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MT Expert - Finance: The unvarnished truth
In the boom times, it can be very tempting to seek out an FD who’ll add ‘a strategic dimension’ to the business. You see a lot of MBAs creeping into finance functions, and the specialist press starts running features about the emergence of the ‘financial chief operating officer’ and the demise of number-crunching.
Fundamentally however, even when a business is growing fast, what you really need at the helm of the finance function is someone who can keep a tight grip on the numbers. In particular, your FD has to be cash-obsessed, ensuring that working capital demands are kept under control and that the activities you think are profitable are really delivering to the bottom line.
We rarely get a brief asking for FDs with a degree in applied derivatives. Entrepreneurs need to partner with smart, disciplined, straight-talking finance directors who can channel your energy into real growth.
Doesn’t that all change in a recession? No. Working capital risk just shifts from over-trading to over-stocking, for example. The difference between survival and collapse is still solid cash management. Two years ago, you needed your accounts in pristine condition so you looked good during IPO due diligence. Today, the banks will use any reason not to lend – so confused or misleading accounts are still a major no-no.
That’s not to say you shouldn’t still be looking for a well-rounded FD. An accountant with no interpersonal skills and a permanent scowl is just as useless in a downturn as in the good times. So as well as strong technical skills and a clear sense of discipline, your FD should be a great communicator.
Actually, that’s vital in times like these. (Remember, this is the person who might be trying to prise an overdraft out of your banker. If he or she can’t tell your story well, you’re in trouble.)
You don’t want your FD to be a doom-monger, but you do want someone who’ll give you the unvarnished truth. You need a straight-talking, factual finance person who can give you a rounded view of the numbers – the upside and the downside – and who’ll ensure appropriate action is taken before the financials end up sinking the business. Clarity, openness and decisiveness are pure gold.
It’s also worth considering additional firepower in the finance function over the next 18 months or so. If your otherwise great FD has never been through a restructuring, refinancing or turnaround before, get help. The finance function can make or break a business when the going gets tough, and FDs who’ve been through those kind of near-death experiences know just what strings to pull and when.
Sarah Hunt is managing director of EquityFD and EquityFC www.equityfd.com
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All Comments
Ian Little 12-Mar-09, 15:32
I applaud Sarah Hunt’s assertion that an FD focussed on cash management and on producing clear, accurate financial information is essential in a time of economic challenge, but there is an old saying “keep doing what you have always done and you will get the same results.” This simply isn’t true in a recession, keep doing what you have always done and it could be at your peril.Now is the time to examine every strand of business in the context of “cash is king.” Clarity is key and the need for trend analysis is paramount; the FD will show his/her value to the business by providing clear and accurate views of how business performance is changing in a higher level of detail than is necessary when business is growing. There may be parts of your business which are profitable, but also have an adverse impact on cash flow so identifying profit that is hitting the P&L but that has no accompanying cash is vitally important. Likewise there may be parts that are less profitable but which have a very positive impact on cash flow. Different climates make for very different decisions – for example, it could well be a viable strategy to focus efforts on cash generative parts of the business ahead of profit generative for the short term.
There’s no place in the board room for spin or for personal agendas; the Board requires facts and a proper interpretation to manage the business successfully. The fundamentals of sound financial management (cash being number one) is essential. A recession increases a number of business risks and the risk of customer non-payment is high. The skilful FD should balance controlling this risk with the challenge of unblocking the sales pipeline. Successfully countering the plethora of reasons that prospects have for not signing the PO during this recession would certainly put your business ahead of the pack. At Access we are proactively seeking to help our prospects and customers by reducing the current difficulties some businesses are having in obtaining finance for capital purchases by co-funding low interest finance deals.
I agree with Sarah that now is a good time to make sure FD’s are getting back to basics, but that doesn’t eliminate the opportunity for creative solutions that benefit customers and the business alike.
Ian Little
Finance Director
Access Accounting
www.access-accounts.com