VIRTUAL FINANCE DIRECTOR
Why do some growth businesses keep on growing while others falter?
- Why does growth in revenue so rarely translate into growth in profit?
- How can one company achieve 50% greater profitability than its competitors without (apparently) doing anything differently?
- Why do great products, great people and loyal customers not necessarily produce even adequate profitability?
The Finance Director can tell you
The fact is that good business performance doesn't automatically translate into good financial performance. This is a real issue if you want to grow: being successful doesn't generate the money you need to expand or the financial track record that enables you to raise money from banks or investors.
The right Finance Director will:
- Tell you which parts of your business make the bulk of your profits so you can concentrate on growing the profitable areas instead of wasting resources expanding unprofitable bits
- Help you more accurately assess risk on new ventures so you can be bold when you can afford to be and cautious when you need to be
- Help you to find the finance to expand, possibly from within your business, avoiding the need for onerous bank loans or new investors
- Generally keep you out of trouble. Sometimes you need someone experienced who can sniff the air and tell you if something isn't quite right.
Do you recognise these symptoms of growth and increased complication?
- Your customers, products and services are more diverse. As you grow, you pick up not just more customers but more diverse customers. Some of them want different things or have special requirements you hadn't thought of. As you accommodate these new demands you are slowly being pulled in the direction of unprofitable business. Some of the new work is fine but some could be losing you money.
- You are finding it harder and harder to agree on the right direction. In the early days it was simple to see what worked and what didn't; now it is more complicated. You spend more time debating the issues and less time working on solutions.
- Great efforts don't always produce great results. You are working as hard as ever but the results don't seem to follow. Margins are falling, staff numbers are rising, but you are still struggling to deal with the work.
- Management accounts don't help. The stats you have don't seem to tell you what you need to know. Your management report pack is getting larger and larger. Every month there is a new schedule but the pack isn't getting any more informative.
The Financial Controller can't help you
If you have a good Financial Controller, cherish them. You absolutely do need someone who can get the invoices out, get them paid, pay the suppliers and the salaries on time and produce management accounts. A controller will help you know where you are but can't help you get where you want to go. I have worked with some excellent Financial Controllers who would have fainted if you had asked them into the boardroom to discuss strategy, but that is what you need your Financial Director to do.
Some Financial Controllers of course have the potential to develop into a good Financial Director but this takes time and effective mentoring – and even if you can provide the mentoring, you can't afford the time.
Your auditors can't help you
Running an accounting firm is really hard. You need to keep on top of a huge mass of rapidly changing knowledge in tax and financial reporting. You need to organise lots of junior staff to do the work cost effectively. You need to maintain continuity whilst employing some of the most fickle and mobile workers anywhere, and then you need to communicate highly technical issues in a way that non-accountants can understand. If your accounting firm can do all this, be grateful and congratulate yourself on your choice.
You would likely be going too far to expect detailed commercial and strategic advice from them however. The partner could help you but how many other clients does he or she handle, after the demands of managing the firm, delivering audits and giving tax advice? How much time does this leave? You need more than this.
How does a small or medium-sized firm afford a full-size Finance Director?
Venture capitalists, whose minimum requirement is exceptional financial performance, understand the need for first class financial management. They won't do a deal if the right person isn't in place, and they won't hesitate to replace them if they don't measure up. Why would you accept less than this in your business if you have ambitions for it? The problem is that the sort of person you need if they were working in a venture capital backed company could easily cost that company £150,000–200,000 per year.
The Virtual Finance Director is the answer
In all my Finance Director jobs I have found that the 80/20 rules applies: 80% of the value I have brought to the company has come out of 1 day's work a week.
The Virtual Finance Director arrangement turns this phenomenon to your advantage. It's not a part-time arrangement; I am available to you full-time every day by telephone or email. We agree a schedule of onsite days and regular telephone conferences and at other times I am available as and when you need me. I manage my schedule to make sure I can respond quickly and am available if you need additional resources for a short period for a project or for a particularly busy period. We agree a basic fee for an agreed level of input, and additional work is available at an extra charge when needed – but only when needed.
Reach better decisions more easily
There are many important decisions to be taken in the development of a business. Is this a good or a bad market to enter? Should we invest here, or there? Should we be spending more in this area, or less? Without good data, discussions can go on forever. Even worse, the issues can become personalised.
This is when you need good financial input. An objective view based on the numbers will let you cut through the fog, reach agreement, gain commitment and execute decisions vigorously.
See where you are going, not just where you've been
Most management reporting gives a good picture of where you have been but isn't a lot of help in telling you where you are going. Very often, I have reduced the size of the management report pack but increased its relevance with key performance indicators and commentary on trends and their likely results. Whether you are set on rapid expansion or just want to sleep better at night, you need this.
Profit does not equal positive cashflow
Making a healthy profit doesn't necessarily generate the healthy cashflow you need to grow the business or even, in some instances, to stay in business. Ensuring robust cashflow means much more than chasing customers for payment – it means getting things right thoughout the organisation, starting from before the sale.
In one case, I was able to grow a company using customers' money; in the first year we had a bank loan of £250,000 but were soon able to replace it with payments in advance from customers totalling, at one point, almost £1m. Generating cash from within the business gives you an enviable level of freedom and security, avoiding many agonising conversations with banks and investors.
Credibility is crucial
It's not just banks and investors who want to understand your financial position and prospects. If you want to sell to large companies, they will also insist on some financial due diligence, as will potential partners and major suppliers. Having someone who can deal credibly with these interested parties, putting the best possible spin on the figures and giving assurance that your company's financial future is in good hands, can materially smooth your dealings with them.
Tax is a controllable cost
Our tax system has reached a point of insanity where different ways of doing things, commercially equally valid, can result in very different tax costs. This is particularly important if you think you may want to sell the business at some point; the right moves two or three years ahead of time can reduce your final tax bill dramatically.
The right Finance Director will identify opportunities to reduce your tax bills and find the right specialists to ensure the right steps are taken at the right time.
How do we start?
Firstly we agree on your objectives. These may be growth, new business development, overseas expansion, improving profitability or grooming the company for sale or for a venture capital investment. In the first month or two I will invest a lot of time in meeting the key players, your management team, the finance department, your key customers and suppliers. We will agree a level of participation, how many days I will spend on site, which meetings I will regularly attend, which projects I will be involved in or managing.
What if it doesn't work? There is no risk
I have absolutely no desire to continue working with clients who don't feel I am adding value. Our contract can be ended quickly, cheaply and painlessly (contrast that with the trauma of a failed board appointment, where I have seen someone walk away with a year's salary after one month). On top of this there is a risk-free guarantee: if after a month you don't feel the relationship is developing the way it should do, you can end it at no cost.
About me
A chartered accountant, I have been working with growing companies since 1994. Between 1994 and 1997 I was Commercial Director of Churchill Communications Europe, a Pearson subsidiary which grew 300% over 4 years, achieved profitability of 50% greater than its competitors. After 4 years it was sold, realising an annual rate of return to its shareholders of around 100%. Since then I have worked as a consultant and interim FD. I have been Finance Director of two venture capital backed software companies, helping steer them through difficult times to a successful sale.
Are you ready to start?
If you'd like to discuss how we can take things further, please contact me. If you are not quite ready yet but would like to think more about your plans for growth, the challenges you will encounter and how you will meet them, take a look at the growth white paper. Enter your details below to receive it free.