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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 your business in good shape for 2021?

What a year it has been so far and in Victoria the end is in sight to catch up with the rest of the country.

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,

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,

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.

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

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,

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.

The CFO as an ‘Operator’

Ownership of Cash flow
Maximisation of Profits and Profitability
Reduce Costs
Increase Productivity & Efficiency

If cash used to be King, in today’s new landscape it’s now Emperor. The Operator frees up the Business Owner from having to worry about the day to day financial operations. Your CFO will ensure that your business is built on rock solid foundations and able to withstand unforeseen market conditions.

Recently, I read a great and thought challenging article from a few years ago, highlighting the key message around why organizations need a good CFO in their business – especially in these trying times in being able to provide sound stewardship in developing structures and creating sustainable financial success for the business that aligns with the pillars of success.

Key to this success is in developing the CFO role and understanding the business operating mode.