The present situation

The bookkeeping is getting done. Taxes and statutory duties are being filed. And management is receiving some form of financial information. But increasingly, these things are no longer enough or don’t go into enough depth. Often the questions facing management have changed. Things like what happens to cash if revenue comes in below forecast? Which customers, products or markets drive business profitability? Can we fund the next stage of growth ourselves or do we need external investment? If we do how should we go about it? What is the business going to look like in three year’s time? These are not basic accounting questions. They are management questions that need expert financial analysis and guidance.

A good accounting function is fundamental to any business, it tells you what has happened.

It records transactions, maintains the books, supports statutory and tax compliance and produces the historical financial information which up until now you have relied on.

But accounting like this is mainly concerned with accurately capturing what has already happened.

Your future needs

As a company grows, it increasingly needs the finance function to look forward to its future.

This means turning historical information into forecasts, scenarios and using it to make those big decisions about expansion, investment and market penetration. For example, the question is no longer simply “What did we spend our money on last month?” its now

“Given our current cost base, staffing strategy, marketing plan and expected revenue, where will cash be six months from now and how much might we need to borrow?” Questions like this can require a different level of finance knowledge and this is when you should consider a Fractional (Part Time) FD to help you make the right decisions.

What a business probably doesn’t need at this point is a senior finance executive sitting inside the business five days a week. There probably isn’t enough to do to justify a full time appointment and the business itself, whilst it has become more complex to manage from a  finance perspective it is not yet complex enough to require a permanent FD.

How a Fractional FD can help your business

Here are some areas that the Fractional FD (FFD) can immediately help you with:

• reliable cash-flow forecasting
• management reporting and meaningful KPIs
• scenario analysis
• profitability and product analysis
• support around investment and hiring decisions
• better financial processes and controls

Probably most importantly an FFD is someone who can challenge assumptions and translate financial information into management decision making support.

What bringing in an FFD will mean

Bringing in an FFD result should improve the scope and quality of financial information and reporting which in itself should improve decision making. The introduction of an FFD will allow management to get answers and direction on the many questions it wants to ask. Here are just a few examples of the questions that could be answered:

·      What will happen if we expand the workforce. How will it affect costs, output and potential profit?

·      Entering a new market. What will that cost and what will be the return?

·      Change prices. What can we expect if we raise or lower our prices?

·      What would happen if we lost one of our major customers?

·      Can we risk opening at a new location?

·      How can we raise capital to fund our expansion?

·      How much cash does the business need and when?

An FFD should demonstrate to management the consequences of any decisions before you make them. An FFD will move your finance function from simple reporting to strategic decision support.

The trigger isn’t company size

There is no magic revenue number, employee count or funding round at which a company suddenly needs an FFD. For example a business with a simple operating model may have relatively straightforward finance requirements whilst another company of the same size may operate across several markets, employ a rapidly growing team, manage complex pricing and face significant working-capital requirements. Both businesses finance needs are completely different. The question is not “Are we big enough for an FFD?” its actually “Are the financial decisions we need to make becoming more sophisticated than the capability levels we currently have?”. If the answer is yes, then the business probably needs to make its finance function stronger. That does not necessarily mean hiring a full-time Finance Director due to the reasons already given on cost, availability and efficiency grounds. And its at this point that many businesses stop and don’t make the decision to appoint a Fractional FD.  

What steps to take next

So you recognise that an FFD is an option for you. With Kaizens FFD service we can provide Fractional FD and Strategic Finance support to founder-led and growth-stage businesses that need greater financial and management assistance without necessarily requiring a full-time FD (that can always come later, once you have proven the need for greater finance input). For now, you want a cost effective but highly helpful solution quickly! We can give you cover right away. If you are interested in discussing how an FFD could help your business through its next phase then give our CEO Darren Trice a ring on 01482 772261 or emailinfo@kaizengroup.uk  

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