Ask any bank manager and he - or she - will tell you that their worst customers are those who have no idea what's going on in their business. Some customers seek finance or expect the bank to allow them to maintain an overdraft, yet cannot even produce up-to-date accounts. This is not only an issue of statutory compliance; rather, funding bodies are looking for companies to put effort into their fiscal visibility. Decision-makers should clearly understand their financial situation, strategy, requirements and challenges for the coming months ahead.
This is a particular challenge for growing businesses; where the business owner often needs to draft in experienced and qualified team members to handle key tasks, whilst managing the cashflow and resourcing challenges associated with rapid growth. The areas in which the business owner will seek help will, of course, be determined by the focus and needs of the business. The entrepreneur will typically look for specialists in sales, operations or finance.
If we look at the finance function, a typical mistake made by business owners is to assume that it is transactional in nature, that it refers to dealing with, for example, HMRC compliance or the bank. This is essential in itself, but is far too reactive and limited to successfully nurture a growing business. At The FD Centre, we think a value-add Finance Director (FD) contributes four roles:
- Finance direction
- Finance control
- Book-keeping/basic accounting
- Data entry
The FD brings more than just competence to a business. They should contribute clear, strategic fiscal management aligned to the operational needs of the business, with a healthy dose of commercial awareness and problem-solving skills. I suggest the following three main areas of expertise and input:
Coordinating and developing long term business plans; defining implementation timetables; assessing the risks involved and seeking the funding required to deliver the proposed plans.
Developing internal controls; managing and developing the reports and insight needed to run the business; improving profit levels; managing cash flows.
Tax planning and legal issues; compliance issues; managing external relationships; outsourcing relationships.
In the words of FD Centre client, Caroline Hagen of Reach Brands, "[We were looking for support] as much in the non-executive advice area as it was in finance. I needed someone who could give me brilliant management accounts and streamline our existing financial reporting systems. But the main area was to have someone who could come in and advise myself and my fellow partners on how to grow the business; someone who had experience of growing other businesses not just in the design industry but businesses that might have gone through similar issues and growth pains. I needed someone who'd had a wider exposure to different types of solutions to certain sorts of problems."
The modern FD needs to be able to develop all this and more. There are many other considerations that go beyond the "job description" above, which should influence the way you recruit an FD:
- Financial or Management accounting? Management accounting looks forward, whereas financial accounting looks backwards. The past cannot be changed, and is therefore strategically largely immaterial. It's where your business is headed which matters, so look for an FD who understands management as well as they do Excel.
- Experience. It is crucial that an FD has a wide range of commercial experience, not just financial. Good FDs do not learn their skills from textbooks alone, they learn bydoing, and, yes, sometimes by making mistakes. Commercial experience means leaving the ivory tower and talking to customers and engaging with the production and operations teams.
- Qualifications. Although a good accountancy institute qualification is important, it will not stand up by itself without the backing of a strong track record.
- Personality. Your FD must be able to communicate at all levels of the business, with adequate sector/vertical knowledge (or exceptional assimilation skills to swot up fast!). Communication with peers needs to be collegiate. An effective FD grows beans and gets team members to count them! A delegating personality is therefore essential.
- Full or part time? All of the above is asking a lot of an SME's budgets; and it is also clear that, in an SME environment, there will not always be enough to keep an experienced full-time FD busy. There is therefore an increasing trend towards flexible, part-time FD services. This helps entrepreneurs keep costs down but at the same time enjoy the benefits of a high calibre FD directing the company's finance function. Part-time FDs also bring with them a rich network of 'live' business contacts.
It's a lengthy job spec - but a wisely recruited FD will deliver immense benefit. James Bell of FD Centre clients, Found Ocean, says, "When I had to juggle the FD function with my role as business owner, I really only got to know [management] numbers when it became really important to know them. With an FD on board, those numbers became available all of the time. This was the FD's key function in terms of profitability, backlog and cash flow. We could see and predict when issues were potentially going to occur and plan for them. It also really adds value to have an FD as part of the team from the standpoint of external parties such as banks or potential investors. A huge pile of work has been cleared from my desk which has enabled me to really focus on being an MD and to think about strategy rather than grappling with financial issues. Knowing that these financial issues are being dealt with in the background gives me great peace of mind."
- Do you need a full or part time FD?
- Look for a commercial mindset, backed up by real life rather than textbook experience.
- Some experience in general management is useful.
- Management accounting experience is more relevant than financial accounting experience.
- Your FD should be involved in all major strategic decisions.
For more information about the FD Centre's service go to www.thefdcentre.co.uk