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The 5 Key Threats To Australian Wineries – What to do? Part 2

THE 5 KEY THREATS TO AUSTRALIAN WINERIES – WHAT TO DO?  (part 2)

To recap, threats were:

1.Demographic shift in consumer base

2.Reduced cellar door and restaurant sales

3.International trade tensions

4.Increased emphasis on e-commerce

5.Changing values of consumers

 

 

1.ONGOING DEMOGRAPHIC SHIFT OF CONSUMERS

Wineries must understand and deal with this. Key is to capture the younger drinkers. My article  WINERY CHALLENGES, COVID and THE NEW 4 MARKETING “Ps” gives a framework for dealing with this. For instance, declining cellar door sales can be counterbalanced by targeted use of social media, including influencers, or by partnering with organisations and causes attractive to younger consumers in your location, to improve web site on-line sales. Smart use of social media, to exploit the COVID created heightened need for local community engagement, could improve local on-line sales.

 

  1. BE PREPARED FOR THE FUTURE

It would be foolhardy for wineries to ignore these threats (and other future shifts). They should regularly evaluate the potential impact, prepare high level scenarios, and take appropriate action if considered necessary. For example reduce over dependence on a particular export country. In Australia’s case, a target for increased export sales, to remove dependence on China, could be USA market, which has been a shrinking market for Australia (but not for NZ), and now represents just 15% by value of exports. For example, targeted  social media activity to improve high margin wine club member and website sales. Consider low alcohol wines. Consider best on-line practices on how to increase and engage and maintain club membership.  Experiment with different packaging sold through different channels. The idea is to do small low risk experiments to learn from. And be prepared for the unexpected.

 

  1. UNDERSTAND REAL PRODUCT COSTS

Often small wineries do not understand the real cost of wine production, or the profitability and cashflows from different customers or sales channels. Pricing and marketing strategy cannot succeed if it is based off erroneous and misleading product costs.  Wineries should improve reporting and processes so they understand the true costing and profitability.

 

  1. BUILD A FINANCIAL BUFFER

There are a number of financial levers to pull which will improve profitability. Some are more effective than others, and they may have different impact on cash (than on profit).  Proper costing (see point 3) will enable correct decisions on pricing, channel selection and which financial levers to use. This will optimise cash and thus build reserve buffers for the unexpected. Which will likely happen. Who predicted COVID, and even those that predicted a pandemic would never have imagined that it would eventually lead to a geopolitical spat with China and then protests of wine “dumping”.?

 

  1. REVIEW RETURNS ON ASSETS

Make a list of all major assets and consider the return (profit) on each asset, e.g. winery, cellar door, restaurant, staff etc. Consider the risk of high fixed costs compared to an outsourced or variable cost model., e.g. should I use the winery for something else, or sell it, and have my wine made outside?  Consider alternative uses for assets, and the resulting returns, e.g. should the restaurant become a venue for function hire? Stay nimble. Even the largest businesses constantly review and finetune strategies. As noted in Harvard Business Review of November 2017, “Your Strategy Should Be a Hypothesis You Constantly Adjust”.

 

  1. INFORMATION TECHNOLOGY IS RELEVANT & INCREASINGLY IMPORTANT

i) As a basic, IT should capable of supporting increased on-line direct to consumers sales, such as winery club members, and website sales. It should also enable an engaging relationship with customers.

ii) Depending on size of winery, and customer base, it may be necessary to take this to a higher level and build a true e-commerce capability. This will mean identifying and working with e-commerce platforms, partners and channel sales opportunities.

iii) The highest level is analytical and productivity enhancing software. As e-commerce activity increases, software to analyse sales data to identify issues/behaviours and opportunities with customers will be beneficial.

iv) IT is not just for finance and sales. It is increasingly relevant in the vineyard. Deloitte note in their 2018 NZ benchmarking report that IT capability can be used to improve quality of wine, increase vineyard yields and reduce environmental footprint.

 

 Gary Campbell is a Principal for the CFO Centre, based in Victoria. He is a chartered accountant, an MBA, has a passion for wine, formal wine qualifications, and advises winery (and other sector) clients.

Exit Planning: What do I need to consider?

One of the areas often overlooked by business owners in their planning is an exit plan. Whilst they may not be considering exiting the business in the near future, there will possibly come a time when you are considering it’s time to move on and you will want to ensure to the business is in good stead when you walk away which is why exit planning is so important.

There are any number of reasons the owner may wish to exit a business that they have invested (not just financially) so heavily into. The most common are retirement, realising the current value of the company, to start a new challenge / venture to name but a few.

Types of Exit

The main options an owner can exit their business are:

  • Selling the business to realise it’s valuation
  • Selling it or passing it on to the next generation
  • Creating a succession plan; or
  • Closing the business
Why the Plan is so Important

Whichever exit plan you decide on, to avoid complications it is imperative that there is a propr plan in place.

Failure to have a proper exit plan in place can not only put the stability and future success of the company at risk, but it can also put your own financial health at risk, so it is obvious that planning is incredibly important from both a business and personal standpoint. When you have a clear plan in place for your exit, it allows you to maximise the amount of money that you get from the business, ensure a smooth handing over and help the company to be in a good position moving forward.

The Exit Plan

Creating a high-quality exit plan is hard and the best type will depend on the size of your company, individual’s (yours and other employees) circumstances and the type of exit that you are opting for. For such a complex business plan, it is advisable to use an independent financial advisor who can assist with the financial planning around your departure as well as setting you up for the future whether this is constructing an investment portfolio or retirement planning.

Business owners tend not to think about what will happen when they walk away from the business but this is a time that needs to be planned for. Having a proper exit plan in place is important in terms of a smooth changeover, safeguarding the future of the business and ensuring that you are in a good financial position following your departure.

Need help? Contact the CFO Centre on 1300 447 740

A CFO in the Spotlight

The below interview was conducted between Jonathan Englert, Founder of Andiron Group, and Nick Crawford – Regional Director at The CFO Centre.

THE EVOLVING ROLE OF THE CFO

Jonathan: Thanks a lot, Nick, for joining me to do a deep dive into what it is to be a CFO, what the life and the work entail.

So what’s a CFO?

Nick. The role of the CFO covers a number of aspects. We’re there to work on the strategy with the business, to see where the business wants to go over the next two, three, four, five, 10 years. But also, there’s a big operational role to make sure that the parts of the business are functioning in a way that you’d expect them to and to suggest and help with corrective action, if it’s so needed.

So, in terms of the way my life works, when you’re a part-time CFO and you’re tending to work with SMEs, a lot of it is sharing the stress, sharing the strain, with these people who own the business.  Very quickly, they run into issues around finance and not understanding. You might have a tax accountant and you might have your own bookkeeper, but that’s all linked to history. It has nothing to do with where we’re going to go in the future.

A lot of the role of the CFO is anticipating the pothole in the road before you hit it and [ensuring] your wheel doesn’t fall off your car. So it’s really managing the whole of the financial function, but also interrelated with the operations of the business.

The CFO in the industry isn’t just a finance person. They’re more an operational person. They’re always tending to move more to COO. So in a lot of the roles I’ve done, I managed back of house, with the exception of marketing. You look after HR, you look after IT, you look after property estates. You look after a lot of the operational issues that aren’t the actual function.

 

CFO AS LEADER BEYOND CRUNCHING NUMBERS

Jonathan: As a non-CFO, I’ve been in businesses where the CFOs have had varying degrees of influence, from numbers crunchers to actual people who are on leadership teams, rolling up their sleeves and injecting creative ideas into the business. And I just wondered if with CFOs, there’s a bias about “just stick to the numbers.”

Nick: I think that’s a perception, but if you look at a lot of large organizations globally, you’d find a big number of the CEOs now are actually accountants, CFOs or finance directors by profession. Because what’s interesting and enjoyable in the job is just some of those things that you’ve said, where you’re part of a leadership group and you’re steering the business.

An example this week: we had a potential resignation at one of my clients, and immediately, the sales director was on the phone to me, saying, “Oh Nick, Nick, what can I do, what can I do?” I only work with them one day a week. I’m not full-time CFO, but they will turn to me for that sort of guidance.

Jonathan. I think what you just said is really interesting. It’s a real testament to the fact that it’s not about just being on site or quote-unquote “part of the team” anymore. The whole nature or definition for how we work is that it’s really based on the value that you deliver in the rapport.

Nick. Correct.  Just as a little aside, people say to me, “What’s the judge of when you’ve been accepted by a client?” And I say, “If they invite me to the Christmas party, then I know I’m part of the team.”

It’s important that you’re not just there as an external advisor.  And a way that they value you as a member of the team is they invite you along when they go out for a function, and they’ll have a beer with you. It’s not just purely a work relationship.

 

HOW TO KNOW IF YOU NEED A CFO

Jonathan. What are the signs that your company needs a CFO, or a CFO function or influence?

Nick. Some of the signs are often people struggling with the cashflow. Historically, you’ve relied on a bookkeeper and a tax accountant to do your accounts, but you’re never really looking at where the business is going. So you’re starting to struggle to understand, “Can I afford to do this, can I afford to do that?”

Or you don’t understand your business. One of the things that I find quite astounding is, people really don’t understand how to price their business. A business will engage me… and maybe not in the first couple of weeks, but after a little while you sit down with them and go, “Well, just explain to me how you actually work out what you’re going to charge the clients.” And you sit down with them and you go, “Well, yeah, but you’ve not thought about this, and you’ve not thought about that, you’ve not thought about the others.”

And often, we end up working with them and the information they’re working with is terrible. It’s not been put together very well. There’s big issues with it. So they’re making decisions on false information.

Size is often a decider as well. A business will get to a certain size, and then they start to realize the founder is now out of his depth, the person that they’ve engaged as a bookkeeper or tax accountant is out of their depth. To take the business to the next level, they need to engage somebody with a more senior strategic financial brain.

 

THE IMPORTANCE OF DATA

Jonathan. One of the things that you said that was quite interesting is the notion of walking into a situation where the data isn’t there.

Nick. I’ll give you an example. One of the guys I played golf with this morning, he does a client for me and he’s been working with them for six months. When they started doing the work, it was just appalling.

What they’ve done is, they moved from MYOB to QuickBooks.  And when they moved from MYOB to QuickBooks, nobody checked that the data that came through was correct. So they were actually operating with a set of numbers that was actually incorrect and didn’t balance.

I know that might not mean a great deal to you, but the fundamental thing in a set of accounts is they always balance. You know, for every debit, there’s got to be a credit. And they just had a false number in their accounts, and that’s what their internal accountants have been using.

There were far more important things that needed to be looked at from a performance perspective, but we’re saying, “Look, even the foundation of your whole financial function is broken. We have to fix this before we go forward, because you cannot move forward.”

 

INSIDER ACCESS AND STAYING ON THE TEAM

Jonathan. The moment you’re given insider access, you, as a third party, instantly see these huge gaps.  There have been very few businesses I’ve gone into where I haven’t encountered that.

Nick. And then, where you’ve got to be clever is that you’ve got not to put people offside. I’ve got one of the guys [who] has just started for a client this week, and he started to tell me some of the issues that are cropping up.

I said to him, “Mate, you’ve just got to be careful. You don’t want to put everybody in the team offside from the outset. Yes, I accept what you’re saying, and these things will need to be resolved over time, but you’ve got to work with them, you can’t work against them.”

There’s no point going in and firing from the hip, going “That’s wrong, that’s wrong.”  You can’t just go in and go start firing off at everyone, because nobody will work with you. So yes, there’s a subtlety of identifying the problem, but making sure you can work with the team to get the solution. Or, if there’s people in there who need to go, you’ve got to work that out and look at how you can do it, but you don’t want to lose the team, because you’ll not get the outcome if you lose the team.

 

ACCOUNTS RECEIVABLE, BUSINESS’ LIFEBLOOD

Jonathan. From a CFO’s perspective, is accounts receivable something that you want to be out of sight, out of mind? How does [AR] work for you?

Nick. It can’t be out of sight, because it’s got to be something that you keep an eye on. Ultimately, if your day-to-days run out, that means you’re short of cash.

I work on typically a 13 week period, and I can see some of the big costs that come along. Obviously, you’ve got payroll, but you’ve mostly got TST, you’ve got superannuation. And what contributes into funding all of that is converting sales into debtors into cash. Therefore, there’s an important part in making sure the people are on top of their collections.

And yes, using your word, you’d almost have to be a psychopath to enjoy giving people a hard time. You phone up and they give you a sob story and you go, “Yeah, yeah, don’t worry,” “Yeah, we’ll give you another week.”

But at the end of the day, if you keep doing that, ultimately, you can’t even pay your bills. And then we won’t be able to do what we need to do. So, it’s imperative, it’s the lifeblood of the business. Cash is king, and where do we get our cash from? Our customers.

You’ve got to be on top of it all the time. It’s a vital role within the business. Vital.

How Much Cash Reserve Cover Should Your Business Have?

How much cash reserve cover should your business have?

Recently in discussions with clients the focus is still on effective reporting, strategy, banking relationships and the 4 levers that drive a business, but in these uncertain times a new question is being asked… how much cash cover should our business have? We currently have ($ x) based on an internal theory and are building with multiple bank accounts for key items etc. Is this the right amount and how will this affect us long term in meeting our core strategic goals?

In past reviews of annual dividend and repatriation polices, the focus is on forecast cashflow (key inflows and outflows), required capital expenditure and potential investment strategies aligning to regulatory requirements. Whilst this still holds true, business owners are now more focussed on what they should be holding as a reserve – and equally maintaining.

A good conversation starter with your financial advisor / CFO / Board advisor is; what is comfortable to the key stakeholders in maintaining? Consideration in the conversation must be given with transparency and thought towards:

  1. Reserve amounts and best use effectively: Focus on building the reserve to comfortable or adequate levels.
  2. Historical Cash flow forecast review: How much do you spend each month and seasonality effect of that spend required. Regular review of what you are spending and timing, especially with key items such as taxes etc.
  3. How much is right for your business? 3 months or 6 months – keeping in mind that a large reserve may also limit potential growth and profits
  4. How to build it? This is where your CFO / Board Strategic advisor will best to help in ways to do this and maintain via Financial scenarios including factoring and additional bank lines of credit.

If you would like any help with determining how much cash reserve cover you should have please feel free to reach out to us via [email protected]

 

Article written by Brendan Raftery – CFO at The CFO Centre. 

Is Your Business in Good Shape for 2021?

 

Is your business in good shape for 2021?

Well what a year that was!

Many businesses will have had to make some significant changes to their strategy during 2020, and now can be a good time to reflect on these and see what has happened, whilst at the same time, looking to stabilise the business in preparation for moving forward in 2021 post Covid-19.

Peter O’Sullivan, Regional Director for The CFO Centre in Victoria provides a checklist for businesses on how to ‘stabile’ for the future:

  1. The best businesses know exactly where they stand. Does your financial reporting provide you with an accurate view of the financial performance of your business within a short period from each month end? These could contain:-
  • Historic balance sheet, profit and loss and cash-flow together with a set of key performance indicators (KPIs) that the management team use to run the business on a day to day basis.
  • Rolling forecast balance sheet, profit and loss and cash-flow driven by the same KPIs.
  1. Have you analysed all of your products or service offerings and identified those that should be invested in and those which should be scaled back to improve the performance of the business?
  2. Have you reviewed all of your costs and identified all of those costs where alternative suppliers can be identified and current deals can be renegotiated? This helps to minimise your cost base and refine your negotiation skills.
  3. Have you reviewed all your customers and identified the good ones form the bad ones i.e. those that take ages to pay etc.? Use those negotiation skills to make the most of your customers.
  4. Have you assessed all of the obvious risks in your business and made sure that you have a contingency plan in place to avoid those with the highest likelihood and most significant impact?
  5. Do you have a clear operational plan for the future of the business broken down to show you the steps required to implement hat plan? If you do not have this is will be impossible to identify those opportunities that arise next year that fit your plan for the business.

Most of our clients have been through this process during 2020.  As a result many are now looking to exploit the opportunities, post recovery, to expand their markets and recruit key staff to help drive their businesses forward in 2021.

The CFO Centre is dedicated to helping businesses meet their strategic objectives. To have a conversation about getting your business in the best shape for 2021, contact The CFO Centre on 1300 447 740.

 

 

Why Every Business Needs a CFO

Why every business needs a CFO

A typical company finance function can be divided up into 3 areas, however many businesses believe the finance role is principally to produce accurate accounts.

Ask any bank manager and he or she will tell you the bank’s most problematic customers are those who don’t truly understand what is going on in their business. Some customers ask for finance or expect to maintain an overdraft, yet cannot even produce up to date accounts.

Most SME business owners want to focus on the business and not the numbers. The business is their baby and they want it to be their sole focus – not financials!

The areas which the business owner will seek help in first will be determined by the focus and needs of the business whether in sales, operations, admin or finance. If we look at the finance function, it is traditional to break it down into 3 roles:

1. Finance direction – the CFO

2. Finance control – the Accountant

3. Book-keeping/basic accounting/ AP & AR – the Finance Department Staff

Many business owners think the finance role is transactional in nature and so concentrate just on producing accurate accounting records. This is essential in itself, but not enough to manage and develop a growing business. When focusing on the CFO role specifically then, what are the key tasks of this role and what does the CFO bring that the other finance roles do not?  Why would you need a CFO?

I suggest the following four main areas of expertise and input:

1.Strategic

Co-ordinating and developing long term business plans; defining the implementation timetables; assessing the risks involved and seeking the funding required to deliver the proposed plans.

2.Operational

Developing internal controls; managing and developing the reports needed to run the business; improving profit levels; managing cash flows. Does the business owner fully understand the profitability of each product / service they offer? Often the answer is no.

3.Leader

Instilling a financial approach and mind-set throughout the organisation to help other ​parts of the business perform better ​

4.Support

Tax planning and legal issues; compliance issues; managing external relationships; outsourcing relationships.

 

The modern CFO needs to be able to develop all this and more. There are many other considerations that go beyond the pure “job description” above.

What’s the difference between an accountant and a CFO? A CFO looks forward and financial accounting looks backwards; it’s where your business is going that matters as the past cannot be changed – but learnings can be made and changes made so that past mistakes not repeated.

Experience: it is important that a CFO has a wide range of commercial experience, not just financial. Good CFOs do not learn their skills from textbooks alone, in fact they learn very little from textbooks – they learn by doing. Commercial experience means leaving their offices and talking to customers and engaging with the production and operations teams.

Personality: a CFO must be able to communicate at all levels be it the production teams, sales teams, marketing teams to board level. The CFO must be able to relate to people on all levels of a business.

The CFO Centre provides high calibre CFOs to SMEs on a part time basis, allowing organisations to benefit from the expertise of a highly experienced Chief Financial Officer without incurring the expense of hiring someone full-time. We don’t tie you in with a long term contract.

Whether the business in in fast growth mode and needs control or has hit a brick wall and needs survival solutions to get through a tough patch, our CFO’s can cope with both ends of the spectrum.

For more information about the CFO Centre’s service go to www.cfocentre.com.au  or call us on 1300 447 740

 

Article written by Peter O’Sullivan – Regional Director – CFO Centre, Victoria

The 5 Key Threats to Australian Wineries

  1. ONGOING DEMOGRAPHIC SHIFT

Baby boomer’s wine purchases will diminish as they continue to leave the workforce. Unfortunately, research indicates that younger consumers are not picking  up the spending baton to replace boomer’s wine spending power. Thanks to high house prices, GFC career interruptions, the craft beer and spirit loving Generation X are more frugal and less engaged with wine. Wineries must engage more with younger customers…ignore them at your peril…they will soon outnumber boomers.

 

  1. COVID INFLICTED DAMAGE TO CELLAR DOOR & RESTAURANT SALES

For smaller wineries, on-premise direct sales, not only make up a large portion of sales, but are at a higher profit margin than wholesale sales. Additionally on-premise activity is often where wine club members (similarly profitable) are recruited. Reduction in this activity from COVID travel restrictions will deal a disproportionately heavy financial blow. These sales will likely take years to recover to pre COVID levels. To remain viable wineries must compensate this financial loss.

 

  1. TRADE UNCERTAINTY

Globalisation has peaked and countries are now becoming increasingly protective. Result is Australia – China geopolitical “trade war”. At risk for Australia is its largest wine export market, China, valued at $1.2billion or 42% of exports. By comparison, New Zealand’s biggest export market (USA) represents 32% of exports value (and interestingly China at 1%). Comparatively Australia is at high risk  from China trade tensions, but increasingly as countries become more protective there should not be an over reliance on any single country.  Wineries should review and balance geographic sales portfolios.

 

  1. COVID CATALYST to E-COMMERCE

COVID has accelerated the use of e-commerce. There is a danger for smaller wineries that the bigger players will increasingly dominate the off-premises e-commerce channels. Although these channels are not as profitable as direct to consumer channels, they should not be ignored. They balance the channel mix risk, and it’s not clear now how they may develop. As e-commerce develop it is possible that separate channels may evolve that are better suited for smaller wineries. McKinsey believe that different partners will create “inter-connected service platforms” – in this context for wineries it could be partnering on a food or tourism platform. Wineries should monitor market development and enter into appropriate e-commerce sectors and platforms.

 

 

  1. CHANGING VALUES

Increasingly, accelerated by COVID, and the underlying demographic shift, wine attitudes, values and tastes are definitely changing.

Tipple of choice: Total alcohol sales are little changed in USA, but craft beer and premium spirits are increasing. In Australia alcohol sales are generally declining with perhaps the exception being spirits. These trends are probably largely driven by younger consumers who find the  cost advantage, brand personality, and ease of understanding and storing these drinks, compared to wine, attractive benefits.

Ecological/sustainability: This is becoming increasingly important for consumers. Many wineries, including world leaders, are switching to organic or biodynamic practices.

Health: There does not appear (yet) to be a full blown health driven turn away from alcohol, with overall consumption trends being more driven by demographics change. But perhaps, as NZ is doing, researching and promoting lower alcohol wine may have merit.

Packaging: In USA, 2019, different research has shown decreases in standard 750ml wine bottles, but increases in 375ml, 500ml, 3 litres, premium bag-in-a-box, cans and Tetra Paks. These changes reflect preferences and lifestyles of the changing demographics. But COVID driven changes, e.g. increased food take-aways, may well accelerate these trends.

Community/Purpose: For younger consumers, helping and connecting with local community is an important consideration influencing buying decisions.

 

Wineries should not ignore these trends.  The impact on these trends need to be understood and dealt with accordingly. Practical hints to follow in part 2.

 

Gary Campbell is a Principal for the CFO Centre based in Victoria. He is a chartered accountant, an MBA, has a passion for wine, formal wine qualifications, and advises winery (and other sector) clients. See Gary’s profile here

Under the Spotlight – The Leader

The CFO as a ‘Leader’

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

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

 

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

 STRATEGIC PARTNER TO THE BUSINESS OWNER and ADVISORY BOARD

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

STRONG SALES & CUSTOMER FOCUS

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

 FIGHT ‘SCOPE CREEP’

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

SET ASIDE A ‘WAR CHEST’ FOR CRITICAL STRATEGIC ACTIVITIES

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

 

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

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

 

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

Under the Spotlight – The Guardian

A CFO can act as a guardian for your business, by forecasting your cashflow and profitability, setting meaningful targets and helping you monitor your progress against them so you achieve your goals.

Looking Ahead – Forecasts

While most accountants are very good at telling you what has happened, not everyone is good at looking ahead. Historical accounting records are vital to any business, but so is a forecast. A forecast acts as a red flag, highlighting where profitability or cashflows are under threat. Forecasts need to be informed by well- thought out assumptions, and be capable of being updated quickly. These days numerous cloud-based forecasting tools are available, that are updated continuously from accounting systems.

ZZZZZ and Improving Your Business – KPIs

We all know the cliché that to improve something you have to measure it. To improve a business, you need clear targets or measure – key performance indicators (KPIs).

But how do you go about setting KPIs?

Here are some tips on setting KPIs. I call them the 5 Zs (I’m using American spelling – apologies to all of us using British spelling).

CustomiZe – KPIs must be relevant to your company. If you trade in inventory in different product categories, you need margin and turnover KPIs for your inventory categories. If you are a professional services company, inventory is irrelevant – you need labour utilization and efficiency measurements.

PrioritiZe – it is tempting to want to choose 100 goals, but don’t. If you or your staff are faced with 100 KPIs, you very quickly become overwhelmed and lose focus. Select 5-10 KPIs. Each manager or department will have their own KPIs.

VisualiZe – KPIs need to be visible and visually appealing. People need to see how they are progressing on a regular basis – every day or every week. Only by monitoring their progress constantly can they make changes to their behaviour to improve their performance. It is no use waiting until budget time at the end of the year to review how well you and your team have done.

OrganiZe – people need to be held accountable for achieving the targets. Each KPI needs a manager who is accountable for achieving that particular goal.

OptimiZe – constantly monitor and improve your performance. This means regular reviews and making the changes needed to stay competitive in your environment. This is particularly important in our current environment, where COVID19 has disrupted many industries and changed the operating environment.

Systems

A key element in monitoring your performance against KPIs is a system that gives accurate and reliable data, quickly. There is no one-size-fits-all system; you need to select a system that relates to your business needs. It’s critical that the setup and implementation of the system takes into account your business needs and your goals.

The Role of a CFO

Of course, you can try and do all of this yourself, but it is much easier to have an experienced person do it for you. A part-time CFO will be able to assess your business and set meaningful KPIs. Your CFO can take thorough look at how you are using your system, and whether changes need to be made. Regular meetings to review your forecasts and how you are performing against your KPIs will ensure you achieve your goals.

 

Written by Andrew de Bruyn, Principal (WA) – The CFO Centre

Folders Small

When does a Business need a CFO? Part Two

Needing a better and more complete understanding of business drivers

  • Business health and use of indicator ratio’s

Definition: Key performance indicators are a set of measures / indicators that a company or external parties use to gauge the business performance over time and in support of how well a business is performing against its strategic goals.

Ratios can be used in evaluation against industry competitors (benchmark of performance) and breaking performance down into simple and manageable indicators in performance improvement and highlighting key opportunities/ risks. (Business Executive scorecard summary)

In promoting Cash flow strategies within the business funding network, Bank / Equity funding Credit teams will use a KPI scorecard in evaluation of key dynamics. Examples are below and not limited to include:

  • Profit returns (Gross Profit, Expense and Interest cover),
  • Year on year growth (Revenue, Net profit),
  • Balance Sheet indicators including Quick ratio’s (Current assets / current liabilities), Receivable and inventory turnover.

All the above combine into key health check guides in evaluating a business credit score / opportunity and potential funding pricing.

(Have you asked your bank as to how they calculate the risk premium pricing that they charge out…. is this an industry related charge or is it reflective of your business and Key performance indicators?)

(CFO statement: Give us a yell if you want this discussed or highlighted in your own business operations)

Written by Brendan Raftery – Principal (QLD) – The CFO Centre

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