As the CEO or CFO, you need to keep your fingers on the driving pulse of your business. There are for simplicity sake, we believe, 5 important questions you need to ask yourself on a regular basis. More importantly you need to get the right answers every time.
What are the 5 questions?
- Do I have or can I raise the right type of financial resources for my business?
- Are my plans and forecasts realistic and achievable?
- What are the critical "soft" issues affecting my business and am I on top of these?
- Do I have a good understanding of the current financial state of my business and is it compliant?
- Do I have the right systems and process in place to support my business and are these operating optimally?
A failure to answer these questions favourably will have serious consequences for your business.
Raising finance in today's troubled world is not easy. The cost of finance both in terms of interest, royalties or dilution can make or break a business. Financiers know they have you where they want you and for explorers or junior miners they make you pay dearly for the perceived risk unless you are able to convince them otherwise. Private equity firms want an exit strategy and they will place more pressure on the Board and yourself to get a project into production and generate profits. As we all know budgets are out-dated as soon as they are prepared and approved by the Board, so you need to have a robust, accurate and easy forecasting and planning process to help you stay on top of internal and market dynamics, Greek bailouts and other economic woes.
Why is it that the "soft" issues always give the CEO the biggest headaches, be it governance, sustainability issues or people. It is in this area that you need instant access to resources to help you meet these challenges fester. The last thing any CEO wants is a an Enron or Bre-X issue to destroy a business he has built up, so governance needs to be addressed continuously as does the sustainability issues. Getting the right staff into remote locations is never easy and keeping them there is even more difficult. Matching the right person to the job is an art and your need to find a business partner that understands your business and operating conditions to help.
IFRS, local GAAP and other acronyms confuse the hell out of any Board or CEO and while the CFO is supposed to be on top of these accounting issues, the CEO is still ultimately responsible to the Board and shareholders. Why is it that so many companies spend a fortune on financial systems and the associated infrastructure especially during the early stages of a company's life? And then to top it off, you have a touch pad, a smart phone and a notebook and you still have to rely on someone in finance department sending you an email with the latest management accounts? Surely you should have access to this information on any of these devices, anywhere any time.
To get the right approach, to best manage the business and answer these questions, we have developed the Compass Financial Optimisation methodology or quite simply a "CFO's Toolbox".
This toolbox has been created as a vital financial management tool to help the CFO direct his efforts and put in place all the systems, processes and people to ensure the profitability and sustainable growth of the business. Having a job description CFO's aligned with this approach sets clearly defined measurable outputs for the financial department that is critical to ensure that the CFO is on top of his game at all times.
And by now you saying, I have read it, heard it or seen it all before, so what's new? The CFO may even be saying: I am working far too many hours a day and working most weekends, I have not had decent break in years and I don't have time to stand back and review! The proverbial rain check!
In order to implement this approach, we suggest giving you an interim CFO / FD, with experience in your industry to do an initial business health check and business risk review. And you say I have external and internal audit reports! The problem is that while auditors are well qualified, their methodologies and focus are different as well as the fact that, in most cases, they lack the operational business experience and years of experience as a full time CFO.
The outcomes may surprise you or cause some despair, but a key outcome will be a practical achievable approach to address deficiencies and make recommendation and implement enhancements. Ideally the joint project sponsor should be the current CFO/FD and CEO and the interim will project manage and implement, Given the extensive experience, contacts and networks, he is the right candidate to project manage and address all the issues and assist the CFO/FD in transforming and optimising the financial function, restructuring debt and improving cash flows. He takes the emotion out of the change and acts as the bad cop.
As we say in Africa, the best way to eat an elephant is take one bite at a time. A big bang approach never works. The project needs to be broken down in smaller manageable sub-projects which need to be prioritised and spread over a staggered project schedule with milestones and key deliverables at each key step. The good news is that some of these sub-projects can be done internally with own staff and hence costs be reduced while achieving similar results.
For all those tired, de-motivated and in need of a holiday CFOs and FDs, we would suggest that you take that month in the Bahamas that your better half has been nagging you to take and let the interim hold the fort while you are relaxing on the beach, knowing full well the ship is steady and floating.
Please click here to read Gary's previous article about the CFO's Toolbox.
About the author:
Gary Vermaak ACIS ACMA
Gary is a Chartered Management Accountant and Chartered Secretary. Gary holds a BCom in Economics from the University of the Free State. He has extensive experience in finance, IT, projects and supply chain management in the mining and energy sectors and has held senior roles in large companies, including Eskom, De Beers, and Anglo Platinum as well as junior and mid-tier listed companies such as First Uranium and Minerva Resources PLC (now Nyota Minerals). Together with Andre Nel and Mark Rosslee, he formed the Compass Financial Optimisation methodology development team to provide a robust toolbox for the new generation of CFOs.
email: [email protected]
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