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Cash - Getting Started

Our Goal

As always make sure you can summarize things, into one or two simple sentences that everyone can understand. Our main aim is to have a business that is self-funding, able to sustain shocks, understands how it makes money and where it wastes it. And we need to tie back every activity in the business to where it reflects on an Income Statement.

Opening Remarks

Here are some positioning statements on Finance, and it should be noted these are opinions reflecting my own experience, you must think about these and adopted your own philosophy. This might sound obvious, but cash is the blood that allows your business to maintain its health, which is a useful analogy on many levels. For starters a healthy body has sufficient blood flow to all parts of the body. ie If you decide to do something in your business, make sure it is funded properly or else don't do it! Note! By funding we mean, providing cash, and tracking how it is used and the value it generates!! Secondly, in the event of a crisis, the body will divert flow to the essential organs, likewise with your business. The trick is to understand what is essential! False economy thinking kills businesses. Lastly growing a business requires greater amounts of available cash. It surprises many, but many businesses fail, simply because they did not understand how rapid growth consumes cash at an alarming rate. Don't grow yourself into bankruptcy!!! So these thoughts must not leave your mind - your business must scale properly, cash management is essential, and your leadership role is to balance the exhuberism of sales and marketing with the conservatism of operations and finance! How is this best done? Not by force of personality, but by ensuring the understanding and data is there to support business decisions.

Understanding your business

In our experience the best way to get to understand the health of a business, and not just its financial health, is to first conduct some "mystery shopping". This way we gain a first hand insight into the experience of your clients and customers. Then its best to spend time with those responsible for your businesses' finances. We hope not to have the owner involved here, for two critical reasons: Firstly, the role of the successful start-up entrepreneur understandably will involve tight control of cash and the businesses at start-up cannot afford someone to take over this function. However, the role of the entrepreneur evolves with the success of the start-up. The qualities of a successful entrepreneur are not the same as those that a strong finance person possesses. The business owner must never lose oversight, they must always have a view of the health of the finances, but they MUST LET GO! In many cases we have found that if the business owner/entrepreneur is running the finances of their business, then they are getting in the way and limiting the growth of the business. Worse still, there may be something more sinister at play. Secondly, the business needs much more than reporting and accounting. It needs a Custodian of Value, who will free up time to allow the entrepreneur to do what they are great at! They will ensure that all that needs to get done is done properly. In this growth and expansion phase the business will need reliable data, financial controls, useful & timely reporting, a single version of the truth (not separate versions for the bank, for SARS and for your ex-wife!) and most importantly a balancing voice to support you in the leadership of your growing business and to be the voice of financial prudence. In those instances where exceptions to this rule exists, then we have an excellent starting point for our coaching/consulting relationship. This coaching/consulting interaction will always reflect commitment to understanding true root causes, introduction of different ways of thinking, setting of priorities, conducting difficult conversations that need positive outcomes and practical solutions. The vehicle for this session is always the latest audited and signed-off year end, plus the current income statement. We cover the rest of this subject here, in cleaning up your income statement.

The Custodian of Value

An engaged and involved CFO who regards herself as, and is referred to as, "The Custodian of Value" in the Business (and not its Chief Financial Officer), will amaze you at the value she will contribute :

  • Your Custodian of Value will place the correct emphasis on proactive forward looking guidance and advice, instead of drifting into the comfort of Retroactive - Reporting & Consolidation.
  • Your Custodian of Value will also have had more than just Audit and Finance experience. Those who have an understanding of LEAN process methodologies and integrate this with Value Based Management will insist that decisions are based on accurate and up-to-date business data.
  • They are also more likely to acknowledge that in the last 20 years, over-detailed, theoretical spreadsheet models, that nobody understands properly, nobody will maintain, and overly sensitive to untested input assumptions, have wasted more time,, introduced more risk and destroyed more value than any "occupy Wall street" demonstrator could wish for! Your wise Custodian of Value will recognize those decisions that cannot be made with data captured into a spreadsheet and not demand it!
  • They will take a very active role in target setting and instill the disciplined thinking that the Voice of Customer or Product Owner, from time to time, overlook.
  • They will ensure that the tools you adopt to foster alignment and progress tracking across your business such as the Deconstructed Income Statement, Value Contribution Curves and the Rolling Annual Forecast will be used consistently
  • They will understand Risk Management and strike a balance between "sweating assets" and "valuing redundancy & backup".
  • They will insist on appropriate cost-center controls and discipline around overall cost and expense management
  • They will own the management accounting ensuring you maintain a scalable business.
  • They will insist on reviewing and doing a QA on every scorecard cascading out of your quarterly and annual strategy & planning and business update/alignment sessions.

Finding the right person for this role will take time. If you have the right person already, then you are fortunate, now you must make sure you retain them! Enough talk, let's get to that Income Statement!