Budget Your Business for Success

100 years ago the flywheel delivered power from a motor to a machine.

Today a different type of flywheel is needed to give your business

  • momentum
  • remove friction
  • Apply Force
  • Give your Business Flow, Accuracy & Accountability

1 in every 3 Australian businesses operating in 2017 failed to survive until 2021 because of lack of planning.

Planning alone can’t save your business, you need an actionable roadmap, a Budget to help you achieve your Plan.

A Plan without a Budget is just a daydream

A Budget without a Plan is a nightmare

The Solution is a Plan & Budget Flywheel, working in unison, not just one or the other but both.

With a New Financial Year just a few months away, inflation and supply chain issues causing uncertainty,  follow the 7 Steps on the Flywheel and you’ll be building the right momentum to success.

  1. What’s Your Plan?

Define your Plan and decide whether you have the cash flow to help you get there. Do you need to borrow money, get a loan? How are you going to fund your Plan? How do you deal with a short-term cash shortage?  These are the critical questions you need to face up to.

  1. Cut the Fat not the Meat of Your Costs

Analyse all your costs, understand you have fixed and variable costs. Negotiate with your suppliers to get discounts by giving them commitment that you will be their Supplier of choice. Every $ counts. Get efficient. Don’t be an Open Bar tab, put purchasing limits in place and sign off’s and it all starts with putting it in your Budget and making yourself accountable to what you are spending.

  1. Estimate Revenue

Looks at prior revenues, talk to potential customers, set realistic goals, adjust for seasonal fluctuations, like Xmas and holidays.

  1. Gross Profit Margin

This is one business metric you can’t live without. No matter how many sales you make you have to know all your costs that went into that sale and how profitable it was. Yes you are in the business of making money, because if you don’t your competitor will. So get in front of the pack, Be Profitable Be Proud!

  1. Project Cash Flow

They say Cash is King for a Reason, so many businesses are caught without cash because they are waiting for their customer to pay. Look at trading terms, get money in advance of starting work, look at debtor finance scenarios…..make sure your cash flow is king all the time.

  1. Factor in Seasonal & Industry Trends

What happens if your industry only gets revenue during summer? How do you survive during winter. You need to budget for low revenue months and hope that you have enough revenue banked up in the bank to get you through the leaner months.

  1. Bring it All Together

A CFO will combine your Plan and Budget together, pull the numbers together and update them against actuals so you can see how you are tracking. Your budget teaches you valuable lessons about you and your business. It’ a life journey and we help you along your journey to success.

#virtualcfo #smes #financialmanagement

Chris Kondou is a member of the Virtual CFO Association.

The Virtual CFO Association is an elite peer network, advocating and promoting the emerging VCFO sector within the accounting profession. Collectively the association currently has over 600 years of industry experience, with highly qualified and experienced specialists spread across more than 25 industry verticals. If you would like any more information regarding the Association of VCFO’s, please visit our website www.vcfoassociation.com.au

Are you paying a heavy price for having a financial decision-making blind spot?

A lot of companies have Accounting Routines passed down by person to person and learned by rote, that provide a rudimentary accounting function which meets the minimum standard for tax compliance.

The way we always have done it here’ is not the same thing as global best practice.

‘The way we always have done it here’ makes them reluctant to try new things, and blind to the fact that often they are doing a great job of doing something that doesn’t make any sense of add value to financial decision making.

The thing is, the quality of your financial decision making don’t ‘show up’ as a line item in your P+L.

Nor does it ‘show up’ as a deductible item on your tax return.

The impact of financial decision making is hard to see, which makes it difficult to ‘pin’ on something or someone.

Whether you believe this to be true or not, every decision you make, every action you take has a financial consequence.

You might not be able to see it, but you could be paying a heavy price for having a financial decision-making blind spot.

The ‘price’ you pay is usually made up of inefficiency, waste and excess, which are intangible by nature. This makes it hard to put a value on, without thinking beyond a basic one-dimensional analysis of the P+L numbers.

The difference between what you actually made and what you COULD have made is an opportunity cost.

To use a simple illustration, if you had to turn down a $200 casual work shift to attend a free family BBQ you might say that it’s cost you $200 to attend the BBQ, but the loss in earnings is an opportunity cost – you won’t find it on your bank statement.

To work out the ‘opportunity cost’ you need a benchmark and/or a plan to compare your actual performance against. This adds layers of depth and a degree of complexity, which requires expertise to understand.

(Think of these like the foundations of a tall building.  Then imagine that global best practice lies at a depth somewhere between scratching the surface and digging to China.  Global best practice depth isn’t what your opinion says it is, it’s what the best companies in the world adopt. Unless you know what you are doing and dig to the right depth, your foundations will be shaky.

Let me give you a case study as an example.  A client engaged me to (using a car analogy)  ‘have a look under the hood’ of his business. This business had multiple locations along the east coast of Australia and turnover of almost $20M pa.

But, something wasn’t right.

They were all working their backsides off, but results were disappointing and unpredictable.  He said it probably needed more than a ‘tune-up’, it was more like it ‘wasn’t firing on all cylinders’.

After putting his ‘car up on the hoist’ my analysis revealed they were probably down $500K pa in profit versus best practice.

Their senior people were ineffective in their pursuit of marketing targets. They had staff motivation issues, the projects were in control of them, not the other way and they weren’t strategic in the way they did pricing.

They thought of themselves as a European luxury car, but they were struggling to get from A to B.

All these things that can be fixed if you know what you are doing, but virtually impossible to see if all you do is stare at the P+L hoping for the answer to jump off the page and land in your lap.

So if you want to stop flying by the seat of your pants your business to grow on solid foundations speak to a Virtual CFO Association member about developing an financial decision making information ecosystem that spans the past, present and future, which will allow you to see where you are headed, stay on track and have enough time to make informed strategic decisions.

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 www.vcfoassociation.com.au

Xmas heralds cashflow worries

If you love unpleasant surprises and your default financial management technique is ‘flying by the seat of your pants’ – this time of year is especially exhilarating.

Late January / early February usually gives the most bang for your buck in terms of adrenaline rush, when trying to meet your payroll / super obligations.

Maxed out overdrafts and credit card facilities hit you like a X-mas party hang-over and delays in commencing projects just compound the headaches. A Berocca might fix your  party hang-over but not your cashflow woes.

Of course, the alternative is to understand your strategic drivers, know if you are on track or not and have faith in your forecasts. This is the expert domain of a Virtual CFO

Virtual CFO’s use budgets, forecasts and cashflow plans to help make informed strategic decisions about the future, which keep you on-track and allow you to see where you are headed.

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 www.vcfoassociation.com.au

Forecasting – nobody likes surprises

Humans crave certainty … we don’t like surprises.

Surprises give us the same fight or flight impulses that cavemen had, when any little rustle in the bushes they heard, could be a predator looking for something to eat.

Situations that are often mild and manageable to the rational mind, become anxious and overwhelmed reacting to something without any prior warning.

I remember reading about a young woman who was tragically killed in a car accident, after her car veered off the road and hit a tree. Accident investigators put the cause of the crash down to her reaction to a huntsman spider crawling out from behind her sun visor.

Huntsmen aren’t aggressive spiders. They do have venom, but they aren’t deadly.

Advance notice, allows the rational brain to process the risks, put the mind at ease and take charge of the situation.

By anticipating scenarios in advance, you can evaluate alternatives and make informed strategic decisions about the future. Success doesn’t happen by accident.

Forecasting is a core strength of a Virtual CFO.

Forecasting should be a routine and discipline that your business uses to put you in control and keep you on track.

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 www.vcfoassociation.com.au

#sme #virtualcfo #accounting

What does Root Canal treatment and Virtual CFO have in common?

Nobody WANTS to get a root canal treatment. Until you’ve NEEDED root canal treatment you can’t possibly imagine the pain you experience prior to getting it done.

What starts as a tooth being sensitive to high and low temperatures or pain when chewing quickly escalates if bacteria gets inside the pulp leading to a continuous, throbbing pain caused by an infection inside a tooth. If you’ve ever felt it, it will be etched in your mind forever thereafter.

I got my first one at 32. Until then, I’d never even had a filling. Maybe this was why I had become complacent and had missed a couple of annual check-ups. In my defence, I’d also relocated to another city, moved apartments a few times and changed jobs twice and didn’t have time to look for a dentist. I’d also clearly overestimated my teeth brushing skills as well as completely underestimating the downside to getting it wrong.

Turns out, there was a dentist on another level of the city office building I worked in, next to them a teeth whitening clinic and an orthodontist. People in my office called the Dentist the ‘torture chamber’, hardly a glowing endorsement. I’d have a little chuckle as they came back from ‘the chamber’ with the side of their faces all droopy, drooling and unable to speak. Hilarious, until the day my own tooth started to feel sensitive to hot and cold drinks.

I did what most first timers do – ignore it and hope it will go away.

But it didn’t. It got progressively worse. It was throbbing so bad that one day I rode the elevator down from Lvl 15 to the torture chamber and begged for an appointment. I was desperate. Anything, early, late, a last-minute cancellation, anything to stop the pain.

People fear root canals because they assume they are painful, but procedure itself is usually no more painful than getting a filling. Afterwards if it hurts, you just take a couple of Panadol and it usually settles down pretty quickly. The relief is immense and the gratitude to the skilful dentist enormous.

Numerous follow up appointments later, to re-clean the cavity, to measure and fit a titanium post, before placing a porcelain crown over the top and I now had a structurally sound, pain free tooth (that cost about the same as a small car).

But the big lesson learned was not to ignore it and hope that the pain goes away and next time to take action and book an appointment with the dentist much earlier.

What’s this got to do with Virtual CFO?

Imagine your routine annual dental check-up and your trip to your tax accountant as being similar. You get a de-scale and clean and a ‘once-over’ but there is only so much they can do in this brief encounter. It’s more about compliance and ticking the box that you’ve done it.

However, in between visits is when you usually run into problems.

If you are a ‘first-timer’ feeling some financial pain in your business, you might be inclined to do nothing and hope the pain goes away. (sound familiar?)

But if it doesn’t, you’ll be continually stressed out about money, constantly getting dragged away from what you should be doing and into finance problems, whilst finding it impossible to switch off when you get home. Eventually the pain will be so unbearable you’ll be begging someone for help. It’s no longer a want by this stage, it’s an urgent need.

At this point it’s critical to make sure your accountant isn’t the dental equivalent of a orthodontist or teeth whitening clinic who specialise in a different area (cosmetics) to the root canal expert.  You need someone who can take the pain away. But accountants, like dentists, are not all the same. You need an Accountant who is an expert at removing the pain of poor strategic financial management.  An Accountant who can get rid of the uncertainty and chaos and make your business reliable and predictable, so you can focus on your clients needs and grow your business.

CFO’s are the expert accountants in this specialist area. BHP and other great, successful companies don’t need convincing about the merits of a CFO to lead their strategic financial management. But smaller companies can’t justify a huge full-time internal overhead ‘chewing away’ at their bottom line, so the best option for them is a Virtual CFO, who can put you back in control and keep you on track, but on a part-time or as-needs basis.

If you are not a first-timer and you’ve experienced excruciating ‘pain’ before in your business, you be wise enough to know not to wait until becomes unbearable before you do something about it next time.

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 www.vcfoassociation.com.au