IS YOUR WORKING CAPITAL REALLY WORKING? - Releasing much needed cash.

In these uncertain times it is quite clear that cash is king, particularly for SME’s. Releasing the cash that is tied up in your businesses working capital can provide the lifeline you need to get you through.

Running out of cash when banks are being more cautious about lending, could create more business failures than a reduction in revenue streams. Showing your bank a route to profitability that does not generate sustainable cash flow will result in declined requests. Being clear on your working capital strategy, ensuring that you have controls in place, will deliver cash into your business and make this conversation with your bank more successful.

This is not to say that profitability is not important, ultimately you need a path to profitability to provide a certain future and clearly these profits will ultimately deliver cash to your business, but only if this cash is not burnt through inefficient working capital management.

In our Blog of 24th May, we used the analogy of fishermen mending their nets when waters are too stormy to get out on their boats. Ensuring that you regain control of your working capital should be a key focus area. This will help you release urgently needed cash now, which can extend your cash runway. Getting this right will also ensure you tie up less cash in your business when normality returns. This should go hand in hand with your focus on recovering your revenue stream and controlling your costs, but it is often overlooked.

We are sure you already spend time ensuring that your production machinery and other fixed capital is well maintained and operating at full efficiency and that your staff are suitably trained to deliver an effective service. Now is the time to ensure that your working capital is truly working for you.

Attention to this area of your business is also vital to avoid loss. Working capital assets are often risky, particularly in recessionary environments - receivables are at greater risk due to challenges in your customers’ businesses, your inventory could be at risk of dating when your sales have stopped. You therefore need to make sure you are converting these assets into cash as quickly and efficiently as possible.

The challenge in working capital is that in many cases your commitment is being generated well before it appears on your Balance Sheet. If you don’t have the correct processes and controls in place at the right time in your business timeline you will be creating an unseen future cash challenge.

Examples of control gaps that we have seen that have resulted in poor cash generation:

·         A service business where work in progress was not being carried on the balance sheet, as a result this was not being monitored.  As a result of this lack of control, work which could have been billed and turned into cash was not. In some cases this became unbillable due to staff leaving.

·         An FMCG business where poor forecasting processes led to excessive inventory levels. Cash was tied up in unproductive assets, additional storage costs were incurred and the risk of write off because the processes for forecasting inventory needs was poor.

At THE CFO Limited we have over 30 years of experience in managing and improving working capital efficiency. We have helped businesses from small owner run enterprises to billion dollar multi-nationals drive working capital efficiency and implement controls and monitoring to release millions of dollars of cash. Freeing up vital funding for future growth, reducing borrowing or increasing access to further lending.

For a no obligation discussion on how we can quickly help you release cash into your business please contact us at Paul@thecfo.co.nz or 021 684159. We can arrange a virtual meeting during the current Covid lockdown if required.

What can a CFO ever do for you?

In the classic Monty Python sketch from Life of Brian, John Cleese, confidently asked the question “What have the Romans ever done for us”, I am sure you all know what happens next, if not I suggest it’s a movie you should watch to lighten your day.

Large organisations can generally afford and benefit from having a CFO on their Leadership Teams. My premise is that if you were to ask most large businesses CEO’s the similar question - What has your CFO ever done for you? they will give you a significant list, all of which will have added significant value to their owners and other stakeholder.

James Savage, Partner at YFM Equity Partners in the UK makes the following comment on the YFM website: “We’ve found that one of the common themes among our successes has been the breadth and depth a good CFO brings to the table.” As and investor it is clear that they see strong value in the CFO role as it ensure a greater return on their investment.

One of the CFO’s role is to provide insight, providing clarity to the future financial implications of current performance and strategic decisions that are being made today. By providing this clarity the CFO can guide your business to a secure, faster growing, more profitable and cash generative place. They can engage all stakeholders in the business including your employees in the role that they can play in helping deliver this secure future, and then ensure you have the correct scorecards and monitoring in place to give visibility of progress and allow course correction if required.

In her article, in the Strategic CFO in 2014 Lisatest Knight detailed the 5 ways that a CFO Adds Value.

1.      “The CFO enables the Company to grow faster
2.      The CFO can improve Company profitability
3.      The CFO can improve Cash Flow
4.      The CFO has the ability to obtain increased leverage from banks
5.      The CFO provides leadership and directions throughout the Company”

Although there may have been changes since this was written, due to technology advances and automation, the outcomes have not changed and the value still remains.

When you look at the list of advantages that a CFO can bring it would seem sensible for all businesses to have one in their team. The biggest challenge can be one of affordability. Despite the fact that the CFO will almost certainly pay back their salary several times over, for many SME’s the cost is prohibitive.

At The CFO Limited we believe that this creates an unfair advantage to larger businesses. We have set out to remove this unfair advantage and level the playing field. We are giving access to years of CFO experience to SME’s in New Zealand by providing an affordable, part time CFO service, often known as a Virtual CFO service. We can sit alongside your leadership team to provide the Financial Clarity for the future of your business.

So give us a call on 021 684159 or email us at paul@thecfo.co.nz for a no obligatin conversation about what we could do for you. Change the answer to the question, What has your CFO ever done for you? FROM:  We don’t have one. TO: they have delivered 5 great things.

Did you fix your nets while the sea was stormy? Its not too late to start now!

 “When fishermen can’t go to sea they mend their nets” is a term I heard a few times over the last few weeks. Now in NZ we are in level 2, this means for many businesses they are able to get back out onto the water and cast their nets. Some will be fishing the same waters for the same fish, others will have been typical Kiwis, realising that they need to change which waters they fished in, their target catch and even their methods. Unfortunately for some others it means no more fishing until they can find a new boat.

I love this fishing analogy as it really clearly states what leaders should be doing when times are rough. Getting their businesses ready to go, ensuring that all of their business tools are ready to get them off to the best start possible and to sustain in the longer run through the likely upcoming recession. The future can be won or lost as you prepare for the next vital stage as we come out of Covid-19 into the new world.

My question is a simple one, for those of you who are able to continue, did you spend the time in lockdown fixing your nets, preparing for the future, to be able to achieve more in the new world? If not, don’t worry, its not to late to start.

The close down will have created financial challenges for many businesses and the coming months are likely to create further stresses as you recover.  Having a CFO by your side as you get back on track providing strategic insight and challenge to you and your leadership team can get you ahead of the game.

For information on how The CFO Limited can provide an affordable solution to your CFO needs and give you an advantage over your competitors providing confidence to your investors to continue to support your business please visit www,THECFO.co.nz or contact us at Paul@thecfo.co.nz for a no obligation discussion.