Archive for April, 2005

Does Your Business Need a Chief Financial Officer?

RALSTON CONSULTING INC.’S BUSINESS ADVISOR SERIES: CFO

FocusCFOImageDo you need a Chief Financial Officer for your business? To get the straight goods, we interviewed two highly regarded colleagues, Brad Martyn and Bruce Collen, partners at FOCUS Business Solutions. They offer outsourced or contract Chief Financial Officer (CFO) services for small-to-midsize business in central Ohio.

Ann and I have had the pleasure of working with CFOs from FOCUS, and we have found the combination of our firms to be a powerful force for our clients. Ralston Consulting Inc. provides the business insights, strategic planning and organizational structure, while FOCUS validates the business model, assists with scenario planning and helps business owners implement financial management controls necessary to bring the strategic plan to life.

Join us for some “CFO-Talk” as we shed light on this vital member of a businessperson’s advisory team.

Q: As a business owner, how do you know you need a CFO?

Brad: It depends on the size of the organization, to start with. In most large organizations, they’ve had a CFO in the past. In contrast, I don’t think a small business owner is necessarily educated about what a CFO is. They tend to think that a CPA fills the void.

Q: So what is the most crucial difference between a CPA and a CFO, for the small business owner -for the guy paying the bill?

Bruce: A CFO is a strategic business partner, really…

Brad: Yes – CFOs are focused on working inside the business helping it generate wealth – ensuring proper capitalization, fostering the right banking relationships, addressing compliance issues – focusing on the company as a whole. Often CPA’s tend to be more focused on specific tasks. Is the year-end audit done? Is the tax return done? They add value, but it is in a much different way than a CFO.

Bruce: While both are vital to a business, a distinction we see is that the CPA’s dominant focus is historical – looking back to prepare tax returns and financial statements. The CFO, though, needs to be a forward-looking, integral part of the management team. Often the CPA works for the business, while the CFO works in the business. Big difference.

Brad: It’s like the difference between your fitness coach and your doctor. You visit the doctor for the annual checkup and you try to keep them informed during the year as you see them, but the fitness coach is there, weekly and monthly helping you achieve your goals. A CFO is a financial fitness coach for your business.

Q: If many owners are unclear about the distinction, what is the wake-up call that highlights to the businessperson that they are flying blind toward the future? What triggers them to seek a CFO?

Brad: Likely an advisor – their banker, or attorney, or CPA – will tell them. Someone who understands the business and the owner will see the need. Often the business owner does not know how a CFO can help or what they really are. Once an advisor helps them see the need, the owner quickly sees the benefits and how critical it is that they consider taking the step.

Bruce: There may be working capital needs, and the Banker will arrive and say: “Your financial house is not in order, and must be put in order before you get any consideration.”

Brad: Be a banker, for a second. If you are trying to lend money to somebody who wants $500,000 for their business, you are trying to figure out what they are going to do with the money, and how they will service the debt, long-term.

People don’t understand that banks only make about 2 % on any deal that they do. If you are paying 6 %, they probably pay 4 % for that money. Figure 2 % on a million dollar loan – the bank is maybe making $20,000 a year. It’s a hard business where they must evaluate what the payback and the risk is for the bank.

So the banker says: “Let me see your budget. Let me see your projections. Let me see last month’s financials.” If the business owner says: “I don’t really have that…” the banker may be less comfortable lending, especially if the money is for future growth plans and there of no evidence of what the plan really is. Many bankers will tell the business owner that in order to grow, they need stronger management reporting and better internal controls – to advance beyond business by intuition into business by forecasting and reporting. Often at that point, they will recommend a CFO.

Bruce: Another wake-up call is when a spouse or an advisor points out that they have been consumed by administrative and financial tasks, and have long lost sight of the things that let them grow their business in the first place.

Brad: The typical “E-Myth” problem of working in your business rather than on your business.

Q: After, say, a year of working with a CFO, what do small business owners discover that they really value?

Brad: As a small business owner, a lot of times what you want is someone to discuss key business issues with, over time. It’s a combination of an advisor, and a partner, and a confidant, and a friend – someone who understands your business that you can have an adult conversation with. Not about debits and credits, or what the balance sheet is, but it’s about: “This is my business. This is my life.”

Q: So with a CFO they get a trusted, credible advisor?

Bruce: Yes, and that’s possible in part because we’re onsite on a regular basis. We are truly part of their management team. We understand their business. We develop the relationships there that let us be most effective.

Q: As strategists, Ann and I are shocked to find many businesses operating with strategic goals but no operational measures of progress or success for management decisions – truly running blind. How can a CFO help?

Brad: In every business there are, say, 3 to 10 measures – ‘metrics’ is the buzzword – that effectively give you insight on how your business is doing. A lot of people try to run their business with a financial statement, and it doesn’t tell you those things. To begin with, it’s too late, and it’s historically focused. Metrics come out every day. What were my store sales yesterday? What was my profit margin yesterday? What was my gross margin on a project yesterday? What is it going to be in the future? What is on your dashboard?

Bruce: An aircraft pilot needs a clear view of the horizon and out the side windows. They don’t fly the plane with a rear-view mirror. They also need up-to-date instrument readings – altitude, heading, speed, and fuel. As CFOs, it’s our job to help owners build a concise but informative instrument panel for their business.

Q: What is your parting tip for our readers with regard to financial management?

Brad: Business owners can make decisions thoughtfully, with the numbers; arbitrarily, by the numbers; or blindly, without numbers. Make sure you have good information as the basis for good decisions, as opposed to making decisions without.

Bruce: In the search for financial support, from either a full-time or a contract CFO, it is critical to ensure uncompromising integrity and ethical standards. This person will be representing your business and your future to many, both inside and outside your firm.

Brad Martyn and Bruce Collen can be reached in Columbus, OH at 614-944-5760 or at info@focuscfo.com

© 2005 Gary Ralston

About the author: Ann and Gary Ralston founded Ralston Consulting Inc. to help accelerate business growth for their clients – from startups to global corporations – across North America. Based in Columbus, Ohio, Ann and Gary can be reached at 614-761-1841, info@ralstonconsulting.com, or through www.ralstonconsulting.com.

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Back to Business Basics – Seven Very Different Businesses Face Similar Issues

BacktoBasics

Battling with some aspect of your business? You are not alone!

Recently, Ralston Consulting Inc. conducted a daylong business check-up seminar, working one-on-one with owners of seven different firms. The businesses couldn’t have been more varied -scientific research, apparel manufacturing, retail, medical practice, document production, arts instruction and consulting. Regardless of the industry or length of time in business, the same themes appeared – themes we see again and again in our practice, in startups and in divisions of billion-dollar corporations.

NO ONE HAS ENOUGH CAPITAL TO SPEND THEIR WAY TO RICHES.

Being undercapitalized seems to be near universal, and is not, in itself a bad thing. Ventures with seemingly unlimited capital (as in the dot-com debacle) can lose sight of their net profit picture, and crash in their attempt to buy up the market. While limited capital stimulates innovation, having no capital reserves at all paralyzes a business. Owners must have strong command of cash flow and other aspects of financial management, as well as an ability to innovate for profitable growth.

DO YOU CONTROL THE FLOW OF NEW CUSTOMERS?

Can you turn the marketing “tap” on and off? Most of the businesses we meet are concerned that they are not in control of reliably getting new customers and new business.

  • Who are your prospects?

  • Where are they?

  • How do they know about you the moment they realize they need an offering like yours?

  • How do they make their buying decisions for your product family?

  • How do they get it from you once they buy it?

Answer these questions, and then develop your marketing and sales process accordingly.

MEASURE TWO OR MORE INDICATORS TO GET CONTROL

If you measure only one thing, you will lose control sooner or later. An automobile driver must manage speed, fuel, and direction if he or she is to reach the destination. For instance, revenue must be measured against something else, such as gross profit margin, net profit, production defect rates and customer retention. An increasing market share is good news – until you discover that your competitors are abandoning the market and the total market is tanking.

BALANCE WORKLOAD TO CAPACITY

Once you control the flow of customers, match the workload generated by your marketing and sales activities to your capacity to deliver with adequate quality, on-time. Too much work is as bad for a business as not enough work. Want to grow while minimizing loss of customers or staff? Increase capacity, then increase workload.

TEST THE ADVICE (AND THE ADVISORS)

Our best advice is to trust, but verify. Hire advisors based on actual reference checks of their clients. Discuss if the advisor delivers on their promises. Network to see if you can talk with one of their clients who wasn’t listed on the advisor’s reference sheet. In starting with a new advisor, set up a test project and pay attention to how things go. Do not dismiss early discrepancies between what is promised and what is delivered without examination. For existing advisors, especially where you have a nagging doubt about their performance but have dreaded the hassle of finding a new advisor, get a second opinion from a credible, impartial source.

CHALLENGE YOUR OWN ASSUMPTIONS

Perhaps the most important advisor to challenge is you. Test your own assumptions and strategies, especially where things are not going as planned – maybe your way isn’t the best way. While a good work ethic is great, if your solution to everything is to work harder and do it yourself, you are unlikely to sustain growth. Maybe it is stating the obvious, but to sustain growth, things must get easier and not harder, the bigger you grow. Back up and examine the structure or system for self-defeating flaws. Evaluate hiring and training practices to ensure you have the right people for the job. In short, always strive to be effective, rather than simply busy.

KNOW WHEN TO FIRE YOURSELF

Consider three roles: Owner, Manager, and Technician (worker). Most owners were “technicians”, first. That is to say that they once did the job they now manage. Now, great technical skill does NOT equate to stellar management skill or business acumen. As your company grows, you still must govern the direction of your business. However, if management or business is not your strong suit, you may want to consider changing your title from CEO to Founder, and hire professional management with a track record of growing companies your size.

BUSINESS SUPPORTS LIFE, AND NOT THE OTHER WAY AROUND

Remember why you started the business in the first place? How is it going? If you are like many business owners, somewhere along the way the dream got lost, and the business started owning you. It is never too late to regain your perspective and take action to reset your priorities.

For those just starting their businesses, be really clear about why you want to do so. A startup is NOT a solution to short-term problems or a lousy boss. In the beginning (i.e. the first TEN years!) your business – if it doesn’t fail outright – is likely to offer less security, longer hours, fewer holidays, less money and far more stress than many jobs out there.

If you are STILL bent on being an entrepreneur, then roll up your sleeves and do your homework. Find a product or service that is truly in demand in a growing market, put together a business strategy, plan, advisors and financing, and have a long talk with your spouse and personal network to rally the support you will need to successfully realize your dream.

© 2005 Ann and Gary Ralston, www.ralstonconsulting.com, 614-761-1841.

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Getting Things Done by David Allen

What a good book! In “Getting Things Done” (GTD), David Allen presents a system for radically increasing personal productivity and focus on your priorities. I’ve taken and applied some of the principles and found great improvement in my ability to keep clutter down and productivity up.

GettingThingsDone160wGood news for devotees of Robert Fritz’s creative process and structural tension charting – Allen’s approach is generally compatible with Robert’s work. For project planning I prefer structural tension charting, but for managing tactical details, inbox, e-mail appointments and to-do’s, GTD is da bomb for me.

Allen’s follow-up book, Ready for Anything, is also very good.

Essential GTD resources:
M Vance: Getting Things Done – Go. Print. Excellent summary of GTD.

Advanced Workflow (PDF) – A wonderful, annotated diagram of the Getting Things Done workflow. Hang it over your desk.

(available as a seminar, in book, cd and tape, also available at audible.com)
www.davidco.com

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Monday, April 4th, 2005 Executive Productivity, Main Page No Comments

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