Why every small and medium business needs their own Chief Financial Officer (or cfo) and how you can afford this

Today I am going to talk about why every small and medium business needs their own Chief Financial Officer (or cfo) and how you can afford this

Transcript

Welcome everyone. Today I am going to talk about why every small and medium business needs their own Chief Financial Officer (or cfo) and how you can afford this.

Did you know that on average 1 out of 8 Businesses close each year?

And the 3 of the top 4 reasons for this has something to do with money and finances. These 3 are:

Poor Financial Control
Inadequate cash flow management
Poor strategic management of the busines

Poor Financial Control

According to ASIC, over 1 in 3 business failures was due to poor financial control. And one of the key reasons for this poor level of financial control is a lack of taking responsibility for understanding your finances.

Because what many business owners fail to understand is that real finance is about measuring the business. It is all about keeping score.

And this is simple, how do you know if you are winning if you don’t the score?

Using the soccer as an example, even if the soccer ball is in the net, do you know if this is a goal you scored or an own goal.

So you can’t leave the responsibility for your numbers to the accountant or book keeper. You need to take responsibility for the numbers.

And this equally applies to your business and your personal finances and wealth.

As my quote says “No one else gets up in the morning dedicated to your financial future. You need to be that person!”

So if you don’t take responsibility for understanding your numbers and your business fails, you have no one to blame but yourself.

But how do you do that? When is the last time anyone sat down and taught you about how to manage the money side of the business. I bet for many business owners never. They have had to learn from their experience – which can be an expensive exercise some times.

And that’s where a great CFO can help reduce the risk of failing from poor financial control by.

Taking a mass of numbers and turn them into a simple to understand personalised score card
Educating you on how to interpret and analyse your business performance
Using their experience to provide insights

Cashflow

Now let’s move onto cashflow. According to ASIC, inadequate cash flow management is responsible for over 50% of business closures.

I spoke about keeping score and most people think about their profit and loss. Now I can tell you being CFO of many companies, including two companies listed on the Australian Stock Exchange, I can manipulate a business’s profit and loss statement by doing many accounting tricks.

But you can’t manipulate cash. Cash is what it is. So the most important area to keep score is cash. If you want to grow your business, you need to understand your cash flow. If you don’t, you face the risk of running out of cash to fund the business growth and you actually end up in a worse cash position than when you started.

And not only do you keep score on what has happened with your cash, but also by what is going to happen with your cash. Are you projecting clear blue skies or thunderstorms. If you are forecasting thunderstorms isn’t it better to be pre warned and you start to get your umbrella ready now rather than trying to find it when it is too late?

And that’s where a great CFO can help reduce the risk of failing from poor cash management by.

Working with you to develop the most appropriate cash flow reporting and forecasting. This could be daily, weekly, monthly, or all 3 for different periods
Highlighting cash pinch points and what can be done to deal with these

Poor Strategic Management

Now let’s move onto poor strategic management. Over 2 in 5 business closed because of poor strategic management.

And one of the key reasons for this strategic management is the lack of educating business owners. Business owners are typically great at their core skill set, but often this is not finance or money. And with no one educating them, they don’t understand what I call Business 101.

The rules of business are simple.

If the lifetime value of your customer is more than the acquisition cost per customer you are doing profitable customer acquisition.

If the acquisition cost per customer is more than the lifetime value of the customer, you are not adding new business profitably. You are growing broke and you need to change your strategy.

Here is simple example of my Business 101 using a mobile prepaid plan.

$40 in monthly revenue and your costs to deliver the service and retain the customer are $35 per month. Leaves you with a monthly contribution of $5 a month.

If the customer stays active for 10 months on average, the value of the customer is $50.

What if you are spending $60. You see revenue growing but profit falling. You are now growing broke. And that is a very simple demonstration of why a business closes because of poor strategic management

And that’s where a great CFO can help reduce the risk of failing from poor cash management by.

Working with you to develop and document a simple and effective strategy for your business
Implement systems to enable you to see if you a profitably growing (this is my Bucket Accounting System
Using their experience to provide insights

How to Afford a CFO

So how does a small business owner afford one? A full time resource is not cheap and for many business owners they can spend this money on other things.

Just like you outsource your legal work, you can outsource the work of a CFO and only pay for what you need. In my case for as little as $1500 a month you can get access to a fully qualified and widely experienced CFO.

So how do you pick and outsourced CFO. To me (and I may be biased), the order is simple

Have they actually worked as a CFO before they started being an outsourced CFO
Do they have the necessary qualifications and experience a professionally qualified person will have education standards they need to maintain
Do you like them – no point working with someone you don’t like
What do their clients say
Are they willing to share their knowledge

And if that is all ok then start talking about the cost. And remember, the cheapest may not be the best value for you.

My background

Nearly 20 years as an outsourced CFO
I have been a fully qualified Chartered accountant for over 35 years
CFO of many companies including 2 companies listed on the ASX
Always sharing tips and advice on LinkedIn and www.aRealCFO.com.au

If you want a confidential discussion on your business situation, contact me below

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Contact Wayne Wanders for your FREE Business Survival Session

To ensure I help your business specifically, the best approach I have found is to have an obligation free session with you. In this session we will review your current business in a factual and objective manner, to better understand the challenges that you face. And this session does not need to be face to face.

At the end of this session, you will have multiple ideas on how your business can survive and thrive in these uncertain times.

Simply fill in the contact form below or email me at wayne@aRealCFO.com.au or call me on 0412 227 052 to organise one of these obligation free sessions.

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Let Wayne Wanders, a fully qualified and experienced CFO, help you successfully navigate your way through your financial challenges so your business can survive and thrive in these uncertain times.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au

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