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.
Managing your business costs and revenues is a challenge. To survive, you have to sell enough products/services, and collect money and manage your costs. The latter can be more difficult than you think, particularly when you don’t have good breakdown of costs.
Without careful monitoring of costs, any business can find that costs can spiral out of control quite rapidly. This does not mean you spend hours and hours monitoring costs in minute details, but you should be able to get an overview of all costs at any time. One way to do this is to use cost centres in your accounting system.
What is a cost centre?
A cost centre some section/portion/unit of a business for which costs can be identified and someone is accountable for these cost. Normally, a cost centre has a budget which includes all costs traceable to the cost centre. These cost could be anything from wages to telephone to motor expenses, once they can be traced to the cost centre
In a small business there may be only one or two cost centres. Because you will be looking at small numbers of transactions, there is no need to split things up into smaller cost centres as costs can be more readily monitored against budgeted figures. However, for larger businesses, operating as a single cost centre is probably not good enough. It is also not going to be an easy task to monitor whether those responsible for cost control are doing their job effectively. A breakdown of costs down into each cost centre helps control cost of each cost centre and the business as a whole.
Identifying cost centres
Some businesses are easy to split into individual cost centres – for example, a manufacturing company with six factories, a head office and a distribution warehouse could be split into 6 individual cost centres for each factory, a head office cost centre and a separate distribution cost centre. A business may need to go into more detail to keep a tighter control of costs – for example, each manufacturing plant might make several different products, with several different machines/processes for each product. It would be possible to treat each machine or process as a costs centre in this case. This would allow the business to keep a good eye of how profitable each product process is. Sometimes too, a business might treat support activities like human resources, finance and logistics as cost centres too. There is no end to how detailed cost centres can be, but remember to be a cost centre, it must be possible to trace costs directly and someone must be responsible for the costs.
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.
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.
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.
“Integrity is the ability to stand by an idea.”
― Ayn Rand
You want to be an entrepreneur.
You want to be a part of the start-up buzz.
You have an idea but what you really need is a kick-start.
If you identify yourself with one of the lines above, read on.
One doesn’t start a business just because he has an idea and wants to be a part of the new generation of entrepreneurs trying and doing new things and expanding the scope of business. To start with you need an idea, an idea which is feasible. An idea that you believe will change not just your life but others’ as well.
We speak to budding entrepreneurs and have worked with them over their journey from idea to enterprise. These are our views.
To be successful in an ocean of start-ups you need to reap on your “differentiators”. You may be creating a completely new product or category or another approach to convention. You need to get noticed by your differentiator, whether internally in your operations or externally, in terms of your product/ service.
Additional work hours to ensure delivery or goodies and freebies to your customers is like trying to make yourself heard in the noise of the crowd. When everybody in the crowd is shouting to be heard, you need to do more than just shout. You need to whisper that ‘change’.
What makes you the next big thing, is conviction. You need to be a convict of your idea. Bound by it, measured by it and breathing it in, day in and day out.
The world around you must buzz about your conviction. People must talk about your conviction like gossip. You must be part renegade and part Rambo. Deep down, you must truly believe that in your idea is that something everyone never knew they wanted so bad till now. And your idea must be radically changing or solving a problem that they never knew they had or persistently had it. Slice of a large market pie, will leave you with just that.
DIY King + Knowhow Master
The world is full of Mr. Tom, Mr. Dick and Mr. Harry, who have an idea that other people also have. You may be Mr. Tom or one of the other two. That’s not a bad thing. As long as you are able to do what others have failed to do and get the right mix of the other things that made the ones before you fall.
BUT, hear us out. There may be no prerequisites to be an entrepreneur. But not everyone will be a good one.
While there is no compulsion for an entrepreneur to have work experience, gaining experience in your field of interest helps. Think of it like a 3 dimensional matrix between work experience, DIY love and sense (common+business). Experience of being a part of an established business or in another startup wormhole teaches you structure and problem solving with faster decision-making. We have seen startup clients redesign their websites within 4 hours from when we have our sessions. A non-startup client made it a 3 month plan to rejig their website!
2 very important sets of questions to answer before you jump your cushy job up is:
“Where are you going? Don’t you know uncharted territories are always longer than you can imagine and really lonely?”
“Why do I really want to do this? Is it the money you will make? The picture bulbs going off? The hordes of adoration? The jobs you will create? The people you will touch? The big change that’s going to touch a million people?”
The answers to these questions will help you set goals for your company and frame you vision for the next 10 years (anything longer and you’re kidding yourself!). Your vision is what will help you last beyond the 20 employee mark. If you aren’t able to envision it, hang on to your job. If it’s the money, hold onto your job! – You won’t see money till you’re 10 years in and will probably reach bankruptcy many times in your first 2 years. If it’s the fame, hold onto your job! – Only one in Ten thousand will be heard about. If it’s the adoration, hold onto your job! – You may not even get time to maintain your relationships? If it’s the other two, you don’t care about the first 4 anyway.
If you have an idea and are ready to stand by it come what may, do not wait for someone to validate. Take the risk and Jump right in.