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

Contact Wayne Wanders for your FREE Business Survival Session

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.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au

Here is a recording of a part of a presentation I made a while ago talking about 2 key metrics every business owner should know

Transcript

There are couple of key KPI’s that every business in this country and the world should have. 

Let’s start with monthly contribution.  Now I have talked here about contribution, not gross margin.  What does a customer contribute to you every month?  So, it’s the revenue less direct cost of sales; any retention costs; an appropriate share of applicable fixed overhead.  

You need to know that number. 

But you will also need to know how long you keep customer for.  The average life of your customer.  

When you know those two things guess what you can work out!    You know the lifetime value of a customer. 

Who here agrees that if you are a business owner it is a really good idea to know what the value of your customer is?

That is a really important metric.  Then onto the other half of this equation.  Let’s look at the other

side.  One of the reasons why the buckets works and you have your acquisition cost bucket, you know what it costs you to acquire customers. 

And if you know how many customers you get, guess what, you get what it costs you to acquire a customer.

Now these are 2 key metrics every business owner should know.

Because it gets down to really simple maths.  If the lifetime value of your customer is higher than the acquisition cost per customer, guess what, you have profitable growth. 

But if it the other way round, you have unprofitable growth. 

And unfortunately, I see this, time and time again.  People don’t understand what it costs them to get a customer and what that customer is worth.  And remember the slide I had where turnover is vanity, I have seen plenty of businesses that are focused on turnover to grow the headline number and all they are doing is turbocharging the cash drain.  They are putting on unprofitable customers.  Unprofitable customers means cash goes out your door. 

And if cash goes out your door too much, what happens?   You end up broke, you end up closing.  You end up being that 1 in 8 businesses that close each year

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

Contact Wayne Wanders for your FREE Business Survival Session

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.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au

The other day I spoke about growing your business profitably, is that the money, time and effort you spend to acquire a new customer, is less than the money you make from that customer.  If you are not doing this, you are growing broke.

What information do you need?

In order to determine if you are growing profitably or growing broke you need to understand the lifetime value of a customer and the acquisition costs to get that customer.

Unfortunately, I see very few accounting systems set up to provide this information.    For example, most users of small business accounting software such as Xero or MYOB, use the standard accounts to record costs.  These start at A such as accounting fees and end at W, X, Y or Z such as wages.

But this does not tell you what business activities you are actually doing.  Let’s take wages for example.  The accounting system typically has one account for wages.  But in this account, you will have the costs for:

• People selling your product and service such as sales people (acquisition costs).
• People delivering the product or service such as warehouse staff (direct cost of sales).
• People supporting your customers such as customer service or account managers (retention costs).
• People supporting the business as a whole such as the bookkeeper (overheads).

What you need to start to do is stop thinking in alphabetical order and start thinking in buckets.  What I have called my Bucket Accounting System.

How do you use my Bucket Accounting System?

Step 1

The starting point for your buckets is the core way you review your business.  This could be by product or product group, by distribution channel (for example, retail or wholesale), by geographical area or what ever way you review your business.

Or if you use multiple of these, make one a sub bucket of the other.

Then make sure all revenue and costs are recorded in the right bucket. 

If you do this for the core parts of your business, you now have in effect a profit and loss for each part of your business. 

The benefit of this is that you can now start to see where you are making (or not making) your money.  Your most profitable segments and your least profitable segments.  And it would make sense to:

• grow your most profitable segments; and,
• work out how to improve the profitability of your least profitable segments before you even consider growing them.
• Look at your least profitable segments and consider shutting these down.

Step 2

Now this mini profit and loss for each segment still does not allow you to determine if you are growing profitably or growing broke within that business segment.  Typically, I would split each of these buckets into the following sub buckets:

Customer Acquisition includes all the costs you incur to acquire a customer.  This is not just marketing but could include sales people’s salary, commissions you pay to someone for referring the customer.

Direct costs of sales includes the direct cost of selling / delivering something.  For example, you resell something, the cost of buying, storing and delivering this would go here.   If you have people delivering the service, the cost of those people delivering the service.

Customer Retention includes the costs you incur to retain a customer.  It could be customer service / care.  It could be account management.   

Overheads are all other administration and overhead costs.

Step 3

Once we have these costs in the sub buckets, we can start to calculate some Key Performance Indicators (KPIs) to see if the business is actually growing profitably.

Step 3a

The first KPI you want to work out is the acquisition cost per customer.  You simply add up all the acquisition costs in the bucket for the month and divide by the number of new customers for the month.

You now know what it costs you to get a customer.

Step 3b

The second KPI you want to work out is the monthly contribution by customer. 

The monthly contribution is simply monthly revenue less direct cost of sales; an appropriate share of retention costs; an appropriate share of applicable fixed costs.  And to get the monthly contribution by customer, simply divide by the total number of customers. 

Step 3c

The next KPI to understand is how long you keep your customer.  Is it for a month, six months, a year? 

Step 3d

Your next KPI is the lifetime value of a customer.  Being the monthly contribution x the number of months on average they remain a customer.

You know now what a customer is worth to you.

Step 4

Now you can use my Bucket Accounting System to work out if you are profitably growing your business.

.

If you are growing profitably, the lifetime value of your customer is more than the acquisition cost per customer.

If the acquisition cost per customer is more than the lifetime value of the customer, you are growing broke and you need to change your strategy.  Steps you can take include:

• Get more revenue from the customer each month
• Increase the time the customer stays with you
• Reduce the costs to deliver the product or service
• Reduce the costs to acquire the customer
• Do all or several of these

And that’s how my Bucket Accounting System helps you avoid growing broke and instead, grow profitably.

If you want help working out what your buckets should be, contact me below

Contact Wayne Wanders for your FREE Business Survival Session

On a recent radio interview, I talked about why a focus on increasing revenue can mean your business ends up growing broke.  Today I want to show how this can happen.

Business 101

Many business books and accountants won’t tell you this, but there is a really simple rule when you are trying to grow your business.  And this rule is:

Putting it another way:

Let’s look at an example of Growing Broke

You are selling a product or service for $40 a month.  It costs you $35 to deliver that product or service.  You are making $5 a month ($40 – $35) from that customer. 

Now, on average you keep a customer for 10 months.  The lifetime value of that customer is $50 (being $5 per month x 10 months).

If it costs you $60 to acquire that customer, every time you add a new customer you are growing broke by $10. 

Why, because revenue goes up by $400 ($40 x 10), but your costs go up by $410 ($35 x 10 + $60).  Their lifetime value is $50 but it costs you $60 to acquire them.

If you add 1,000 of these customers, this is what happens:

This is why many businesses end up growing broke. And that’s why ………………………

What can you do to stop growing broke?

If you have your accounting system set up to tell you this information, you can now start to make some business decisions to turn this around.

In this case can you:

• Get more revenue from the customer each month?
• Increase the time the customer stays with you?
• Reduce the costs to deliver the product or service?
• Reduce the costs to acquire the customer?
• Do all or several of these?

These are specific actions and targets that you can now pass onto your team.  You are much more likely to get a positive outcome, from these questions, than you would from a generic question of why aren’t we making money.

How do you determine your acquisition costs and lifetime value of your customer?

Unfortunately, I see very few accounting systems set up to provide the above information, hence why very few businesses actually ask these questions.

To overcome this, I have developed my unique “Bucket Accounting System”.   To learn more about my Bucket Accounting system click here

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

Contact Wayne Wanders for your FREE Business Survival Session

Many people, myself included have used the SMART goal framework to set both business and personal goals.  In the current uncertain environment, I feel it is time to switch to FAST goals instead.

Fast Goals are:

• Frequently Discussed,
• Ambitious,
• Specific, and
• Transparent.

Frequently Discussed

In today’s current economic climate, there is a lot of uncertainty.  Your customer are uncertain.  Your staff are uncertain.  Your suppliers are uncertain.

And the only way to reduce this uncertainty is to make sure you are frequently talking to your customers, staff and suppliers.

By frequently talking to your customers, both existing and potential, you can better understand how you can help them.

By frequently talking to your suppliers, you can better understand how they can help you, help your customers.

By frequently talking to your staff you can make sure everyone is engaged and aligned to deliver what your customers need now.

Ambitious

Ambitious goals help you to try a little harder.   

Now right now, I am not talking about that Big Hairy Audacious Goal that is 3 to 5 years out.  Instead focus on the goals for the next 6 months.

And don’t forget, times of uncertainty bring about massive change.  And those who adapt will have the best chance of surviving and thriving in the future. 

So, don’t just focus on a dollar goal.  Broaden your thinking to include:

• what you can do to innovate your existing business to improve performance.
• how you can pivot and transform your business to take advantage of new or different opportunities available to your business.

Specific

These are uncertain times and clarity of knowing what you are trying to achieve helps reduce that uncertainty for your customers, staff and suppliers.

If you can’t simply and accurately describe your goals, how can you communicate these to others.

Transparent

Transparency is key right now. 

Be open and honest with your customers, staff and suppliers. 

Secrecy, the opposite of transparency will create uncertainty, mixed engagement and misalignment.

Transparency will ensure everyone knows what is happening and where you are trying to get to. 

Summary

If you want to survive and thrive in today’s business world you need to start operating under the framework of FAST Goals.

And don’t just think FAST.  Act FAST and increase the amount of communication you are doing with your customers, your staff and your suppliers.

Contact Wayne Wanders for your FREE Business Survival Session

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.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au

Watch this video to learn why I believe most business owners should throw their traditional profit and loss in the bin; and more importantly, what you need to replace it with.

If you like this, why not share this with a friend, simply click on one of the icons to the left or below

If you want to see how Wayne can help you successfully navigate your way through the financial challenges to grow your business profitably faster,

Contact Wayne and arrange a free, no obligation Discovery Session.  At the end of this Discovery Session, you will have multiple ideas on how to grow your business profitably faster.

To get Wayne to help you successfully navigate your way through your financial challenges to profitably grow your business profitably faster, simply use the contact form on the left to email Wayne or call him on 0412 227 052.

We promise to keep your email address safe.

Let Wayne Wanders, the Wealth Navigator, a fully qualified and experienced CFO, help you successfully navigate your way through your financial challenges to grow your business profitably faster

Wayne Wanders, A Real CFO

The Wealth Navigator

wayne@aRealCFO.com.au

If you like this, why not share this with a friend, simply click on one of the icons to the left or below

There are couple of key metrics that every business in this country and the world should have.

Watch this video to learn what they are.

If you like this, why not share this with a friend, simply click on one of the icons to the left or below

If you want to see how Wayne can help you successfully navigate your way through the financial challenges to grow your business profitably faster,

Contact Wayne and arrange a free, no obligation Discovery Session.  At the end of this Discovery Session, you will have multiple ideas on how to grow your business profitably faster.

To get Wayne to help you successfully navigate your way through your financial challenges to grow your business profitably faster, simply use the contact form on the left to email Wayne or call him on 0412 227 052.

We promise to keep your email address safe.

Let Wayne Wanders, the Wealth Navigator, a fully qualified and experienced CFO, help you successfully navigate your way through your financial challenges to grow your business profitably faster

Wayne Wanders, A Real CFO

The Wealth Navigator

wayne@aRealCFO.com.au

If you like this, why not share this with a friend, simply click on one of the icons to the left or below

On Tuesday 15 January, I was interviewed by Alexi Boyd on Radio Station Triple H 100.1FM as part of Alexi’s Small Biz Matters Program.  We are talking about why a simple bucket can revolutionise your thinking about your business. 

If you want to learn how analysing and thinking about your business in buckets can help you profitably grow your business, click here or on the image below to go to the recorded podcast

If you like this, why not share this with a friend, simply click on one of the icons to the left or below

If you want to see how Wayne can help you successfully navigate your way through the financial challenges to grow your business profitably faster,

Contact Wayne and arrange a free, no obligation Discovery Session.  At the end of this Discovery Session, you will have multiple ideas on how to grow your business profitably faster.

To get Wayne to help you successfully navigate your way through your financial challenges to grow your business profitably faster, simply use the contact form on the left to email Wayne or call him on 0412 227 052.

We promise to keep your email address safe.

Let Wayne Wanders, the Wealth Navigator, a fully qualified and experienced CFO, help you successfully navigate your way through your financial challenges to grow your business profitably faster.

Wayne Wanders, A Real CFO

The Wealth Navigator

wayne@aRealCFO.com.au

If you like this, why not share this with a friend, simply click on one of the icons to the left or below