Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes like Carillion.
Cash flow problems can beset even profitable companies, particularly those experiencing rapid growth.
So, how do you protect your company from future cash flow issues?
1. Cut Costs
Cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts. You could for instance place a freeze on bonuses and overtime payments. You could also reduce the number of employees through attrition or redundancy. You could also approach creditors to ask for better payment terms.
2. Carry out credit checks
Before taking on new clients, carry out credit checks. Companies that regularly make late payments or default on payments should be red-flagged. You should also get new clients to sign contracts that include your payment terms.
3. Offer early payment discounts
Encourage your clients to pay earlier than normal by offering early payment discounts. The early payment discount should only be used when the company is in urgent need of cash. Do it too often, and you will make a serious dent in your profit margins.
4. Reduce your payment terms
Cut your payment terms from 60 or 90 days down to 30. Think of it this way: when you allow customers to pay in arrears for your products or services, you’re essentially giving them short-term unsecured loans
5. Lease rather than buy
Consider leasing rather than purchasing cars, property, office furniture, machinery, and IT and telecommunications equipment. The benefit of renting rather than buying is that you will only have to make small monthly payments. This should help your cash flow. You can also claim on the lease expense.
6. Raise your prices
Companies are often reluctant to raise their prices for fear they’ll lose valued customers to competitors. But even a small rise in costs can chip away at your profit margins. You can overcome customers’ resistance to a price rise by offering bundled products or services.
7. Issue invoices promptly
Many companies don’t issue invoices quickly enough or chase late payments. Think of it this way: every sale has already cost the company in some way, whether that’s the purchase of raw materials, warehousing, labour, sales and marketing, and distribution. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.
American entrepreneur Nolan Bushnell says a sale is a gift to the customer until the money is in the bank.
8. Use invoice financing
Hire a company that provides invoice financing (either invoice discounting or factoring) to receive an immediate cash injection. Such companies provide funding against your unpaid invoices for a fee.
Usually, you will receive up to 85% of the value of the outstanding invoice within 24 hours. You’ll then receive the remaining 15% minus the broker’s fee once your customer has paid the outstanding invoice.
9. Get external funding
You could approach banks or lending institutions for a short-term loan or use other funding sources such as self-finance, partners, investors and alternative finance like peer– to–peer lending.
10. Hire a part-time Chief Finance Director
A part-time CFO from the CFO Centre will look for all the things that pose a threat to the company and work with you to resolve them. Your CFO will look for ways you can meet your most pressing financial requirements and review all incomings and outgoings to find where improvements and savings can be made.
You’ll be encouraged to use regular cash flow forecasts. Such forecasts will alert you to possible cash shortfalls in the near future. You can then make arrangements for additional borrowing, for example. It will also make decision-making over whether to hire new staff, raise your prices, move premises, find new suppliers or tender for a large contract.
Put an end to your cash flow problems now by calling the CFO Centre today on 1300 447 740. To book your free one-to-one call with one of our part-time CFOs, just click here
Author: Steve Settle MA (Cantab) MBA FCA, Managing Director—Asia, CFO Centre
Despite what you may have heard, working on a contingent or freelance basis has many advantages that are just not available to full-time employees.
It’s easy to get despondent about your future job security and finances these days with doomsday predictions of the impact artificial intelligence (AI), Big Data, machine-learning, robotics and nanotechnology will have on the world of work.
Back in 2013, two Oxford University researchers sounded the alarm for the future of work by predicting that 47% of US employment was in the high-risk category for being automated within two decades. That included jobs in transportation, logistics, office and administrative support, and the service sector.
Since then, barely a month goes by without an expert issuing a dire forecast about how the work we do now will soon be carried out by machines or robots, making us redundant long before we reach the statutory retirement age.
This fear of automation is nothing new of course. In the 17th century, for example, England’s Queen Elizabeth I refused to grant Reverend William Lee a patent for his revolutionary knitting machine for fear it would destroy the traditional hand-knitting industry. (Despite this, Lee’s machine would go on to improve rather than decimate the knitting industry. Parts of his design are still used in machines today.)
People also feared the worst when the first railways opened, believing they posed a threat to the social order of the day (poor people would be able to travel—nothing good would surely come of that!). They even suspected train travel was a danger to human life (people might die of asphyxiation or melt travelling at 20 miles an hour).
Likewise, the invention of the telephone terrified some people. In Sweden, for instance, preachers were convinced it was the instrument of the Devil and others feared telephone lines were conduits for evil spirits.
These stories just illustrate the point that our fears of innovation and change have always been with us.
It’s up to us whether we see them as a threat or an opportunity.
And let’s face it—it’s easier to accept innovation and change as opportunities than try to resist them. Trying to fight them is like standing on a beach and attempting to stop the waves coming in.
Unless we want to give up work altogether and live ‘off-grid’ in grim survival-mode, the best thing we can do is prepare for and take advantage of whatever innovation and change comes along.
Take, for instance, the ‘on-demand workforce’ or ‘gig economy’, in which the labour market is characterised by a plethora of short-term contracts or freelance projects rather than permanent jobs. It’s already a reality for many: a McKinsey Global Institute 2016 study found that 20-30% of the labour force in both the US and the EU are independent workers who are self-employed or do temporary work.
It will become a reality for so many more in the next few years, according to a 2015 study by the financial management software company Intuit.
To some, the prospect of leaving employment and working on one freelance project after another for a stream of different employers is terrifying. Where’s the financial security, they ask.
But to others like our team at The CFO Centre, working in a gig economy is the closest we will come to total freedom. We contingent workers see ourselves as being liberated from the constraints of paid employment. We are free to pick and choose our ‘gigs’ or assignments.
As with most things, of course, there are benefits, and there are drawbacks. Fortunately, the benefits of working on a contingent basis tend to outweigh the drawbacks.
Granted, we can no longer depend on the security of a monthly salary and the usual benefits of employment—the paid annual leave and sickness pay, the bonuses, and medical insurance, and other perks like company cars—are a thing of the past. So too is the protection of our workers’ rights by unions.
The career training we undertake to keep up with developments in our fields we now pay for rather having it come out of an HR budget.
And to some extent, we don’t have the pleasure of working with the same team of colleagues for prolonged periods like we once did.
But on the plus side, we enjoy a sense of autonomy that full-time employees will never have. We decide when we work, how long we work and for whom.
Our lifestyles are more flexible than they ever were as full-time employees. Suddenly, there’s more time to spend with family and even to follow a great passion, like travel, golf or photography.
We don’t have to commute to the same office day in, day out. We can hold meetings in a Starbucks if we want. Or sit on our couches at home and speak with clients wherever they are located in the world.
The financial rewards we receive are dictated by the amount of effort we put into securing and retaining contracts with individuals and companies and the value we subsequently provide, not by a job position or title.
You might think there’s no financial security working in this way but having five or six clients means that if for any reason we lose one, we still have the remainder – and, importantly, the skills with which to find new ones. There’s no doubt that this way of working takes some getting used to. It can be challenging in the beginning, especially when it comes to attracting and retaining clients. It’s not something we historically have experience of.
One of my overseas colleagues at The CFO Centre, for example, said his biggest challenge early on as a part-time CFO was learning to adapt from working as a Finance Director in a multi-national to working in a consultative, strategic role for SME clients. He realised after losing one or two contracts that his ‘full-on’ big corporate style was perceived as being too dictatorial by the owners of the medium-sized family-owned businesses.
Like so many of us working on a contingent basis, he had to adapt very quickly to survive. He learnt to offer advice rather than issue directives and work in a more relaxed style. Since accepting that things move slower in small organisations, he’s built up a portfolio of loyal clients.
And like so many of us working in this new way, he gets huge job satisfaction and fulfilment. Like us, he’s confident that in his role as a part-time CFO he’s helping many more companies to succeed than he would have done had he still been working for one multinational company.
Carillion Collapse Shows the Danger for One-Client SMEs
The collapse of Carillion, the UK’s second largest construction company, has exposed the enormous risk SMEs take by placing too much reliance on one major customer.
The construction company, which employed 43,000 people worldwide and had 450 key public-sector infrastructure projects on its books, went into compulsory liquidation on January 15th with £1.5b debts. That followed the failure of last-minute rescue talks between the company, lenders, and the government. It is believed to have used 30,000 sub-contractors to carry out work on those projects.
Being reliant on one major customer (or having a ‘short client list’) is a trap that many fast-growing companies fall into. It is easy to see why it happens—it is a relatively quick and straightforward way for SMEs to expand. It provides your firm with much-needed revenue and boosts your reputation, which can persuade prospective clients to take the plunge.
The trouble comes when the SMEs get to the point where more than half their revenue stems from that one source.
It means their future cash flow and profit is dependent upon the one client’s financial position, management, and market. That makes them extremely vulnerable to any changes in the fortune of the ‘whale’.
When something goes wrong—as it did so spectacularly with Carillion in mid-January—it is those SMEs with an over-reliance on the big player that are in real danger of collapsing too.
A Daily Telegraph/Reuters report says that Carillion creditors are only expected to recover between less than one penny and 6.6 pence of every pound they are owed in insolvency proceedings, according to court papers.
How to Avoid Being Dragged Under by a Major Defaulting Client
If your business has one client that accounts for more than 15% to 20% of turnover, look for ways now to move away from this dangerous dependency.
Having a long client list will also make your company more attractive to investors long-term.
If possible, look for clients in different markets or industries. This way, if one industry or market slows, your business will not suffer as much as it will if you are entirely dependent on just one market or industry.
Limit the credit terms you offer to large customers. Try not to settle for 120-day payment terms such as Carillion offered (which was double the construction industry-average, according to Accountancy Age). The more clients you have the less likely you are to be forced into accepting these payment terms.
Run regular credit checks and tighten up your collection services to avoid falling into the late-payment trap, which can threaten your company’s ability to trade and in worst cases, lead to insolvency. It has been estimated by Bacs Payment Scheme that 640,000 of the UK’s 1.7 million SMEs have to wait beyond the agreed payment terms.
Take out insurance against bad debts. Insurers are expected to pay out more than £30m to those Carillion suppliers who are owed money—but only those who had insurance policies to cover them against bad debts, according to a BBC report. The sums will vary from £5,000 to several million pounds. It is estimated that medium sized companies are owed about £236,000 while larger firms face a shortfall of more than £15m.
Only a minority of Carillion suppliers had trade credit insurance to cover them against the risk of not being paid if the company it does business with collapses.
‘One insolvency can risk a domino effects to hundreds of firms in the supply chain,” Mark Shepherd of the Association of British Insurers told the BBC.
If you are dealing with a major public company, pay attention to profit warnings. Limit your exposure if such a client does issue a profit warning. Carillion, for instance, issued the first of three profit warnings on July 10, 2017. At that point it announced an £845m write-down on its contracts. Things seemed to have spiralled downward from then on. Unfortunately, instead of restructuring, the company continued to bid on contracts with unrealistically low profit margins in an increasingly desperate effort to maintain cash flow.
Hire a part-time CFO
You can make it easy to avoid the ‘one-client’ trap by hiring a part-time CFO who will help you to expand your client base and protect your cash flow.
To book your free one-to-one call with one of our part-time CFO’s, call 1300 447 740 or just click here.
Global curator of Big Data: Fancensus.com provides business intelligence to the Entertainment Sector. Specialising and delivering accurate real time analytical data to the gaming and movie industries; by gathering aggregating communication information, monitoring digital retailers and overall calculating industry performance benchmarks, Fancensus.com provides powerful insights into the data analytics which drive success in today’s entertainment market. Some of their prestigious clients include Disney, Ubisoft, Sony, Bethesda amongst others. However, it wasn’t always this way…
Like many entrepreneurs it started with a single idea. Kerri Davies (Founder and Managing Director of Fancensus.com) who had previous background in PR & Marketing, wanted to provide real time meaning to large data sets for the gaming industry. She identified that large sums of cash were being burned in the early days of video games in the 90s. Kerri left her previous job and as a result Fancensus.com was established in 2004 in a spare bedroom with a single computer.
From here on the hard work really began. Kerri spent countless hours on her computer manually inputting information into an elementary system that was coded by herself, enhancing the data with information she had collated herself. For the first few years as she was refining the data, Kerri received no income or recognition. It was about 2-3 years before the company started to see customers come on board. The big break came in 2006 when Fancensus.com secured a big client, this is when Kerri started to see the business grow. However, in 2008 the financial crisis hit and gaming consoles were not being launched quickly enough. Therefore, the technology and data industry slowed and therefore the demand for products. Although these years were tough Fancensus.com continued to grow, and by 2013 leading market competitors Sony and Microsoft released new consoles and the gaming industry had recovered. This was when Fancensus.com saw substantial growth, bringing on new employees and building up their assets.
Then in 2016 Fancensus.com needed a professional to look at their accounts, this is when the company decided to bring in a part time FD from The FD Centre: Kerri Davies:
“I am not too comfortable with the accounting side of things, we really needed to enhance the business profitability. In order to keep investing in the business, I needed to have a professional look at our forecasting and understand the results better so we can make informed decisions. This is exactly what Chris Willford (Thames Valley FD) is bringing to the table”
Now Fancensus.com are providing data warehousing and valuable insights for entertainment companies across the globe! Fancensus.com has scaled up from its humble beginnings in a spare bedroom in 2004 to a team of 15 today. Scaling up any business can be very problematic however. As you can see with Fancensus.com a combination of hard work, determination and strategy to put procedures in place and minimise the risk can help a company become successful and profitable.
A funny thing happens on January 4th. It’s the day traditionally when people decide the mammoth New Year goals they set with such high hopes well and truly suck.
They look in the mirror and see that despite FOUR DAYS of exercising and dieting they are still not marathon or beach-ready.
By January 5th, the new running shoes will have been pushed to the back of the wardrobe and the bathroom scales will have been shoved out of sight. A new bottle of Prosecco will have been put in the fridge alongside a monster bar of chocolate. And the New Year ‘New You’ goals will be quietly shelved for another year.
In business, goals tend to be longer-term and even more audacious, designed to really stretch and motivate employees. So it usually takes months rather than days for the insanity of the ‘stretch goals’ to become apparent to everyone except the person who set them.
Stretch goals are an ineffective management practice, says renowned behavioural psychologist Aubrey Daniels in his book, ‘Oops! 13 Management Practices That Waste Time and Money’. Stretch goals are met only 10% of the time, he says.
Failing to reach stretch goals can have a detrimental effect on employee morale, says Daniels. Performance declines when people repeatedly fail to reach stretch goals.
The consequences of setting and then missing stretch goals can be profound, agree management professors Sim B. Sitkin, C. Chet Miller and Kelly E. See, who have carried out extensive research on stretch goals.
“Our research suggests that though the use of stretch goals is quite common, successful use is not,” they write in the Harvard Business Review. “Failures can foster employee fear and helplessness, kill motivation, and ultimately damage performance.”
They say only successful companies should tackle stretch goals. If a company has just surpassed an important benchmark in the industry or in its own recent history, for example, it’s well positioned to tackle a stretch goal.
“Winning affects attitudes and behaviours positively. When confronting an extremely challenging task, the employees of recent winners are more likely to see an opportunity, systematically search for and process information, exhibit optimism, and demonstrate strategic flexibility.”
Companies that are experiencing weak results should steer clear of stretch goals, they say. “Their employees are more likely to see a stretch goal as a threat, grasp for externally sourced quick fixes, exhibit fear or defensiveness, and launch new initiatives in a chaotic and ultimately self-defeating fashion.
Daniels says despite his findings, it’s difficult to convince executives about the danger of using stretch goals.
“I get more push-back from executives about stretch goals being a waste of time and money than any other thing I’ve written. Executives believe stretch goals will motivate people to do more than they would have if they didn’t set goals. It’s not true.”
So, if stretch goals rarely work, what can you use in their place?
How to Set Productive Business Goals
Setting realistic goals that motivate employees to do more is more successful than stretch goals, says Daniels.
The key to setting such goals is to:
Keep it simple. Focus on one or two things at a time. “Trying to accomplish too many things at once prevents you from being able to do any one of them well,” says Daniels.
Define clear actionable behaviours. Decide what needs to be done to accomplish the goal. Break down the steps into concise actions that need to be taken.
Set many mini goals. To boost the likelihood of success, break the big goals into smaller, more achievable ones. “Positive reinforcement accelerates performance and therefore, the more reinforcement opportunities available, the faster and greater the improvement.”
Forget stretch goals. If the goal is too high or too difficult to achieve, people will get discouraged and give up.
Celebrate! Every time that a milestone or goal is reached, reward and recognise your employees. “Recognising even incremental progress towards a goal provides more frequent opportunities for reinforcement,” says Daniels. “The more reinforcement, the greater the likelihood the desired behaviour will be repeated, and the more likely achievement of long-term goals will be made.
“Making accomplishments visible and sharing them publicly—when appropriate–creates more reinforcement from peers, groups, and management teams who recognise and acknowledge your success.”
Set SMART goals
Make sure the goals are small, measurable, achievable, relevant and timely.
How to set goals for your business
Before embarking on any goal setting activity for your business, you need to know the current state of your business. Fortunately, the CFO Centre offers free financial health checks. You can find out more here or call us at 1300 447 740
‘The Stretch Goal Paradox’, Sitkin, Sim B., Miller, C. Chet, See, Kelly E, Harvard Business Review, January-February 2017, www.hbr.org
On the second day of Christmas, my part-time CFO gave to me more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the third day of Christmas, my part-time CFO gave to me the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the fourth day of Christmas, my part-time CFO gave to me ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the fifth day of Christmas, my part-time CFO gave to me the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the sixth day of Christmas, my part-time CFO gave to me better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the seventh day of Christmas, my part-time CFO gave to me the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the eighth day of Christmas, my part-time CFO gave to me the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the ninth day of Christmas, my part-time CFO gave to me the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the tenth day of Christmas, my part-time CFO gave to me a great exit strategy, the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the eleventh day of Christmas, my part-time CFO gave to me the benefit of business planning, a great exit strategy, the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
On the twelfth day of Christmas, my part-time CFO gave to me a way to stop fiddlers fiddling and protect my equity, the benefit of business planning, a great exit strategy, the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.
And in the spirit of Christmas, you can discover all that I learnt by downloading these 12 free business growth reports—jam-packed with practical ideas and information for every SME owner.
Santa Claus, now in his 1,747th year, reveals for the first time how his part-time CFO helped Christmas Inc. claw back from near-disaster.
“Last year we were hit by so many problems. Money problems. Health and safety issues. Capital funding problems. Bad PR. The lot.
“Someone posted a story on Facebook last August that said I hated mince pies and was allergic to milk. Dreadful business. I had bags and bags of letters from angry dairy farmers and retailers. And emails from worried parents asking what they should leave out for me on Christmas Eve if I didn’t want mince pies and a glass of milk. Some got a wee bit personal, a tiny bit sarcastic, which wasn’t nice. That went on for several weeks.
“Not long after that another story appeared that said I mistreated reindeers. Someone started a Go Fund Me page for Rudolph and the rest of the gang and children across the world were urged to donate their pocket money. Luckily, the authorities tracked down the culprit before any money changed hands. That man was definitely Number One on my Naughty List last Christmas. Those two stories were really damaging. It wasn’t a happy time at Christmas HQ while all that was going on.
Elf and Safety Issues
“Then we had a scare with compliance. One of the elves in the workshop slipped on some wrapping paper and broke his leg. We hired a Health and Safety inspector to help us prevent more accidents and she found that the workshop wasn’t fit for purpose. It’s a very old workshop and needed to be updated. We’d just added bits on as we grew so it was a bit higgledy -piggledy but we loved it all the same. Getting it modernised cost a fortune.
“The Health and Safety Inspector hit the roof when she discovered that some of the elves were sleeping underneath their benches. I tried to explain that they do it because they love making toys and have such fun at work they don’t want to leave. But she said that it had to stop immediately. She insisted on staying in the workshop until we’d dismantled all the tiny beds and wardrobes. Some of the elves, who’ve worked with me for more than 1,000 years were heartbroken. They’d created little homes from home underneath their workbenches.
“That meant I had to create sleeping quarters for the elves and didn’t know where the money was going to come from to finance the whole thing. But then Mrs Claus read a blog about how you could hire a part-time CFO for the same amount you’d pay an office junior. She said he could help sort us out. I’d never heard such a thing but decided to try it.
Our Part-Time CFO
“Hiring our part-time CFO David was the very best thing we’ve done. David helped us find funding for the elves’ sleeping quarters. And he sorted out our cashflow. This is the first year, for example, that we haven’t had a cashflow crisis. Every year, we employ thousands and thousands of elves to help make presents and that’s always thrown our budget so by January, the cupboard has always been bare. David stepped in and helped us arrange funding and so for the first time, we’ll be able to look forward to January. No more living on baked beans in January for Mrs Claus and I, I’m happy to say.
He’s also helped us move into new markets and made sure we had all the licenses we need. And in April this year he stopped a Mr Grinch from stealing our Christmas market franchise. That was the same naughty fellow who wrote those fake news stories last year. That’s all behind us now, I’m very happy to say.
No Exit Planning
“David and I get on extremely well but there’s one thing we disagree on and that’s exit planning. David has been trying to convince me that I should start looking for a successor and thinking about an exit plan. But I don’t want to stop doing this. It’s what I was born to do. Retirement isn’t for me. Besides, Mrs Claus wouldn’t like me sitting around the house all day, making cups of tea and eating mince pies. So, David and I have agreed to disagree on this one matter. So, you can look forward to me popping around on December 24th for many, many years to come. Ho ho ho.”
Leaving lucrative and secure C-suite positions mid-career to build a part-time portfolio might seem crazy but many of those who’ve done it say it is one of the sanest decisions they’ve made.
Take Michael Citroen, who at 58 years old is a 14-year veteran of the part-time portfolio job world. The former Group Finance Director (CFO) relishes the challenge and excitement of working with half a dozen SMEs in his role as a part-time CFO. “It’s nice going into different businesses and meeting different people and having different challenges to deal with. There’s so much more variety every day.”
He particularly likes that the businesses he deals with are all at different stages of growth. Some are very new, others are more established, and a couple have been guided through a sale with his help.
Citroen had been working full-time as the Group CFO of a large privately-owned company when he made the decision to go freelance.
“It was getting very political,” he recalls of his former company. “And I also wanted to be in control of my own diary,” he says.
So, in 2003, he resigned and joined FD UK, a company that offered part-time CFOs to SMEs. When that company was bought out by the FD Centre (parent company of The CFO Centre) five years later, Citroen stayed on and is still working with them today—part of an expanding international network of part-time portfolio CFOs.
“That’s another great aspect of working within a network of part-time CFOs: there’s massive backup. If there’s anything you need to know, you just ask the network, and you’ll get answers back really fast. I wouldn’t have that if I was working alone.”
Besides the enjoyment of working flexibly with entrepreneurs and with other part-time CFOs, Citroen says he values the security that being a part-time CFO with half a dozen clients brings.
“You don’t have all your eggs in one basket,” he says, explaining that if one client leaves he knows he can attract and retain another, so his income isn’t at risk.
“The FD Centre is very focused on helping its part-time CFOs to win new clients,” Citroen says. “I could never have done as well as I have if I’d had to do it on my own. I had no idea about marketing and the technical aspect of things like websites when I first began.”
Like many people starting out on the part-time path, Citroen had been worried about giving up a salary with perks initially. “To begin with it was a little insecure, giving up a regular job.”
He quickly discovered that the financial return you get is contingent on the amount of energy you’re willing to expend.
He realised early on the new lifestyle would enable him to spend more time with family whilst maintaining a good level of income.
“It gave me time to be with them without having to answer to anybody.”
It’s something that another part-time CFO Neil Methold has appreciated about this way of working. Being a part-time CFO for the past six years has meant he’s been able to play a large role in his teenage son’s life: getting him settled into senior school and being able to attend almost every one of his sporting events.
“If I’d been working full-time I wouldn’t have been able to do that. And that’s priceless,” says 53-year-old Methold.
Like Citroen, Methold has found the move into the part-time portfolio world beneficial in so many ways. Not only has he been able to enjoy more family and leisure time but he’s had the pleasure of coaching and mentoring people working within his clients’ companies.
“My greatest satisfaction comes from coaching and mentoring people within these companies so they become self-sufficient and can do more and more of the work themselves.
“Nowadays I say to clients ‘My success here will be inversely proportionate to the number of days I charge you. In other words, the more I can get your people to do the work on a daily basis the less I have to do’. I see it as my responsibility to ensure the work is done, not necessarily to do it all myself. I think that has a significant impact on client retention.”
So too does learning to adapt your style of working to each client, says Methold. It wasn’t something he was aware of when he first started out, he confesses.
“But one day, I was mowing the lawn and thinking it all through in my head. That’s when I realised I was being too harsh, too demanding, too assertive, too telling. You have to be direct in a big company because there are shareholders and high expectations.
“But that doesn’t work with SMEs. You have to use a different style—you have to be softer and more accepting that things don’t necessarily move as quickly as they do at large corporations and that there are going to be different priorities.”
It was when he began to adapt his style of working to suit each client rather than going in “full guns blazing” that he started to enjoy much better relationships. It’s why he has retained his clients for so long, he says.
“You can’t go in and be all corporate. SMEs don’t want that. They want someone they can trust and rely on and build a good relationship with. A friendly face. Not just a very clever big shot. You need to be down to earth and people-focused.”
“When I really accepted that and started to slow down my own pace I become more accepted. You have to adjust and be a bit of a chameleon to suit how they are and not how you think they should be.”
Citroen says the ability to communicate is critical in your role as a part-time CFO. “You have to have the ability to talk to your clients on a personal level and to be able to relax with them. Clients will call you late at night or on a weekend because they’ve had an idea they’re excited about and want to share with you. People who can’t handle that aren’t successful as part-time CFOs.”
Both he and Methold agree that time management is key to success in the part-time portfolio environment.
“Although I’m not in contact with my clients every day, I do keep in touch with them every week, whether it’s a phone call, text or email,” says Citroen. “It’s all part of the relationship I have with my clients.”
Successful part-time CFOs need to take the initiative when it comes to client contact, says Methold. “You have to work really hard at proactive communication with your clients. It’s easy then for them to see you are valuable. I will go to see a client, and on the way home have three 20-minute conversations with three other clients who I haven’t been with that day just to keep moving them forward.
“You have to commit to doing that extra stuff. You can’t just go in for a day, leave and send a bill.”
This obviously takes a lot of organisation, and that’s another skill a successful part-time CFO must have (or develop!), he says.
“I have various lists, so I know what I have to do and at what point each week to make sure I don’t drop any balls because when you have lots of clients doing different things, it’s very easy to forget stuff.
“You need to be aware of what’s happening with each client and what you last spoke about. You can’t go, ‘Ah, can’t remember that last meeting. Sorry.’ When they are talking to you, you are their CFO.”
Being willing to deliver such high-quality service is something that makes a difference when it comes to client retention, he says.
“Clients really do value that you put yourself out to ring them at the weekend or speak to them late at night or when you’re on your holiday. That’s when you and the clients really do start to cement the relationship.”
The relationships you have with clients is what helps to make this such a rewarding way of life, he says.
Citroen agrees, adding that working full-time for one company pales in comparison with working part-time across a number of growing businesses. “The job satisfaction you get working as a part-time CFO is enormous. I would definitely never go back to full-time employment.”
A True Toy Story: LEGO’s Incredible Turnaround Tale
The story of how LEGO, the family-owned toy company went from teetering on the brink of disaster and hemorrhaging cash to delivering the highest revenues in its entire history and being voted the 2017 Most Powerful Brand in the World makes for a truly inspirational tale…
Fourteen years ago, LEGO’s Head of Strategic Development Jørgen Vig Knudstorp delivered the kind of assessment that most managers would gladly superglue their own ears shut to avoid hearing.
“We are on a burning platform, losing money with negative cash flow and a real risk of debt default which could lead to a break-up of the company,” warned Knudstorp at that meeting.
He’d discovered during six months of examining the company that there was a lack of profitable innovation, according to David C. Robertson, author of ‘Brick by Brick: How LEGO Rewrote The Rules Of Innovation And Conquered The Global Toy Industry’.
“LEGO had plumped up its top line, but its bottom line had grown anorexic. All the creativity of the previous few years had generated a wealth of new products, but only a few were actually making money,” wrote Robertson. “To make matters worse, the LEGO Group’s management organisation and systems, shaped by decades of success, were poorly equipped to handle a downturn.”
The company’s management team—twelve senior vice presidents who oversaw six market regions as well as such traditional functions as the direct-to-consumer business and the global supply chain—didn’t collaborate but instead operated in their own silos.
The result was that the LEGO Group was expected to suffer a thirty percent fall in sales with $333 million in operating costs. It had a negative cash flow of more than $214 million.
By the end of the year, it was likely to default on its outstanding debt of nearly $1,070 million. Its net losses were likely to double the following year.
Knudstorp’s stark assessment should have come as no surprise. Something was going badly wrong at LEGO HQ Denmark: in the years from 1932 through to 1998, the company had never made a loss but from then on, the losses had increased year by year. First there had been a little loss in 1998 but by 2003—the year of Knudstorp’s no-holds barred assessment—that had grown to something deeply worrying.
Much worse results followed a year later when the company recorded its biggest ever loss of about $375 million. By then, Knudstorp had been appointed CEO.
“In 2003, we pretty much lost thirty percent of our turnover in one year,” he told Diana Milne in ‘Business Management Magazine’.
In 2004, the company had a further ten percent fall in turnover. “So, one year into the job, the company had lost forty percent of its sales. We were producing record losses and cash flows were negative. My job was how to stop the bleeding.
“We had to stabilise sales and cut costs dramatically to deal with the new reality of selling forty percent less than we had done two years earlier. We had too much capacity, too much stock. It was sitting in the wrong countries. The retailers were very unhappy.”
Knudstorp, a former McKinsey analyst, told James Delingpole of the ‘Daily Mail’, “We had a dress rehearsal of the world financial crisis: a strong decline in sales and a massive increase in our indebtedness.”
The losses were partly a result of the company’s attempt to diversify in the late 1990s, in the belief its brightly coloured building bricks were losing appeal and were under threat from computer games and the internet.
It was coming under pressure from other toy manufacturers since the last of its plastic toy brick design patents had run out in 1988 and the monopoly it had enjoyed for so long in the plastic toy brick market had begun to erode.
LEGO’s diversification saw it expand the number of theme parks it owned in a bid to help increase visibility of the LEGO brand across key markets. This was despite it having little hospitality experience. Unfortunately, these capital-intensive developments didn’t provide anywhere near the expected returns.
And the company had dramatically expanded the number of products in its portfolio, according to the ‘Brick By Brick’ author. In the years 1994 through to 1998, it had tripled the number of new toys it produced.
“In theory that was a good thing: experimentation is the prelude to real progress,” wrote Robertson. … “Problem was, the LEGO Group’s once-famous discipline eroded as quickly as its products proliferated.
“Production costs soared but sales plateaued, increasing by a measly five percent over four years,” Robertson said.
The company had little idea which products were making money and which were failing to produce an adequate return on the sometimes-heavy tooling investment, according to a case study from John Ashcroft and Company.
LEGO had even created its own lifestyle clothing range and brand shops and launched TV series, DVDs and video games.
So, by the time Knudstorp delivered his assessment, the company was in serious trouble.
The Turnaround Begins…
Which is why with the help of CFO, Jesper Oveson (former Chief Financial Officer of one of the largest banks in Scandinavia, the Danske Bank), Knudstorp began to make sweeping changes.
Oveson discovered there was an inadequate degree of financial analysis within the company. While there was a profit and loss account by country, there wasn’t product analysis or line profitability, according to John Ashcroft and Company. In other words, the company didn’t know where they made or lost money. Likewise, the theme parks were a massive cash drain but no-one knew why.
The two men decided on a short-term life-saving action plan rather than a long-term strategy for LEGO, which would involve managing the business for cash rather than sales growth. Key moves included:
Setting financial targets. Ovesen introduced a near-term, measurable goal of 13.5% return on sales benchmark and established a financial tracking system—the Consumer Product Profitability system. It measured the return on sales of individual products and markets so the company could track where it was making and losing money. Every existing or proposed product had to demonstrate it could meet or surpass that benchmark.
Cost-cutting (including cutting 1,000 jobs)
Improving processes (many processes were outsourced which meant employee numbers could be cut by another 3,500)
Managing cash flow
Introducing performance-related pay
Reducing the product-to-market time.
Selling the theme parks and slowing retail expansion.
Cutting the number of components from almost 7,000 down to about 3,000.
The result of these and other changes was that LEGO recovered and went on to become the most profitable and fastest-growing toy company in the world. During the worst of the recession in the years 2007 through to 2011, for example, LEGO’s pre-tax profits quadrupled. Its profits grew faster than Apple’s in the years 2008 through to 2010.
LEGO the Super-Brand
LEGO’s success has continued. Last year, LEGO (now being run by Bali Padda as Knudstorp has moved into a role where he can expand the brand globally) announced its highest ever revenue in the company’s 85-year history.
And it overtook Ferrari and Apple to be voted the world’s most powerful brand. Each year, Brand Finance, a leading brand valuation and strategy consultancy, puts thousands of the top brands around the globe to the test to find the most powerful and most valuable of them all. This year, LEGO won.
“LEGO is the world’s most powerful brand,” it announced. “It scores highly on a wide variety of measures on Brand Finance’s Brand Strength Index such as familiarity, loyalty, staff satisfaction and corporate reputation.”
Its appeal to children and adults in this tech-centred world also garnered praise from Brand Finance.
It continued, “The LEGO movie perfectly captured this cross-generational appeal. It was a critical and commercial success, taking nearly $580 million since its release a year ago. It has helped propel LEGO from a well-loved, strong brand to the world’s most powerful.”
Which goes to show that even when disaster seems certain, it is possible to revive an ailing company. Of course, it helps to have a top-level financial advisor working with you to ensure the changes you’re making are the right ones.
What To Do If Your Company Is Suffering A Cash Flow Crisis
If your company is in dire straits, take action now—don’t imagine you can wish the crisis away or continue to do whatever you’ve been doing in the hope things will get better. They won’t.
Until you identify and fix your cash flow problems then put systems in place for managing cash flow, your company is at a very grave risk of insolvency.
Without well-defined and well-managed strategies to avoid running into cash flow problems and a plan to improve cash flow if such problems should arise, your company will continue to flounder.
Fortunately, you don’t have to do it alone. The CFO Centre will provide you with a highly experienced part-time-CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO.
He or she will assess your company’s cash flow position and take the following steps:
Identify and address all the immediate threats to your business
Prevent cash flow problems from recurring and
Instigate the use of regular cash flow forecasts.
Having control of your company’s cash flow will allow you to operate within your means, and move away from a ‘feast and famine’ situation that plagues even the largest companies.
Having the right cash flow management processes in place and being able to spot peaks and troughs in trading to improve cash flow is one of the most critical components of any finance function.
Put an end to your cash flow problems now by calling the CFO Centre today. To book your free one-to-one call with one of our part-time CFOs, just click here.
‘Brick by Brick: How LEGO Rewrote The Rules Of Innovation And Conquered The Global Toy Industry’, David C. Robertson & Bill Breen, Crown Business, 2013
‘How LEGO Became The Apple Of Toys’, Jonathan Ringen, ‘Fast Company’, August 1, 2015
‘How LEGO clicked: the super-brand that reinvented itself’, Johnny Davis, ‘The Observer’ magazine, June 3, 2017