Any MBA or business studies course will point out the importance of having a properly controlled and well disciplined accounting function. There have been many catalogued disasters where lack of this vital process has resulted in the ultimate demise of the largest of organisations let alone the new start-up.

But who is this colossus, on whose shoulders can be borne the weight of investors’ trust, with responsibility for accounting for the Sales Director’s complex deal, whilst massaging the CEO’s ego? Interestingly, apart from the odd Monty Python-like parody little time has been spent analysing what sort of person wants to become an FD and what makes a good one.  The starting point is to understand the origins of the typical FD.  80% of graduate Chartered Accountants come from a mathematical, accounting or scientific background - people who like definite answers to a problem. Many of these individuals ‘fell’ into accounting unable to decide what to do in life.  Accounting offered a safe option, good pay, good prospects, something one could succeed at, but still a qualification with so many options open. Our budding FD still didn’t need to decide what they really wanted to be when they grew up!

The best FDs I have met combine two other significant qualities. Firstly, they have the ability to picture the story behind the numbers, their favourite word is ‘because’. After every accounting fact the FD relays comes a ‘because’ statement. The second quality is the ability to communicate this picture in a way that everyone in an organisation can easily understand. An FD that resorts to complex jargon to explain a company’s performance doesn’t understand what is actually going on behind the numbers.

But surely these are the skills we associate more readily with a salesman or a marketeer. So are we looking at a problem solving, risk-averse salesman that does not quite know where they want to end up in life?  Well yes, and I believe this is why so many FDs make the transition from FD to CEO. In fact more than one in five FTSE 100 CEOs are accountants.  This may also explain why in SME companies so many FDs feel unfulfilled or worse, live in conflict with the rest of the management team.

This is often a more acute issue in Venture Capital (VC) backed companies. The VC, quite rightly, wants a solid controller of funds and someone with experience to manage the company’s finances from small to medium to large to exit.   However, the problems come in the length of time it may take for a company to become successful.

When spectacular growth occurs, no problem, but what if the market or product is not quite ready and there is a delay in execution? After a while our FD starts to become a little bored and in a vain effort to add value starts to become the salesperson or marketeer that they really wanted to be all along.  When these efforts fail, the FD becomes de-motivated and can no longer implement the strict financial and budgetary measures necessary in the same cheery and light-hearted way they once did. In short the FD gets in the way.

At Isosceles we have seen this issue on a regular basis.

Rarely is the person who is going to take the company public, deal with corporate financiers, investors and NOMADS, the same type of person who is going to produce management accounts, the forecast and weekly cash-flow when the budget doesn’t run to a financial controller as well.

We have had clients who have had as many as four full-time FDs in two years.  That’s four sets of recruitment fees, and four handovers.

This situation partly explains the rapid growth in  part time FD and outsourced FD services such as those Isosceles provides. The part time FD services have prospered not only because the client gets access to the higher FD skills they need in a cost effective way, but because the concept of running a portfolio of clients where the financial processing and controller elements are covered within one team has attracted excellent FDs.

So what is the solution when the FD does get in the way? Well, half an FD of course!

Mike O’Connell, CEO, Isosceles Finance

Independently those members of Isosceles personnel who are working on Sheffield related activities have all commented on how polite the people of Sheffield are. A recent email campaign resulted in an unprecedented number of replies – not necessarily positive, but replies nonetheless.   Similar campaigns ‘down South’ are at best ignored and at worst receive a verbal rebuke.

I am so glad we chose Sheffield for a second office.

Mike O’Connnell, CEO, Isosceles Finance

If you didn’t receive a copy of Grant Thornton’s recent report What Makes and Outstanding Finance Director you should download it and read it. This is an excellent piece of thought provoking research which reveals that “today’s outstanding FD has emerged as a much more rounded, commercial business leader than his or her counterpart of 10 or 20 years ago.  He or she is a great communicator who can win the trust of colleages across the buisness and he or she is a partner to the CEO – very often a CEO-in-waiting”.

In my life time I have met some phenomenal finance directors, but also a good many average ones as well, and dare I say the odd one or two who should have made an alternative career choice!

But an ‘outstanding finance director’ is very difficult for an SME to be able to justify on a full time basis. Often in SME companies where a full time FD is in situ, they feel unfulfilled or worse, live in conflict with the rest of the management team?

This is often a more acute issue in Venture Capitalist (VC) backed companies.  The VC quite rightly wants a solid controller of funds and someone with experience to manage the company’s finances from small to medium to large to exit.  However, the problems comes in the length of time it may take for a company to become successful.

When the spectacular growth occurs, no problem, but what if the market or product is not quite ready yet and there is a delay in execution?  After a while our FD starts to become a little bored and in a vain effort to add value starts to become the salesperson or marketeer.   When these efforts fail, the FD becomes de-motivated and can no longer implement the strict financial and budgetary measures necessary in the same cheery and light-hearted way they once did.  In short the FD gets in the way.

We have had clients who have had as many as four full-time FDs in two years. That’s four sets of recruitment fees, and four handovers.

This situation partly explains the rapid growth in part-time finance director and interim finance director services.  These services have prospered not only because the client gets access to the higher finance director skills they need in a cost effective way, but because the concept of running a portfolio of clients where the financial processing and controller elements are covered within one team has attracted outstanding finance directors.

So when the FD gets in the way what is the solution?  Half an FD.

To settle matters we undertook a very unscientific test. We each picked three items from the John Lewis website on the 22nd December and agreed to compare prices one month later.

The results are:

 So all of Vicki’s choices (the bottom three above) did indeed stay the same price and all of my choices actually came down in price. In fact our shopper would save nearly £200 purchasing all of the items in January rather than before Christmas.

On reflection perhaps this was predictable and there are many more factors at work here rather than just VAT for example exchange rates, the introduction of newer models, competition and January incentives to push what is usually a slower month.

This was of course a completely unscientific exercise and the sample too narrow, too small and all from one retailer but perhaps the most telling item above was the lowly John Lewis tablecloth. Surely of all the items selected this was the one least effected by external factors – it’s pretty much a commodity item, its own branded so no price comparison available and was probably stocked some time ago so less likely to effected by changing exchange rates. The price of this item did not move, John Lewis chose to absorb the VAT increase.

I am still a bit surprised by the result, as I have mentioned earlier anecdotally my clients have been talking about large recent increases in raw materials and we have all seen the huge increase in fuel costs of late. However it is a much more complex picture out there than perhaps at first glance, few people are likely to complain or gossip about the reduction in prices of some items and yet most of us are vocal if prices go up.

Perhaps we should revisit these items over the next few months to see what happens.

Mike O’connell, CEO, Isosceles Finance

Vicki suggested that the increase in VAT rates would have little effect on consumers since she believed that retailers would absorb the increase into the margin and not pass on the full effect of the increase.

I disagreed with Vicki, I believed that retailers had dropped margins as much as they were able to throughout the last couple of years. With the increases in basic raw materials also starting to really hit home I believed that retailers would, in general, pass on the increase to consumers.

So Vicki and I decided to have a bet with each other, we each chose three items from John Lewis and benchmarked the price before Christmas. We agreed to look at the prices after a few weeks into the New Year.

We each tried to be clever, I chose commodity-like items vacuum cleaner, a laptop and a TV – items where margins would already have been squeezed through competitive forces. Vicki went for smaller items where the retailer was likely to want to keep a price at a milestone price point such as £9.99.

So who was the winner? We will see at the end of this week with the big reveal.

Mike O’connell, CEO, Isosceles Finance

Perhaps an offer resulting in our entrepreneur making £2M is the one tempting enough to make that sale.  However in my experience of entrepreneurs who sell at this stage, what sounds like a large sum of money quickly depreciates.   For a start the agreed £2M isn’t all cash up front, the deal starts to spread it over 2-3 years.  Part of the proceeds are dependent on the performance of the business, part is put away in escrow.  Lawyer and accounting fees come along -  wow 5% is wiped off very quickly.  Then there is some tax to pay.

Before long our £2M becomes worth £1.5M net, still sounds a lot.  However, once the mortgage has been repaid or more likely a larger house purchased and that new car you promised yourself as a bonus for working so hard.  You may have done a little something for charity or other family members -  perhaps there is £750K left in the bank.   This is still a large sum isn’t it?  Invested properly you can make something like 5-10% a year.  However your lifestyle became more expensive also, you joined the golf club, you go on those more exclusive holidays -  skiing and a summer holiday.  You buy from the more expensive boutiques, after all you’ve earned it. 

Before very long you realise you need a job, you start on the treadmill again. 

At this point I should apologise, it is surely immoral to make an argument in a world still full of poverty that £2M is a small amount of money.  For anyone earning the national average salary please take consolation from the research that shows happiness does not increase once one earns about £10K more than the average wage – anyone can be as happy as our first time entrepreneur by working just a little bit harder or getting a little bit luckier.  However in the context of an entrepreneur who has potentially risked everything for the success of their business, the dream must be to one day sell the company and make enough to have to never work again or at least to work by choice rather than necessity.

The final instalment to follow soon.

 Mike O’connell, CEO, Isosceles Finance

Sure the management books tell us to plan 12-24 months in advance develop relationships with the companies that could become potential predators.  Raise your profile in the eyes of the predator; establish relationships, joint ventures, partnership agreements -  where your offerings are complimentary to the target predator, target the predator’s key customers or staff where you are competitive.  Run your business to maximise growth or profitability, whatever you think will be most attractive to your predator.

The truth is very few companies are able to plan like this.  Few first time entrepreneurs are bold enough to engage a banker to sell their business for them. 

A large number of transactions come out of the blue.  Our stressed and stretched first time entrepreneur is dealing with the latest major business challenge when an offer comes from a trade buyer with warning at all.

One of our clients was recently faced with such an issue.  Our entrepreneur will only sell his or her business once – one transaction that will have a profound effect on their life.  The business is likely to have gone through a number of cycles  -  one day all could be lost, the next the company could be the best thing since sliced bread.  It may have taken many years of blood sweat and tears before this business became viable.

So here comes the first credible offer for the business.  What should our entrepreneur do?  It is so tempting to cash in while the going is good.  A few million or several hundred thousand pounds would pay off the mortgage, pay the school fees, buy a new car or that place in Spain.  This represents a chance to take a breath of fresh air, take away the stress, start sleeping at night and do all the things your partner or children have been nagging you to do.  Perhaps the amount isn’t enough to never work again, but it beats losing everything in the next down turn – doesn’t it?

Parts 2 and 3 to follow shortly.

 Mike O’connell, CEO, Isosceles Finance

I am delighted that Isoscles have been announced as finalists for the Accountancy Age Award ‘Small Firm of the Year’.   This is  the third time we have been shortlisted for an Accountancy Age Award – I am REALLY hoping its third time lucky.

Our first nomination in 2008 recognised our significant investment in our state of the art service platform. Our second in 2009 celebrated the success and difference we brought to our clients. This year’s nomination acknowledges the exceptional quality of our people, the support we give them and how they have brought success to our clients. In a nut shell these nominations have recognised our people, processes and systems – our ingredients for enduring success and the reason our outsourced accounting and other are amongst the best available. Don’t just take my word for it talk to our clients.

 Mike O’connell, CEO, Isosceles Finance

There has been much speculation in the press over the last couple of weeks about a double dip recession.   Whilst no one can predict with certainty when, or indeed if, it will happen, one thing is for sure the likelihood has significantly increased.

I hope and pray, like you, that it doesn’t happen but I must prepare myself for the fact that it might.  I need to review and tweak my Plan B  – the one I wrote at the beginning of 2009 but thankfully didn’t need to execute!

‘Plan B’ encompasses many things for example: better cash management; better debtor management; identification of alternative sources of funding; cost reduction; labour force reduction.  In a ‘nut shell’ it identifies the creative ways of achieving more with less.

 I have prepared a paper to get you started 10 Things to Include in Your Plan B.  I must emphasise at this point though that just because you have a Plan B doesn’t mean you have to execute it – but never has the saying ‘better safe than sorry’ been more apt.

Invariably the development and execution of ‘Plan B’ is easier (less painful?) with expert help.  It’s not without its challenges but we have guided many businesses through difficult times. 

“The only thing harder than planning for an emergency is explaining why you didn’t” (Unknown)

 Mike O’connell, CEO, Isosceles Finance

Here are 10 things to consider when developing ‘Plan B’

1. Honestly and rationally assess where your product or service is in its lifecycle.  Is it really a product fit for mass production and marketing or is it an early stage prototype requiring more investment? This will help prioritise resources.
2. Define the core skills and processes required for the business at this stage. Do you need an expensive business development director if the product is still only a prototype.  Likewise, do we need a fat development department if have with a mature product?  Do I need a full time FD when a part time FD will suffice?
3. Identify which members of the management team are appropriate for the business at this stage?  Who are the fighters?  Who can roll their sleeves up? Which members of the management team can perform multiple roles?   
4. Determine which one or two key markets have the lowest barrier to entry – i.e. where are you likely to get the easiest and earliest success?   Investors often take more confidence from a small and growing pipeline rather than one or two big deals.
5. Swift and decisive communication with staff is paramount. Staff usually know exactly what is going on within their company.  They know sales are down, suppliers are complaining.  They see the investors in the office.  They will take confidence from knowing management understand the situation, are taking decisive action and are truthfully keeping everyone in the picture. 
6. Identify areas for cost cutting and cut costs as early as you can.  Try to do it so deep that you do not need to repeat the activity.  Don’t forget that management also need to be seen to make sacrifices not just the staff.  Avoid extravagant demonstrations of spending in order to buy staff goodwill.
7. Change the shape of sales deals.  Get some cash up front or agree staged payments.  Consider software rental, maintenance holidays, trade reduced maintenance for longer terms – be as light footed and as flexible as you can.
8. Pay very special attention to cash flow and debt.  Work hard to reduce your aged debt – incentivise your credit controller and sales people.  Renegotiate with suppliers and debt providers for example agree staged payments with HMRC for PAYE. Get all allowances in early, e.g. R&D tax credit. 
9. Now may be a good time to collaborate.  It takes a brave management team to actively seek out potentially competitor companies and strike up a relationship.  Yes you may have to give up a little margin.  But in times of crisis more imaginative ways of getting your product to market are required.  Few companies are truly identical.  Few have the same technical strengths, the same scale and geography of operation. 
10. Develop Plan B before you need it. Be clear on your KPIs (key performance indicators) and  how you measure performance.   Agree the point at which you will execute Plan B and stick to it.

Invariably the development and execution of ‘Plan B’ is easier (less painful?) with expert help.  Isosceles have guided many small and medium companies through difficult times. It’s not without its challenges but with positive action at the right time, it is possible to shape your future!

 Mike O’connell, CEO, Isosceles Finance