How do you recognise that you have reached the point where you need an FD’s input and expertise?
Seasoned entrepreneurs will say as soon as you can afford it because you cannot afford not to, and that it is a false economy to delay.
Delay could hold back your company’s growth or could be fatal if the growth is uncontrolled. The appointment of your first FD is a big step up, in expertise and in cost. Getting the timing right and selecting the right person is vital.
It becomes clear that there is an FD needed when the owner is struggling to keep control and cannot get financial information quickly enough to make decisions.
Consider a part-time FD
However, many growing businesses should first consider if they could manage with a part-time FD first. You get all the financial expertise needed, just when you need it and at a cost far cheaper and lower risk than hiring your first full-time FD.
How do you spot the alarms indicating you need specialist financial input?
There are many symptoms of poor financial control but here are some of the most common.
The cash flow gets worse as the company grows
It becomes harder to fund the cash tied up in stocks and debtors
Bad debts increase
It becomes difficult to measure costs
There are problems with managing productivity and profitability
How does this happen?
When a business is small, every decision and piece of information passes across the business owner’s desk. That situation is not practical as the business grows because there are too many complex issues to manage effectively.
The owner no longer has visibility of everything. Conflicting demands on their time prevents them mastering the detail and keep all the plates spinning. The owner must rely on his team but there can be gaps in the required skillsets. It is unlikely that a strong middle management has yet formed. There is a lack of timely management information.
The alarm is sounding
Typically, the first sign of strain is the cash flow goes awry and needs emergency attention from the owner. A growing business will often outrun its funding facilities and may do so on a regular basis.
The alarm bell indicates the need for a more forward-looking stance. Is an FD needed? This would be a reason to consider an FD, if only on a part-time basis.
Funding requirements need predicting and managing and this is clear FD territory. A part-time FD can also act as a sounding board to the owner and help keep their business plans on track, avoiding the distractions and fire-fighting that plague many growing businesses.
Failure to react to the signs can lead to poor decisions at best or insolvency at worst. Poor cash flow is a compelling reason for business owners to think about bringing in the benefits of an FD’s expertise