"When is the right time to appoint a Finance Director and if I’m not ready to make this investment, what should my finance team be doing to help grow the business?" A question I am asked many times, particularly by recruitment agencies.
Investing in an FD is a decision that should not be taken lightly. The cost of employing an FD and finding the right person that fits within your agency's culture, can be expensive and time consuming. However, if you get it right then the benefits far outweigh the cost and will have a positive impact on your business.
Why do you need an FD?
The most common reason why you would appoint an FD is to improve the company’s credit control and cash flow. For any business that struggles with cash flow, having someone on the ground, looking at the accounts on a daily basis and putting in place systems to improve the number of days customers pay, will really help put your business in a strong position.
However, this is no longer the prime purpose for an FD. The role has moved on a great deal in recent years and it is not uncommon to see the FD undertake the following tasks:
System reviews. There are now so many Cloud systems that can automate and speed up accounting processes, it is important that FDs are keeping up-to-date with the market and what systems their business can be using to save time and costs. For example, receipt bank to speed up the internal expenses process.
Corporate governance. This is particularly key, especially with The Criminal Finances Act and the GDPR affecting every recruitment agency.
Maintaining sensible growth. The FD has the responsibility of ensuring the business is not over trading and running out of cash.
What should your existing finance team be doing?
If appointing an FD is a pipe dream at the moment, then you must at least ensure your existing finance team is undertaking the following:
Reviewing non essential costs and ensuring costs are reviewed on a regular basis.
Monitoring debts and improving credit control.
Managing payment plans to take advantage of trade discounts and to work within the bank facility.
Identifying which parts of the business are profitable and to improve those that are suffering.
Establishing stringent cash management and internal controls to provide working capital needed to survive or grow.
Implementing new or more efficient IT accounting systems, for example Xero, Receipt Bank and TSheets.
Finding finance to fund growth organically or through acquisition, flotation or MBO. There is a growing market of non-traditional finance opportunities offering competitive terms compared to the high street banks.
Identifying opportunities to reduce tax bills and bank or currency charges (with the help of a good accountant of course!).
Developing management information systems to understand commercial and financial drivers of your business. This is an area that is ignored by finance teams as they do not normally have the time and expertise to do this properly, however this is the most important part of the finance team’s role. They should be monitoring the following KPI’s as a minimum:
Debtor Days – showing how quickly customers pay the company.
Gross Profit per Fee Earner – this will show how profitable your fee earners are and whether you are overstaffed.
Staff costs to net fee income % - Assessing this ratio instantly tells you how productive your work force is and whether you are overburdened with non-fee earners.
Contractor Margin and Perm fee % - f you have a sufficient timesheet system in place, reviewing margins on a contract by contract basis and consider whether some contracts are worth terminating early if possible.
Asset to debt ratio - this is the ratio of total assets to total debt, so how much of company debt is covered by assets held e.g. customer debtors list, bank account etc. Ideally, if the result is greater than one then the company is in an excellent position.
Enhancing the structure and calibre of the finance department should be a priority for any business that wants to ensure it survives and thrives in a difficult economic climate.