Hiring Best Practices: What to Look for When Hiring a Part-Time CFO

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Are you looking to hire a CFO that will oversee the financial side of your business?

As you start to consider what to look for in a CFO and who would be the best fit for your business, your first instinct might be to interview full-time candidates only. However, you’ll be missing out on the many benefits that qualified, part-time CFOs bring to the table.

The Benefits of Hiring a Part-Time CFO

Immediacy for Urgency

When the needs of a business are urgent, it is usually easier and quicker to hire a part-time employee to help out, instead of instigating a full-time position. Given the nature of their role, part-time CFOs can act quickly on fulfilling specific needs, whether it is identifying business pain points or ways to make the business more profitable. Although you may only request your part-time CFO to work once a week, they will be ready to help whenever you need them, and they are always just a call or email away.

Financial Leadership

Other than solving immediate challenges, a part-time CFO can also act as a strategic business partner and help grow your business in a sustainable way. For example, they can prepare financial forecasts, develop annual plans for revenues and expenses, and assess the competitive landscape and long-term cash flows. As a result, this would help free up any business owner’s time, so they can focus on other aspects of the business.

Affordability

Aside from solving a company’s short and long term goals, one of the biggest benefits of hiring a part-time CFO is that you can have access to an experienced CFO at a fraction of the cost of a full-time CFO. A full-time CFO delivers all the benefits of a part-time CFO but at an increased cost and financial commitment, and most SMEs do not require that skillset or experience every day of the week. Instead of investing in extra recruitment and hiring costs to find a full-time candidate, your business can reap the benefits of a part-time CFO who has practical, financial, and strategic skills to offer.

Flexible & Customizable Work

Flexibility is becoming more acceptable in today’s business landscape, allowing for part-time CFOs to fit right in with their varying schedules. Once you hire a part-time CFO, they will take on a variety of different tasks, based on what and when you need them for. Depending on the part-time CFO’s experience, they can also cater to different business markets and fulfill various needs. Overall, this results in an efficient solution for both parties, where clear roles and responsibilities are established and no time is wasted.

Open & Honest Dialogue

An advantageous quality that most part-time CFOs (and part-time employees in general) have is their ability to be candid with their employers. You can expect a qualified, part-time CFO to challenge you in ways that a full-time employee might feel uncomfortable doing. An employee’s honesty and transparency tend to lead to meaningful discussions that push businesses towards their goals and bring clarity in times of confusion. Since part-time CFOs are independent workers, you can also confide in them about any departmental issues you may be facing.

Expertise in Local and International Markets

Depending on your business needs, you may require a part time-CFO who is familiar with the local and international markets – companies such as the CFO Centre provide access to a network of local, national and international teams to support a diverse variety of needs that an individual CFO cannot offer. There are also over 60 experienced part-time CFO’s to choose from who have expertise in various sectors.

Finding A Suitable Candidate

There are many qualities to look for in a CFO, however, we have outlined some of the most important below:

Big Picture Thinking

A CFO who can see beyond the numbers would be a valuable asset to your company. This individual would be able to interpret data in a meaningful way and provide analysis that encourages positive growth for the company.

Communicative Team Player

Considering that a part-time CFO will not operate within a consistent schedule, they should be able to communicate often with others and provide extensive detail whenever necessary. It is also important that they are a team player who gets along with other employees, otherwise, they will not be able to work efficiently and successfully with your team.

Multi-Faceted Experience

To make the most of your part-time CFO’s skill set, you should consider how much experience they have with different companies and within various industries. Individuals with an impressive range of previous experience can provide valuable perspectives on different problems, strategies, and goals that other employees may fail to see.

Life-Long Learner

Ideally, your part-time CFO should be excited about building upon their skills and developing their career, to ensure that they stay up-to-date in their respective fields. Without this attitude, your business will not be able to grow and progress from a financial standpoint.

Interested in hiring a part-time CFO of your own? Browse our selection of Canada’s most qualified, part-time CFOs.

PROFIT IMPROVEMENT – Driving profitable growth – Part II

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How a part-time CFO will help to boost your profits

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 practices (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 boost profits.

There are four things you can do to increase your company’s profitability:

Sell more
Increase margins
Sell-more frequently
Reduce costs

If you can do all four at once, your profits will increase dramatically. Even changing one of these four factors will boost your profits.

Your CFO will help you to identify the ways in which you can sell more, sell more frequently, increase margins (without losing customers) and cut your costs.

Selling more and selling more frequently

Driven by a need to make more sales, most business owners will chase new customers.

This can be a costly exercise since it will often involve more expenditure on marketing and advertising. Acquiring new customers can cost as much as five times more than satisfying and retaining current customers, according to Management Consultants Emmett Murphy and Mark Murphy.

That’s because convincing people to buy from you for the first time is difficult. Prospective clients are scared of making a mistake: of choosing the wrong supplier and wasting their money.

If your sales are low, it’s better to focus attention on your existing and previous customers and find ways to encourage those people or companies to buy more and to do so more often.

Your existing and previous clients do not have the prospective clients’ fears and objections to doing business with you. You’ve already demonstrated that you can deliver the benefits they want from your products or services.

On average, loyal customers are worth up to 10 times as much as their first purchase.1

There are other benefits to selling to existing and past clients too: it cuts your refund rate, raises the likelihood of positive word-of-mouth, and lessens the risk of your clients buying from your competitors.

A 2% increase in customer retention has the same effect as decreasing costs by 10%.

Even better, a 2% increase in customer retention has the same effect as decreasing costs by 10%, according to Emmett and Mark Murphy. Cutting your customer defection rate by 5% can raise your profitability by between 25% and 125% depending on the industry.2

Customer profitability tends to increase over the life of a retained customer. In other words, the longer your clients are with you, the more they will spend.

When working with you and your management team, your part-time CFO will investigate ways to get customers to return to you more often and buy more when they do make a purchase. The methods include:

Using a strong follow-up sequence.
Leveraging scarcity by using time-limited or limited availability offers.
Using up-sells, down-sells and cross-sells.

Raising prices

All too often, business owners believe their prices must be lower than their competition. They also believe if they increase their prices, they will lose customers. Both assumptions are false.

It all comes down to the perception of value. People will happily pay more for a product or service they perceive as having added value.

If your products or services are on par with your competitors, your prices should be similar or higher.

Even a small price rise will have a positive impact on your profit margins. After all, the larger the difference between the cost of a product or service and the price it sells for, the higher the profit.

Reducing costs

Companies that fail to control their costs are often forced to borrow but then find that servicing that debt erodes their profits still further.

The benefit of cutting your costs is that it will have a direct short-term impact on your bottom line since a dollar saved in expenses might mean an extra dollar in profit.

Your CFO will encourage you to consider the likely impact of any cost cutting on the quality of the products or services you provide before you take any action.

Your CFO will also help you to identify the major cost centres in your company. These might be:

Purchasing
Finance
Production
Administration

Your CFO will also help you to identify the profit drivers in your company.

Typically, profit drivers will be to increase sales, reduce the cost of sales and to reduce overhead expenses but they could be any of the following:

Financial drivers (which have a direct impact on your finances)

Pricing
Variable costs (cost of sales)
Sales volume (for example, generate more prospects, convert more prospects to customers, retain current customers, increase the size of each purchase, increase the sales price, etc.)
Fixed costs (for example, overhead expenses)
Cost of debt (for example, interest rates on debt)
Inventory

Non-Financial drivers

Staff training
Product innovation
Market share
Productivity
Customer satisfaction
Product/service quality
Analyze every area of gross profit to understand where the biggest opportunities lie and to determine how to reduce less profitable activities.
Find your most profitable customers (those who consistently spend more with you).
Find the customers who you are currently serving but who are not profitable.
Analyze return on investment on capital and product development expenditure.
Ensure your management information is up to date and in a format that is useful and reliable.
Educate the senior team about the importance of Critical Success Factors (CSFs). These are the activities that your business must do to survive. You can determine your CSFs by answering the following questions:
- How is our business better than our competitors?
- What do our customers like about our products or service and the way in which we operate?
- What don’t our customers like?
- What would make our customers stop buying from us?

You measure your CSFs by using Key Performance Indicators (KPIs)

Systematically analyze relevant KPIs and trends to identify potential hazards before they become a problem.
Review arrangements with your main customers to see if there is a more profitable way to supply them.
Review pricing arrangements with existing suppliers.
Research alternative suppliers across all areas of the business.
Research sources of grant funding.
Determine your company’s eligibility for Research and Development (R&D) tax credits.The tax relief will either reduce your tax bill or provide a cash sum. To receive R&D tax credits, you must show that your company is carrying on a project that seeks an advance in science or technology and how it will achieve it. The advance being sought must constitute an advance in the overall knowledge or capability in a field of science or technology, not just your company’s own state of knowledge or capability.
Develop effective incentive schemes for staff to encourage productivity and to manage risk.
Prepare customer surveys to understand what the market really wants (and then sell it to them).
Analyze competitors to find out what is working well and what isn’t and course correct accordingly.
Review significant overheads and isolate opportunities to reduce expenditure.
Investigate exchange rate hedging and planning.
Create a realistic and achievable action plan then communicate it to all your employees.
Increase prices.
Explore online selling.
Explore more cost-effective ways of marketing by forming strategic alliances and joint ventures with companies that deal with your prospective clients.
Arrange for business mentors to give advice and share experiences with you.
Review organizational structure and delegation procedures to maximize efficiency.
Develop customer retention strategies to prevent loss of revenue.
Evaluate business location and determine possible alternatives (to save costs on production, delivery, etc.).
Outsource some functions (and so save on wages) or employ someone on a part-time rather than full-time basis.
Look at the viability of redundancies. If you’re making people redundant, you will need to fund redundancy payments. You will also need to ensure you meet current legislation and standards regarding consultations with employees, the grounds for redundancy and the selection of employees.
Introduce an expense control program. Your CFO will challenge expenses in all categories, large and small. Besides cost-cutting measures, your CFO will also ensure you tighten your control on costs. If you don’t already have a purchase order approval policy, for example, you’ll be encouraged to introduce one.
Look at your bank charges. Your CFO will question all bank fees on your statements and compare them with what other banks charge.
Check invoices from suppliers for overcharging (incorrect charges, missing discounts, double billing, etc.).
Get rid of inefficient systems (for example, paper-based systems).
Measure the return on all your advertising and stop using whatever hasn’t worked in the past
Replace frequent small orders with bulk buy discount orders.

As you can see from this, profit improvement is not an emergency fix. It’s something you and your organization need to plan for and follow consistently. If you don’t, there’s a very real danger that once you return to growth, you’ll get swept up with the day-to-day demands of running your business. That increases the risk you’ll find yourself back in an unprofitable position.

As with many challenges facing growth businesses, the solution lies in good planning for profit improvement on the one hand and an ability to stick to the plan, month in and month out, on the other.

Profit improvement should be seen as an ongoing project. It takes some time to establish systems, which enable your business to maximize its profitability, and then it takes focus and resources to maintain the monitoring process.

That’s where part-time CFOs can help. They can take care of the finance function and the support systems within your business, which frees up your time to focus on growing your business.

Conclusion

Most business owners say making a profit is the number one reason they are in business. Everything else (passion, purpose, mission) is subordinate.

Profit is an expression of getting the most out of your business for the least amount of effort. It is a reflection of your efficiency.

Building a large company and being able to cite impressive revenue figures are often the wrong drivers for business owners. Again, this is not to say that increasing sales is the wrong approach – on the contrary – it is merely to point out that selling lots of product without a full understanding of the profitability of the product can be a waste of valuable resource.

A compact, efficient business which operates under tight management procedures is nearly always a happier place to work than a chaotic business which is able to boast significant revenue figures.

Expanding overseas, taking on more staff and resourcing up may well be the right way for you to take your business. It could equally be the case that you may be able to enjoy increased profitability (and an improved lifestyle if this is an important driver) without expanding rapidly, but merely by improving profitability.

The path you follow will be determined by your objectives for the business and that’s something your CFO will help you to clarify and then achieve.

Increase your profits with the help of a part-time CFO

Don’t miss this opportunity to talk to a part-time CFO about how you can improve your profits. To book your free one-to-one call with one of our part-time CFOs:

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

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1. Source: White House Office of Consumer Affairs, ‘75 Customer Service Facts, Quotes & Statistics: How Your Business Can Deliver With the Best of the Best’, Help Scout, www.helpscout.net

2. ‘ Leading on the Edge of Chaos: The 10 Critical Elements for Success in Volatile Times’, Murphy, PH.D., Emmett C., Murphy, MBA, Mark A., Prentice Hall Press, June 15, 2002

PROFIT IMPROVEMENT – Driving profitable growth

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“Without an understanding of profitability, every business, no matter how successful is a house of cards” – Mike Michalowicz, Entrepreneur and Author.

There are four ways you can improve your profits: sell more, get customers to buy more frequently, increase margins and reduce costs. If you can do all four at once, your profits will increase dramatically. Even changing one of these four factors will boost your profits.

In these articles, we will cover the main reasons for low profits and how a part-time CFO will help you to boost your profits.

Introduction

Profits are vital for your company’s growth for the following reasons:

They provide a return on your investment capital.
They provide opportunities to reward staff.
They make it easier to attract investors and customers.
They make it easier to borrow money and negotiate a lower interest rate on the money it secures.
They can be reinvested in the business to expand into new markets, products and locations.
They provide a buffer against economic downturns and changes in market conditions.
They make it possible to hire more people.
They allow you to develop and test new products or services.

While many business owners experience a decline in their net profit margin (the percentage of total revenue that’s profit) at one time or another, they are usually able to continue to trade, albeit with the aid of a short-term loan and some heavy duty cost-cutting.

Sadly, unless you identify and address what’s causing your profits to shrink, the problems are likely to get worse. For it often follows that poor profitability leads to reduced cash flow. When profits are low and cash flow is weak, businesses can slip into a downward spiral.

Your profits tell you how well or how poorly your business is performing. For example:

Gross profit (the total amount your business makes minus the cost of goods sold (COGS) indicates how efficiently your business uses resources to produce your products or services.
Operating profit (gross profit minus operating expenses, depreciation,andamortization) indicates how efficiently you produce and sell your product or service.
Net profit (the amount of money left after paying all the business’ expenses including interest, taxation, etc.) indicates how well your business is generating healthy results.

These figures alone won’t give you the whole picture. You’ll need to compare them with previous annual and monthly profit results. That’s where ratios come in: they can be used as a benchmark against which you can measure your business’ performance.

Profitability ratios help you evaluate your company’s ability to generate profits.

They include gross profit margin; operating profit margin; and net profit margin.

Gross profit margin – your gross profit divided by your sales is a useful indicator of your company’s financial health. It shows how efficiently your business is using its materials and labour in the production process and gives an indication of the pricing, cost structure and production efficiency of your business. The higher the gross profit margin, the better. That is because the higher the percentage, the more your business retains of each dollar of sales, which means more money for other operating expenses and net profit.
Operating profit margin – calculated by dividing your operating income by your net sales during a period reveals how much revenues are left over after all your company’s variable or operating costs have been paid. It also shows what proportion of revenues is available to cover non-operating costs like tax, interest, and distribution to your company’s owner. It is useful because it shows you whether your operating costs are too high.
Net profit margin – calculated by dividing your after- tax net income (net profits) by your sales (revenue) shows the amount of each sales dollar left over after all expenses have been paid. The higher your net profit margin, the better because that shows your company is more efficient at converting sales into actual profit. A low net profit margin might mean that your business is not generating enough sales, your gross profit margin is too low or that your operating expenses are too high.

The main reasons for low profits

Falling revenue

Your sales or revenue slump could be due to internal and external factors such as:

Inadequate marketing programs. To be effective, your marketing needs to convey the right message to the right target audience and convince them to take a desired action like call your company to purchase a product or book your service.
Poor pricing strategies.
Increased competition.
An inability to keep up with market changes.

Excessive expenses

Budget overruns or unexpected costs will chip away at your net profit.

High variable costs

The higher your variable costs, the lower your net profit margin will be. High production costs or purchase costs can result in insufficient funds to cover expenses. When variable costs rise to the point that there are not enough funds left to support all expenses for the period, a net loss will occur.

Follow us in part II of the profit improvement article to learn how a Part-time CFO can help you drive profitable growth! Coming up soon.

Heading for the big exit: How a part-time CFO can help maximize value when you sell your business

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The CFO Centre will provide you with a highly experienced senior CFO with ‘real-world experience’ for a fraction of the cost of a full-time CFO. This means you will have on your team:

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 practices (the power of hundreds)
Access to our national and international network of clients and partners.

In particular, your part-time CFO will help you to ensure that your business has planned and prepared for an exit. They will ensure that your sales process is managed in an efficient way to minimize challenges on price and prevent advisors’ fees from eating up too much of the sale price. He or she will, for example:

Help you to implement your strategy for growth and exit
Identify where value can be maximized and eliminate unprofitable or low profit activities
Ensure that shareholders’ interests are protected and consistent with the shareholders’ agreement
Explain and introduce incentive arrangements available for key management. These could include bonus plans aligned to the business objectives or option plans
Ensure that property is held in the most appropriate manner for the business and any potential acquirer i.e. freehold or leasehold and length of tenancy
Review pension arrangements to identify any funding or future liability issues
Protect intellectual property and ensure that SR&ED tax credit claims are made to help fund new intellectual property
Review contracts and trading terms to ensure they are in place, up to date, compliant and enforced
Identify risks to the business from suppliers and customers on whom the business may have become reliant and plan to mitigate the risk
Improve the accuracy and timeliness of management information
Introduce systems and controls to increase confidence in the integrity of the accounting information
Improve and/or introduce forecasting processes and procedures so that budgets and forecasts can be used as dynamic planning tools
Identify means of improving margins and reducing overheads to improve profitability
Ensure compliance with GST/PST/HST, Employee Source Deductions, Income Tax and Corporation Tax legislation while seeking ways to reduce the overall tax burden to you and your business
Introduce you to corporate finance, legal and other advisers to help with all aspects of the exit preparation and process
Project manage the exit process internally so that it minimizes disruption to other staff and their continuing responsibilities
Create confidence in the acquirer and their advisers so that they have limited opportunity to attempt to negotiate the price down or increase warranties from you
Help you achieve the freedom you want after the efforts that you have invested in growing the business.

A successful exit can be very rewarding, but planning is critical to maximizing overall value. By planning ahead, you will be able to sell faster, for more money and ensure that you can plan your tax position to reduce the tax cost to shareholders. You keep a greater proportion of the sale price.

By demonstrating that you and your team have reliable information that allows you to report and forecast accurately, you will be able to instill confidence in an acquirer and their advisors. You will also minimize possible price reductions.

A part-time CFO from The CFO Centre works with you to make your plans a reality by shouldering some of the burden. We give you the opportunities to grow your business further, from a position of strength, in the

knowledge that you will be able to market your business, or take advantage of an offer to acquire it.

Book your free one-to-one call with one of our part-time CFOs now.

tel: 1-800-918-1906

Heading for a big exit : Due Diligence

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Due diligence

Due diligence is the process the potential acquirer goes through, usually with a raft of analysts, accountants, lawyers, and the occasional industry specialist advising.

It is normally an extremely extensive check of all aspects of the business, can be time-consuming and stressful, and happens while you still have a business to run.

Advance preparation is essential as it will reduce the workload, give confidence to the acquirer, reduce professional fees and make attempts to reduce the offer price less likely to succeed.

The acquirer needs to know whether what they have been shown is supported by fact. They’ll look at any papered- over omissions and whether the hopes and expectations for future profits are realistic. While appearing to be similar to an audit it can be far more comprehensive and onerous.

The starting point for due diligence is the data room. The data room is a collection of everything that is relevant to the past, present and future running of the company. It will normally include at least:

Corporate articles and minute book
Property deeds and leases, fire certificates, environmental reports
IP registrations – patents and trademarks Product specifications
Fixed asset registers
Insurance – property, employer’s liability, product liability, vehicles, business continuity, etc.
Customer and supplier contracts
Debtors and creditors loan agreement and liens search
Employee contracts and details including pension and severance obligations
Statutory and management reports for the last three years, budgets and forecasts
Audit letters and recommendations
Detailed accounting policies and procedures Employee Deductions, GST/PST/HST and corporation tax returns and any compliance visits or CRA audits
Bank accounts, loans, mortgages, foreign currency (or hedging) and interest rate exposure
Commitments and contingent liabilities

Depending on the nature of the business there could be much more.

Do not underestimate the pressure that will be placed on you and the senior team, especially finance, during a sale.

It takes a thorough understanding of the business to know what belongs in a secure data room and significant time scanning documents or copying files to set one up. It should, therefore, be part of the exit planning process to create, over a period of time, a repository for all these documents (in soft copy as the data room will ultimately be a virtual, online room).

In addition to being prepared for the due diligence process, the act of putting a data room together will identify what records do not exist or where copies are missing. It also highlights areas where attention is needed – perhaps a lease needs to be reviewed or IP registered.

The actual sale process can be disruptive for staff and anything out the ordinary can create concern and rumors. A low profile gathering of data will become accepted practice whereas a flurry of activity looking for missing paperwork is likely to disturb the office workforce in particular.

Finally, do not underestimate the pressure and resources required from you and your senior team, especially in finance. Anyone who has been through the process will tell you that they never expected it to be so onerous.

There is a real danger that focuses on the sale process will take the effort away from running the business. It might be advisable to bring in professional assistance to project manage the transaction internally to minimize the impact on the senior team.

Not all offers for businesses go all the way to completion. The worst scenario for a distracted team is to have the business slip and then suffer the emotional backlash of a failed sale; particularly having adjusted to a probable change in ownership and management.

A successful exit can be very rewarding, so planning it is critical to maximizing that reward.

Heading for a big exit : Why does one company sell for more than another? Part I

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Introduction

Most of us have bought or sold a house and understand that many factors determine the price we pay.

We are attracted by the size of the house, the location, and the proximity to schools, restaurants, and work. We have concerns about the purchase price, a higher mortgage, increased utilities and maintenance costs and what a home inspection might reveal.

It should be no surprise that a business purchaser also has to balance the excitement and ambition of expanding the business with the cost of acquiring it, the availability of finance, future profitability, and unexpected liabilities.

The key to maximizing value is to package your business as attractively as possible for potential purchasers. Once a buyer is found, business owners need to ensure there are no surprises or disappointments leading to a change of heart on the purchase price, extra restrictive conditions on the purchase or the sale falling through.

The price paid for a business is often quoted as a multiple of historical earnings. If a purchaser is buying the expectation of future earnings, the multiple tends to be higher in fast-growing industries and fast-growth companies. This is why many businesses move from low value-added buy/sell business models into higher value-added consulting/service models where profitability and opportunities for growth appear better.

There are many advisers around who claim to be able to sell your business for the maximum price. You need to be able to select an advisor with the credentials and experience in your industry, in your market and in your size of the business, to work with you over a period of months or years to achieve your goals. The right choice should maximize what is important to you: price, post-tax cash, the future of your staff, or the continuation of your culture and the values of the business. The wrong choice could end up losing a sale and wasting a lot of time and emotional energy that might even damage the business for a few years if handled incorrectly. The house sale analogy is relevant here. We can help with the information and introductions to make the correct choice for you.

The key to maximizing value is to package your business as attractively as possible for potential purchasers.

Planning an exit

Much of exit planning is actually implementing good business practices. As a business owner, you will exit at some time, hopefully on your own terms and at a time of your choosing. To achieve this, it is necessary to plan ahead to ensure the business you are selling or passing on is in good shape to generate future profits for your successor.

It’s equally important that as much cash as possible remains in the business to be distributed to its owners and employees rather than paid in taxes.

It is an often-quoted truism that you sell a business when someone wants to buy, not necessarily when you want to sell. If the dream buyer turns up with an unsolicited offer tomorrow, would you be in a position to maximize that opportunity? Probably not, but forward planning would make life a lot easier should that call come. When a sale takes place it is often the finance team that is placed under the most pressure, due to the need to prepare documents and analyses. It is, therefore, the finance team that is best placed to help you plan in advance.

Ownership, shares, options
Starting with the basics, look at who owns the business. The simplest structure is for all shares to be owned by one person who makes all the decisions and receives all dividends and payments (after tax) for selling the business.

If you have more than one shareholder, do you have a Shareholders’ Agreement? An agreement governs the relationship between shareholders, as well as if an exit opportunity arises, what happens if there is no unanimous agreement on the terms of the exit. It also includes the procedures to be followed, the valuation method and rights of shareholders during an exit, whether by way of a business sale or the death or critical illness of a shareholder.

Are there others who are expecting to become shareholders, perhaps have been promised that they will be? Would it make commercial sense to reward some members of management with shares or options so that they have an incentive to help add value to the business and remain with it? New shares or options may require a valuation of the business if you are going to take advantage of tax-saving opportunities. The basics of option plans have stayed the same for some time but the detailed rules change in most budgets so it is wise to get professional advice before implementing a plan.

Property
Property can be a major sticking point for a purchaser. Assume it will be regarded by purchasers as a large liability which will be a drain on the benefits they are planning on for their business after the acquisition.

If the company owns the property, has it been appraised recently and is the value reflected in the balance sheet? If a buyer is interested in the property, then it is better to have an appraisal available to include in the accounts rather than have uncertainty when sale negotiations have already started. That said, unless the premises are critical to the business and it has to be included in a sale of the business, many buyers do not want to take on a freehold property. You may need to consider how to dispose of property or lease it to another business going forward.

It is worth considering the sale or transfer of property to a holding company owned by yourself and/or a family member. The property can then be used by the company on a commercial lease and generate ongoing retirement income. As with any property transfer, there are complications: primarily the interaction of a number of provincial and federal taxes that require proper advice sooner rather than later.

A lease may be viewed the same way by a purchaser, regardless of the owner. It is, in their eyes, a long- term commitment that may be restrictive to a growth company or to a buyer who may want to consolidate operations. Clearly, you need to continue running your business and need some security of tenure but is a ten-year lease with upward only rent reviews the right thing to enter into when you might be wanting to sell within three years?

Pensions
When defined benefit pension plans were the norm, employee pension plans were treated with extreme caution by all buyers.

It is unlikely that you have such a plan but if you do, the funding position and the plan valuation will be major considerations. If there is likely to be a problem, it should be addressed sooner rather than later. There have been many instances of pension funding deficits exceeding the business value, which is not a good place to be.

Pension plans are a terrific incentive for employees, but as a business owner, a defined contribution plan eliminates many of the risks.

Intellectual property
Where intellectual property (“IP”) is obvious – physical inventions such as the bigger and better mousetrap – some businesses have registered patents and/or trademarks to protect the unauthorized use of their IP.

Have you considered what you have developed over time in your business? What products, processes or brands do you use that might be capable of being protected and would be worth spending time and money on to protect? Buyers need to know that if your business relies on particular IP to continue to operate, the IP is protected and the business will not be undermined by a competitor who can copy, produce at lower cost and sell in greater volumes.

Have you considered what you have developed over time in your business, be it a product, process or brand, that might be capable of being protected and would be worth spending time and money on?

Contracts
Do you have formal contracts or Terms and Conditions with all your suppliers and customers? If so, have they been reviewed for any legislative changes? Do you know what happens if you sell? Can the contract be replaced by the new owner (or will it remain in place after a change of ownership)?

It is another case of the buyer gaining confidence that the business will continue to enjoy the same or better terms of sale and purchase post-acquisition.

On a similar theme, are there any significant customers or suppliers (over 20% of sales or purchases) and how might they react to a change of ownership? A highly concentrated customer or supplier base can create risk, not only if they fail but also if they might refuse to deal with a potential acquirer for competitive or other more emotional reasons. If it is possible to reduce customer concentration risk by increasing sales, it’s worth doing (and doesn’t require professional advice).

Numbers
Do you budget and forecast the business? If so, how successful have you been at achieving your forecasts? If not, why not? How do you plan for the resources required to achieve your targets? Buyers can be helped to assess your business by reviewing your budgets and forecasts and gain confidence from your ability to achieve expected results.

Also important is to be able to show a rising trend of profits, profitability and cash flow. This should be demonstrated over several years if possible and is not something that can be done overnight. Any “blips” need to be explained honestly and consistently to be credible.

There may be one or two expenses or assets that are likely to be unattractive to a purchaser. Rather than have an embarrassing discussion during sale negotiations, consider removing anything that has dubious business benefit – company housing, overpaid relatives not contributing to the business, the nanny, gardener or handyman who never come to the office but can be found at the business owner’s home, the sponsorship of the local cycling club because it is a personal passion from which the business gets little reward.

Costs such as these indicate that personal and business expenses tend to get mixed together, leading to a suspicion that there could be more and that the taxman might be interested at some future date when it could be the acquirer’s responsibility.

It is also sound financial sense – the business should sell for a multiple of profits, but if those profits are deflated by extraneous costs, the reduction in the sale price will be several times the benefit from a few personal expenses.

Come back for the second part of this article, detailing the due diligence process, available soon!

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!