Start-Ups and Private Firms Looking for Growth to Benefit from CEO Strategic’s New Focus

Specialist Corporate advisory firm CEO Strategic have reaffirmed their commitment to growing Australian businesses with the launch of a new website that broadens their service offering to include a heavier focus on growing businesses, company turnarounds as well as a Founder's Advocate service for emerging start-ups.

 In launching the new site, CEO Strategic M.D. Daniel Fah said that "We've been having some great successes over the past 12 months in building and implementing strategies for success around a number of well-known brands as well some interesting start ups."

 The upgraded site widens the firm's service offerings to include access to the company's unique reporting system - MagnaFi - that assists businesses in quickly identifying their financial metrics, which is proving to be a great aid when dealing with nervous investors or bankers.

 Mr. Fah went on to say that "Unlike a lot of other Corporate Advisors, CEO Strategic have actual Chief Financial Officer experience, which allows us to enhance the Advisor’s role, resulting in a real hands-on approach to the financials that can quickly win over the confidence of investors, suppliers and other stakeholders. Our Team have actually launched and managed some successful Start-ups in the past, so we know what its like to be in the trenches”.

Further developments include the opening of a Brisbane office, and a new Marketing & Communications division to assist clients with re-branding, public relations, and preparing Pitch Packs and Business Plans.

The new site also previews a number of other initiatives  for 2018, including its new  Thought Leaders Forum, which will feature intimate profiles of leading Australian and international business leaders, as well as a soon to be launched project aimed at 'creating a bridge' between the women's start-up communities in Australia and India, which Mr. Fah said 'Will potentially have major financial implications for Australia's eastern seaboard states, and the broader Australian start-up community."

The Secret of a business turnaround is not always to “CUT, CUT, CUT”

I recently attended a conference of like-minded turnaround gurus and found myself in the company of an eager practitioner.  I asked the usual ice-breaker question, “So, what is the first thing you do to rescue a business?” And the not so surprising reply was -  “ Stop the bleeding by cutting the expenses! Look at the all costs and cut out all the ones you don’t need”.

Wow! Just cut all the expenses until you become profitable, so simple. Well, there’s a good reason this response is both flippant and dangerous.

This response always makes me curious as I expect they would first need to do some serious work in order to figure out just what expenses to stop or cut. In turnarounds I have been involved with, cutting costs or people may actually be the final nail in coffin for the business. I start with a different approach before I look to wield the axe.

For starters, I take a close look at the financials. But not the financials the CFO or Accountant have provided. After all, they presided over the mess in the first place, so why would their financials tell me anything useful, as they clearly didn’t tell them anything.

Instead, I recreate the financials from bottom up using raw data from their accounting system, re-presenting the business with trends and key performance indicators. By building a fresh report it helps me to not only understand the business model, but it may also shed some light as to where to start looking for the issues.  

Next, I take off the suit and tie, change into the high vis and walk the floor (sometimes I even work on the factory floor, which can be very therapeutic after the political hotbed of the office). It’ amazing what Jim in production can tell you, such as “These idiots do 10 runs of production at 500,000 units a time, we should be doing one run of 5 million units!” Of course, one production run means one set up and one clean down. The smaller orders were unprofitable so concentrate on the high volume runs, more efficiency, more profit.

Now, its not always as simple as that, but between a clean set of financials and some time spent with the soldiers at the front line, you will often be pointed in the right direction as to where to start. 

So, after a day on the production line, its back to the financials and a couple of real life examples of how they can guide a rescue.

I was recently called in by a tax accountant, to work out a plan to break up a business before the owners were sent to the local court house for assaulting each other. 

After years of industry success and profitable trading, they were now losing millions. As you can imagine, the stress was immense as the owners homes were now on the line. 

The incumbent CFO was telling them they just needed to add more sales staff, that was the issue, so simple, make more sales.

Not understanding how they could go from years of profit to loss so quickly, I took 3 years of data from their accounting system and recreated monthly phased financials to see if I could identify a trend. It soon became pretty clear as to what the problem was. After September of each year, the profit collapsed, creating a downward-accelerating trend on the charts for two years in a row. So it was a simple question, “What did you do back then, that you are obviously not doing now?” The answer, “That’s when we changed the commission structure”. 

Simple solution to that one -  Change it back!

Now, the incumbent CFO had convinced them (and himself) that the issue was about the number of sales staff, and that they just needed more of them to make it work. Of course, the CFO was the culprit who didn’t model or implement the change properly in the first place, so he wasn’t about to admit it, or maybe he just didn’t understand the psychology of sales people. 

So, despite howls of “but all the staff will leave us”, I made them revert back to the old commission system. I politely suggested that staff leaving wasn’t really an issue, especially when the business would be broke in months, the staff would be gone anyway along with the owner’s homes. 

After some extensive modelling, I designed a new financial plan, however, we needed to sweeten the deal for the staff in order to avoid a mass walk out. This entailed some simple low-cost concessions such as free desks, free phones, chocolate biscuits, etc. I made sure the plan was always going to be a better deal than the competition across the road. The sales agents all knew it was too good a deal to pass up and accepted the new plan. Only one agent left but he was back within 8 months. 

This simple change returned the business back to where they used to be, where it is still very successful to this day. The lesson of this story? There was no need to introduce massive change or severe cuts, in order to turnaround what was always a successful and working formula. 

In another recent instance, I uncovered fraudulent activity when recreating the financials from complex SAP system. 

The CEO and CFO had cleverly hidden some losses in production by using the inventory obsolescence provision. By the time they had finished, they had booked about $1m of false profits and created a fake asset, a positive inventory obsolescence provision, brilliant. 

Not so easy to find unless you can get the raw data and detail out of the system. As I said earlier, you can’t rely on the information the incumbent CFO gives you, as they may be hiding something.

After the discovery, explaining the facts bought us time (and sympathy) with the suppliers and more importantly, the customers. I was open with all of them and showed them exactly what had happened. The months of grace they provided allowed us to rescue the business. One major customer even gave us a substantial forward-order commitment, allowing us to go out and raise some much needed additional capital.

So a fresh set of well-presented financials can give you a guide as to where to look, and they can help in convincing others how you will turn the business around. Above all, don’t fall into the trap of looking to cut, cut, cut, without understanding the ramifications these will have on all aspects of the business.

Every company rescue is different, each case is difficult and every time there will be land mines you don’t expect, so you just need to roll up your sleeves and get on with it. That along with some creativity and experience is what makes saving a business so rewarding.

Trouble when your Finance Manager is masquerading as a CFO

Cautionary tales from an experienced CFO who has spent the last 20 years cleaning up the mess of inexperienced wanna-be CFO title holders.

 Over the last 20 years I have had the satisfaction of participating in many successful turnarounds. Invariably, one of the key issues to address is the finance function and the failure of the individual charged with managing this crucial hub -  the CFO.

Sadly, a lot of what occurs prior to a company sliding into the abyss is completely preventable. The Finance Department is the engine room of any business, and if you have a finance professional with their finger on the pulse, and with the creativity and skill to enact change when its needed, then there are usually steps that can be taken to identify and avoid disaster.

However, my experience has found that there are many well-meaning Finance Managers who have been promoted well beyond their capabilities. Or even worse, Finance Managers of limited skills who are masquerading as professional CFOs. And believe me - even experienced Chief Executive Officers can be fooled for some time, until it all starts to unravel, by which time, it is often too late.

The main issue is that not all CFOs are professionally qualified, experienced or prepared for the role. There is no CFO school, no Bachelor of CFO degree, no professional body specifically for CFOs or minimum experience requirements. In fact, you don’t even need to be a qualified accountant to call yourself a professional CFO.

Disturbingly, CFO is a title many accountants give themselves without earning their stripes. Naturally, for many accountants, an aspiration to become a professional CFO is a commendable pursuit, and for many, it is the culmination of all their years of study and practice. But they need to do their time or they won’t be ready, and this is dangerous for them from a professional liability standpoint, and more importantly, for you as a business owner. You may think you have a CFO, but what you really you have a finance manager.

Now don’t get me wrong, this article is not meant to reflect poorly on anyone who is a Finance Manager. Many large corporations are literally held together by the sheer tenacity of their hard- working Finance Managers, doing the jobs no one else in finance wants to do, like chasing recalcitrant debtors, fending off aggressive creditors, and chasing clueless sales people for proper expense reconciliations. But the job of a professional CFO goes well beyond these commendable attributes.

A private equity partner once told me his most successful investments were the ones where the CEO and CFO knew their respective roles and worked together running the business. Behind every successful CEO you will find a strong independent CFO, acting as key advisor and most importantly, providing a ‘devil’s advocate’ role, and not afraid to speak their mind. A good CFO will provide insight, cautious counsel, and have their finger on the financial health of the organisation through the use of sophisticated reporting systems. And most importantly, be prepared to lose their job in order to argue for what they believe is right, legal and profitable for the business

Working in tandem with the CEO in preventing disaster is always preferable than a post-disaster fix up, and as CFO you need to worry in advance about all possibilities and have up-to-date reporting and strategic plans modelled in place, in order to deal with them accordingly.

I recently saw a CV from a proposed CFO candidate, who claimed to have worked for a well-known listed company. Knowing this company, I asked him how he could claim to be the CFO, when I actually knew the real CFO. His answer was that he was “in charge” of a specific division, so decided his 10 years there was merit enough to upgrade the title on his CV to CFO. No doubt to give a better impression to would-be employers, but was he really qualified to be CFO? Maybe, but as a business owner would you take that risk?

I believe that to successfully carry out all of the tasks required to be an effective CFO, you need a range of unique skills acquired over many years of studying, as well as being mentored by clever people; plus as a fair degree of hands on experience in multiple companies, industries and environments. I was privileged (and very lucky) to have had over a decade working for some of the best CEOs and CFOs, both here and abroad. And without this, I doubt I would have been able to have successfully restructured many of the businesses I have done to date.

A good CFO needs more than a passing understanding of multiple disciplines within an organisation, including marketing & sales, manufacturing, human resources, supply chain and delivery, and watching and learning from their years of experience gives you insight you can’t learn from a book or at university. Believe me, nothing beats time in the trenches and on the battle field with real life situations.

Business owners who assume that a candidate with the title of CFO on their CV and some Accounting qualifications makes them ideal for the role, and this grossly underestimates the key role of the CFO.

 The role is not to simply complete the month end accounts and make sure your wages and bills get paid.  A finance manager does that. The CFO role begins after the accounts are finalised, analysis, recommendations on strategies, modelling scenarios and implementing change to ensure the continued creation of value.

So, if you are looking for a CFO, take your time, interview many and ask them lots of questions about their specific experiences. Maybe find an experienced CEO that has worked with successful CFOs to interview them as well, they will know the key traits to look for such as Initiative, leadership and commercial acumen. As a business owner, be very selective of who you choose for the CFO role. The right person will add significant value to your business, a Dud (with an over-inflated ego) could kill it.

If you plan to sell your business in the future, then find a CFO that has been through the process more than once, they will know how to prepare for what could be the most critical period of your life’s work and how much you will have to retire on. If you are expanding your business internationally then find a CFO who has worked overseas and knows how to deal with foreign exchange, transfer pricings and compliance requirements.  

The selection of your CFO may make or break your business, so choose wisely, and seek other opinions. Don’t assume because they have the title, they are what your business needs.

For Start-Ups, a Good Chief Financial Officer Can be Worth Their Weight in Gold…..

If you’re a Start-up struggling to raise cash, the concept of hiring a team member purely dedicated to managing your finances probably seems like an expense you can live without. When you’re competing for world class technical talent on a shoestring budget, the last thing on your mind is using limited resources to hire someone whose primary job seems to alternate between telling you increase your revenues and producing eye-watering reports that constantly remind you of how much cash you’re bleeding every month.

But as a professional CFO who has worked on both sides of the fence with Start-ups and Venture Capitalists, I can assure you that having a good CFO on board from an early stage, can make a huge difference in your company’s ability to cut through and succeed.

Moreover, as someone who specialises in turning around businesses that look like going under, I have seen plenty of instances where many of these company’s dire circumstances could have been prevented, had they had the foresight to hire a good CFO from the outset – rather than relying on their own limited accounting skills, or even worse, getting their Aunt Betty to do the books.

For starters, if you’re raising investment funds, potential investors need to be assured that the budgets you have presented are realistic, and that their money will be utilised effectively. More importantly, in raising money from 3rd parties, you are now taking on legal responsibilities that can have long term consequences (and this is critical if you are also a Director of the company) that could include issues of governance (if you intend to eventually list the company), transparency (if you want to keep your shareholders happy) and tax penalties (so you don’t need to flee to Venezuela).

First of all, a good CFO will establish procedures and policies that ensure that all funds are accounted for, all expenses are planned for and met, and that shortfalls in cash can be identified and mitigated, so that you don’t ever find yourself in the unfortunate position of having to explain to your staff that they won’t be getting paid this week. And when the staff start grumbling about having to fly to San Francisco economy, or that you’ve switched from cream biscuits to No Frills tea biscuits, you can now blame the CFO.

A good CFO will establish reporting systems that will enable both your Board and your Management Team to understand the implications of your margins, the cost of holding your stock, the real cost of your sales, the products and services that are performing well, and the real return on investment you got from spending $100,000 on upgrading your website (although you may not always like the answer).

Most importantly, when it comes to raising finance, a good CFO will provide a service to your potential investors that no one else in the company can perform nearly as well – they eliminate doubt.

And believe me, when it comes to pitching your business, there is no greater emotion to overcome than the element of doubt that is deeply ingrained in most seasoned investors and Venture Capitalists.

While they may like your product (and you), there will come a point in the pitch where they start asking questions that test your knowledge of the market, and question exactly how much (of their) money, you are likely to need to grow the business to a point where it’s at least ‘revenue neutral’ (a favourite term of theirs, meaning your earnings are at least matching your outgoings) and that, my friend, is the point where you’ll want to throw to your CFO.

A good set of easy to understand reports, coupled with a well thought out budget, can go a long way towards eliminating any doubt investors may be feeling. Couple this with a calm and forceful CFO, who can present well, and you’ve got a winning combination.

So how do you find a good CFO?

To start with, you need someone who has had broad experience at executive level in a number of different business situations. A CFO is not the same as an accountant, although they should hold accounting qualifications as a bare minimum. Ideally, a good CFO has worked across a range of businesses (both small and large) and across a variety of markets. I once worked with a Fortune 500 Gaming company, whose international CFO had come from running Heinz’ most successful grocery division. He didn’t know anything about gaming, but boy, did he know tomato sauce.

Ask them lots of questions –

  • Get them to provide you with specific instances where they have developed specific business strategies.
  • Do they have examples of a prospectus or an I.M. (Information Memorandum) which is required for raising investment? I recently came across a CFO who didn’t know what an I.M. was.
  • Do they know what a Due Diligence data room is? Can they walk you through the key components of one?
  • Have they ever set up an accounting system from scratch?
  • Have they ever been issued a Statutory Demand, and what action did they take?
  • How many businesses have they raised capital for, sold or acquired? Experience equals valuable lessons learned that will help your business grow.
  • Ask to see samples of reports they have produced such as Management Accounts, Board Reports, Strategy papers and forecast models.
  • Most importantly, make sure you get someone who has the ability to inspire confidence, and stand their ground on financial issues. Hiring a CFO because they seem compliant and easy to boss around will not be in the best interests of the company.

A good CFO will inspire your staff and management team to follow procedures and create value in the company, they will eliminate doubt when it comes to investors and other stakeholders, and they will help you chart a course for success that will enable you to rapidly grow your company while using the resources you have on hand.