Looking back over the businesses I have met in the last three months, I’m struck that I have encountered the best and the worst FDs and accountants. I’m also surprised how often management accountants fail to provide essential commercial information.
I’m working with profitable and well-run businesses that have survived and grown over the last two years. They are businesses that do not have a high-calibre FD.
It’s still cash that is keeping many MDs awake at night, taking a huge amount of time to manage. Yet they are so unsupported by their FDs and accountants.
One MD of an £8m business takes two hours each day to produce and manage his cashflow forecast. I met him as his accountants were in preparing the quarterly management accounts. He had hired two FDs in a row who had spent months advising him how to raise the finance necessary to provide the working capital needed to grow his business (and wanted a chunk of equity too). He still didn’t know what good financial controls and reporting looked like. It took us 90 minutes to find £200,000 of cash from quick wins. The result is that he doesn’t need to sell equity to finance his business.
It made me think. Have many professional accountants and FDs become detached from using their skills because it means rolling their sleeves up, taking responsibility and risking their reputations on the frontline?
I don’t think it’s hard. Just be curious about the trading model, how profits turns into cash and if they are not, why not? Too often we see a completed set of accounts that just look back, as job done.
Another of my gripes is that the key number on which all else revolves – gross margin – is not understood. Other costs, down to the irrelevant, get so much more attention. Why do some neglect this goldmine of information and commercial insight? Even a cursory look often shows the 80:20 rule is working. The low hanging fruit in terms of cashflow and margin are often there. It’s not hard to slice and dice the numbers, and so the business.
One of my FDs – a real City gent – rolled his sleeves up in a business led by a dynamic sales led entrepreneur, but with major cash issues. Once he had got the cashflow forecasts in place, a pivotal moment came when he realised there was a major problem with underperforming salesmen. When debating this rather robustly with the MD, he just got the timing and language right when he said that there was “a lot of bollocks going on” and that some salesmen just had to go. A few seconds of silence followed – had he gone too far? – as the inescapable truth settled in. To labour the point, he had quickly opened up the bonnet to look over margin and sales and found out what exactly where the real problem was. From that point the business then started to turn a corner.
I recently asked one MD what he wanted from his FD. He said: “MD’s are simple and businesses are simple. Give me on one page, in a language I understand, the key numbers that tell me what’s going on in my business so that I can sleep at night”.
Maurice O’Shea is managing principal for the South East at the FD Centre
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