need to include details of how much money you need now and how much you’ll need in the future.

How a part-time CFO can help you to create your business plan and implement it

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. This means you will have:

One of Canada’s leading CFOs, working with you on a part-time basis
A local support team of the highest caliber CFOs
A national and internationally collaborative team of the top CFOs sharing best practice (the power of hundreds) Access to our national and international network of clients and partners

In particular, your part-time CFO will work closely with you to develop your business plan and your timetable for implementation to:

Gain a full understanding of the business and its operating
Work through the existing strategic plan with you and make necessary changes to build a plan which clarifies how the company’s objectives can be realistically achieved.
Agree on milestones and break down the plan into annual and quarterly targets.
Conduct a fresh SWOT (Strengths, Opportunities, Weaknesses, Threats) analysis, bringing the plan up to date.
Conduct a new PEST (Political, Economic, Social and Technological) analysis, bringing the plan up to date.
Carry out a full competitor analysis to understand in detail what is and isn’t working in the market.
Explore opportunities for effective market research to enable innovation and development of new products/ channels to market/operating procedures
Identify key players in the business
Identify skill gaps in the business
Agree financial incentive structures to retain and motivate key members of the team
Identify five key metrics for determining what the future course of the business should look like
Agree on the exit or succession strategy
Develop a clear, coherent message (vision/ mission/purpose) to staff and to customers
Work with the senior team to ensure individual department goals are aligned with the big picture strategy
Agree on a who/what/when set of objectives for all department heads
Implement accountability protocol for every member of staff
Determine methodology which allows the senior team to course correct periodically when a change in strategy is required
Agree on delegation of authority to department heads to spread responsibility across the business and to free up the CEO/business owners time
Create a feedback route so that strategic goals are regularly shared with staff
Develop a set of relevant KPIs (Key Performance Indicators) and a system which allows for regular (daily/ weekly/monthly/annual) monitoring and reporting
Develop a long-term efficient tax structure for the business and for key employees
Identify key outsource suppliers/advisors and, in particular, corporate finance contacts

This process will instill a deep feeling of confidence both within the senior team and throughout the rest of the business.

Conclusion

Installing an up to date business plan or ‘roadmap’ in your business will allow you to experience a sense of control, which may have been absent since the day you started your company.

The business plan (and the methodology for updating the business plan) will remove a significant amount of confusion from your operating procedures. There will always be challenges contained within new projects but you will have a proper framework against which all decision-making can take place.

The plan provides the blueprint for delegating responsibility to your team and allows you to create some space in your own environment to work on growing your business, with your part-time CFO as a constant guide and sounding board.

You will move out of the chaos and into a more serene working environment where each of the gears, which make up the bigger system, is able to move in harmony.

Potential hazards will have been identified in advance and dealt with before they become unmanageable. You will be able to move from a culture of fire-fighting to a culture of fire-prevention and the benefits will be felt by each member of your team and most probably by your customers too.

The business plan is the first key to profitable growth!

Category: Blog

Is This Essential Element Missing From Your Business Plan?

Contact

The difference between a CFO and a Controller

The controller mindset: accuracy, compliance, tactics

The CFO mindset: big-picture, advisor, strategy

Ensure your business is compliant – Part II

How a part-time CFO will ensure your business is fully compliant

Conclusion

Ensure you’re tax and legally compliant – Part II

How a part-time CFO will resolve your tax challenges

A CFO Centre part-time CFO will work with you to:

Ensure you’re tax and legally compliant – Part I

STRATEGIC FUNDING – Where to find the capital your business needs – Part II

CONCLUSION

Strategic Funding – Where To Find The Capital Your Business Needs

Sources of funding for mid-sized business

Bank Operating Line of Credit

Loans

Invoice Discounting (Factoring)

Asset Financing

The importance of a business plan and how to create one – Part II

The key elements of a business plan

The Business Plan Sections

How a part-time CFO can help you to create your business plan and implement it

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. This means you will have:

This process will instill a deep feeling of confidence both within the senior team and throughout the rest of the business.

Conclusion

Installing an up to date business plan or ‘roadmap’ in your business will allow you to experience a sense of control, which may have been absent since the day you started your company.

The business plan (and the methodology for updating the business plan) will remove a significant amount of confusion from your operating procedures. There will always be challenges contained within new projects but you will have a proper framework against which all decision-making can take place.