About when we grew a company’s bottom-line by 5% over 3 years

How it began

Alpha Limited is a 5 year old company providing IT & ITes enabled services with a top-line of over USD 6Mn based out of India with offices in Sydney, San Francisco & São Paulo. Prequate was brought in to help Alpha manage growth during the period of rapid scaling. Alpha was in a spurt stage with idea of expanding its service visibility overseas. They relied on a set of marketing consultants for their onground presence in the overseas locations.

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Getting to work

Alpha started a continuous engagement model that allowed Prequate to develop the management reporting frameworks within the CFO Office offering. Over the course of the next 6 months, Prequate became an integral part of the business with specific charge of the management reporting for Alpha. In the course of such delivery, Prequate Team noticed:

  • Huge expenses on commission to Business development teams
  • Commission was a standard rate of paid out at a flat rate on sales upon collection
  • Established business practice was the  logic/rationale behind the % paid and not visited periodically

While BD is critical function, the payment of standard rates that don’t match business interest meant BD meant transactional support and no partnership approach.

The approach

The main questions to be addressed behind any variable based payment needed to be addressed. We asked:

  • Does it keep the teams motivated?
  • Is there continuous incentive for continuous involvement?
  • Do incentive payments breed loyalty?
  • Do the incentives accrue for greater involvement?

 

⇒  A new incentive plan was needed.

Action Time

1

Detailed contract study: Identify and develop master tracker of all BD agreements, past and present

2

Understand the rationale: Speak with all key past and present BD professionals on how they viewed the terms

3

Ask the fundamental questions: Do the terms of the relationship address the long term vision keeping in mind the above fundamental questions?

4

Create responsibility matrix: Break down the activities and related responsibilities over their critical parts

5

Develop new scheme: Create a scheme that rewards greater involvement while reducing cash outflow

6

Buy-ins: Communicate with current providers on new scope and greater opportunity and help visualize lon term win-wins

Activity x Continual Generation Structure (AxCG)

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Impact

  • Win 1 | Net addition of ~5% to net profits over 3 years
  • Win 2 | Increased efficiency and long term involvement by the BD team
  • Win 3 | Attrition rates lower by 22% over 1 year
  • Win 4 | High loyalty for continuing accounts among BD teams
  • Win 5 | Proactive account management assistance from BD teams
  • Win 6 | Simplified measurement and monitoring of the sales cycle

 

What happens when Finance goes beyond financial statements

 

Disclaimer: The nature of professional services is to provide tailored advisory based on the facts and circumstances of the case. Advice is never a one-way-fits-all. You may need to approach your advisor to effectuate a plan that suits your business.

You can contact us at connect@prequate.in if you wish to see how this can be executed for your business.

 

WHAT A CFO CAN DO FOR YOUR STARTUP?  

Business owners at the early stages of their startup are a jack-of-all-trades, trying to handle every aspect of their business for the simple reasons that they might be under-capitalized or trying to cut cost. When the business starts to grow organically, there arises a need to employ appropriate people for the various roles in the organization. The services of an accountant may be enough to provide support for recording the day-to-day financial transactions in the initial stages. Once the business moves into the growth stage, when the activities of the business are increasing, the need for strategic financial support is felt to consolidate data and provide the company with a strategic road map. This is where a CFO comes in.

The responsibilities of a CFO is no longer limited to financial reporting, audit and compliance, planning treasury and capital structure. It now encompasses the roles of corporate portfolio management, capital allocation, investor relations, performance management to name a few.

A CFO is not just a glorified book-keeper, he plays a number of important roles in a startup that are critical in providing a strong financial foundation for a growing business.

  • A CFO is like a steward to the business, working to protect the vital assets of the company, ensuring compliance with financial regulations and communicating value and risk issues to the board and the investors. The CFO will ensure that the business has important financial controls which include management of cash flows, establishing credit policies and implementing procedures to measure and evaluate optimal inventory levels.
  • As an operator, a CFO provides a variety of services such as financial planning and analysis, treasury, tax and other finance operations, to ensure the business is efficient and effective financially. An effective CFO handles projects that require significant quantitative and qualitative analysis in order to arrive at an understanding of the options that are available. Developing a company’s annual budget and interacting with the business owner and department managers to ensure that the final product accurately and objectively reflects the real requirements of the business will be the responsibility of the CFO. He might also conduct a thorough analysis of a company’s future capital investment requirements as a first step in securing additional financing.
  • CFOs take a seat as the strategist at planning table and help influence the future direction of the company. They are vital in providing financial leadership and aligning business and finance strategy to grow the business. In addition to M&A and capital market financing strategies, they can play an integral role in supporting other long-term investments of the company. . A CFO would also play a key role in any effort to seek investment from the public financial markets or to launch an initial public offering (IPO).
  • CFOs as catalysts can stimulate and drive the timely execution of change in the finance function or the enterprise. Using the power of their purse strings, they can selectively drive business improvement initiatives such as improved enterprise cost reduction, procurement, pricing execution and other process improvements and innovations that add value to the company.

Bringing in a skilled and expert personnel onto the board of the business will help give a strategic direction to the business. Outsourcing the financial support for the business will give the owners free time to focus on other aspects.

PROACTIVENESS: The need of the Hour

In an ever-changing business environment businesses of all sizes face unexpected challenges. It is for the organization to decide how to face the unexpected. Would you want to wait for the crisis to come upon your business and then find a solution to it or have a cushion ready for the organization to fall safely upon? It is the preparedness of the organization which determines whether the business will make it through the storm or flounder under an unexpected wave.

Tsunami alarm systems across the globe help raise an alarm when there is tectonic movement under the sea-bed which could potentially cause a havoc wrecking tsunami. The alarm systems help take preventive actions to minimize destruction. Similarly a business may have systems in place that identify threats before they become serious problems, and highlight opportunities well in advance. These are signs of a proactive business. Business with robust and dependable systems have the flexibility to adjust to the new challenges and opportunities in a changing business landscape.

Stephen Covey’s book 7 Habits of Highly Effective People, was the first to popularize the term “proactive” in the business context. A reactive organization is controlled by external forces, whereas a proactive business are watching out for developing situations and uses them to control and exploit the situation for good, rather than being adversely affected by it.

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Building a Proactive organization

For a business to be proactive it is essential that the management fosters a culture to promote the same. Between proactive and reactive management there is a very thin line of difference Time. Time is an essential weapon. Time given to anticipate problems and devising plans is critical. Identifying tasks and responsibilities which are critical and helps prioritize and delay or delegate less important tasks. To ensure that this is followed across the organization offer guidance and explain how people can leverage time to get more done.

Processes are important in a proactive business. Dysfunctional or redundant processes can stall the proactiveness in an organization. A thorough review of all processes in the organization can help identify gaps or redundancies. Active involvement of team members in this task will help fill the gap as they are in a better position to tell you the difficulties arising out of each task and also help you anticipate and avoid future hiccups. Once you have managed to correct the processes and ensured robustness, you can move on to analyzing risk and managing them, starting with high probability and high impact ones.

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For people in an organization to be proactive, specific tasks must be assigned to them. Putting faith in their ability and giving responsibility helps boost the morale of the team. Everyone in the organization knows who holds the responsibility of each task and strive to perform better. A financial dashboard with the name of the person and the responsibility given to him, helps track performance. The dashboards allow all employees to see how the individuals are performing as well as how the company is doing.

Proactive businesses see trends in the business in response to the business environment without asking for the same. It is important for a business to record its past and present performance to forecast where it is headed in the future.

A proactive attitude provides numerous benefits to a business. It helps minimize malfunctions and increases the efficiency of teams. It ensures that the business in prepared for changes in the business environment and is ready to face the storm head strong.

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