In August we introduced the concept of a Chief Financial Officer (CFO) to you. A CFO is a commercially skilled expert that is able to unlock value in your organisation. Usually this is a resource only available to large organisations. The good news is that through Dial a CFO you can access this expertise by the hour!
In large organisations the CFO is the CEO or Managing Director’s trusted business advisor and is far more than just an accountant. They often report in to the board, step in as CEO where necessary, drive initiatives that improve business performance, manage financial risk and ensure the funding platform is appropriate to support the business moving forward. The CFO is the individual that understands the business from end to end; capable of ensuring the right decisions are made in the best interest of the organisation.
Last month we shared a case study of an importer/reseller that had developed an aggressive growth strategy. In doing so they recognised the need to significantly upgrade their business support function as their financial systems and team were already under stress.
Benefits that Dial a CFO delivered included:
Understanding of cash flow – ensuring appropriate rigour in financial management to support planned initiatives;
Business process re-design – adopting a pragmatic risk based internal control environment;
Investment in financial systems – modest expenditure in the information technology infrastructure to enable business growth
As a business owner, you need to engage in regular preventative maintenance just like you do with your car. If you ignore regular maintenance with a “she’ll be right” attitude then you risk a major breakdown. But if you follow a regular maintenance and investment program your business will purr along at peak performance.
Unfortunately many SME business owners prefer the “she’ll be right” attitude and only call us in when a “Houston - we have a problem” moment occurs. Recently a household name carpet retailer asked us to help with preparing a set of financial statements. On commencing the work we found the financial information masked a severe mismanagement of working capital that eventually resulted in catastrophic business failure. There were signals over time that the owners ignored and the best that could be achieved was an orderly liquidation of the business. Don’t be like this! It needn’t have occurred!
There is false economy in deferring regular maintenance and investment in your business. Even when catastrophic failure is averted, the financial and time commitment to implement a remedial program is significantly more than the cost of regular tune ups.
The concept of outsourcing has received significant focus in many business publications in recent years with the inference that as business owners we should all be outsourcing to unlock value in our organisations. But for many the business imperative for doing it isn't well understood and there are situations where, having outsourced, business owners later unbundle the arrangement and bring control back in house.
In 2004, 21 months into a seven-year, $5 billion contract to outsource all their information systems (IS) to IBM, JP Morgan ended the contract and - at considerable cost - brought their information systems back in-house. As part of the insourcing decision 4000 staff who had transferred out to IBM were to be transferred back to JP Morgan. What sort of reasoning may have led to both decisions?
Well known examples of outsourcing are the manufacture of products or the setting up of call centres off shore. However outsourcing also includes occupations such as: freelance writers/ journalists; freelance graphic designers; security services; financial services; IT services; administrative and secretarial services; web design and maintenance services; project managers (which could include outsourcing the project management of setting up an outsourcing arrangement).
Talk to SME sized businesses (or read their blogs) and the ‘not enough hours in a day’ problem will inevitably surface. Time spent on compliance, administration, debtors, and employer obligations and innumerable other tasks is time not spent on growing the business. For businesses that are not large enough to have in-house expertise, outsourcing can be a lifeline enabling the business to focus on growing the business whilst still presenting a professional face to customers and stakeholders. Outsourcing to experts can enable the organisation to avoid expensive mistakes in the employment court or through errors in meeting their tax, ACC, health and safety and other obligations.
Outsourcing tasks can also save a business having to spend money on developing their own infrastructure, at least until the business grows to a level where it makes economic sense to do so.
As well as outsourcing tasks to enable the businesses owners to focus on strategy and growing the business, outsourcing professional skills can enable a business to obtain high level expertise and experience at critical periods in the businesses’ growth, development or other periods of change.
Outsourcing arrangements range from a single payment for a single piece of work to on-going payments for a fixed term (which can be time based or for the duration of a project), or on-going with no predetermined end such as a call centre or outsourced financial or legal services. Outsourcing advice may also be on a subscription basis, for example the payment of a monthly or annual subscription entitling a business to seek professional advice on employment law.
The potential benefits of outsourcing also apply to the public sector and not for profit sector as well as to for-profit businesses.
JP Morgan cited cost reduction, quality improvements, efficient growth and more rapid innovation as some of the reasons for their decision to outsource. Cost savings are one of the most commonly cited reasons. A second common reason is the belief that outsourcing facilitates the transition to new technologies. A third reason is the previously mentioned freeing up of time and of resources to enable to organisation to concentrate on its core mission.
Having taken a decision to outsource, what are some of the factors to consider:
The decision should be based on the best solution not on the cheapest solution (hopefully they will be one and the same);
Consider the reputations of potential suppliers and check references. Similar goals and values increase the likelihood of a successful and mutually beneficial relationship;
Use legal expertise to draw up contracts;
If the out sourcing is of a type that will require on-going contract management ensure that somebody in your organisation has the necessary skills;
Scope creepage is what often undermines outsourcing arrangements - incremental costs are incurred for non-core activities that are on charged;
Consider where your business might be in the future, does the supplier have the ability to adapt and are they flexible enough to meet your future needs? If not this does not necessarily mean they are not the best solution now but it is important not to be locked in past their ‘use-by’ date;
Never outsource an element that is tied intrinsically to the value of your business;
Take a long term view. The loss of experience, skills or highly qualified employees may be damaging to your competitiveness in the longer term.
Given that business is fluid, a re-evaluation of the underlying business case that supported the decision should be performed periodically to determine relevance. When JP Morgan ended their outsourcing agreement they had merged with Bank One, cut many costs and had concluded it would be more efficient and provide better value to shareholders if they kept there IS in house. Reasons cited for General Electric’s decision to back shore manufacturing, and open assembly lines again in the USA, included increases in offshore labour costs, improvements in local labour productivity, increased freight costs, shorter cycle times for products and a realisation of the hidden costs of offshoring.
So regardless of your organisation’s size or current situation, regularly review it for potential outsourcing opportunities. New technology may offer opportunities. Either or both of your business and the market you operate in, will change. Such changes may generate an opportunity for your organisations use outsourcing to free up resources, obtain expertise, and increase value.
Information and communications technology (ICT) is the lifeblood of an organisation and it is difficult to imagine a business existing in today’s modern world without using these platforms as an integral part of the business, thus being very dependent on them.
Successful businesses and their leaders have usually been quick to evaluate and, where appropriate, implement new technologies.
Technologies have moved rapidly over recent years from onsite computer processing to convergence technologies integrating telephony, email communications, web-based technologies such as “cloud computing” and television.
We have also seen the emergence of social media technologies and the internet, Facebook and Twitter which are today a fabric of everyday life, all of which offer significant marketing and communication opportunities for businesses.
ICT investments represent major expenditure for many organisations and therefore require close scrutiny and review by people in governance positions.
Historically it is not uncommon for board-level executives to defer key ICT decisions to the business’s ICT management leaders, and as a result the short term focus of those responsible for managing ICT can be in conflict with the best interests of other stakeholders unless a more strategic and risk-based rigorous oversight is established.
ICT governance seeks to achieve clarity between business goals and ICT projects. It is interesting to note that the Australian/New Zealand ISO standard 38500 is concerned with ICT corporate governance and is the first international standard for ICT governance. It provides an efficient and effective framework for ICT governance, leading to better alignment of ICT with organisational decisions.
The Standard applies to the governance of management processes and decisions relating to the information and communication services used by an organisation. These processes could be controlled by ICT specialists within the organisation, by external service providers, or by business units within the organisation. The standard also provides guidance to those advising, informing, or assisting directors.
So what is ICT governance?
Clearly understanding the business strategy and aligning the technology strategy with the business strategy;
Providing clarity between the business strategy and the IT initiatives which means drawing the links between business objectives and project objectives;
Providing clarity through the preparation of a business case for each initiative – it is not enough just to create links but also to help build the case as to how the project will improve the business capabilities;
Obtaining agreement on projects – as a group looking to the entire organisation, it is making a decision on what initiatives move forward;
Obtaining agreement on which projects should be prioritised; and
Understanding the resources necessary to accomplish the initiatives as good governance establishes priorities on resources including both people and financial. Approving capital funds is the easy decision; approving the people to be involved is usually more difficult and ensuring both the correct quantum and mix of technical skills is where many ICT initiatives unravel.
Many of the persistent problems in IT concern the qualities of systems themselves - including legacy systems, obsolete technologies, security, documentation, and the opportunity costs of poor IT systems. Tackling these is the responsibility of management however the collective impact on the enterprise is a concern for the Board of Directors.
Management needs to be able to communicate the risk, justify and control the required work and deliver accountability throughout the project. IT governance in its various forms achieves this type of oversight for IT investments, change projects and service delivery but it rarely extends to the systems themselves which in reality involve many of the persistent problems in IT.
In reality there is no single definition of IT governance but in each case governance will involve a mixture of the following tasks:
Control of the work;
Co-ordination between different aspects of the work;
Measuring the outcome;
Compliance with internal policy and regulation;
Justifying the expenditure;
Providing accountability and transparency; and
Connecting with the needs of stakeholders such as customers and the organisation itself.
There is an interesting publication called the Calder-Moir IT Governance Framework Toolkit which is recommended reading for all savvy business leaders. It contains all the tools and guidance that you will need in order to develop and implement an appropriate ISO/IEC 38500 IT governance framework for your organisation and to understand the legal and regulatory obligations for your business.
Many businesses are entering into e-commerce which introduces a wide range of new security risks revolving around the use of the internet. E-Governance is a subject for another day but the world is rapidly changing as evidenced by new technology products which are appearing every day.
Ensuring your technology infrastructure supports and is aligned with business goals, is key for any business to succeed and is the responsibility of the executive function. Understanding the impact of introducing new technology and the enterprise’s ability to integrate successfully is a governance concern. If you need assistance with evaluating technology options to support your business then we can help - alternatively if you require support in a “steering capacity” to ensure that ensuing business risk is understood and managed, we can assist in that capacity as well - just pick up the phone and Dial a CFO.
Chris Luoni is a member of the Dial a CFO Client Solutions Team in the Waikato. He is an accomplished Director and joint owner of Omnia - being providers of behavioral assessment services to business owners. He is an experienced business strategist, chartered accountant, and is the incoming Chairman of the Duke of Edinburgh Hillary Award - NZ's leading youth development programme.
Aspirational business owners requiring the expertise of a chief financial officer can now do so on an affordable basis, from a resource pool previously only available to large corporates, according to Dial a CFO (Dial) Founder Tony Rutherford.
"Our clients value the experience that our associates bring to the table from careers working within business which enables them to unlock value - this being available from one hour per month to full time, and from one associate to a small team, on either an ad-hoc or recurring basis," he explains.
While the service offering is national, the Dial Waikato team currently numbers 10 and in spit of the name comprises more than just CFOs - offering a one stop shop for all accounting, commercial, and governance requirements.
The Waikato team is led by Gordon Lewis, an experienced local business change executive, supported by Omnia owners Chris Luoni and Rob Pascoe.
While most of their work is performed with clients on-site, they also maintain a presence at the Waikato Innovation Park (WIP).
Former WIP CEO Derek Fairweather said: "At Waikato Innovation Park, we require our businesses to demonstrate significant ongoing innovation, and the Dial a CFO model both delivers that innovation as a resource, and also assists our businesses themselves to access the commercial and financial resources that they need to expand and deliver business growth and innovation."
Gordon Lewis added: "Small and medium businesses face similar challenges to large corporates but usually without the same support framework of their larger counterparts."
"Dial a CFO can bridge this gap by providing resource with the right level of skills and experience, as and when required, at a transparent and competitive 'pay as you go' price - this being available over the life cycle of the immediate business need, and beyond."
Recently Dial was asked to provide coverage for the CEO role at Local Authority Shared Services LASS which is being performed by Dial associate, Rachael Dean.
Waikato District Council CEO Gavin Ion said: "Dial a CFO provided a very capable resource to fill a vacancy we had while we recruited. I was impressed with the professionalism and flexibility of the arrangement and the person we engaged."
Waikato Business News is pleased to confirm that Dial a CFO will have an exclusive monthly editorial which starts next month, on topical business maters relevant to business owners.
If you want to know more about the Dial service, phone 0800 234252, or go to the website www.dialacfo.co.nz.
Where do you begin when you need to combine four operational facilities: your national head office and data centre, your Northern region distribution centre and two large sales offices?
The project will affect half the company's staff (some 400 people), and more than half its customers that rely on next-day, no fuss delivery. There's nearly $20m of inventory involved and you need to keep the supply chain moving and the IT infrastructure intact. But before all that you need to work out the economics of the move and get the required Board approval on a project that will likely take two years to complete post sign off.
As CFO of a significant NZ wholesale and distribution business these were some of the challenges we faced as I was asked to take the lead role in the end-to-end delivery as internal project manager.
The role of internal project manager is critical as it needs to be a senior person who understands the business and who can work across the functions impacted. In our instance, I had to pass over half of my day-to-day responsibilities to my direct reports and, in turn, this cascaded down through the organisation so that any backfilling occurred at the lowest level.
We recognised the need to engage a specialist property lawyer and a commercial negotiator because the scale of the project dictated it - this isn't a place to cut costs - major landlords are expert at cutting deals and you need to have someone just as canny on your team.
Marshalling other professional resources, both external and internal, requires clear delineation of responsibility. External: Building Project Manager (in conjunction with the developer), Quantity Surveyor, Interior Designer, etc, the technical and compliance skill sets we didn't have in-house. Internal resources were used to plan for the distribution and office relocations, recognising that no-one understands your business needs better than your staff – hence these are not roles that can be easily outsourced.
Understanding the key things you want from your new space at the outset is critical so you get them right in the planning. Ask your people what they want and then work hard to manage expectations, and in particular balancing aesthetics with ergonomics while remaining compliant with health and safety regulations.
Maintaining an iron grip on the finances enables remedial spending adjustments to occur when the unexpected happens, so that the project remains within the overall budget. Making a single finance team member accountable for recording, monitoring analysing variances and reforecasting was key.
Finally, keeping staff engaged and excited about the move as the project gets underway.
Looking back there were many lessons learnt, the key ones being:
The productivity gains attached to getting the environment right will likely exceed your expectations;
Don’t underestimate the commitment required of internal resource to get the project across the line – keep everyone engaged throughout the process and allow them to have a voice;
This is a great learning opportunity for staff to broaden their skill base and feel empowered as part of a successful project – in our case some staff went on to apply the learnings with other facility builds within the business overseas;
It doesn't necessarily cost more to be "green". Sustainable solutions that are important to your customers and staff should be important to the project team too;
The economics from long term resource efficiency will outweigh the up-front one-off costs so don’t hesitate to bring in the expertise where and when you need it.
If you have identified the need to expand your organisational footprint, it’s imperative you get your CFO involved at an early stage to assess and evaluate options and consider the wider implications on the business. This can extend to an active role in the project roll out and ensuring risks identified at the outset are managed and the anticipated benefits realised. If you don’t have this person in your organisation we have the expertise on board to help – just pick up the phone and Dial a CFO.
Sarah Haydon is an associate and member of the leadership team of Dial a CFO and has significant experience both as a CFO and as a commercial change agent in significant transformation projects including some with an international reach. She specialises in leadership (people and projects), strategic planning and organisational change. Sarah has worked in wholesale distribution/logistics, television and oil/gas sectors.
You’ve likely heard of the expression “losing sight of the forest for the trees” and understand its meaning, however what if the opposite occurs? That is, you are immersed in the day-to-day white noise of working in your business and fail to observe what is occurring at a granular level that over time accentuates its impact on the value of your business?
In our last article Murray Fulton discussed Centres of Influence (COIs). These are the key elements in every business where stakeholder value is created – intellectual property, key customers, efficient supply chains, strategic alliances – they vary across business and industries. The role of the Chief Financial Officer (CFO) is to ensure that risk around these value drivers is both understood and managed – the CFO being personally accountable for financial and control risk but often facilitating the oversight of the others.
And while your business may not have a person called a CFO, there will likely be some person(s) responsible for its financial management, driving commercial outcomes, engaging with stakeholders and to some extent managing business risk. In larger businesses these responsibilities usually fall under the remit of the CFO. In the case of SMEs, there may be one or more individuals covering these areas such as a director, an external accountant, a trusted business advisor, or the business owner (CEO) wearing both hats.
So what is the impact when the person(s) responsible for these areas fail to detect subtle changes? At the very least, the business will fail to reach its full potential. At worse, it will likely eventually result in business failure.
We have worked with two clients in recent times where their senior finance resource left the business after a significant period of time (both in excess of 10 years) and we were asked to step in to the CFO role and provide a fresh perspective on the role. We were asked to identify and execute a significant change management piece in both businesses – one of which has gone on to thrive while the other has ultimately failed – albeit in the case of the latter we provided them with an additional three months to allow an orderly liquidation.
So what are the lessons to be learned from these engagements – what are the factors that can make a difference?
First, every business needs one or more individuals responsible for identifying and managing the risk around the centres of influence. If you don’t have this expertise on board you need it. As a first step, look at your business from the perspective of someone purchasing it and consider what factors would influence the amount they would be prepared to pay.
If, as a business owner, you are not technically competent to mentor or provide a sounding board to the activities of your CFO, find someone who can. If there is nobody on the executive team to perform this role, look at the background of your directors / governance function or a business mentor from a finance background.
You should monitor progress on the job in a formal structured performance review. If there is a question over the ability of your CFO, take action early. Often it doesn’t require that the CFO leaves but rather recognition that there are areas for development and that these are targeted, worked on and compensated for. However, if they really aren’t up to the job, don’t shy away from making the hard call to curtail the relationship.
Ensure that you have a succession plan in place so that your CFO is aware of their development potential and that their support team are similarly considered. Even the smallest business in an expansionary phase should be looking to develop its people outside their current areas of responsibility.
Review the position description of your CFO at least annually. Business is by nature dynamic so the responsibilities within the role should flex with the business. There is a high risk of apathy with a static position description and with that risk that the CFO will lose focus over time.
Ensure that your CFO attends continuing education programmes so that their knowledge is current and they are across best practice.
Challenge this person to implement initiatives from these continuing education programs and align their remuneration to achieving these initiatives and by doing so keep them keen.
There is value in a professional certification so ensure that your CFO is either qualified in a NZ recognised accounting qualification or is studying towards one. You can place some reliance in the inherent quality measures the accounting bodies have in place.
Hire smart in the first instance. Ensure that the right technical and business cultural fit is in place before making an offer and use the expertise and tools of the recruitment experts.
You might be thinking, “I don’t have the time or financial resources to do all this”, but the implications of hiring badly or hiring well and your CFO losing focus and not managing the risk around the centres of influence in your organisation can be significant.
If you need assistance with identifying the centres of influence in your business and how best to manage the risk around these elements we can help. If you would like to learn more about what a CFO in business does just pick up the phone and Dial a CFO.
Tony Rutherford is the Founder and Principal of Dial a CFO and has experience both as a CFO and as a commercial change agent in significant transformation projects including some with a global reach. He specialises in purchasing supply chain and procurement and has worked in wholesale /distribution, infrastructure, transportation, and the insurance sectors.
In every business there are centres of influence (COIs) – touchpoints that have an important impact on how the business functions. The most obvious of these is the customer base. In fact 80% of business revenue will come from a specific group of customers, which are often close to 20% of your customers – hence the 80/20 rule.
Have you identified your COIs?
1. Customer base Review your customer base. Identify the customers who you have a longstanding, and/or deep business relationship with. Have you ever had a discussion with these customers as to how both of you could promote each other’s business, and assist each other?
As long as there is mutual benefit to this process, it will only serve to further strengthen the business relationship.
2. Sales prospects Although they may be much lower in number than the customers above, execute exactly the same steps for your sales prospects as for your customer base. The only difference is to exercise caution if you are in any doubt. There may be prospects who think very well of your business, and if this is the case, then by all means treat them as COIs. If you feel that this is too risky, or that there are no COIs within your sales prospects, then that is fine also.
3. Key suppliers Your suppliers can be powerful advocates and reference sources for your business, particularly those suppliers whom you have a longstanding, and/or deep business relationship with. As per the customer base comments above, have you ever had a discussion with these suppliers as to how both of you could promote each other’s business, and assist each other? If you do not ask, then you will never know.
4. Key business partners In the same way that your customer base and key suppliers can be powerful advocates and reference sources for your business, so can your key business partners. Again, ask.
We have now identified four components of your business that can, sensitively handled, become part of your sales efforts. Ensure that each of these four elements are mutual – i.e. that your business promotes each of these four groups as positively as they promote your business.
Have you analysed the key customer categories within your business and identified the customers responsible for 80% of your business revenue?
This is critical. When adopting a COI strategy, it is critical that it is done with care, focus, and with very clear targeting. Customers who make up the group generating 80% of your revenue are the ideal place to start.
Do you have a specific call plan and sales strategy for each of these customers and have you ever asked what they think of your services or products?
A COI strategy should not be commenced without good quality call plans and sales strategy in place. If these are not in place, then action them first, and bed them in before considering a COI strategy.
Who are the customers your business simply can’t afford to lose?
These customers will either be part of the group who generate 80% of your revenue, or they will be developing customers, who, for whatever reason, have been identified as having future significant potential and importance for your business. Earmark these customers as potential participants in the COI strategy. The key here is to decide when the right time is to include them. Exercise care and caution, and do not proceed with them until you are confident of their status and importance to your business.
Who are the customers that you should be firing? This is more important than you realise, so consider the question carefully.
Many businesses never identify these customers, and still fewer ever do anything about them. These customers are parasites within your business, and suck up precious resources within your business that could be directed towards high value customers. Decide on the criteria for these customers, identify them, and proceed to terminate them. Your business resources will free up, and you and your team will notice a positive difference in energy and service levels.
Leverage your COIs The real opportunity here lies in identifying the value that your COIs see in your business and what value you can provide for them.
Ask your COIs how you can improve your service and deliver more value to them.
Remember, if they are happy with your service, they will want to help your business grow. So don’t be shy in asking them for referrals.
Identifying the Centres of Influence in your business is achieved by segmenting customers, suppliers and other stakeholders and considering the impact on your business if they are removed. Applying an objective assessment of contribution to financial performance enables a priority cascade and following this a methodology around how each category should be managed. As CFOs we are responsible for understanding and managing the risk around the value drivers in our client’s business so if this is something you need assistance with please pick up the phone and Dial a CFO.
Murray Fulton is a foundation member of the National Leadership team of Dial a CFO. Formerly the CEO of a major Auckland based NZ law firm, and a GM of the second largest NZ-owned IT services company, as well as the former CFO of a number of major corporate entities, he offers commercial change management for a diverse range of NZ businesses.
As a business owner, imagine the value in being able to access a highly skilled pool of vetted commercial executives to help you improve your business without the cost and responsibility of employing this resource full time.
Step in 'Dial a CFO': Tony Rutherford established 'Dial' to fill this gap in the market as a professional service offering a variety of hire-to-order skills.
Tony explains: "Our people work across a variety of clients at any point in time which enables us to provide a very flexible resource pool - from business analysts through to non-executive board directors, and of course chief financial officers, or CFO's.
Many companies, particularly those in the SME sector, require less than full-time assistance due either to financial constraints or requirements that tend to be sporadic.
Through Dial they can purchase what they want when they want it - and there is no limit to the number of associates you engage at any one time.
This skill set is normally only available to large businesses on a full time basis but we can provide this to SMEs through an innovative and nimble business model.
The concept of virtual CFOs is nothing new but it is a matter of who is equipped to do it."
Tony explains further: "Some Chartered Accounting firms offer this as an 'add-on' to technical and compliance work; however most do not have the experience of offer this service.
All our CFOs have long and successful careers in industry and commerce hence their experience is more relevant enabling them to initiate appropriate solutions more quickly.
Our service is complementary to that provided by the CAs. As principal I am engaged to ensure that what our clients desire by the way of outcomes is achieved.
This contrasts against the sales focus of the recruiters that clop the ticket and move in." At Dial they charge differently too.
The associate invoices our clients direct at the negotiated rate with no margin on this cost," Tony says. "This can be for a day, week or month per quarter."
Dial charges either a small fixed engagement fee for every associate placed; or alternatively you can have access to the entire associate resource pool for a fixed ongoing subscription.
If you are interested in this service, you can find out more on their website www.dialacfo.co.nz - or speak to Tony Rutherford on 0800 234 252
Tony Rutherford launched Dial a CFO in July this year to fill a gap he had spied in the market linking seasoned chief financial officers with companies needing financial guidance.
If you need your GST or your accounts sorted, you can find an accountant easily enough. But where do you find the sort of strategic financial advice that will help your company grow? And, more importantly, how do you put that advice into practice? Those were the sorts of questions exercising Rutherford’s mind when he hatched his plan to launch Dial a CFO.
His solution is a pool of experienced associates who don’t want to spend their lives working for one company. You can gauge the calibre of the associates and the leadership team at the website Dialacfo.co.nz. Rutherford reckons the main selling point is scalability. You dial a CFO, one of the leadership team comes out for a chat, and you define the scale of your problem, get an associate on board for the duration of the challenge, and hopefully establish a relationship with a trusted professional who isn’t on staff with all the costs that entails, yet is on call in future.
For startups in particular, and many SMEs, strategic financial advice of the sort a good CFO can offer is often out of reach due to cost. If Rutherford’s venture gets going on any sort of scale, and early indications suggest it will, it will enable Kiwi companies to access thesort of advice that will help them grow in a sustainable fashion. And that has to be good for the economy.
Tony Rutherford’s five startup lessons
Surround yourself with competent people who share your vision and share the workload (to keep your marriage and family life intact). Associates are vetted before coming on board and good people tend to attract good people. We regularly get referrals from existing associates and business partners, which means a lower risk to the client. We have identified a few close business partners in complementary business streams. Learn from those that have gone before. Also, develop trust and feed introductions that might crystalise in the new business.
Don’t underestimate the difficulty of establishing a credible brand, particularly where the business model is different to thestatus quo. Most businesses are born with a fragile brand so how do you establish credibility? I needed a leadership team with good standing in the business community. Articulating the business model has been achieved in part by explaining what Dial a CFO isn’t. We are not a firm of chartered accountants, or a recruitment firm or a franchise of financial controllers. The term ‘CFO’ is not widely understood across the mid-tier business sector so the website aims to educate clients that a CFO executes commercial outcomes as well as implementing a governance environment that understands and manages business risk. You need to back yourself. Keep an eye on competitors but don’t be distracted by them. Refine your service while working with your client rather than worrying about what others might be doing.
Market smartly. Ensure you understand your target client base and how you can create value in their organisations. Appreciate the importance of blending a broader awareness of the name with a more specific targeted marketing campaign. The latter is the current focus at Dial a CFO. We can accommodate an approach from any type of company but have identified that the mid-tier business sector is where we believe we can make the greatest impact. We are targeting strategic alliances with large New Zealand institutions that we believe are aligned with Dial a CFO in respect of values.
Spend your money wisely. Avoid fixed overheads where possible and manage to a variable basis in line with business activity. Avoiding expensive real estate and executive salaries enables Dial a CFO to remain nimble. If the client or associate isn’t better off, then don’t spend the money.
Eat, sleep and drink the new business. Keep a notepad on hand at all times. I didn’t appreciate how all-encompassing a new business is. There is no escape on the weekend and it’s never far from the front of my mind.
A dynamic new service has emerged over the past few years that allow companies to hire seasoned executives on a part-time basis instead of hiring a full-time employee. The ability for companies to “rent” a seasoned Chief Financial Officer is an alternative to hiring a full-time employee that otherwise would require an annual salary of $100,000 to $250,000, not including taxes, bonus and benefits. These professionals typically serve companies with sales from $2 to $50 million.
The Benefits More time for the owner to spend with customers or in improving the company’s future. This is called a “finding” activity. A company, if it is to compete successfully, must have the owner spending most of his or her time with current and future customers. There are several “facts of life” that do not vary with time. One of these facts of life is that someone is spending time with your current and future customer today. If not you, it may be your competition.
Better financial information for key decision making. Most closely held companies have erroneous financial statements. It is dangerous for an owner of a company to make decisions, such as hiring new people, buying new computer systems, spending money on advertising campaigns, etc., if the financial information the owner is using is inaccurate. Bad financial information typically results in bad decisions. Bad decisions can kill companies. An experienced part-time CFO will have the skills necessary to help the company get correct financial information. This professional should also be a sounding board for key decision making.
A theft deterrent. It is shocking to see how many employees steal from employers. Many of the people that steal are in the accounting department. There is theft of money, inventory, customer lists, intellectual property and other company assets. A seasoned part-time CFO who visits the company’s office a few times each month will not only help establish tighter controls to deter theft, but their very presence should help decrease theft from company employees.
More money from the bank and from vendors. Bankers and vendors are more sophisticated than ever. They are looking for financial statements that look professional, that are issued in accordance with GAAP (Generally Accepted Accounting Principles) and that easily show the company’s key ratios. An experienced part-time CFO will be able to not only present the company’s financial information in a professional manner, but will be able to assist the owner with opening doors to banks and better vendor terms.
Training for the company’s accounting staff. It is in the best interest of the company to have its accounting staff become better in accounting knowledge and procedures. A good part-time CFO will be a seasoned executive who mentors the accounting staff to do a better job.
Pay for what you use. Many companies need the services of a CFO, but in the current economy cannot afford the cost of hiring another body. Businesses use a payroll service or outsource their network function for the same reason.
The Qualifications Your professional should have more than 25 years of experience. Make sure the part-time CFO is supported by a national organization that has the resources to be able to give your part-time CFO the support they need.
A CFO is a proactive professional who has a pervasive knowledge of things important for you to run your company properly. They will have the ability to address HR issues, sales and marketing issues and a host of things needed to help your company succeed.
What to Expect No contracts to sign. Relationships should be based on trust, mutual respect and a reliance upon excellent services rendered. Walk away from the situation if an organization is not competent enough to perform these services with a handshake or requires a large retainer.
Avoid any offer that might require your company to pay a return on profits. The money the company earns belongs to the owners, not outside people.
Finally, the advantages to hiring a part-time CFO include: (1) accurate and timely in-house financial statements, (2) the origination of solutions to your company’s problems, (3) financial and goal clarity, (4) a sounding board for the owner’s key decisions, and (5) you will begin to find more time to spend in entrepreneurial activities.
I have recently come across several cases where SME owners have been looking to sell their business but have found that their lack of preparation has reduced the sales value. So here are four key questions that might help.
1. Why should businesses be thinking about exit strategies? For many SME owners the capital gain from the sale of the business can represent their largest extraction of cash from the business. This value invariably has a significant effect on the lifestyle of the owner and their family once they no longer are working. SMEs generally sell at earnings multiples ranging between 3 and 5 but can substantially exceed this in some circumstances. While maximizing businesses profits in the years immediately prior to exit is very important, it is also critical to position the firm so that a buyer is prepared to pay a greater multiple. The multiple will depend largely on three factors: the risk assessed within the current business, the likelihood of future growth, and the number of buyers interested in purchasing it. These factors need time to be addressed so business owners must prepare early. Owners who are unprepared and are forced into a sale either through a financial or health event are likely to lose potential value.
2. What will the market be like in the coming years? From a supply perspective, the outlook for selling a business may be tough. Many SMEs were established by the baby boomer generation and these owners are now approaching retirement age. This will bring a large number of SMEs on to the market. This may be compounded by the fact that many owners have put off exiting their businesses during the GFC in the hope that pre-2007 asset prices will return. This may be unlikely but these owners can’t hold off forever. From a demand perspective, younger people looking to run their own business face competing uses of capital, particularly from relatively higher housing costs. While local demand may be supplemented by overseas buyers or wealthy immigrants, there will still be a larger number of local businesses on the market looking for a buyer.
3. What will make my business more valuable to a potential purchaser? First, think about the risk in your business from the perspective of a new owner. The biggest risk to the current business is often the importance of the owner to the operation. In many SMEs the owner holds most of the intellectual property and the key customer relationships. This risk can be reduced through separating the owner from the day-to-day operations and allowing for an earn-out period after exit where the existing owner stays on and transfers skills and knowledge for a specified period of time. A partial exit can also give some comfort to a new owner.
Second, consider where future sources of growth will come from and develop a clear strategic plan for exploiting these opportunities. If you can convince a potential purchaser that there is an upside in the firm’s earnings, you are more likely to extract a higher earnings multiple. However the business needs to lay out a clear and credible growth path backed up by robust analysis and preferably some early runs on the board.
4. What should a SME be doing now?
Consider adopting a more professional governance arrangement such as the establishment of an advisory or statutory board. This will allow the business to set up systems and processes that are not fully dependent on the owner. Outside directors bring a focus on current operations and can also help articulate future growth opportunities that can have a substantial impact on the future sale price. While a board may appear an additional cost right now, it could pay back many times over on the day the business is sold.
Identify the likely next owners of your business and what will make your business attractive to them. These may be competitors, private equity partners, or complementary firms such as key customers or suppliers.
Rehearse a sale by understanding where future growth potential lies and lay this out in a well-developed plan. This could include commissioning an independent valuation, preparing a mock information memorandum or collating a list of due diligence materials that could be provided to a purchaser during a sale. This is an area in which Dial a CFO has considerable expertise.
SME owners and their families have invested a lot of time, effort, and emotion in their businesses. Whether you are considering an exit in the next 12 months or the next 5 years, it pays to think ahead and retain as much value as you can.
Maximising the value attached to selling your business requires careful planning and precision execution. Our team at Dial a CFO can assist in either guiding the process or completing the required activity, so start now by talking to our team. Hamish Stevens can be contacted on 0800 234252 or firstname.lastname@example.org.
Hamish Stevens is a member of the Dial a CFO Leadership Team - an Independent professional director with extensive experience in strategy, international business, mergers / acquisitions, and commercial change management. Dial a CFO (Chief Financial Officer) provides a national service offering to business owners who require commercial change management and governance services on a flexible and affordable basis over the life cycle of their business.
When talking with small business owners, I always ask them how ambitious they are. I do this because it is often claimed that New Zealand smaller businesses are not ambitious enough. Evidently they are content with limiting their business growth to the acquisition of the 3Bs – the boat, bach and BMW. What I hear is that most business owners are in fact very ambitious, and indeed often more ambitious than their competitors, but I find that this is often not backed up by any plan or actions within the firm. In one case recently, a business owner told me he was highly ambitious and was going to triple his revenue in four years, but when I asked if he had a business plan he told me he hadn’t done one – and as a result there were few actions in place that could be described as ambitious.
I have found that the link between an owner’s ambition and that of the firm is good planning. For smaller firms, planning should not be complex and it shouldn’t involve multi-page documents with lofty visions and missions. But even in a simplified planning process there are some key pitfalls to avoid. Here are four of the most common I’ve seen:
1. Not knowing where you are
All good planning starts with an honest (and at times brutal) assessment of where your business is right now. Ask what your market looks like, what changes and trends are likely, what the key customers are doing, and what competitors exist now or are likely to appear. Understanding your situation with a sense of realism will also allow you to develop better focus. You cannot sell everything to everyone and you will waste a lot of effort (as well as go broke) in trying. I always recommend a SWOT analysis focused only on the 3 or 4 main strengths, weaknesses, opportunities, and threats.
2. Not knowing how you are different from your competitors
In a competitive market, the only way a business can win is to differentiate itself from its competitors. But businesses need to understand what it is that makes them truly different. List the things that your customers prefer about you now, and what they will prefer about you in three years time. If this is a problem, consider undertaking a formal or informal survey of customers to understand what they are really thinking – there are several ways of doing this. A building services company I have worked with has recently been through this exercise, and has been able to gain immense clarity about why its customers choose to do business with it. Not only did this allow it to service its current customers better, but it has also driven substantial growth in new customers.
3. Not holding to account
Most plans fail not because they are not good plans, but because the plans are badly implemented. A good business plan will include specific initiatives and actions, and these will be linked to the individuals or small teams who will carry them out. These actions need to be specific and measurable so that the business knows who is accountable and when they are being implemented successfully. It is also important that there is frequent and regular monitoring of progress. And this doesn’t mean just holding everyone else to account, but also having systems and structures that hold the owner to account. This is sometimes the hardest bit for business owners.
4. Not getting an outside perspective
Most business owners know their business extremely well, but because they are immersed in the day to day operations, may not see opportunities and threats as clearly as someone from outside the business. I have found that businesses that prepare and implement the best plans are those who have sought an external perspective. And this means someone who is independent – while family members, friends, lawyers, and accountants may be willing to tell you what they think, their views may be shaped by their overall relationship with the firm and its owner. It is best to seek someone with a totally external and independent viewpoint.
Of course planning involves a number of steps, but if you follow a simplified planning process and avoid these four pitfalls you are far more likely to have your own ambition translated into growth for your business.
As business owners we often find ourselves working “in” the business rather than “on” the business with the result that decisions tend to be reactive without a clear understanding of who is doing the work and what the financial consequences are. If you want a fresh set of eyes on your current business planning process, or if you don’t have one and need help in developing it we can assist. Please contact Hamish Stevens for more information by emailing email@example.com and referring to our websitewww.dialacfo.co.nz.
Hamish Stevens is a member of the Dial a CFO Leadership Team - an Independent professional director with extensive experience in strategy, international business, mergers / acquisitions, and commercial change management. Dial a CFO (Chief Financial Officer) provides a national service offering to business owners that require commercial change management and governance services on a flexible and affordable basis over the life cycle of their business.
A team of commercial executives have joined together under the umbrella Dial a CFO (Dial) to provide professional services to businesses throughout New Zealand including more recently the Waikato region.
The Dial team all have significant experience gained in the corporate sector, in organisations of varying scale and across virtually all industries.
This enables them to draw from experience that is relevant in unlocking value in their client businesses.
In spite of the name the business comprises more than just Chief Financial Officers – offering a one stop shop for all your accounting, commercial and governance requirements.
The 50 most senior associates have combined experience of more than 1000 years in the commercial business environment.
Associate Murray Fulton describes the service as ‘flexible access to finance talent as you need it'.
“Small and medium businesses face similar challenges to large corporates but usually without the same support framework of their larger counterparts,” he said. “Dial a CFO can bridge this gap by providing resource with the right level of skills and experience, as and when required, at a transparent and competitive ‘pay as you go’ price.
“Our associate works within your business with a commercial and internal focus, just as if they were an employee but without the commitment from you that an employee requires.
“With Dial, a business can buy what it wants when it sees the need,” said Murray. “Our associates can be available throughout the life cycle of your business on a routine or ad hoc basis, enabling real value to be gained by you working with a trusted business partner over an extended period of time.
“Our service is complementary to that performed by public practice chartered accountants where different skill-sets exist.
“The Dial “switch on / switch off” service is quite unique,” said Murray. “It enables a client to purchase whatever skill-set they need for as long as necessary.”
Recently Dial a CFO and Waikato Innovation Park (WIP) launched a business partnering relationship. Park CEO Derek Fairweather said: “I’m delighted that Dial a CFO has become a partner at Waikato Innovation Park.
“The Dial model delivers a resource for WIP businesses to access the financial, commercial and accounting resources and support that they need, when they need it, for as long or as short a period as is needed.
“At Waikato Innovation Park, we require our businesses to demonstrate significant ongoing innovation, and the Dial a CFO model both delivers that innovation as a resource, and also assists our businesses themselves to access the commercial and financial resources that they need to expand and deliver business growth and innovation.”
There are many examples of where Murray says Dial resource can make a difference.
“We develop and implement business improvement initiatives at the same time identifying and managing business risk.
There is gain for all stakeholders including directors, banks, suppliers and customers.
“They can take comfort from having flexible, on demand financial and commercial resource present as generally they maintain a risk tolerance that is lower than the business owner and will challenge where required.
“And our Dial associate can step in with ease when the business owner is unable or unavailable to lead the business,” said Murray.
While many Dial associates are Auckland based, there is a strong Waikato based membership, and Dial is also growing nationwide.
For more information about Murray Fulton and the leadership team, visit our About page.
Say you've spent decades in business, building up a reputation in your field and and some pretty solid experience. But stepping into C-level shoes is just not for you. Where to next?
These are the types of people Tony Rutherford of Dial a CFO is recruiting. The Dial team encompasses corporate expertise from business analysts through to directors, financial controllers, and yes, CFOs.
"You'd be astounded at the number of people out there like that," he says. "Businesses just don't know they are out there. There are some very good people that want to work across multiple companies. Yet in New Zealand there is this inference that unless you're working for a pedigree New Zealand company as a full time CFO that you're somehow haven't self-actualised."
For companies, particularly SMEs, the benefits are bringing on industry experts to fill skill gaps on an as-needed basis. Dial a CFO is a little over a year old and its 50-odd team have worked with more than 15 companies on everything from risk management to procurement to legal, strategy and planning.
Rutherford says the next step is building up customer clusters, and to that end, is reaching out to banks such as ASB and industry organisations like the EMA that could link Dial a CFO into their groups of clients and members.
There's also potential to expand the model into Australia, and to other professional service sectors, he says.
"Why wouldn't you dial a lawyer, architect, CEO?"
Rutherford started the company after seeing a gap in the market.
"We spotted a lot of businesses that need the requirements of a CFO: someone who's really been there and done that and driven teams and managed commercial outcomes and managed risk and done stakeholder engagement," he says.
"Lots of midsize New Zealand corporates need it but not on a full time basis. There's no value of having a $300,000 person on payroll."
There are virtual CFO services in New Zealand but Rutherford says those tend to tap into the multinational chartered accounting environment. Dial a CFO associates, he says, gain their experience within the commercial sector and can often match the industries of customers. They work in companies as though they are staff members, as opposed to the external, technical focus of CA firms.
Clients range from the smallest of startups (like Zane Education, with ambitions to list on the NYSE this year) to multinationals turning over hundreds of millions.
"A lot of businesses just get by with their internal network – but just imagine the strength of having one organisation where if one week you need a BA and one week you need a CFO and next week a Treasury expert ... the mix is going to change over time," he says – and Dial a CFO aims to be a "one stop shop for all of your commercial and business requirements".
Dial a CFO's associates are essentially self-employed. According to Rutherford, most would be working 2-3 days a week, but this can vary. Some depend on it as their only channel of work; some of the more junior members are looking for permanent work, while others at the opposite end of the spectrum are semi-retired.
"The great thing about the service is we can accommodate any client request."
First there was Dial a Hubby. Now you can dial a CFO.
Tony Rutherford launched his website in July this year to fill a gap he had spied in the market linking seasoned chief financial officers with companies needing financial guidance.
Of course he called it Dial a CFO. "Some people thought it was a bit silly," he says.
"But it's an access thing. This is all about making it easier for companies to get the right sort of advice and this is about simply picking up the phone and getting a CFO. It shouldn't be any harder than that."
Getting the right financial advice is a problem many companies face. If you need your GST or your accounts sorted, you can find an accountant easily enough, or an SME may be tempted by MYOB or Xero. But where do you find the sort of strategic financial advice that will help your company grow? And more importantly, how do you put that advice into practice?
Those were the sort of questions exercising Mr Rutherford's mind when he hatched his business plan.
If you have a problem in business, who do you turn to?
Assume the owner of a manufacturing company which mainly exports is hemorrhaging money.
"You call an accounting company and probably get a salesperson who will look up haemorrhaging in the dictionary," says Mr Rutherford. "Or you can go to your accountant who knows all about GST or you can get in a consultant who will charge $20,000 for two weeks work and not own any of the results."
Mr Rutherford's solution is a pool of experienced associates, who don't want to spend their lives working for one company. Through Dial a CFO, they get the chance to work for several clients and there is some certainty around the volume of work, or Mr Rutherford hopes there will be as momentum picks up.
There's a perception in New Zealand that CFOs who aren't in employment with a blue chip company are somehow less capable, says Mr Rutherford. He hopes that perception will change with his business.
You can gauge the calibre of the associates and the leadership team at the website - dialacfo.co.nz. There are some heavy hitters on board already.
The fee structure is also transparent. Mr Rutherford reckons the main selling point is scaleability. You dial a CFO, one of the leadership team comes out for a chat, and you define the scale of your problem, get an associate on board for the duration of the challenge, and hopefully establish a relationship with a trusted professional who isn't on staff with all the costs that entails, yet is on call in future.
For start-ups in particular, and many SMEs, strategic financial advice of the sort a good CFO can offer is often out of reach due to cost. If Mr Rutherford's venture gets going on any sort of scale - and early indications suggest it will - it will enable Kiwi companies to access the sort of advice which will help them grow in a sustainable fashion, and that has to be good for the economy.