There comes a point when every growing business needs to upgrade its finance department. A business that muddles through with an over-stretched bookkeeper or company accountant will soon find itself derailed, resulting in disaffected investors and customers.
Clive Lewis, Head of Enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW), believes cracks in your financial management can have a disastrous impact on growth businesses. Warning signs include management accounts that arrive so late the information is redundant, or monthly reporting that does not tally with the annual report and accounts. That’s a scenario that is going to lead to awkward discussions between the management team and investors. “What you need is timely, accurate information and a professional with the ability to make forecasts on the back of it,” says Clive.
What an FD can do for your business
As businesses grow, their needs increase. The person steering the finances needs to be someone who can take on a broad commercial role. Forecasting, IT, tax issues, insurance and back office functions – all these need to run smoothly. But a fast-growth business needs someone who can anticipate both future opportunities and potential problems.
A good financial director will help owner-managers understand which aspects of the business are the most profitable, as well as forecasting ways to exploit other opportunities. Clive Lewis believes they should be someone who can provide not only the financial perspective but also a strategic point of view regarding new products and markets. “It’s not just the things you are doing now that need this kind of input,” says Clive. “Think about where you want the business to go as well.”
Here are several reasons for which you may want to consider employing a financial director:
- Fundraising – Simon Walters, Director of service provider FD Solutions, believes fundraising is a compelling reason for employing an FD, as theirs can be a comforting presence for investors and lenders. “A strong FD will know where to look for funds, what information to provide potential backers, and how to construct forecasts that will predict the effect on the bottom line when sales increase by 5% or margins decrease by 10%,” says Simon.
- Improving Cashflow – Many growth businesses focus on pulling in sales. Only when the going gets tough do they start looking at how effectively they collect payments. An FD will take a strategic approach to implementing viable payment terms and collection procedures. They will also look at cashflow, cost-control and outsourcing any unwieldy tasks.
- Exit Planning – If you have any plans to sell or list you will need an FD at your side who can accompany you to all the Dragons’ Den-style meetings and answer all the testing questions regarding finance and strategy that will be thrown at you. However, you will need to take care. If an acquiring business has its own FD, your potential buyer may see your FD as a liability, someone they will have to pay off at great expense.
How do you identify the right FD for your business?
Your board, your investors and your external accountants will all provide useful perspectives on what kind of person would be a good fit for your business. Sector expertise can be important, particularly if your industry has distinct features. “It would be a bold company owner who took on an FD with no industry experience,” says Simon Walters. However, an experienced FD will have transferable skills. The trick is to ensure that they have the right experience for your business plan, whether that includes potential acquisitions, rapid development or IPOs.
How do you go about finding a potential FD?
Search firms are an obvious place to start looking for an FD, but these are by no means the only option. There are also websites that specialise in FD jobs. The ICAEW website is a good starting point as it gives you a good indication of the market rate when it comes to salary and benefits. The average FD salary is around £60,000, but you need to consider the kind of extras (company car, share incentive scheme, etc) that will attract the brightest candidates.
If the thought of having to provide such extras alarms you there are alternatives. The interim FD market is a dynamic one and no longer a temporary resting place for sacked FDs or FDs on the brink of retirement. You may also want to consider a part-time option. There are probably tens of thousands of businesses who hold off on FD appointments because of the perceived cost. In fact, you can pay an hourly rate and have the services of a seasoned FD for perhaps three days a month and still see real improvements in your business.
How do you measure the success of an FD?
If you have taken the step of hiring an FD, whether full-time, interim or for just a few days each month, you should feel the benefit straight away and get an immediate sense that they are doing a good and professional job. It’s not quite like hiring a new sales manager, where you can set concrete targets, but nevertheless there should be positive signals.
The following signs should indicate that your new FD has improved the running of your company:
- Management accounts that turn up at regular intervals and soon after the close of the month.
- Improved relationships with the bank and perhaps an increased overdraft facility.
- Better staff retention in the accounts department and good feedback from bankers, lawyers and investors.
Perhaps more importantly, you should have the sense that your finances are more professionally handled and your management team has acquired an asset in the form of a forward-looking strategic thinker.
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