By Andy Burrows
I started Supercharged Finance in September 2016. It’s my business.
But I’m also a seasoned Finance professional, with 25 years’ experience, including a period as a Finance Director.
I worked in Finance teams, big and small, for most of my career, and then I decided to set up a business of my own. So, I guess that makes me an entrepreneur!
And I’ve felt for a while that if you want to be a good CFO or a good Finance business partner, then starting your own business teaches you important lessons.
The question as a Finance professional, as a CFO or Finance business partner is, “if it was you who owned or invested in this business, how would you run it?”
And what I’ve found is that when it’s your own business – when it’s your baby – as someone trained and experienced in Finance, you definitely use that experience, but there are some things that you start to see more clearly and do differently. Here are four!
Firstly, Finance is not just a numbers game. It’s personal!
The performance of Supercharged Finance, for me, makes a big difference to my family. Good performance will mean nice holidays, less stress, perhaps even being able to pay into a pension fund! Bad performance, slow growth, etc... well, you know...
If you’re working as a Finance person in an owner-managed business of some size, where you see the person who owns the business walking up and down the corridors, just take a second to think.
When you’re seeing numbers, they’re seeing whether they’ll be able to feed the kids, pay the mortgage, buy a car,... or maybe buy a yacht or a football team, depending how successful the business is!
When I look at the business finances, I really do see it that way. How much is it going to pay me? Spending in the business means not spending for the family. The decisions can get like that. For example, do I spend money in the business (perhaps a new piece of software, a web designer or some advertising) or do I buy bigger Christmas presents for my kids?
Professional investors, private equity investors and the like, can be a bit more sophisticated in the way they look at things. But it still makes the same kind of personal difference to them.
And you could extrapolate to listed companies too. Shares are owned by people, and by pension funds and investment funds, which benefit who? People, like me and you!
The second lesson I’d like to share is that accounts are really not as interesting as non-financial measures – KPIs.
In my micro-business, I do the monthly accounts myself. I have automated as much as I can with Xero. And I have a chartered accountant to do the year-end published accounts and corporate tax forms.
And my observation is that I spend a tiny amount of time doing the bookkeeping each month, and I produce a P&L and balance sheet only to keep the forecast up to date!
I don’t do accruals and prepayments, and I don’t book depreciation, each month. I only do that at the year end.
That is to say, really, that my day-to-day accounting is for financial control, but’s not my primary tool for actually running the business.
I actually spend much more time on a weekly basis looking at leading indicators – the Key Performance Indicators. For me those KPIs include the size of the mailing list, the number of website visitors, the conversion rates on certain web pages, the number of social media followers, the open rates on my email newsletters, and so on.
So, Finance people – think! What is going to show a business owner that the business is doing well and is heading in the right direction? The P&L is only one small part of that.
Putting it negatively, I know that if I don’t drive those KPIs in the right direction, then profitability will not come.
And I put it that way, because of my next point...
Thirdly, there are a lot of uncertainties in business. More than we give credit for as accountants, in our sheltered life in the Finance department.
So, whilst I may know that if I don’t drive my KPIs in the right direction, then the business won’t grow, I don’t know the opposite. I can’t say for sure that if the KPIs go the right way then profitability will automatically ensue.
There may be some rules of thumb, but none of them perfectly fit our products or even our market.
What I have to do is to experiment a lot, test different things, tweak things. And that means being able to collect data in such a way that I can separate out the impact of the changes I’ve made.
As a Finance professional, working in Finance, that was something that I don’t think I really appreciated as much as I could have done.
When we’re trying to assess a business case for a project, or forecast the impact of a marketing campaign or a pricing change, we can sometimes be a little forceful in expecting our business colleagues to be able to predict accurately what’s going to happen.
Well, in the real world, things are just not that predictable... unless you have a lot of data from research and testing.
So, the learning really is not that we should accept uncertainty and just let the Marketing Director spend willy-nilly! The learning is that we should be getting to grips with market research, pilot projects, market testing analysis and competitor analysis. And we should work with scenarios – e.g. best case vs worst case vs breakeven.
If we’re in an established market with established products and established sales channels, then we must know what the established benchmarks and measures are. Then we’ll be able to ask the more pertinent questions when new things are proposed in the business.
And if proposals involve things that have no established track record, such that we don’t know what the outcome will be, we have to learn to work with the business to come up with a way of testing the expectations first in a way that doesn’t put too much money at risk.
Finally, I find it interesting that, whilst I have a financial planning spreadsheet for Supercharged Finance, I don’t have a fixed budget.
I don’t do a once-a-year exercise to set our plan for the year and then spend against that. That would be insanity, because I’m always over-optimistic!
What I do is to get my books up to date at the end of each month, produce a little P&L and balance sheet so that I know I’ve accounted for everything, and then think about the forecast.
The forecast goes out month by month to the end of the next financial year, so it always looks 1-2 years ahead.
I’m looking at a small number of things (i.e. not everything) every month – ensuring that the forecast cash balance stays positive, and that planned dividends don’t exceed retained profit (to make sure I’m going to be law-abiding!).
The forecast, and my level of confidence in it, is what determines spending and investment plans. And that is both business and personal (see lesson 1). It also allows me to do a little tax planning.
And our forecast changes based on changes in our strategy and updated information on assumptions.
I never compare the most recent month’s actual P&L to the last forecast, except to decide whether to update the forecast assumptions. I forget previous forecasts as soon as I’ve done a new one.
I don’t use variances to judge performance good or bad, right or wrong. All my forecasts are wrong! Every. Single. One! Right or wrong doesn’t matter. And I am never satisfied with performance – even on the rare occasions it might exceed a forecast.
The question is always how to improve, not whether we’ve met our forecast or not. Am I learning lessons to enable us to change and improve, and therefore grow and perform better?
The lessons for Finance are a) ditch traditional budgeting as soon as possible, and b) the most interesting questions are those that inform how to improve future performance.
I hope those few lessons have given you a chance to look at your role in Finance from a different perspective.
The final thing I’d say is that I know that businesses get more complicated as they get bigger. So, I’m not saying that it’s best to run a big business in the same way as I run my micro-business. I just find it interesting if you start at one end of the spectrum and extrapolate the principles.
Then you can see what changes as the business gets bigger. What do we have to introduce (e.g. resource allocation, expenditure approvals, payment runs, etc) at various stages as the business gets bigger? That observation can then tell us the purpose of those things.
I’m sure there are many more lessons we could draw out.
So, if you want to improve your business acumen as a Finance professional, as a CFO or a Finance business partner, just try setting up your own business. Even just try buying and selling things on eBay! Even just consider doing that, and observe the way your brain reacts!
Fascinating! Well, I’ll leave you with those thoughts. Let me know if they spark any others for yourself!
What is a purpose-driven Finance function? (From the series: The Purpose-Driven CFO)
How Finance Can Drive Business Performance (Short Guide)
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