It is common for entrepreneurs or start-ups to find themselves unable to make progress in their business plans due to their financial situation. The internal accounting processes not being optimal, or the financial data collected and analysed being irrelevant may be some issues you are facing in your business operation. You want to address them, but you cannot neither afford all your time and energy to the issues, nor the money to hire a full-time executive to do so. What option do you have?
Chief Financial Officer (CFO) — An asset instead of a liability
First, let us explore how a CFO can actually be an asset to your business. Typically, a CFO is responsible for activities which involve financial controlling & management at a firm, namely:
- Budgeting and forecasting
- Cash flow management
- Corporate planning
- Operational support (Financial reporting, audit preparation)
- Transaction support (M&A, IPO, due diligence)
On a more relevant and specific level, the CFO will be able to help optimise your accounting processes, and ensure complete visibility of your accounts and ledgers. Moreover, you can receive much-needed insights into your business from proper cost allocations, tracking of revenue sources and expenses, and more importantly, improve profitability. With the CFO’s accounting knowledge and experience, you can eliminate problems that stem from inefficient processes and data which provide little to no value. Consequently, you can then channel more time into growing your business, while the CFO takes care of your financials for you.
Of course, the question of whether you can afford the services of a full-time CFO will naturally arise. You are looking at S$15,000 to upwards of S$40,000 a month for the services of a full-time CFO, a substantial sum that cash-strapped companies simply cannot afford, and comes at too high an opportunity cost for developing businesses. Furthermore, the value you get out of this may not justify the costs you have to incur; the cost of having a CFO around will become a liability to you instead. Fortunately, you are not out of options, as this is where a contract CFO can step in to help.
Full CFO services at a fraction of the cost
With a contract CFO, you are effectively paying for full CFO services at a fraction of the cost that you would otherwise normally incur. How so, you may ask. A contract CFO is similar to a full-time CFO in terms of his/her responsibilities, and possesses the necessary expertise to carry them out. The main difference, however, is the flexibility and potential cost savings you will have if you were to hire a contract CFO. You can engage the services of a contract CFO as and when you require the relevant expertise, and terminate them when it is unnecessary. You will thus only incur costs for the period of time the CFO is hired for, and the type of work that is carried out. Consequently, you will reap cost savings since you will not have to pay the high fixed costs that come with a full-time CFO for the same amount of work done.
Reducing opportunity costs to open doors
The cost savings you reap from hiring a contract CFO to resolve your problems opens doors for you to grow your business. Since you avoid having pay the exorbitant price of a full-time CFO, you are essentially making additional financial resources available for other purposes. These include investing back into the business itself to grow it further, or for an additional headcount that is necessary for your operations in another department. This may then result in more investment returns generated for your company, on top of the returns you are likely to receive from engaging CFO services. Hence, not only do you reduce the opportunity cost associated with engaging CFO services, you are also generating new opportunities to develop your business further.
Access to a wider range of skills
Hiring a contract CFO service is akin to hiring a company to help your business. Since a contract CFO service provider usually includes a team of CFOs and operational support staff, you are not just hiring an individual, but a dedicated team of experts to help your business. This means that you may actually be tapping on all the talents available in the company, and extracting more value out of every dollar you have paid. If you were to contrast this with hiring an individual full-time CFO, not only are you limited to the knowledge and skills that particular individual has, you may even receive less value per dollar paid. As such, a contract CFO service may actually be better.
A contract for who?
Contract CFO services come at a substantially lower cost than the conventional full-time CFO role, and with higher value through more possible investment opportunities and wider range of skill sets. However, you still have to take some considerations into account before making your decision, mainly:
- Do you require a full-time commitment or dedication from your CFO to your business?
- Do you require a CFO to help you grow your business for the long-term or execute a long term strategy?
Depending on your answers to the above, a contract CFO service may or may not be what you need.
A contact for you…
If you answer “no” to the questions above, and are in need of CFO services to improve your business operations or explore near future business growth opportunities, have a look at our contract CFO services that we offer.
Alternatively, if you require CFO services that will help you in developing and executing long term strategies, here are some services that we offer which can assist you in achieving your goals.
Companies often ask “Do I need a CFO?” and if so, when do I need one. In many cases, they are too streamlined to hire an employee for the sole CFO role as such a start-up CFO is an alternative!
A start-up CFO benefits your company greatly in many ways. Your businesses can benefit in the following ways:
- Cost savings on salaries (average full-time CFO salary $250,000 or more)
- Independent and fresh viewpoints due to deep experience in diverse areas of businesses
- Financials advice such as how to better price products/services and manage cost
- Efficient accounting systems to streamline processes resulting in cost savings
- Precise and professional financial statements which are critical for business performance reviews
- Fund capital improvements through cost-cutting strategies
You must be thinking since a start-up CFO provides so many benefits to businesses when should I hire one? Well here are a few ways you can access if it is time for your company to hire a start-up CFO.
Complexity of business
A key question to ask yourself is whether your business is complicated. A simple business that sells one product to a small fixed set of customers probably does not require a start-up CFO. However, if your business involves multiple products sold through various sales channels to multiple customers in several geographical locations – it is considered complex! Such businesses would thoroughly benefit from a start-up CFO, if they do not already have one.
Lack of capabilities
Demand for goods and services are driven by a need. If your business cannot perform the roles that CFOs provide then there is an evident need for it. In most start-ups, manpower is very streamlined as such CFO roles are often neglected due to the high cost of hiring a full-time CFO. However, CFO role such as bookkeeping, financial planning and advising is especially important for start-ups. Therefore, if your business lacks such crucial capabilities, it is highly recommended to consider hiring a start-up CFO.
Size of company
As your company grows in operations, headcount, sales or in any other metrics, its financial needs naturally become more complicated. An important metric to consider before hiring a start-up CFO is the headcount of your company. In some countries, reaching a certain headcount of employees requires the company to hire a CFO by law. In another context, a team of 20 is a ball-park figure to estimate when you should strongly consider hiring a start-up CFO. A CFO will assist your business in pay-roll and cost-restructuring. Redundant and inefficiencies can also be pointed out by the start-up CFO to reduce headcount or change operations to increase efficiency and profitability.
Growth stage of company
A start-up CFO’s role is considerably more strategic. It not only handles the basic financials of your business but acts as a consultant by taking up responsibility of company’s profitability. Hence, understanding where your company’s growth stage is currently at will aid in deciding to hire a start-up CFO. In cases where your company is planning to expand, raise funds, consider new product introduction, a start-up CFO will greatly support your company in your growth plans. As many start-ups are either in the rapid growth stage or preparing to enter this stage, prudent financial planning and advise is extremely beneficial. Therefore, a start-up CFO’s experience in managing finance cost, projections and market intelligence will be pivotal to your company’s growth success at a fraction of cost.
Preparing for mergers & acquisitions
Mergers and acquisitions is another good indicator that a business should hire a CFO. A start-up CFO will provide advice on the correct target company that will provide cost and revenue synergies after the deal. Furthermore, a CFO will be the best person to interpret due diligence reports by the prospective company in the deal. Additionally, a CFO can represent your company in preparing information and anticipate questions that industry experts will often ask; something a layman might not understand. If your company is considering any M&A deals, it is highly recommended to hire a start-up CFO to aid in your decision process.
Financing needed to facilitate growth
Bank financing is often obtained to facilitate growth and such loans often come with many obligations. These obligations go beyond the basic paying of interest and principal such as reporting of financial information on a monthly, quarterly or yearly basis. In such cases, a start-up CFO can deal with such pertinent issues that are not of utmost importance to your business’ progression. A start-up CFO will keep track of such obligations to ensure no hiccups occur as you focus on growing and improving your business operations.
Understanding the need and timing of hiring a start-up CFO is crucial for start-ups to strive in this ever-competitive business landscape. By understanding certain key indicators such as size and growth stage of your company, you can better evaluate the need for a CFO.
SME Go Digital Program has been the focus of discussion for many technology vendors and solution providers. It is an effort by Singapore to spearhead the digital transformation efforts for Small and Medium Enterprises (“SME”).
Launched in April 2017, IMDA aims to enhance the digital readiness of SME by providing subsidies for their digital purchases. This scheme is meant to replace the seven-year-old iSprint scheme and Innovation and Capability Voucher (“ICV”) for Integrated Solutions.
On a side note, ICV has been extended to 31 December 2017. However, we notice that many providers have been taken off the list and the application check has become more stringent.
In this article, we would like to share some key takeaways from last Friday’s session.
More transparent but stringent approval process
One of the biggest barriers for solution provider is the lack of clarity on the pre-approval process. However, transparency could also result in more complaints and less flexibility for the government agency.
However, IMDA mentioned that the team is ready to take this risk and be transparent about their pre-approval process. While feedback could be expected, they will take them positively and use it to improve the internal process.
The solutions will be evaluated based on SME’s requirements, user friendliness, and price affordability. Unlike current schemes, the accreditation will only be valid for a year. The bar will be set higher over time, and present board-based criteria would be further refined. However, IMDA will give ample time for the solution providers to adapt to the requirements.
SME Digital Tech Hub
ASME has been awarded the operator rights for SME Digital Tech Hub. In partnership with IMDA, it will provide more specific advice for SMEs with more advanced technology needs.
Advisors at Tech Hub will help to diagnose their business needs, prescribe the right solution and guide them on the implementation. This approach could smoothen SMEs’ transition to adopting the technology.
The Tech Hub is expected to be launched later this year.
Focus areas – Cyber-security, Personal Data Protection and Data
Cyber-security, data analytics, and personal data protection are three priority areas mentioned during the briefing.
As part of Singapore’s push towards advanced manufacturing and a digital economy, these focus areas will be increasingly important. Critical systems will have to be protected as the country embarked on our digital transformation journey.
Data is also a key focus as we strive to be more data-informed. We need use these data to make critical decisions and remain a competitive edge. However, with more data collected, this also explains the growing importance of personal data protection.
Industry Transformation Map
IMDA will work closely with industry leaders to develop Industry Digital Plans (“ICP”). This ICP will be aligned to the Industry Transformation Maps (“ITM”). Industry consultations will be held with industry players and solution providers.
Two industry consultation sessions have been announced during the briefing:
Logistics: “A Nationwide Federated Locker network transforming the future of last mile deliveries in Singapore” – 16 August 2017 (Wednesday)
Retail: “Emerging digital technologies and innovations for the Retail Industry” – 18 August 2017 / 25 August 2017 (Friday)
The sessions will be by invitation only.
Data-driven innovation and artificial intelligence have been identified as the key growth enablers for companies and Singapore economy. IMDA has also called for submission for a commercially managed digital platform that will drive the adoption of these technologies.
The call for submission document can be requested on IMDA website. The deadline for pre-qualification proposals will be on 8 September 2017, 12 pm.
There is a fine saying by Sun Tzu: “know yourself, and you will win all battles.” In the business context, I cannot think of a more tried and tested tool than the financial model which spurs entrepreneurs to stay constantly updated with a 360 degree understanding of their business.
Do you really know your business inside-out?
What is Financial Modelling?
A financial model goes beyond a financial statement (you cannot manage what you cannot measure) and a budgeting exercise (you cannot spend beyond what you can earn).
Unlike a financial statement which is a snapshot of the present and a budgeting exercise which places a stronger emphasis on immediate future needs, a financial model is meant as a diagnostic strategic planning tool to secure your business’s longer-term future.
A financial model == financial statement or budgeting exercise
I would like to think of financial model as the numerical version of chess (underlined are similar benefits and attributes). At the starting line, you position various business drivers/resources and as the game unfolds, watches the situation from a bird’s eye view and deploy changes accordingly.
Ultimately, you reach your goal by understanding the inter-connectivity of available resources and stimulating various outcomes before determining the next move.
Below are some commonly received questions from past clients on how the financial modeling process works.
Five Commonly Asked Questions
How does financial modeling for business owners differ from other types of financial modeling?
The focus on financial modeling for business owners is more for business decisions – the aim is to help the business owner make as accurately as possible any material decisions to improve business profitability.
While assumptions related to the cost of capital and balance sheet strength are important to a loan banker looking to evaluate credit score of business client, assumptions related to profitability (i.e. revenue and cost driver) are the more important aspects of the financial modeling process for business owners.
How does financial modeling unveil insights for decision making? Can you walk us through via a real-life case study?
There are a few key components to the financial modeling process which forces business owners to consider their business workflow from various perspectives.
Consequently, fresh insights arise.
These components include but are not limited to: identifying business drivers, deducing cash cycle and deriving business valuation.
Zooming into identifying the business driver, let’s take a Chinese eatery for instance.
Factors affecting revenue generation including but not limited to space capacity constraints (consider seating layout), table turnaround, average spend per customer, average spending per peak/off-peak hour, takeaway hurdle (dependent on chef capacity).
Factors affecting cost include but not limited to: employee labor productivity, rental cost, inventory cost.
Some key revelations from the above that surprise our past clients include uncovering of certain popular menu items that might be underpriced and more economical sense to shorten operational hours (during the less active hours to reduce labor cost).
How do I determine my revenue model?
Broadly speaking, revenue is a multiplication of two components – price and volume.
For pricing factors, it is usually a consideration of:
1) Cost plus basis – what is the cost of service or raw material for the output
2) Market rate – what your peers might be charging
3) How aggressive a pricing strategy you might like to deploy
For volume, you may like to think about:
1) Top-down regarding maximum potential market size
2) Bottom-up approach via looking at your sales distribution channel capacity
Together these two approaches form the lower-bound and upper range of the total quantity playing field.
How often should the financial model be updated?
The rule of thumb is as often as you will need to make strategic business decisions.
I would say minimally on a monthly basis.
It is best if the information feeds in real-time.
Any recommendations for someone looking to get started on financial modeling?
1) Attend training/classes – the benefit is complete mastery and control over how you can maneuver it for your needs, and the downside is, of course, your time
2) Engage a consultant to help them through the process – it all boils down to consultant value to fee. A consultant can help you set up a tailored financial model structure, but it will only be valuable if you provide the input to the numerical assumptions
3) Purchase or source for existing financial model template – the benefit is you can get started immediately, but as is not your template, it will be challenging for you to modify it in your maintenance or to customize it more specifically for your industry
What is accounting?
Accounting is pertinent to all business owners. It is the process of recording, summarizing, analyzing, interpreting and reporting the financial information of an organization. This financial information gathered is key to assist managers and executives to make business decisions.
Importance of accounting
Information derived from the process of accounting help serve both internal and external stakeholders of a company.
Internal stakeholders can be split into two major groups, which are the stewardship and decision-making process of a business. A steward is responsible for managing the economic resources of a business to ensure these resources are optimally utilized to maximize profitability.
For decision-making, senior management is dependent on the information summarized in financial reports to make decisions relating to the business. A show of growing revenue but stagnating profit would prod management to evaluate the expense components incurred by the company. Further analysis of the expenses might provide a clearer view of what are the specific cost drivers that are adversely affecting the firm’s profitability, allowing managers to pinpoint the source and resolve it.
External stakeholders are individuals or entities that are situated outside of a company but are affected by the financial performance of it.
Shareholders and investors of the firm, who are considered the company’s owners, rely on the financial information from accounting to make their investment decisions. Investors would cleverly avoid companies having recurring losses or high debt ratios in case of the risk of bankruptcy.
Banks and other lenders would utilize financial information to assess the business’s ability to repay its loans.
Forms of business entities
When an individual incorporates a business, the business itself is considered an entity and its activities are separate from the personal activities of its owner. What forms of entity should one incorporate then? Forms of entities are dependent on a few factors, such as number of owners, how the businesses are managed, the amount of reward and the level of investment risk for the owners.
The three common form of entities are sole proprietorship, partnership and company, each with their own characteristics, advantages and disadvantages.
Usually established only with one owner and it’s the least expensive and easiest to incorporate. The sole owner is entitled to all the profits of the company. Speaking of profits, any losses, debt incurred or liabilities are borne by the owner. This makes it risky for the owner as he is personally liable for all the debts that the company undertakes.
It can only be established with a minimum of two owners. These partners share the profits and losses of the business. However, if the business fails, some partners may have to pay all the debts.
A company is a legal entity on its own, separate from its shareholders. Articles of incorporation must first be filed with the state to establish a corporation. There is no limit to the number of owners and provides limited liability to shareholders, up to the amount of investment they have made.