The dilemma of picking the right sized ‘truck’ for your business.

The dilemma of picking the right sized ‘truck’ for your business.

I want you to imagine you are running a small/medium widget business and need to move some cargo.

Let’s say that your cargo requirements vary from month to month. Let’s also say that whilst your cargo volumes are relatively modest at present, you aspire for your company to ‘one day’ be making and moving much more.

Now remember, you’re a widget maker not a truck expert, so, you need to research trucks. For a start, there are so many types it’s overwhelming; tipper trucks, refrigerated trucks, tanker trucks and general freight trucks.

You chose the one that is fit for purpose for the widget industry.

The little truck is cheapest and will fit most of your cargo, most of the time.

The medium truck will fit all your cargo for now plus some, but you will probably outgrow it (you hope) in the next few years.

The big truck makes a statement. It tells everyone you have ‘made it’. It will fit all your cargo needs when you have ‘made it’, but until then it would only be carrying around a few pallets. Buying the ‘Big Dog’ truck now, will also most likely send you broke.

The dilemma is:  which truck do you need now? Which one do you need ‘one day’ in the future? Which one would you like?  Which one can you actually afford?

The cost of driving around in an under-utilised or half full truck are significant. That is just wasted money. The costs and disruption of selling your old trucks and buying new ones as your needs go up and down are also significant. Also, the costs of leaving cargo behind because it does not fit might lose you a customer, so the lifetime cost of that could be huge as well.

Now let’s use this same analogy and say each of these 3 trucks is a CFO.

It’s the same dilemma, you’re a widget maker not a CFO expert.

A virtual CFO is like having the flexibility of being able to put your cargo pallets onto the right truck, as and when you need to and being able to depend on them to deliver the goods on time. You can see from above, that it is much more efficient than trying to run your own truck and much less hassle.

Sure, one day when your business becomes reliable, predictable and sustainable you might decide to invest in your own fit for purpose truck, but until then you are much better off focusing on your clients needs and growing your business to reach that scale.

And when you reach that scale, you might need to invest in a full-time internal CFO also.

David Dillon is the President 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 600 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 http://www.vcfoassociation.com.au

 

3 Reasons why accounting firms should work with VCFO’s

3 Reasons why accounting firms should work with VCFO’s

Let me be clear, this article is trying to encourage your accounting firm to offer Virtual CFO services to your clients.

In saying that, I’d advise you be realistic about the challenges. If it was easy, then everyone would be doing it. Do the rewards justify the risks? Only you and your clients will ever know the answer to that.

Accounting firms that are looking to expand beyond traditional compliance work and grow their own businesses by offering Virtual CFO services can leverage the ‘Know Like Trust’ aspect of longstanding relationships, solve their clients problems and save themselves a whole bunch of hassle in the process.

Most firms will have clients that have outgrown their own rudimentary in-house financial management capabilities. More than likely these clients are often frustrated, worried and disappointed with unreliable and unpredictable nature of their finance and know they need help. They wake up every day hoping to find a better way and it is a relatively to persuade them that they need help.

However as many accounting firms have discovered, fulfilling the clients needs and making a decent return for the effort involved is proving to be quite a challenge.

The biggest problems public practice firms encounter when trying to get Virtual CFO services off the ground are pricing, scoping and resourcing. This plays out as the client become very hard ‘manage’ on the monthly agreed fee. Typically Accounting firms adopt a tiered (senior, manager, partner) team structure It is common to hear that the client will not deal with the ‘senior’ or ‘manager’ allocated to the job but goes straight to the partner. If the Partners time has not been costed into the recurring fee, profit margins quickly get eaten away.

What strikes me about this problem is that the CFO role is part of the internal capability of a business and the owner has expectations that a Virtual CFO will be just as real actual and tangible as an in-house CFO, as and when they need them. They expect their VCFO to be accessible, available, dependable, flexible, efficient and capable. These expectations are more or less at odds with the tiered (senior, manager, partner) team structure model.

So, what is the alternative?

Clients get the best outcome when they have a Virtual CFO working in harmony with their traditional compliance accountants. CFO’s through their knowledge and experience, are experts in the area of commercial financial management within specific industry verticals. CFO’s in industry consciously decide to move away from public practice and pursue a commercial path. Every big company has a CFO that has chosen this path and devoted the prime of their careers towards the goal of being a CFO. Virtual CFO’s are ex-CFO’s that do the same thing, but on a part-time for SME’s who have not yet reached the scale to justify the investment in a full-time CFO.

Virtual CFO’s provide financial leadership for business and credibility with external stakeholders. A VCFO will be actively involved setting, reviewing and implementing strategy. They assist with establishing the reporting foundations, systems, strategic plans, budgets, forecasts as well as cash flows to ensure there is adequate funding in place to seize opportunities and grow the business. Importantly they communicate across the business, working as an integral part of the client’s management team to improve profitability.

Ultimately, VCFO’s allow business owners to focus on their clients and grow their business by freeing them from financial management problems. VCFO’s also make it easier for accounting firms by presenting them with reliable and predictable information to do the compliance and tax strategy work, and removing the distractions of being available on demand in a dynamic capacity.

Public practice accounting firms can engage with Association of Virtual CFO’s members under a white label or sub-contract arrangement. Accounting firms can leverage their client relationship to make a decent return, their client gets a better outcome and the firm makes a return without the risks and distractions of trying to build a new business in a specialty area that they might not be experts in. Surely this is the win-win scenario

David Dillon is the President 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

Risk-free rivers of gold?

Risk-free rivers of gold?

Are Virtual CFO services risk-free rivers of gold for public practice?

Many accounting firms are looking to expand beyond traditional compliance work and grow their own businesses by offering Virtual CFO services.

It is hard to know whether this is in response to ‘fear peddling’ about the imminent death of compliance work, through client driven demand, a result of just trying to capitalise on an opportunity or a combination of these.

Regardless, firms are looking to leverage the ‘Know Like Trust’ aspect of longstanding relationships, with clients that have outgrown their own rudimentary in-house financial management capabilities. These clients are often frustrated, worried and disappointed with unreliable and unpredictable nature of their finance and know they need help. They wake up every day hoping to find a better way. It is a relatively easy ‘sell’ because people in this situation love ‘buying’ hope.

The biggest problems public practice firms encounter when trying to get Virtual CFO services off the ground are pricing, scoping and resourcing. This plays out as the client become very hard ‘manage’ on the monthly agreed fee. It is common to hear that the client will not deal with the ‘senior’ allocated to the job but goes straight to the partner whose time has not been costed into the recurring fee. This is not the client being difficult, it is the client wanting to cut the ‘middle-man’ out.

The two things that strike me with this problem is that the CFO role is part of the internal capability of a business. Compliance work is external. It is always going to be hard scoping up work if you do not have any experience working within a similar type of company. It is also going to be hard to understand the dynamic nature of managing a business like theirs if you have never done it either. The client soon figures out the senior does not have the experience either and by having to go through the senior to get an answer from the partner wastes THEIR time.

I have heard people espouse the belief that industry vertical knowledge is not important. That a fresh set of eyes brings in a new perspective and challenges ingrained ideas and ‘group think’. However, if we transpose that argument , can you imagine a leg doctor pushing forward the idea that they would like to branch out into heart surgery because the profit margins are better and “we’ll we all went to Uni together didn’t we”.

Does not sound as convincing when you say it like that does it?

I agree that perspective is important. But I would argue that insight from industry experience is more so. If you can combine both, then you have something immensely powerful.

So, are the rewards and why are firms chasing them?   Margins at best would be double that of compliance. Let us use a compliance fee of $30K fee at 25% profit ($7.5K in profit) as the benchmark. Let us say you can get 40% margin doing the Virtual CFO service. So, you are taking on a huge amount of risk for at best an extra $4.5K per year.

Do the rewards justify the risks? 

To answer that you need to understand what the risks are.

In the best-case scenario if ‘it all’ goes bad, the extra time and resources thrown at trying to ‘manage’ the client will reduce your margins. Any worse than that, the privilege of having a happy client might cost you a few dollars out of your own wallet.

If ‘it all’ goes very bad, you can lose a great tax client and the 25% bankable profit every year. You may as well add your reputation to the loss’s column, as clients that walk out the door are hardly going to remain as advocates. That might cost you some more clients as well.

If it goes extremely bad, the worst-case scenario must be that your client might lose their business and probably their family home as well.

So, ask yourself again, do the rewards justify the risks? 

Clients assume that your actions and their best interests directly correlate. You will understand why they trust you to put their needs before your own aspirations to grow your firm. So, what is the alternative?

Clients get the best outcome when they have a Virtual CFO working in harmony with their traditional compliance accountants. CFO’s through their knowledge and experience, are experts in the area of commercial financial management. CFO’s in industry consciously decide to move away from public practice and pursue a commercial path. Every big company has a CFO that has chosen this path and devoted the prime of their careers towards. Virtual CFO’s are ex-CFO’s that do the same thing, but on a part-time for SME’s who have not yet reached the scale to justify the investment in a full-time CFO.

Virtual CFO’s provide financial leadership for business and credibility with external stakeholders. A VCFO will be actively involved setting, reviewing and implementing strategy. They assist with establishing the reporting foundations, systems, strategic plans, budgets, forecasts as well as cash flows to ensure there is adequate funding in place to seize opportunities and grow the business. Importantly they communicate across the business, working as a key part of the management team to improve efficiency and reduce waste. Ultimately, they allow business owners to focus on their clients and grow their business.

Public practice firms can engage with Virtual CFO’s under a white label or sub-contract arrangement and still leverage their client relationship to make a return. The client gets the best outcome and the firm makes a return without the risks and distractions of trying to build a new business in a specialist area that they are not experts in. Surely this is the win-win scenario

David Dillon is the President 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

Monthly Reporting 1-pager

Monthly Reporting 1-pager

I have always worked on the principal with management reporting, that if I was down to my very last sheet of paper and my life depended on it, how would I convey the right message to the decision makers.

In this respect reporting is highly creative.

Management reporting, that is, not reporting compliance where accounts are prepared using common standards to remove inconsistencies from country to country and Auditors then examine the accounts to provide assurance that these standards are being followed. Compliance is more about accuracy and adherence with a historical focus. Essential and skilful, but not strategic, insightful, and future focused like management accounting.

When designing a good management report, in addition to having bullet-proof numbers you must:

  • understand the audience
  • structure the information to make it easy to understand
  • anticipate any queries and be proactive

Often existing, lengthy reports are the legacy of numerous ad-hoc requests by Directors to add a new schedule here and there. Additional information is easy to add, but nobody ever removes and then nobody has time to read and work out it is the same information, just formatted differently.  After all, there is only so many ways you can slice up an apple.

Albert Einstein once said, “If you can’t explain it simply, you don’t understand it well enough.”

To make a change to the agreed ‘one-pager’ other stakeholders input on requisite content should be sought, before issuing a draft format of what the proposed 1-pager would look like, sort of road-testing and then Directors reaching a new consensus that this new version will be the new one-pager.  Maintaining a good ‘1-pager’ then becomes an exercise in discipline, cohesion, and prioritising. If something new is proposed, something old needs to be dropped to make room for it.  Ongoing feedback and communications play a huge role here.

I love how dashboards can virtually stream information live to managers, but you must understand the correct drivers of the business to monitor. A good-looking dashboard reporting on unnecessary metrics is a waste of time.

There will always be a need to dig deeper and provide supplementary detail if required but sending this out as a standard reporting package overwhelms the end user, taking the focus away from the message you want to convey.

I have had a lot of success with the one-pager over my career. It will take a few months to change things around if you are not yet at that point, but the effort will pay dividends later. Stick to the one-pager principal and you will soon find your top-level conversations assume a more strategic flavour.

David Dillon is the President 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

Accountants ain’t Accountants

Accountants ain’t Accountants

Here’s a story about 3 kids who lived next door to each other, went to school together and got identical results in the HSC, attended cooking school together and got identical results, but on completion of their courses were then presented 3 different employment opportunities.

One got a job at the local RSL, in their award winning bistro, flipping burgers, steaks and smashing out chicken parmigiana by the hundreds, on a busy Saturday night.

Another got a job at a local Italian restaurant learning to make a mean pizza and even better authentic pasta sauces.

The last one got a job at a Michelin hat restaurant,  learning to make small, fancy tasty and expensive dishes garnished in air dried, baby Himalayan, wild zucchini flowers.

After 10,000 hours experience, each were experts in their fields.

Then one night, for fun, they decided to do a 3-way role swap.

What do you think happened?

Thankfully it didn’t actually happen. It would have been a disaster.

Another great analogy to explain the difference between accounting specialities is to look at the medical profession. People get that GP’s are generalists. Leg specialists look after legs, eye specialists look after eyes and heart specialists after hearts.

You can draw the same parallels  in the accounting profession and that’s the reason why tax people should do tax, audit people should do audit, insolvency people should do insolvency and leave the expert commercial financial management up to CFO’s.

David Dillon is the President 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