The following is based on one of CFO Alternatives Clients and all of the names and telling details have been changed to preserve client privacy.
Terry Gordon and I were introduced about 6 months ago by Terry’s accountant, John Page. I have worked with several of John’s clients in the past and John felt that I would be able to help Terry work through a challenge he was having with his business. Terry is a successful Financial Planner with an office in downtown Toronto. He has been in the financial services industry for 15 years and has owned his own business for over 10 years.
In our first meeting Terry and I talked at length about his business strategy, past successes and goals for the future. Terry intimated that he felt his biggest business challenge was that although he was running a profitable business, he had fallen behind with his financial reporting and was under pressure from his accountant and the tax department.
Terry is a very bright entrepreneur, however with the growth of his business over the past few years he, like many other entrepreneur’s, has fallen victim to spending more time working in his business and not enough time working on his business. Terry felt a tremendous amount of guilt and pressure as a result of falling behind with his accountant and the tax department. He felt that if he could get everything “caught up” he would be less stressed and more able to work “on” his business.
I asked Terry what he felt would change, once he was caught up, that would give him new found focus. He thought about this for a moment and then answered, “Probably nothing! I’ve always hated doing my accounting and I really don’t have a way to do it any better than I am now. If I’m realistic I’ll probably be right back in this same situation before I know it”. This was an important realization on Terry’s part, and it showed me he really was ready to work strategically. This was the first step in dealing with his business challenges.
Terry had put together a well written business plan and he was quite proud to take me through it in detail. The plan really explained where Terry wanted to take the business but there was one problem. I asked Terry how he was measuring his progress towards achieving the goals of his business plan. He paused for a moment and admitted he wasn’t sure what I was asking. “Terry, the proof is in your numbers. You have put together a tremendous business plan but it doesn’t have any form of measurement to ensure it’s not science fiction”. I then explained how every business has five financial levers that directly influence the success of that business: Product Mix, Average Sale, Number of Sales, Seasonality, and Cyclicality.
Explaining each of these levers to Terry helped him realize he didn’t have the financial measurement tools necessary to support his plan. He also needed systems and procedures in place to get the proper documents for his accountant to prepare his Financial Statements and tax returns. He simply did not know where his business was in relation to where he wanted it to be.
Once Terry and I sat down to assess his situation it became very clear to him that he needed a CFO to handle the financial role of his business and to deal with his accountant. Terry realizes that his strength is dealing with people and although he is very capable of handling the financial side of his business, he realizes that he simply does not have the desire to be responsible for this role. “If I had the money I would hire a CFO but I can’t afford that. Am I stuck doing it myself?” I then explained that a possible solution was for Terry to outsource this function to someone that was capable of providing him with the financial tools needed to successfully fulfill his business plan. I then explained how I work with my clients as their CFO alternative, and how I could help him.
Since the time of our initial meeting I have worked with Terry to get his financials organized, removing the pressure he was under with his accountant and the tax department. I have helped Terry develop a customized reporting system that gives his accountant what he requires and also gives Terry measurement tools to run his business successfully. With these tools we are able to track progress and, most importantly, keep Terry on track with his business plan. Terry now focuses on his strengths and we meet on a quarterly basis to review his business plan. Terry now feels he is well on his way to achieving his goals.
Lessons learned
Terry learned three important lessons about financial management:
- Work “on” your business, not just “in” your business
- Know how the 5 levers affect your business
- Proof is in the numbers – measurement is key to success
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