Virtually Every CFO is now a Virtual CFO

Virtually Every CFO is now a Virtual CFO

As the devastating effects of the ‘twin crisis’ unfold before our very eyes,  thousands of CFO’s will find themselves working remotely to start with and  as many businesses are forced to cut costs, eventually many will be reduced to part time (or even let go).

If a company can survive the biggest crisis in it’s life with a Virtual part-time CFO, they won’t ever go back to a full-time internal CFO.

In other words, full-time Joe (or Jo) (because of the crisis and through no fault of their own) will become part-time Joe.

Many of these CFO’s will have comprehensive educational backgrounds, top tier qualifications and an average of 25 years of corporate industry experience. Top shelf people who know their jam and have lots to offer. Far from feeling threatened or looking to benefit from someone else’s misfortune, the Association of Virtual CFO members feel for anyone that’s been affected by this twin crisis. We are reaching out to offer you comfort and a place to find support amongst like- minded professionals.

And whilst it’s going to be tough to do anything in the coming weeks (and maybe months) the first thing part-time Joe is going to do is look to become full-time Joe again.

Joe is either going to need to leave the part-time job and find a full-time job, or add another (or several other) small client to their book. If in becoming full-time Joe again, they take the route of having a small portfolio of clients, by default Joe will have become by definition a  Virtual CFO.

Whilst 2 weeks ago, full-time Joe may have never imagined being in this position, by now it’s fast starting to sink in that this is the  ‘new normal’.

But the experience we’ve seen hundreds of  Virtual CFO’s go through over the past 6 or 7 years have  is that at the start, until you have clients and a track record of running your own business, it’s been hard to win clients. We’ve seen some very capable people give it a go, but things still haven’t worked out for them in the end. Capability and qualifications aren’t enough on their own.

Clients want comfort that if Joe gets run over by a bus that someone else will pick up the pieces.

Clients are also going to have plenty of Joe’s to pick from. It’s sad but it’s happening, every day I see a message or hear about someone that been effected. If you haven’t been yet, fingers crossed you don’t.

Collectively, amongst our elite peer network, The Association of Virtual CFO’s  have over 500 years of industry experience spread across over more than 20 industry verticals.

We cover more ground and dig deeper than any other organisation in the country and our aim is to recognised as the mark of quality within the Virtual CFO sector

This gives our members a very compelling point of difference in the market and provides comfort for clients.

We are also  the only group whose sole focus is to advance the emerging Virtual CFO sector within the accounting profession. Together our members ‘never walk alone’.

Think about this, if part-time Joe is pitching for the same client against an Association of VCFO member of identical capabilities, ceteris paribus – who do you think gets the client?

David Dillon is a Fellow of CPA and CA, has an MBA and over 30 years of corporate experience. He has been the Managing Director of Custodian Backoffice, a specialist Virtual CFO business since 2014. He is also a committee member of the Virtual CFO Association + Author of “3-Levers” https://mailchi.mp/1453761b50c9/cfy6cguw3u “Profit Metrics” and e-book “So, you want to be a Virtual CFO” https://vcfoassociation.com.au/so-you-want-to-be-a-virtual-cfo/

Trevor the Truckie and the benefits of a Virtual CFO

Trevor the Truckie and the benefits of a Virtual CFO

Trevor the Truckie and the benefits of a Virtual CFO

 Training Wheels

Trevor had a love of trucks going right back to when he was a small child. His family had grown up in a small country town located about halfway between 2 capital cities on a main interstate highway. The town was better known as a change-over point, where drivers would meet up with their interstate counterparts, swap trailers and turn back to their home cities. Ultimately this meant drivers would spend more time at home in their own beds, than if they were doing ‘round-trips’ and sleeping in the cabins of the trucks.

Trevor’s family lived right on the highway, a short distance from the truck stop. He would spend most days out in the front yard, face pressed against the wire fence watching the trucks go past, listening as they rode the exhaust brakes and changed down the gears, as they were slowing to turn into the truck stop or as they were full throttle with turbo chargers whistling and changing up the gears, as they built up momentum in their mighty rigs to reach the speed limit before merging in with the other traffic.

The regular drivers came to know Trevor would be there and would toot their air-horns at him, rewarding the young kid for giving the universal double pump with his arm on the imaginary horn cord. Over time Trevor came to know all the brands such as, Kenworth, Mack, Freightliner, Volvo, Mercedes, Iveco and even recognize the main fleet companies by colour.

So, when Trevor finished school and took up an apprenticeship as a diesel mechanic with a local transport company it didn’t come as much of a surprise to anyone. He was a square peg in a square hole at the depot, everyone loved their ‘boy’ Trevor. But whilst he liked working on the trucks, Trevor was practically counting down the days until he finished and was able to obtain his truck license, so he could work inside the truck as a driver.

His chance came and Trevor grabbed it. He passed his driving test with flying colours and was given a 15T rigid delivery truck to do local deliveries in. He was a good driver and the knowledge he’d gained as a diesel mechanic made him very hand to the transport company as he was able to diagnose and fix small problems on the go, or shut things down before any major damage happened. He was an owner’s ‘dream’ employee.  Trevor worked hard, he grabbed extra trips when he could, and he saved hard. Eventually he saved enough to buy a 15 Tonne rigid delivery truck of his own and struck a deal with his employers to become a sub-contractor, as they wanted to help him get started in his own business rather than lose their ‘boy’ altogether.

You take the high road, I’ll take the – interstate

If deciding to go out on his own was a logical step for Trevor, then upgrading his 15 tonne rigid truck for a highway spec semi-trailer was the next logical step. Trevor arranged a trade-in on his old truck and scraped together the deposit for a 2nd hand highway spec Kenworth K102 and triaxle pan-tech trailer with air-bag suspension. It was a beautiful looking truck with candy apple colored metallic paint chrome tanks, alloy wheels, chrome exhaust stacks, chrome air filters and enough clearance lights to put a Christmas tree to shame

Again, Trevor former employers were happy to offer him a sub-contract deal to keep him in the fold, but this contract was only to take freight one-way to the capital city. Once there, Trevor was going to have to either come back empty or find some freight of his own to bring back. He didn’t mind, he was finally behind the wheel of one of the big trucks he’d admired from his earliest days. Now it was him going down through the gears and riding the exhaust brake, it was his turbo whistling as he dialed on the power and it was, he that was tooting his air horn at kids in their front years.

Lucky Brake

Trevor’s lucky break came in 2 tranches. The first was him winning his first big client. He’d towed vans for a 3PL company on his return leg quite a few times previously whilst sub-contracting and had been booked for another job on this particular day. But As Trevor’s truck was sitting on the loading dock, the dispatch supervisor that Trevor had got to know quite well, delivered the news to him that the company that had the prime contract had suddenly gone bankrupt and wasn’t able to load. He asked Trevor if he could still take this load and work direct for the 3PL company. He told Trevor that, there are 2 loads a day, if you can arrange subbies to pick up for you then it’s yours, we will just novate the contract to you. Trevor quickly worked through his contacts and arranged another truck for that day and 2 more for the day after. It wasn’t easy, but he was able to keep the freight moving and the 3PL company didn’t miss a beat.

Things couldn’t have been going better, but one fateful evening just as Trevor was edging towards his change-over point, inexplicably a removal van heading in the opposite direction veered across the median strip and hit Trevor’s truck head-on. There was nothing he could do to avoid it. It was a terrible fatal accident, with the driver of the van and his offsider dying upon impact. Trevor miraculously survived the impact but lay prone in the twisted wreckage writhing in agony. The mangled steering column collapsed, smashing his legs into many pieces and pinned him into the cabin, as the pungent smell of diesel from the ruptured chrome tanks overpowered him. Trevor would later say that the pain of his injuries paled into insignificance compared to the fear of being burned alive. Despite having horrific injuries, including losing his pulverized left leg, Trevor said that long after his injuries had healed, the mental scars remained.

Directing traffic

The 3PL client was very understanding. He arranged temporary help through a freight broker, to fill the hole that Trevor had otherwise filled and had the phone numbers of the regular subbies that Trevor used from his previous load sheets, so he took it upon himself to arrange them as Trevor usually did. He told Trevor not to worry about anything and joked, “let’s just get you back up and on your foot again”

But it didn’t take Trevor long to recover enough to sit up in bed and start using his phone to ring around himself. He was grateful for the clients understanding and this had certainly cemented the relationship in his mind.

They say that fate is when things happen for a reason. Circumstances forced Trevor out of the truck and into the office, but it ends up being the best thing for his business. Trevor ends up focusing on running the operation like a professional, which he could never have done whilst he was still driving. He would have reached a natural limit where he simply had too much to do, but now he had the capacity for more. His core capabilities were that he’s great with customers and understands drivers. His point of difference to clients was that he would never let them down, even if it meant him staying awake all night to find someone. But now, having brushed death and with a new lease on life he was hungrier than ever to grow his business so he could leave behind an enduring legacy for his kids.

Trevor wins more business and he grows his operation and team. He had admin people answering the phones, accounts people sending and paying the bills, as well as workshop staff to maintain his growing fleet. Trevor loved buying trucks, it was a visible metric of growth in his mind, but he had an emotional attachment or ‘a thing’ about chrome tanks, clearance lights and 2nd hand American show trucks. But because he is buying the trucks from the outside in, rather than inside out, he has a range of engine and driveline combinations. Cummins, Caterpillar, Detroit, Eaton Fuller, Allison, and Rockwell. Routinely Trevor enters his trucks in shows and has magazine photographic features about his trucks.

He also buys a couple of big, expensive American Chevy Silverado 4×4 trucks, which he thinks will be great advertising the business and is about to lease a depot site in the city, because he’s currently paying a casual rate for using someone else’s depot on the odd occasion now and he thinks it will attract new clients. He feels that by the clients seeing that he has more substance they will award him contracts. It’s a bit of a build it and I hope they will come strategy.

Long Haul and frustration:

Everyone was working hard, nobody harder than Trevor though. Outwardly the company projected success, but the reality is that profitability was poor and cashflow terrible.  Trevor was starting to understand that over specified show trucks, over the top overheads, delighting the customer + making a profit, are often conflicting priorities in the cut-throat road transport sector.

More than a few times Trevor has been caught short with cashflow. Seemingly out of the blue a BAS payment or PAYG instalment would jump out and Trevor would have to sell a spare truck or trailer in a hurry to get cash to pay his bills. Even though he knew the prices weren’t the best, it would give him a $200K chunk of cash and he could them go out and replace the asset when his cashflow was flowing again. He couldn’t quite work out if he was winning or losing doing this, but he simply didn’t know of any alternatives.

Trevor’s other problem was that the team that he’d built, including finance, HR and Admin, were the best people that he could find, with the salary he could afford to offer at that point in time. They had helped him grow to this point, they were loyal, hardworking and lived and breathed the company culture. He felt a deep sense of gratitude to them, but it didn’t stop the fact that he felt was flying by the seat of his pants, stressed out, worried about finances and getting pulled away from what he needed to be doing. Deep down he knew that this wasn’t an elite, top-shelf team of people, more so a group of technicians, who through no fault of theirs, were now standing in water in over their heads.

A cry for help:

After years of pushing himself to the brink of endurance and with the weight of the world upon him, Trevor went to see his trusted advisor Wilson for his routine annual appointment. When Wilson calculated that Trevor owed $120K in tax, he broke down and sobbed uncontrollably. He said “That $120K was to send my son to boarding school, for a better education. Now he can’t go. Why is it so hard, why?”

Wilson comforted his client and counseled him, offering “mate you need to work smarter not harder – you need to take a break also, you’ll end up killing yourself”

Luckily for Trevor, his accountant Wilson, being an ethical operator and always wanting the best outcome for his clients  told him that while tax accountants like him were great at setting up clever, but legal, structures to minimise his tax and protect his assets, the internal financial management of the business wasn’t something they did particularly well, but they knew exactly who could help.

His accountant recommended that Trevor meets with an ex-CFO called Andrew who was running an outsourced Virtual CFO (otherwise called outsourced CFO or VCFO) business, that specialized in road transport companies. Trevor asked “Why do I need a CFO? What does a virtual CFO do for a small business?”

The Tax Accountant replied “Because your business has reached a critical point, where you can no longer manage without access to a seasoned, strategic and commercial thinker. Virtual CFO’s have that in abundance. Trouble is you can’t survive without one, but you haven’t yet reached the scale to be able to justify the investment in a full-time internal CFO.”

He went on, “Trevor, it’s a catch 22, the team you have can’t keep up with the bouncing ball, but you can’t afford to employ an expensive CFO. A Virtual CFO solves that problem because your SME can access the expertise on an as-needs basis.”

Trevor then asked, “how much would a virtual CFO cost?”

“Well, you only pay for it when you need it, so it works out to be a fraction of the cost of a full-time CFO and much better value.” His accountant went on to explain

Trevor then asked, “what does a Virtual CFO do?”

“They manage the finances across all aspects of your business, as well as spanning the past present and future”, was the reply by the Tax Accountant.

5 Biggest Problems

Trevor agreed to meet with Andrew the Virtual CFO. Together they sat down for a coffee at Trevor’s favorite truck stop.

“Tell me Trevor, Wilson says things aren’t going so well” Andrew said

“It’s super frustrating Andrew” said Trevor, “

“Well Trevor” said Andrew, these are the 5 main problems that are fairly typical of Transport businesses that I think you’ll be having:

  1. You need to be clear and realistic about your strategy. For every dollar you spend trying to differentiate yourself, you need to get a return of more than a dollar, or it’s a waste. Is transport really more of a commodity, where price is the key determining factor for the client. Are good service and reliability just points of parity
  2. Your equipment needs to be fit for purpose and standardized. It needs to be you look at the leaders in this smart asset space, Southwestern Airlines, they adopt standardization. It means they carry less spares. Their staff need less training and they get better rates by buying consumables like filters etc. in bulk. Breakdowns are cashflow nightmares, so operating the most efficient drivelines over the lifetime of the vehicle should be the main selection criteria.
  3. A focus on utilization – carting full loads of fresh air for half the journey dilutes the effective per kilometer rate by half, whilst the marginal cost of operating an empty truck isn’t significantly lower than a full one.
  4. Overheads need to be proportional to and consistent with the strategy. If you are essentially competing on price, then Chevy trucks and mainly empty depots are expenses you can’t afford.
  5. Cashflow planning and daily management is crucial.

Expert Solutions

Trevor listened on intently as Andrew explained, Virtual CFO’s will embed the solid commercial foundations needed to manage the business properly. Without a holistic package of the 5-pillars of financial management; Strategy, Budgeting, Reporting, Forecasting and Cashflow Management, the company will continue to bounce from issue to issue out of control, flying by the seat of its pants.

Andrew told Trevor, “reliability and predictability are essential to both evaluate how your strategy is working currently, as well as having visibility of what lays ahead and the lead time to adjust if required. Planning becomes even more critical, as does strategic decision making.”

Trevor is interested enough to listen, intelligent enough to understand and determined enough to implement the 5-pillars of financial management that he had implemented with Andrews help.

Trevor was up and running, feeding reporting variances between the budget and actual numbers back into the constantly evolving strategy, recasting profit projections and changing assumptions in the forecast, taking cues back into the cashflow forecast.

Trevor implemented a bunch of Key Performance Indicators ( KPI’s) which were both leading ( looking into the future) and lagging ( looking over historical results) and created a dashboard ( he loved the dashboard !) for Trevor to take the daily / weekly and monthly ‘pulse’ of the business. He made some hard, emotional, but sensible decisions around his fleet and trimmed his overheads to eliminate waste and excess.

The best thing was, now Trevor was happy again and his customer focus came bounding back. Pretty soon Trevor was landing big contracts and operating a highly utilized fleet of trucks, making a good return.

Cruise Control

Sometime later Trevor invited Andrew around for a catch up at his house. Andrew was shown in by the maid, to find Trevor perched back in his comfortable armchair, on the deck of his beautiful clifftop house with views spanning out over the water to the horizon.

Trevor takes a short pause, then looking out glistening bay, as the sun’s rays’ shimmer and the sets of waves roll in, goes on to say, “I still love trucks Andrew, I’ve never been more passionate, but I love trucks that are fit for purpose that someone other than me is willing to pay for”

In his humble way, Trevor went on “Andrew without your Virtual CFO help, I’d have probably gone broke, or worked myself to an early grave. Now my business is allowing my family to thrive. Thank you.”

——- — —    ——————-  ———– ————- ———— ———

The specialist skillset, such as that offered by a VCFO, can only be obtained from years of training and experience that goes well beyond bookkeeping and traditional compliance accounting. The difference between Virtual CFO’s and traditional accountants, and the difference between Virtual CFO’s and bookkeepers, is that besides being fully qualified CA’s and CPA’s, Virtual CFOs have many years of industry experience. That means they can communicate within and across organisations, speaking the same language, avoiding typical accounting jargon. They are team players because their reputation and success align with the organizations that they serve.

The first step for any growing SME is to recognize they have reached this point – then they need to find help, just as Trevor the Architect did. These businesses tend to have a much higher prospect of being successful.

Business owner’s like Trevor need to surround themselves with the right people with the right skills because the ramifications of getting it wrong can be devastating.

Virtual CFO’s communicate and act as a conduit between the many stakeholders and the owners. Virtual CFOs give the owners a credible sounding board for their ideas as they seek to seize growth opportunities, before they engage with external stakeholders, like shareholders, banks and lenders. Virtual CFO’s are a considerable asset when raising capital because they give those stakeholders confidence knowing the VCFO, who is an independent financial professional with integrity (CA or CPA) has done a prior sense check. A Virtual CFO also creates a buffer between the owner getting dragged into financial matters which distract them from focusing on their clients and growing their business.

David Dillon is a committee member of the Virtual CFO Association.

The Virtual CFO Association is an elite peer network, advocating and promoting the emerging Virtual CFO sector within the accounting profession. Collectively the association currently has over 500 years of industry experience, with highly qualified and experienced specialists spread across more than 20 industry verticals. If you would like any more information regarding the Association of Virtual CFO’s, please visit our website www.vcfoassociation.com.au

Why tax advisors and Virtual CFO’s should work together

Why tax advisors and Virtual CFO’s should work together

Everyone knows you wouldn’t try to dig a hole with a hammer. Both are good tools, the tool itself isn’t the problem, but you need to use the right tool for the job.

Flying by the seat of your SME pants?

Many SME owners are finding that “keeping up with the bouncing ball” as their business becomes more complex, has more moving parts etc, is harder and harder for them and their team. Most of these think if they have a tax advisor and a bookkeeper, they should have all their bases covered. But their, profitability is often disappointing, and they feel like they are being dragged away from what they should be doing (focusing on clients’ needs and delivering on promises) and pulled into a daily battle with their financial management problems. Even after they have ‘doused the spot fires’ they feel like they are flying by the seat of their pants. Does this sound familiar?

Tax Accountants and bookkeepers  

A bookkeeper’s role is to record the day-to-day financial transactions of a business and bring the books to the trial balance stage. Over the years that role has changed dramatically with the advent of desktop accounting programs like Xero, QB’s and MYOB. These programs work with other efficiency enabling tools, that can scan images and code them and as a package it saves a bunch of time. But a bookkeeper is still only a bookkeeper, that just they are using power tools not hand tools.

Tax/advisors offer strategic advice to help accumulate and protect private wealth, using tax structures to legally minimise tax.  Often the ‘touch points’ between client and advisor are relatively infrequent with a retrospective focus.

But here’s the thing; the best tax accountant in the country, using the cleverest tax structure has nothing to do until your business has a profit to push through the structure. Virtual CFO’s focus is to reduce inefficiency and maximise profit.

Virtual CFO’s

Virtual CFO’s are fully qualified accountants, with many years of commercial / industry experience to make them experts in businesses like yours. Most have worked in larger companies and have seen the systems and processes that are needed to successfully grow and have many years of experience working with boards of directors and C-suite executives as they thrash out strategies to survive and prosper.

To put some context around that, collectively, amongst the Virtual CFO Associations elite peer network we have over 500 years of industry experience spread across over 20 industry verticals. This gives our members a very compelling point of difference in the market. Confidence for members and comfort for clients.

Different Types of Accountants

The best way to explain the difference between accountants is imagining if accounting were a swimming pool.

Then split the pool length-ways in 2 halves. One half is public practice, the other half commercial. (see feature image):

Lanes are split by tax, audit, insolvency and restructuring. Commercial lanes are split by compliance, control and strategic support, with management accounting, financial accounting, treasury, systems, risk and compliance nesting beneath.

Small business is at shallow end, Big companies up the deep end.

 At the shallow end, you can stand up, but at the deep end, you’ll sink if you can’t swim.

That’s why Big 4 (public practice) tend to stay in their lanes and specialise. The more laps you do in a lane, the bigger stronger and faster you become until you become a partner, or lane champion. They don’t try to swim across lanes at the deep end of the pool. They niche.  The bigger the firms are, the deeper they can dig into a niche, say perhaps a Specialist Payroll tax expert in each state, that the other states can call upon. Smaller firms simply can’t do that and at best end up as “jack of all trades’

In commerce, experience allows you start to swimming across lanes. CFO’s generally prove they can swim across the pool at the shallow end, before they attempt it at the deep end, i.e. they work their way up to ASX100 companies, learning the ropes in smaller companies first.  Industry verticals, such as manufacturing, retail, shipping, banking etc also come into it. Think of these like different swimming strokes. Sure, CFO’s can learn other industries, but the person swimming a medley isn’t as strong as a specialist. It’s the same for CFO’s – 10,000 hours is the accepted benchmark for understanding an industry well.

There is a definite sweet spot for Virtual CFO’s in the mid-tier range, the smaller companies probably haven’t reached a stage where they really need the full range in a VCFOs expertise, nor can they justify the investment. Larger companies generally have navigated through this stage of the business growth life-cycle to the other side and can justify a full-time CFO internally.

Tax advisors and bookkeepers are far better off when they acknowledge the value of a commercial financial management expert like a Virtual CFO to fill a void for their clients than attempt to do it themselves. Public Practice Accountants who see VCFO as an area they can learn and ‘upsell’ to their clients are often taking a huge risk, at the expense of their unsuspecting clients. Clients need the help and without the Accountant having the right skill set their needs will go unfulfilled or something far worse.

To put some context around that, collectively, amongst the Virtual CFO Associations elite peer network we have over 500 years of industry experience spread across over 20 industry verticals. Under our spirit of collaboration, we can call upon other members for specific industry or software experience. This gives our members a very compelling point of difference in the market. Confidence for members and comfort for clients.

Make sure you use the right tool for the dynamic financial management of your business – strategy, reporting, budget, forecast and cash flow management; use a member of the Virtual CFO Association.

David Dillon is a committee member of the Virtual CFO Association.

The Virtual CFO Association is an elite peer network, advocating and promoting the emerging Virtual CFO sector within the accounting profession. Collectively the association currently has over 500 years of industry experience, with highly qualified and experienced specialists spread across more than 20 industry verticals. If you would like any more information regarding the Association of Virtual CFO’s, please visit our website https://vcfoassociation.com.au/

Harry the Architect and the benefits of a Virtual CFO

Harry the Architect and the benefits of a Virtual CFO

Everyone starts somewhere.

Harry was a very talented young architect. His fascination with drawing buildings started as a kid. Throughout school he continued his passion and did very well at tech-drawing. This led him to enroll in Architecture at University. Eventually he graduated and came top of his class at University, staying on to do his Honors year. His final year thesis project, a sustainable adaptive re-use of an old mining site, was lauded for its cutting-edge innovation.

Corporate disillusionment

Offers to join large firms on their graduate program came flooding in for the top students and Harry picked the firm that he felt best complimented his design style. He expected to spend a couple of post-grad years learning the ropes, working under the main designers and honing his craft, before being given a chance to showcase his own talents and flair. But it wasn’t what he’d hoped it would be. In fact, Harry felt he’d been sold a dream that was never likely to happen. Harry felt his talent was being wasted, so he became disillusioned, jaded and cynical.

Deciding to go out on his own

It turned out to be what Harry thought was an ‘Architectural factory’. Due to an immediate pressing need at the time, the firm used Harry in their documentation team and the firm had plenty of more senior designers ahead of him in the pecking order. He was good at the CAD software, but it was unfulfilling work for him, and he wasn’t using anywhere near the full range of capabilities that he had in his tool bag. His turn would come they said, but he wasn’t so sure. So, Harry decided to go into business himself so he could cut ‘free’ of the documentation curse to pursue a creative path of his choosing.

Lucky Break

But the pursuit of excellence comes at a cost. To pay the bills, Harry, who was working solo at this stage, in the basement of his cousin’s bike shop, had leaned on his personal network and picked up a handful of domestic, residential extensions and renovation projects.

His lucky break came when Harry won an International design competition, with a scheme that built on the foundations of his University thesis.

As you might expect, with this win, Harry’s business took off. He hired his first employee, a friend from university, then his second and then more. He moved from the basement and into a co-working office space and very soon found himself signing a lease for an office of his own. It grew so quickly in fact that he was struggling to remember everyone’s name as he moved around the office.

Draw me the Money

Harry was on a roll and he felt that he needed to capitalize on his newly enhanced reputation and keep the momentum going. He had seen a quote by Richard Branson offering the sage advice— ‘If somebody offers you an amazing opportunity but you are not sure you can do it, say yes – then learn how to do it later!’

Harry kept saying yes.

Revenue and staff numbers had doubled year-on-year for a few years. Harry’s company were continuing to win competitions, they were being featured in magazines, had won several prestigious architectural industry awards along the way and they had developed a great design culture within the team.

But they weren’t particularly profitable.

Hard Slog and frustration:

Harry was starting to understand that professionalism, self-satisfaction, delighting the customer + making a profit, are often conflicting priorities in Architecture projects.

Harry joined a practice management peer group and learned that the others were also facing many challenges just like him.

  • Downward pressure on fees: the smaller boutique firms with lower overheads and a cost advantage, were willing to undercut on price to get themselves into the mix on bigger projects.
  • Limitless Scope of Works: seemingly limitless risks, often subsequently novated to litigious builders
  • Graduates: are coming out of the Universities, with little or no appreciation for the value of their time, coupled with a scant understanding about finances, project management, scope and earned value.
  • Technology: is moving at such a rapid pace but has created little in the way of ‘net efficiency’. Whilst very impressive for the clients, in fact generate little if any profit for the firm.

Harry’s other problem was that the team that he’d built, including finance, HR and Admin, were the best people that he could find, with the salary he could afford to offer at that point in time. They had helped him grow to this point, they were loyal, hardworking and lived and breathed the company culture. He felt a deep sense of gratitude to them, but it didn’t stop the fact that he felt was flying by the seat of his pants, stressed out, worried about finances and getting pulled away from what he needed to be doing. Deep down he knew that this wasn’t an elite, top-shelf team of people, more so a group of technicians, who through no fault of theirs, were now standing in water in over their heads.

A cry for help:

After years of pushing himself to the brink of endurance and with the weight of the world upon him, Harry went to see his trusted advisor Wilson for his routine annual appointment. When Wilson calculated that Harry owed $120K in tax, he broke down and sobbed uncontrollably. He said “That $120K was to send my son to boarding school, for a better education. Now he can’t go. Why is it so hard, why?”

Wilson comforted his client and counselled him, offering “mate you need to work smarter not harder – you need to take a break also, you’ll end up killing yourself”

Luckily for Harry, his accountant Wilson, being an ethical operator and always wanting the best outcome for his clients  told him that while tax accountants like him were great at setting up clever, but legal, structures to minimise his tax and protect his assets, the internal financial management of the business wasn’t something they did particularly well, but they knew exactly who could help.

His accountant recommended that Harry meets with an ex-CFO called Andrew who was running an outsourced Virtual CFO (otherwise called outsourced CFO or VCFO) business, that specialized in Architecture practices. Harry asked “Why do I need a CFO? What does a virtual CFO do for a small business?”

The Tax Accountant replied “Because your business has reached a critical point, where you can no longer manage without access to a seasoned, strategic and commercial thinker. Virtual CFO’s have that in abundance. Trouble is you can’t survive without one, but you haven’t yet reached the scale to be able to justify the investment in a full-time internal CFO.”

He went on, “Harry, it’s a catch 22, the team you have can’t keep up with the bouncing ball, but you can’t afford to employ an expensive CFO. A Virtual CFO solves that problem because your SME can access the expertise on an as-needs basis.”

Harry then asked, “how much would a virtual CFO cost?”

“Well, you only pay for it when you need it, so it works out to be a fraction of the cost of a full-time CFO and much better value.” His accountant went on to explain

Harry then asked, “what does a Virtual CFO do?”

“They manage the finances across all aspects of your business, as well as spanning the past present and future”, was the reply by the Tax Accountant.

4 Biggest Problems

Harry agreed to meet with the Andrew Virtual CFO. Together they went out for a coffee at Harrys favorite café.

“Tell me Harry, Wilson says things aren’t going so well” Andrew said

“It’s super frustrating Andrew” said Harry, “ We are good at winning the work, we don’t really compete on price, we have loyal customers, we do great work, we have good staff and I’m making millions in revenue, but we are lucky to make even a small profit” From what I can figure out the biggest problem is that “we always seem to spend half of the fee finishing the last 20% of the work”

Harry then went further and explained how this wasn’t how he imagined life as a business owner.  “Andrew” he said,” I would have been better off staying in the ‘documentation factory’ on wages. How can I change things?”

“Well Harry” said Andrew, these are the 4 main problems that are fairly typical of architecture practices that I think you’ll be having:

  1. You are winning work without understanding what the cost is, that is, you aren’t building a detailed cost budget. When you ‘win’ the job, you are hoping to make a profit. Hope isn’t a great strategy.
  2. You are delegating it to someone who has never before been trained in the methods of Project Management. The only objective way to work out if you are making money or working outside the agreed scope is to do Earned Value Analysis (EVA).
  3. Definition of success for staff isn’t aligned with the firm. If you ask your staff to define success, they will say winning awards, leaving behind a legacy, gaining publicity in a magazine, having a happy customer, completion on-time etc. – by this stage nobody will have mentioned making a profit. Further, your rewards and incentives don’t tie back to the firm’s objective of making a profit.
  4. People are ‘washing off’ time to marketing codes – so they don’t kill the project. Firms are usually good at managing project time and general office time, but not marketing. It becomes a bit of a black hole that is devoid of accountability. You’ll hear managers and directors even say, “I can’t charge that to the project, it will kill it” But at their rates, it’s the ineffective and ineffective use of time doing ANYTHING, that kills the firm.

Expert Solutions

Harry listened on intently as Andrew explained, Virtual CFO’s will embed the solid commercial foundations needed to manage the business properly. Without a holistic package of the 5-pillars of financial management; Strategy, Budgeting, Reporting, Forecasting and Cashflow Management, the company will continue to bounce from issue to issue out of control, flying by the seat of its pants.

Andrew told Harry, “reliability and predictability are essential to both evaluate how your strategy is working currently, as well as having visibility of what lays ahead and the lead time to adjust if required. Planning becomes even more critical, as does strategic decision making.”

One of a few aspects your firm has the ability to control is tracking and managing the project’s progress in terms of the SCHEDULE and FINANCIAL PERFORMANCE using Earned Value Analysis (EVA).

EVA can shine a spotlight on out-of-scope work, or unforeseen problems, giving you an early graphical (per below) ‘heads-up’ and chance to manage the best outcome.

Harry is interested enough to listen, intelligent enough to understand and determined enough to implement the 5-pillars of financial management that he had implemented with Andrew help, along with Earned Value Analysis.

Harry was up and running, feeding reporting variances between the budget and actual numbers back into the constantly evolving strategy, recasting profit projections and changing assumptions in the forecast, taking cues back into the cash flow forecast. Harry put his managers through an introductory project management course, to arm them with the skills to manage properly.  Projects were being evaluated on an ongoing basis and red flags were being raised to identify ‘scope creep’ and ‘wheel spin’ without Harry even needing to roll his sleeves up.

The best thing was, now Harry was happy again and his creativity and confidence came bounding back. Pretty soon Harry was landing big contracts and designing award winning buildings.

All the trappings

Sometime later Harry invited Andrew around for a catch up at his house. Andrew was shown in by the maid, to find Harry perched back in his comfortable armchair, on the deck of his beautiful clifftop house with views spanning out over the water to the horizon.

Harry takes a short pause, then looking out glistening bay, as the sun’s rays’ shimmer and the sets of waves roll in, goes on to say, “This Andrew, is the most satisfying design job I’ve ever done”

In his humble way, Harry went on “Andrew without your Virtual CFO help, I’d have probably gone broke, or worked myself to an early grave. Now my business is allowing my family to thrive. Thank you.”

——————————————————————————————————————————————————————————————————————————————————————————————————–

The specialist skillset, such as that offered by a VCFO, can only be obtained from years of training and experience that goes well beyond bookkeeping and traditional compliance accounting. The difference between Virtual CFO’s and traditional accountants, and the difference between Virtual CFO’s and bookkeepers, is that besides being fully qualified CA’s and CPA’s, Virtual CFOs have many years of industry experience. That means they can communicate within and across organisations, speaking the same language, avoiding typical accounting jargon. They are team players because their reputation and success align with the organisations that they serve.

The first step for any growing SME is to recognise they have reached this point – then they need to find help, just as Harry the Architect did. These businesses tend to have a much higher prospect of being successful.

Business owner’s like Harry need to surround themselves with the right people with the right skills because the ramifications of getting it wrong can be devastating.

Virtual CFO’s communicate and act as a conduit between the many stakeholders and the owners. Virtual CFOs give the owners a credible sounding board for their ideas as they seek to seize growth opportunities, before they engage with external stakeholders, like shareholders, banks and lenders. Virtual CFO’s are a considerable asset when raising capital because they give those stakeholders confidence knowing the VCFO, who is an independent financial professional with integrity (CA or CPA) has done a prior sense check. A Virtual CFO also creates a buffer between the owner getting dragged into financial matters which distract them from focusing on their clients and growing their business.

David Dillon is a committee member of the Virtual CFO Association.

The Virtual CFO Association is an elite peer network, advocating and promoting the emerging Virtual CFO sector within the accounting profession. Collectively the association currently has almost 500 years of industry experience, with highly qualified and experienced specialists spread across more than 20 industry verticals.

If you would like any more information regarding the Association of Virtual CFO’s, or a copy of our free e-book “So, you want to be a Virtual CFO” please visit our homepage 

Billy Laker the world’s best Pie Maker

Billy Laker the world’s best Pie Maker

Humble Beginnings
Billy Laker (our hero) fell into baking by chance, actually more out of necessity. When Billy was just 14 years old his father’s (and every small business owners) deepest fear came true. Due to mounting debts and waning profits, it failed. He lost everything and everyone in the small community knew it.

Billy needed to work, to help provide for his seven siblings, his busy mother as well as his bankrupt and broken father. He found a job at Pampas Cakes & Pies, which was a 2nd generation family-owned business, founded by old Poppy Pampas. Poppy loved Billy’s attitude, determination and courage. He saw something special in the kid, who always went the extra yard for the customers.

Poppy loved to tell stories of his humble beginnings back in the early days. His quaint little shop was like a working museum of history baking equipment. Everything inside and outside the shop was old, tired and dated. He made a truly magnificent plain pie, but that was the full extent of his product range

His award-winning pies had won a hat-trick of ‘Best Plain Pie” awards at the Royal Show in the ’80s.  Poppy Pampas was a legend in the baking ‘game’. However, his love of baking and serving the people in his community meant much more to him.

Poppy hated waste and believe that re-heated pies were pig food. This constrained production and limited revenue because he would bake many small batches each day. He hated advertising and thought upselling was shameful. But his competitors didn’t.

Threat of competition
Other bakery’s in Pampas’ city came and went over the years, but for several different reasons hadn’t stuck it out. After several years, a slick Venture Capital-backed national franchise had popped up on the scene and Pampas’ were soon locked in a fierce tussle with them for a share of the humble cultural icon of Australian food that has been worshipped for more than a century at the altars of their local bakery.

The franchise basically did everything poppy didn’t and the franchise business excelled at marketing. Poppy dismissed the franchises as a threat. Not only were their fancy pants variety pies no good, but they also weren’t even fresh. Billy had even won a National TAFE apprentice baking award for his cracking Chicken and Leak pie, offered the recipe to Poppy to re-invigorate sales, but Poppy thought it went against the fine traditions of baking. He couldn’t understand why anybody would ever buy one.  But lots of them were and market share started to decline rapidly.

Poppy faced the dilemma of either investing heavily in a complete store upgrade or closing the shop down. Poppy was nearing retirement age himself and hated the idea of going into debt, taking the risk that he might lose everything he’d worked so hard for. He confided in Billy to talk of his concerns. Unexpectedly, the next day Billy spoke to Pedro and said there was a 3rd option that perhaps he hadn’t considered. How about selling the business as a going concern to Billy? Poppy was delighted, saying that it seemed like a win/win scenario.

A new business owner
Billy had worked hard and saved hard his entire life and he buy-out was a very simple transaction which Billy could afford from his savings.

Determined not to see his dream fail (like that of his father) and with little understanding of business management, though enough intelligence to know that he didn’t know, Billy turns to his trusted advisor and accountant Wilson for help.

As Billy is only small, Wilson sets him up with Xero, a bookkeeper and a pretty standard tax structure to minimise his tax and protect his assets. Wilson ran the usual numbers to project if Billy would have enough cash to see him through the year and wished him well. “Call me if you hit any problems Billy” he reassured Billy.

Hard Slog and frustration
Over the next few years, Billy slogged away, continuing to do things as Poppy had taught him. He stuck to Poppy’s vision, his methods and even his product range. He worked long hours, 7 days a week, missing key moments with his own young family. He hardly saw his friends and he was always worried about money, fearing that one day he might lose the lot like his father. The more he worried, the harder he worked.  Billy’s mistake was believing the value of the business was all in the “Poppy’s pie”. He felt if he changed anything the walls business of the business would crumble down.  Except they virtually were crumbling down by sticking to the old strategy.

A cry for help
After years of pushing himself to the brink of endurance and with the weight of the world upon him, Billy went to see his trusted advisor Wilson for his routine annual appointment. When Wilson calculated that Billy owed $12 000 in tax, he broke down and sobbed uncontrollably. He said “That $12 000 was to send my son to the USA for his school music excursion. Now he can’t go. Why is it so hard, why?”

Wilson comforted his client and counselled him, offering “mate you need to work smarter not harder – you need to take a break also, you’ll end up killing yourself”

Luckily for Billy, his accountant Wilson, being an ethical operator and always wanting the best outcome for his clients, told him that while tax accountants like him were great at setting up clever, but legal, structures to minimise his tax and protect his assets, the internal financial management of the business wasn’t something they did particularly well, but they knew exactly who could help.

His accountant recommended that Billy meets with an ex-CFO called Andrew who was running an outsourced Virtual CFO (otherwise called outsourced CFO or VCFO) business. Billy asked “Why do I need a CFO? What does a virtual CFO do for a small business?”

The Tax Accountant replied “Because your business has reached a critical point, where you can no longer manage without access to a seasoned, strategic and commercial thinker. Virtual CFO’s have this in abundance. Trouble is, you can’t survive without one, but you haven’t yet reached the scale to be able to justify the investment in a full-time internal CFO.”

He went on, “Billy, it’s a catch 22, the team you have can’t keep up with the bouncing ball, but you can’t afford to employ an expensive CFO. A Virtual CFO solves that problem because your SME can access the expertise on an as-needs basis.”

Billy then asked, “how much would a virtual CFO cost?”

“Well, you only pay for it when you need it, so it works out to be a fraction of the cost of a full-time CFO and much better value.” His accountant went on to explain

Billy then asked, “what does a Virtual CFO do?”

“They manage the finances across all aspects of your business, as well as spanning the past present and future”, was the reply by the Tax Accountant.

A recipe for success?
Billy agreed to meet with the Andrew Virtual CFO. Andrew popped around the following day just on lunchtime. He sat down on the bench outside and enjoyed the tasty pie Billy had given him, smashing it down in about 4 bites, then Billy came to join him for a chat.

“Good?” asked Billy

Andrew replied “that was the best pie ever Billy”

Billy then went through and explained how the business and life had been treating him since he became a business owner.  “Andrew,” he said,” I would have been better off on wages. How can I change things?”

Billy listened on intently as Andrew explained, Virtual CFO’s will embed the solid commercial foundations needed to manage the business properly. Without a holistic package of the 5-pillars of financial management:
Strategy,
Budgeting,
Reporting,
Forecasting and
Cashflow Management
,
the company will bounce from issue to issue out of control, flying by the seat of its pants.

He told Billy, “reliability and predictability are essential to both evaluate how your strategy is working currently, as well as having visibility of what lays ahead and the lead time to adjust if required. Planning becomes even more critical, as does strategic decision making.”

Billy is interested enough to listen, intelligent enough to understand and determined enough to implement the 5-pillars of financial management that he had implemented with Andrew’s help.

The new strategic direction entailed a new product range, including Billy’s award-winning chicken and leek pie. He did some low cost, grassroots social media advertising that had great results. As profits went up, Billy employed a manager, which allowed him to start spending more time with family and friend. He wasn’t worried about cash anymore.

Billy was up and running, feeding reporting variances between the budget and actual numbers back into the constantly evolving strategy, recasting profit projections and changing assumptions in the forecast, taking cues back into the cash flow forecast.

The best thing was that Billy was happy again and his creativity and confidence came bounding back. Pretty soon Billy landed a once in a lifetime opportunity. A private equity (PE) funds manager visited the shop and liked what he saw. There was something about Billy’s bakery that he felt was magical or what the PE guys called ‘secret sauce’. He felt he could bottle it and take it National.

Billy took up the PE offer. The deal saw Billy keep a 50% stake, which over the next few years since grew to a huge commercial baking empire and made Billy very rich.

All the trappings
Sometime Billy invited Andrew around for a catch up at his house. Billy perched back in his comfortable armchair, looking every bit the picture of success, snappily dressed and styled, but a man that had worked very hard, since he was 14, to create this life and was very comfortable in his new surrounds.  His beautiful clifftop house with views spanning out over the water to the horizon sat atop his stable of sports cars and jet skis.

Billy takes a short pause, then looking out the glistening bay, as the sun’s rays’ shimmer and the sets of waves roll in, goes on to say, “I wish dad were still alive to see all this.”

He went on “Andrew without your help, I’d have probably gone broke, or worked myself to an early grave like my dad. If only there had been Virtual CFO’s around for him.”

The specialist skillset, such as that offered by a VCFO, can only be obtained from years of training and experience that goes well beyond bookkeeping and traditional compliance accounting. The difference between Virtual CFO’s and traditional accountants, and the difference between Virtual CFO’s and bookkeepers, is that besides being fully qualified CA’s and CPA’s, Virtual CFOs have many years of industry experience. That means they can communicate within and across organisations, speaking the same language, avoiding typical accounting jargon. They are team players because their reputation and success align with the organisations that they serve.

The first step for any growing SME is to recognise they have reached this point – then they need to find help, just as Billy Laker did. These businesses tend to have a much higher prospect of being successful.

Business owner’s like Billy need to surround themselves with the right people with the right skills because the ramifications of getting it wrong can be devastating.

Virtual CFO’s communicate and act as a conduit between the many stakeholders and the owners. Virtual CFOs give the owners a credible sounding board for their ideas as they seek to seize growth opportunities, before they engage with external stakeholders, like shareholders, banks and lenders. Virtual CFO’s are a considerable asset when raising capital because they give those stakeholders confidence knowing the VCFO, who is an independent financial professional with integrity (CA or CPA) has done a prior sense check. A Virtual CFO also creates a buffer between the owner getting dragged into financial matters which distract them from focusing on their clients and growing their business.

David Dillon is a committee member of the Virtual CFO Association.

The Virtual CFO Association is an elite peer network, advocating and promoting the emerging Virtual CFO sector within the accounting profession.

Collectively the association currently has almost 500 years of industry experience, with highly qualified and experienced specialists spread across more than 20 industry verticals.

If you would like any more information regarding the Association of Virtual CFO’s, please visit our homepage and start from there.