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.