Posts Tagged ‘Interim FD’

What is in store for 2010?

Wednesday, February 3rd, 2010

It is a shame the start of the business year has been interrupted by the weather.  A strong December trading performance will have been somewhat diluted by a poor January.   Although seeing the number of Dad’s sledging last week, people may be returning to work relaxed and happy having had a bit of quality time at home outside of the Christmas rush.

This year will be dominated by politics and the economy.

Whilst the private sector has swallowed its medicine with the minimum of fuss and the maximum of fortitude during 2009 the public sector had been spared.  Not only have the public sector been spared actual cuts, but they have not even had their expectations properly set.  Alastair Darling has fallen out with Gordon Brown because he won’t even talk about the massive cuts coming.

The indications are that we will have a period of industrial relations turbulence.   If the unions at BA (I know they are privatised, but they still think like public servants) can’t wake up and smell the coffee it is a bad indicator for what is to come.

An insolvency practitioner friend of mine told me the insolvency courts were full of winding up orders at the end of 2009. The reason being that HMRC were treating companies with kid gloves in the first half of 2009 but in the second half their attitude changed  – no more Mr Nice Guy.  The significance of this is timing, the companies which are being wound up actually failed in the first half of 2009, however the news about their winding up will only surface over the next few months. 

The worry is that the news about more company closures, public sector cuts, higher taxes and industrial relations strife will sap confidence.   The reduction in public spending will also reduce the amount of cash swirling around in the economy.

Overall I am optimistic, but not confident in the prospects for 2010.  The difference between 2009 and 2010 is that we have an idea of what is coming, at this time last year we didn’t know whether the sky was still about to fall in.  We know this year is going to be tough, we know there will be public sector cuts, a change of Government with little latitude to make a big changes.   We also have the confidence of knowing we can come through a year like 2009. 

This is the year of the “Grind”, where good companies and good management teams grind their way from survival to growth.

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When is a personal guarantee not a personal guarantee?

Wednesday, October 28th, 2009

Delivering services to cash strapped businesses is one of the most delicate and difficult equations. 

One of our service provider clients called me last week for advice.  Our client had been supporting one of its cash strapped customers who had reached its credit limit.  A Director of the customer gave a personal guarantee (verbal) that the outstanding account balance would be paid on an agreed date if our client continued to provide service.  Unfortunately the Director reneged and our client is taking legal action against its customer.

It is a sad state affairs when Directors give personal guarantees  and then renege, however in these modern times where MP’s can no longer be called honourable and when bankers are being routinely jailed in the US why should we be surprised about a little old personal guarantee default.  The depressing  part about this little story is that during the most difficult times of business it is trust which get’s businesses through -  suppliers cut their customers some slack, bankers extend terms, employees cut their pay.  During the difficult times a company in difficulty gets through with the support of its employees, investors, bankers , shareholders and suppliers – all the stakeholders.  The strength of relationships forged during these times will endure for many years to come.  During these times a contract with the most exacting terms does nothing, companies and their directors rely on the strength of their commitments followed then by their actions.  For our client the granting of a personal guarantee could not have been a stronger commitment.

We have been working with many cash strapped customers – helping to manage their cash.  We have found that an honest and open communication technique is the best.  Do not tell a supplier they will be paid at the end of the month when they won’t, do not say you have lost the invoice when you haven’t .  Do part pay invoices.  Do pay small amounts regularly.  Do have senior members of the management team ring and talk to their suppliers.  Do not give personal guarantees and then renege.

This set me thinking about the legal status of a verbal guarantee.  It is important to realise that this is an agreement between an individual director and supplier.  Verbal agreements do have a legal standing, but there must be evidence that terms have been agreed.   The legal advice to our client was that whilst they may have a case to prosecute the individual director for the personal guarantee, it is more straight forward to take insolvency proceedings against the company.  It will be interesting to see what happens it is just possible that the director will have greater assets than the company.

Mike O’Connell, CEO, Isosceles Finance

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Role of the Finance Director Part III: The Glue

Tuesday, October 6th, 2009

Previous Installment Part II: Painting the Picture

So far we have ascertained that our FD needs to be able to put the people, systems and processes in place to generate the appropriate level of financial information.  We have also discussed the communication and style qualities required.  However these are all very passive, non operational roles. 

An FD should be able to take the information about the business and use it to affect change within the organisation, questioning the conventional wisdom.  The FD needs to be the ‘critical friend’ of all areas of the business.  Asking every manager to look at the cost benefit equation of every area of expenditure or investment.  The trick for an excellent FD is how to do this without interrupting business and without affecting the ability of the company to execute.  Again communication is a key factor, the FD needs to be able to frame why he/she is questioning the expenditure or investment in the bigger picture of the budget or plan. 

The role of the FD is to bring the various elements of the business back to the central plan, but also have the ability to see when the assumptions underlying the plan have changed and be able to model the new scenarios and to change the financial priorities.

In the most successful businesses that I have worked with there has been a healthy tension between the key business functions.  Sales and marketing need to be pushing the boundaries, service or product delivery need to be pushing the boundaries.  Finance needs to be the flexible glue that holds these functions together and prevents them from fracturing.

This is often the most controversial role of the FD.  It is easy to get this part of the role wrong, to stray outside of the FD’s remit for situations to become political.  I believe that this is the last piece of the puzzle.  Dependent upon the situation of the company, the FD must earn the right to challenge the other areas of the business by delivering excellence in the first two parts of the FD role.

Mike O’Connell, CEO, Isosceles Finance

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Role of the Finance Director Part II: Painting the Picture

Wednesday, August 12th, 2009

Previous Installment – Part I: Solid Foundations

Now that we have a solid foundation, the appropriate level of reporting and a team capable of providing this on a regular basis, let’s look at ‘painting the financial picture’.  (I could go on about controls, but to be honest any good financial controller ought to be able to put these in place.)

A balance sheet is a static picture at a point in time, it says neither that a company is doing well nor badly.  It simply says at the moment we could potentially liquidate all our assets and liabilities at book value for X. 

Even a profit and loss account for a single period does not provide enough information, about the performance of a company. 

Each piece of analysis is a paint colour and the job of the Finance Director (FD/ CFO)  is to take the colours and paint a picture of the overall performance of the company.  It does seem surprising that I am equating what is a mathematical output into terms that are artistic, but this is what the best FDs do.  This is especially true of smaller organisations where the company may be operating using incomplete data as to the state of the market and competition.

The painting of the picture through the presentation of numbers and the commentary are the primary communication methods used by the FD.  The ability to communicate is essential. 

Once again the degree of communication required can vary from industry to industry.  In creative industries the nature of the communication is vital – the executives of a company are often dealing with intangibles, they are in the business of communicating messages and ideas and this is how they would like to be communicated with.

Entrepreneurs often have very short attention spans they require the bare bones quickly and efficiently.  They don’t want to wade through pages of analysis nor do they necessarily want to have the numbers pitched with spin.  The ability to be able to answer a straight blunt question with a straight blunt answer is often the most important.

In a manufacturing environment the executives are used to wading through quite large amounts of analysis and variance.  These are generally highly analytical people. 

An FD needs to understand what the information and communication needs of his management team are and adapt his/her message accordingly.

Mike O’Connell, CEO, Isosceles Finance  providers of part-time FD and interim FD  (Financial Director/CFO) services

Next Instalment – Part III: The Glue

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Role of the Finance Director Part I: Solid Foundations

Tuesday, July 28th, 2009

As a supplier of part time FD and interim FD services I am often faced with clients who are not entirely sure what an FD does, or why they should need one  “I have a financial controller who is more than capable of knocking out a good, timely set of management accounts why do I need an FD, what do they add?”

Without doubt the role of the modern FD has changed, no longer are they expected to simply just ‘count beans’ or be a ‘safe pair of hands’.

So what exactly DOES an FD do?  Firstly an FD can do nothing without management information.  They must put in place the personnel, systems, controls and processes required to deliver the appropriate level of accounting information.  The level of information needs to be appropriate for the size of the company, appropriate for the audience (management team, investors and staff).  Appropriate to the budget of the company and where it is moving to in the future.

It is too easy for an accountant to hide behind a multi-tabbed spreadsheet or a thick management pack.  Too often accountants bring the management pack they picked up from their previous employer and try to squeeze it into their current company with little regard as to whether this is appropriate. 

I have a friend who is the FD of a FTSE100 company – until recently he didn’t have a computer on his desk.  I was both horrified and amazed, but on reflection I was also rather jealous.  With a beautifully designed and modelled spreadsheet the temptation to go straight into detail is high.   I think I would be better served sometimes if I sat back and reflected on what I really needed to know for the business.

There are some CEO’s who do not fully understand their accounts but are comforted by a number  of artistically crafted graphs and if there is a really thick management pack  as well, then “someone must be delving into it and analysing stuff”, mustn’t they?

It is worth noting that often the FD’s best decisions (and sometimes worst!) is the selection of the accounting team.   Team recruitment and development is often the area that the average accountant has the lowest level of skill and experience in.   This is partly why our own Isosceles’ service has been so successful.  Our FD’s are backed by an experienced team of accounts assistants, accountants and controllers, all tried and tested in difficult situations – battle hardened.  We make it easy for the FD to look good!

There is nothing worse for an FD than an under-skilled, de-motivated team supporting them.  The finance department needs to be built on solid foundations – standard controls and procedures performed regularly, reconciled, reviewed for variance and non-compliance.  On top of this can be layered good standard reporting and on top of this can be layered advanced analysis and KPI identification.  The FD must fashion and produce this department.  They must be able to lead and motivate.

Mike O’Connell, CEO, Isosceles Finance

Next instalment – Role of the Finance Director Part II: Painting the Picture

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Competition!

Tuesday, July 21st, 2009

It was sports day once again last week.  A lovely family day out, many well dressed parents glancing anxiously at a Blackberry, watch  or mobile.  Plainly not everyone took holiday that day!

This year we had a little more competition than normal, but everyone was a winner really.  We have probably raised two generations since the idea of competitive sport died back in primary schools.  The move seemed in part driven by philosophy and in part because a competitive sport involved more teacher hours outside the standard day.

It struck me that our modern society is possibly the most competitive it has ever been.  The two most popular programs on TV in recent times have been ‘Britain’s Got Talent’ and the ‘Apprentice’.  My son loves ‘Dragons Den’ and we have recently embarked on a new series of ‘Big Brother’.  It won’t be long before ‘X Factor’ or ‘Strictly Come Dancing’ return to our screen.  It’s far from a UK phenomena.

It strikes me that we love competition in football, business, entertainment.  We love the battle, the stories the winners and the losers.  The youngest in my house is quite capable of forming her own opinion as to the merits or otherwise of an act or idea and then extolling these virtues and selling the case of her favourite.

Once upon a time I would have frowned at my kids watching this kind of entertainment.  Dumbing down I would have called it, but I have changed my mind.  These skills are exactly the skills required to survive in the corporate or business life.  Make a choice and back it, have an opinion, pick the winner.

Mike O’Connell, CEO, Isosceles Finance

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You’re Fired!

Tuesday, July 14th, 2009

My eleven year old son has been an avid follower of this season’s Apprentice.  He is eager to pick up knowledge of the ways of business, man management and team play.  Isn’t it interesting how we take pleasure in watching a program where if an individual makes a business mistake they get fired?  Current legislation, however, doesn’t make it that easy.   In the real world Nick and Margaret would meet with the candidate informally to ascertain whether there were factors affecting performance.  Should Sir Alan be doing anything else to support the candidate – perhaps some training?  In the board room session we would finish with Sir Alan, Margaret and Nick agreeing SMART objectives and a specific improvement plan together with the candidate.  Sir Alan would turn to the candidate and utter “with regret”, point to the candidate and proclaim “you’re on review”.

Ironic isn’t it that as a society we readily adopt a “you’re fired” mentality, but legislation is taking employment regulations in the opposite direction.  What is the right answer?

Right now businesses need flexibility more than ever.  Roles need to be made redundant in order to save money and save other jobs.  Like it or not businesses managers will try to select those individuals whose performance is sub-optimal, those with poor attendance records, those who are difficult to manage first.  Legislation does not allow companies to confuse the two issues and can make the process for both employee and employer too long.

I have great sympathy with smaller companies, who do not have the breadth of business to cope with the current downturn.  It needs to be easier for those companies to adjust their workforce quickly.  Although the Government is being lobbied by organisations such as the CBI, current legislation  needs to reflect the fundamental change in economic conditions and quickly.

But before Managers start shouting “you’re fired” at their staff, they should take note that employees are being very supportive to their employers right now.  Many of our clients have been able to negotiate pay cuts for senior managers and staff in order to save jobs.  Employees have accepted pension holidays, benefit deferrals in the interests of helping their employer.  I have never experienced a more pragmatic work  force. 

Mike O’Connell, CEO, Isosceles Finance

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