Some things have to get done – else they will come back to bite you later – but they won’t necessarily grow a business.
As an example, accounts departments are usually seen as a cost, and rightly so because most of the tasks they undertake are housekeeping functions. Chasing the debtors, doing payroll, and adding up the costs are very important things, but they are not by themselves strategic.
They are what’s known as hygiene factors, housekeeping if you will. Stop doing them and the business will die.
The trick is to get it these things done at a reasonable cost that still allows robust functions you can rely on. Functions that we as outsourced CFO’s rely on to do our bit. If you wanted to us to attend your advisory board meeting, and that’s a great use of us, and the underlying numbers weren’t up to scratch it would be a waste of time and money. We could help you get your processes in order and we help people do that often.
Having said that, past a certain point, robustness can become overkill. With a low bang-for-buck.
When we look at problems, from a CFO’s perspective, and we think that’s not such a bad thing sometimes, we are usually most concerned with on-the-ground tactics. Tactic learned from years of working as CFO’s inside different types of businesses. And often we recommend better management reporting. That might seem a bit like a person with a hammer who thinks that every problem is a nail, but we have been around long enough to see good reporting as a major contributor to many a success story, and the absence of it all too often associated with years of bumping along the bottom. Good reporting does not necessarily mean complex reporting. In fact, it should not be. It should be elegant. Elegant as in: “pleasingly ingenious and simple”.
What good, simple, reporting should give you is the ability to help you understand what each function of the business brings in, and/or costs. And they are obviously very different things, but you don’t often see it split clearly that way in management reports.
We like to split it into three. Firstly delivery (what it costs to do the stuff you do – for clients), then client acquisition costs, finally overheads, the housekeeping.
Client acquisition costs can obviously have a large influence on growth if done well, so measuring effectiveness is critical.
Whatever is left over should allow a healthy return to fund growth, enable sea-room for stability, and ensure a healthy return for the owners in the medium to long term.