by David Dillon | May 11, 2020 | Virtual CFO
Starting out, owners or founders of small businesses can survive by relying on their gut instincts and keeping themselves busy. They have complete visibility of what is going on around them from day to day because there just aren’t that many moving parts to grapple with.
As their businesses scale up and grow however, things get far more complex. They might add employees, expand their footprint, or add products or services to the original offering. The initial taste of success can be an intoxicating fuel for their egos and ambition, however the aftertaste is a feeling of ‘flying by the seat of their pants’
Consequently a lot of businesses will stumble while taking the ‘next step’. Despite having a book-keeper, a tax accountant and substantial turnover – their monthly results and cashflow are volatile, unpredictable and often disappointing.
More than anything they just want to be able go home at night and switch off, having peace of mind that tomorrow will not be the day that they wake up and all their fears about losing everything become a reality.
Our clients are smart or at least smart enough to understand the value in having an experienced, strategic, commercially savvy industry specialist on their team. They know it’s the most cost-effective way to add this essential capability, to gain an edge in this hyper-competitive environment.
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
by David Dillon | May 5, 2020 | Virtual CFO
As the twin crisis takes it’s grip on SME businesses, desperate owners are turning to their trusted advisors to decipher the vast array of issues they are confronting.
Broadly, there are 2 separate problems : How to survive now that the ‘music has stopped’ and how to start up again when it’s safe to press ‘play’.
For many immediate survival is centred around the raft of Government support and stimuli. Jobkeeper payments, PAYG reduction, payroll tax waivers, land tax relief, bank loan freezes, tenancy evictions moratorium, early release of superannuation. Essentially this is a compliance exercise. Fill in an application and wait for approval. This will allow most people to ‘hibernate’ until it’s safe to emerge. Bunker down, cut costs to the minimum, reduce inefficiency, eliminate waste and get some income support if you can.
But starting again is going to be a whole different problem. Things aren’t going to just go back to ‘normal’ like a on-off toggle switch.Some businesses in some industries are going to find their feet much quicker than others. Businesses that rely on consumers discretionary spend are going to struggle.
It really highlights the need to be able to properly forecast. This is not a compliance exercise.
Forecasting is a planning tool. It is a creative process using analysis, estimates and assumptions to predict ‘A future’. (Nobody can predict THE future).
Good forecasts allow you the user to drill down into the granular detail to examine the analysis underpinning assumptions and test their ‘reasonableness’. (things like sales volumes, pricing, wages, materials, capacity, utilisation etc).
Usually the starting point is a detailed revenue forecast that pushes right up into the sales funnel to show, who, what where and when the work is coming from. This is then mapped back against capacity calculations to double check that it’s achievable. Ultimately you need a 3-way forecast, where the Profit & Loss, the Balance Sheet and Cash flow Statement are all integrated, because cash flow is what determines solvency.
Best practice is to run scenarios, of the best, worst and likely case. It forces you to think strategically of the future and gives you the ability to anticipate, evaluate and navigate. This allows you to have contingency plans in place “if this or that happens” to mitigate and seize opportunities, rather than be reactive and hope things work out. (NB hope isn’t a strategy)
A lost of business owners won’t have ever confronted an empty forward order book as they look to re-start. If you’re one of them make sure your trusted advisor has sufficient expertise in forecasting and knowledge of your industry or the likely scenario is that you’ll feel like you’re blindfolded as you fight for survival.
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
by David Dillon | Apr 27, 2020 | Virtual CFO
Is Virtual CFO a good industry to be in post COVID-19 ?
The best way of dissecting this and answering is to do a Porters 5 Forces analysis.
Competitive Rivalry
The rate of industry growth in this fast growing and emerging sector of the accounting profession means there is plenty of work to go around.
Because we are all so individually different based on our extensive elite industry vertical expertise, we don’t represent threats to each other. If anything, we complement each other’s skill sets, which allows us to cover more ground and dig deeper than any other Virtual CFO organisation in the country. The Association also has the 5 principles of collaboration which includes a no poaching rule. We believe that with collective experience totalling almost 500 years, across over 20 industry verticals that the Association members offer a more comprehensive, compelling solution to non-members and solopreneurs.
Threat of new entrants
How hard it is for someone to come in and compete for market share against a VCFO’s offering?
The set-up capital costs are relatively insignificant. A desk, a laptop, website, phone and enough cash in the bank to last until your business is profitable. What is not insignificant is the comprehensive educational background and average of 25 years of corporate industry experience. You cannot accelerate getting these and you cannot do without them. Bookkeepers and compliance accountants cannot do a simple course to ‘convert’ and without the requisite expertise, clients and their businesses will be disappointed or even harmed.
The twin crisis has given Virtually every CFO a taste of life as Virtual CFO. For many CFO’s, through no fault of their own, they will find themselves under employed or worse and needing to find work as a Virtual CFO. For others, the crisis represents an opportunity to capitalise on their immense expertise and start a consulting Virtual CFO business. But getting off the ground, starting a business from scratch is tough, as all our members know from experience.
Buyers’ Bargaining Power
Ultimately the client chooses who they work with and who they do not. Most clients realise that the best Virtual CFO for them, will have many years of experience in their industry vertical. As such, it becomes a supply and demand issue. If you want expertise and there is not a huge pool of people to choose from, they don’t have much bargaining power. Virtual CFO is not a commodity. Most Virtual CFO’s are limited to about 10 decent sized clients, so they are careful about aligning themselves with the client’s success. If clients chose on price alone, they will probably end up with a Virtual CFO that isn’t suited to their business or experienced enough to keep up with the bouncing ball.
Suppliers’ Bargaining Power
Is relatively weak. Virtual CFO’s are technology enabled, but software agnostic. That is, the software itself isn’t the ‘secret sauce’ of what we do. Whilst we do factor in client’s preferences and switching costs, there are often several options we could use for our clients, meaning we are not beholden to any particular supplier.
Substitutes and Complements
When people start to question the value of something, they might look towards an alternative, or substitute. An example would be someone who likes going to the theatre to see live performances but finds that the cost has become prohibitive and that for a fraction of the price they can go to the movies and still be entertained.
Given Virtual CFO’s have an average of around 25 years of industry experience, it makes it hard for someone without that experience to come up with a credible alternative, compelling reason to switch. Historically the biggest obstacle Virtual CFO’s encounter as a substitute, is from the clients employing a full-time CFO. Mostly that has been due to psychological inertia and fear of the unknown. Often the internal CFO option they chose is someone with half the experience, that works twice as long, but that isn’t the same thing as a 25+ year industry experienced expert. The twin crisis has changed that and proven the Virtual team / remote working model can work. In fact it has been the ultimate in validation.
We do not think there has ever been a more exciting time to be starting out in this fast growing and emerging sector. If you look at the USA and Europe, Virtual CFO is more common. They are early adopters; Australia has been the laggards, but uptake of Virtual CFO services in the broader business community is set to explode as the economy gears up for a re-start.
Virtual CFO’s enabled by cloud accounting can offer huge efficiencies compared to the traditional model. We are a resourceful nation and as people look to reduce inefficiency, waste and excess, they will soon realise the value in having a Virtual CFO.
by Simon Turner | Apr 9, 2020 | Virtual CFO
Wait, what? You’re an accountant who is looking to make me pay more tax? Are you mental? Why on earth would I want to pay MORE tax? Yes, you’ve read it correctly but just to underline it.
I WANT TO HELP YOU PAY MORE TAX.
On too many occasions to mention over the years I’ve been in a social environment with people I haven’t met before and the subject comes around to what we do for a living. I tell the people who have asked that I am an accountant and the responses fall within a few groups ranging from “but you don’t look like an accountant” (seems we can’t have tattoo’s) to “are you able to wangle me a bigger tax rebate” and a number of varieties in between.
In relation to the tax comments my standard response, and I would imagine will be familiar to many accountants outside of tax practice, is to tell them I’m not that kind of accountant. That got tedious after a while as I then had to go into more detail of the wide variety of roles in our profession. It was boring saying it, never mind hearing it. So, I looked for a response which may perk their ears up a bit and get them thinking.
My standard response to those who are business owners or senior managers these days is to tell them that no, I won’t reduce their tax bill as my focus in life is to get them to pay more. Cue the tumbleweeds.
Most people simply don’t know how to react to that. We have had it ingrained into us that paying tax is a bad thing and that we have to pay as little as possible. Leaving the moral issues to one side, such as how we pay to educate our children if nobody paid tax, I go to it from a much more practical perspective. The more profit you make, the more likely you are to have a higher tax bill.
Good tax experts are absolutely worth their weight in gold in my opinion. Just because it wasn’t a field I wished to follow doesn’t mean that I don’t have a strong appreciation of their value. Their technical knowledge of legal methods to reduce your tax bill and subsequently leave more of your hard earned revenue in the business is vital. If you are a small business owner who isn’t utilising your tax accountant’s ability to assist you strategically manage your tax affairs you are quite simply missing a trick.
The problem is that they have a decidedly limiting factor as to how much they can save you. The profit you make. If your accountant is consistently saving you 10% of your tax bill each year but you are only making $10k profit then the saving is in the region of $300. The price of a good meal for two in some restaurants in Perth. What if your profit was $50K? Saving of around $1,700-$1,800. Starting to get better eh?
However, the majority of people only think of the tax they want to save but what happens to the rest of the profit? Correct, it is left in the business for reinvesting or payment of dividends. Let me give you an example to illustrate. All savings or benefits are after fees for ease of understanding.
Company A makes $100k profit per annum. At 30% their tax bill is $30k. Their accountant maximises their tax relief and saves them 10% so their tax bill is $27k, a saving of $3k. $73k is left in the business. Pretty decent result if you ask me.
The following year the same company employed us to work with them to improve the efficiency and effectiveness of their operations and administrative functions which led to a $20k increase in profit before tax. We go back to the same tax accountant with a $120k profit. At 30% their tax bill is $36k. The same 10% saving applies so they save $3,600 and are left with a tax bill of $32.4k. We have helped them increase their tax bill. However, the funds they have left for reinvestment or dividends has also increased to $87.6k, an additional $14.6k in the bank. I’m yet to meet a small business owner who would turn their nose up at an extra $14k-$15k.
So you see, maybe a bigger tax bill isn’t such a bad thing after all.
Simon Turner 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 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 VCFO’s, please visit our website www.vcfoassociation.com.au
by Terena Lane | Apr 6, 2020 | Virtual CFO
No matter what I read or hear, the word “unprecedented” keeps popping up. Whilst I am positive society has known similar times and came out stronger, I believe this time for us has made us STOP and reassess our work and personal lives.
On the work front, we have had to learn and adapt to having employees set up home offices so they work remotely. Managers have had to learn to manage teams remotely. The internet has been one of the best inventions enabling communication for work, but it’s true potential is only now starting to be tapped. This is our new Virtual Community and we are leveraging all the right communication technology. We are now utilizing video conferencing, Zoom, Skype, emails, phone and even virtual drinks after work.
For now this has become our new business model and who is to say it won’t remain.
Businesses are now seeing firsthand how a Virtual working model can be productive and cost effective. No need for daily commutes, clock cards, calling in sick because a relative is not well, bringing in sickness to work or office rent. We can still have structure, a united culture and maybe even more availability than previously when we had physical offices. The whole idea is to get the job done at the most cost effective way. It’s highlighted that outcomes are what matter most and it’s validated the Virtual CFO model that’s been around for 5 or 6 years now.
Don’t forget to check out the Government Stimulus offers and which ones apply to your business. At the moment I know of at least 10 incentives available to SME’s, such as :
- 1 PAYGW cash boost
- 2 Payroll Tax refunds/deferrals
- 3 Jobkeeper Payments
- 4 Wage subsidies for apprentices and trainees
- 5 Business Support Fund grant
Terena Lane is a member of the Virtual CFO Association.
The Virtual CFO Association is an elite peer network, that’s been advocating and promoting the emerging VCFO sector within the accounting profession since 2015. 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 VCFO’s, please visit our website www.vcfoassociation.com.au
by David Dillon | Mar 30, 2020 | 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/
