Posts Tagged ‘Outsourced finance’

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Business Contingency Planning

Friday, August 27th, 2010

“In the middle of difficulty lies opportunity” (Albert Einstein)

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

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Demanding Service

Wednesday, June 2nd, 2010

As the generations pass we have become ever more demanding and exacting, especially when we are spending our own money. If we are buying a service we expect it to be fit for purpose and high quality. We expect a degree of expertise from our service provider. We expect a better job than if we did it ourselves.

If we engage a builder, plumber or decorator we find it is easy to generate an expectation of the result we want and to measure the output against this expectation. We can be a very exacting customer indeed. If we buy a product off the internet, we now spend hours reading reviews comparing prices and again make an exacting purchase – the best quality for the money we can afford.

I find it interesting to contrast this with how businesses generally measure the output of their employees. How many companies set out a detailed SLA for each employee? How many companies measure the performance each month against that SLA before they pay an individual’s salary?

In the world of accounting we may agonise before buying a software product for a few thousand pounds say to help with accounting or reporting, but if a Financial Controller spends a month building a spreadsheet do we really acknowledge that the model costs thousands. What about the ‘opportunity cost’ of what they should have been doing?

As an outsourced accounting services provider I find the process of defining an SLA and invoicing every month means that my customers ask themselves (and me) “What is the real cost of the finance department?” “What value has finance brought to my business during this month?” “Why did it take that length of time to deliver that task?” “Why did that activity cost that much?” “Are we monitoring and measuring the right things?” This level of scrutiny is a positive thing, in my opinion, it keeps our standards high and I genuinely feel that out outsourced accounting service gives a better value for money service than an in-house team where the monthly cost of finance has not been monitored for a long time and gets washed into the general bucket of all the other salaries.

Mike O’connell, CEO, Isosceles Finance

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Trials and Tribulations of the Venture Backed Turnaround – Part III

Tuesday, May 18th, 2010

Continued ……….

Some of the best IT successes have come about after a turnaround, but just like second marriages the odds are stacked against rather than for.  The challenge for the VC must be to find a co-investing entrepreneur, a team from a previous success or to retain some essence from the original founding team who can spread the belief.  But what about interim management?

An Interim finance director (or interim FD as they are more familiarly known) can add significant value to both the VC and the company in a turnaround situation because they have the experience and ability to deal with difficult situations objectively.    At Isosceles we do this for a living.  In a turnaround situation we can act swiftly and decisively providing a dispassionate analysis of costs and potential returns.  And because our FDs like what they are doing and are not looking for “a better permanent option” they stay long after the successful turnaround to keep the company on track.

Mike O’connell, CEO, Isosceles Finance

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Trials and tribulations of the Venture Backed Turnaround – Part I

Tuesday, April 27th, 2010

Being a venture capitalist must be one of the toughest jobs going – you are as popular as a traffic warden who used to be an investment banker.  Your odds of success are probably no more than one or two projects in ten.  Although you perform as much due diligence as you can, you are still more or less reliant upon the representations that the management team make.  If you are successful no one likes you, if you fail you deserved it.  Yet without this very important source of capital, some of our largest and best companies in the world could never have made it – Google, e-bay, Amazon.

I believe there are only three ingredients to a successful venture-backed business excellent people, timing and luck.

Mike O’connell, CEO, Isosceles Finance

To be continued ……….

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Plan B?

Tuesday, April 20th, 2010

Many of life’s failures are people who did not realise how close they were to success when they gave up! (Thomas A. Edison 1847-1931)

In order to get a business off the ground good business practice says we need a business plan. Indeed if venture capital funding was required the plan probably took many, many hours of toil to craft and now resembles a sculptured ‘work of art’ being unwaveringly implemented as we speak.

But the market conditions that prevailed at the plan’s conception will always change.  Sometimes as we have seen with the tumultuous economy of 2009 and now also 2010 these conditions will change quickly and beyond all recognition.  What then?  Many business leaders will leave their plan in their desk draw and continue regardless.  Sadly these businesses will not have grown or prospered and may even have failed. 

The more astute among you however will realise the plan needs continual tweaking, in real time, and will already have a ‘Plan B’ just in case.   

‘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.

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

Click here for my white paper –  10 Things you Should Include in Your Plan B

Mike O’Connell, CEO, Isosceles Finance

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2009 what a year that was!

Tuesday, January 19th, 2010

2009 was the most interesting and challenging year I have experienced.  Of course the events started towards the end of 2008 with the collapse of Northern rock in the UK and Lehman Brothers in the US. 

Paralysis in business decision making set in immediately.   We were trapped in a lift, the cable had snapped, we had no idea how many floors we had to drop.   The now infamous Sequoia presentation “RIP: Good Times” circulated from business leader to business leader urging cost cutting as quickly as possible.  Several clients asked us whether they should withdraw funds from traditional UK banks!

With the arrival of the New Year business leaders finally blinked, shook their heads and awoke from the bad dream, only to find it was real.  They acted quickly and with depth.   Almost without exception our clients made cuts to the workforce. 

Then something quite remarkable happened.  Businesses and their workforces united in their battle.  The workforce worked with managers, taking pay cuts (pay freezes if they were lucky), pension holidays, benefits cuts, reduced working days.  There was no large scale industrial action, no tales of unrest or poor morale.  Employees up and down the country were sophisticated enough to know that this was a genuine crisis requiring radical action.  I have not experienced this degree of co-operation and understanding before.  I believe history will show this to be a key foundation stone of the recovery.  It is vital that business owners and managers recognise this contribution when the good times return. 

The early summer months were odd.  A number of companies collapsed, their businesses had not deteriorated any further, it’s just that their balance sheets finally gave out.  Bank lending and venture funding had all but dried up.  Many companies had balance-sheets in December that could only fuel six months of loss making.  Were we heading for a second dip?  My fear was compounded by the slowest August in terms of activity.  We were almost continental.

We unexpectedly found our feet in September.  Perhaps it was simply the backlog of deferred August decisions, perhaps it was confidence garnered from corporate acquisition activity (Kraft’s first bid for Cadbury’s) or it was the boost from the FTSE breaking the 5000 barrier. It was a very patchy recovery though, many of our clients experienced no uplift in orders.  Our US clients also experienced a lift, but it was very regional and sector specific, but recovery seemed to be sparking into life on the West coast.

The momentum from September didn’t really build, but the economy didn’t fall back either.  The first nine months of the year had separated the strong from the weak – you had taken the action you needed to or it was already too late.  Now there is the grind to eventual recovery, but when?

Mike O’Connell, CEO, Isosceles Finance

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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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