Frequently Asked Questions
Your Finance Director (or CFO) is much more than a ‘bean counter’. As part of the senior executive team they are responsible for your company’s financial health and growth strategy. They will get ‘under the bonnet’ of your business and provide you with timely, useful management information that you can use to grow profitably and expand. They will manage your cashflow and take the lead in managing fundraising requirements.
They will also develop and implement strategies that manage risk, cash flow, costs and expenditure and ensure that your company is meeting all its statutory obligations (VAT, PAYE, annual returns etc).
When you’re starting your business, your FD is invaluable in helping you develop your strategy and produce all the models and materials required to obtain seed funding for your venture. As you grow and get into your stride, they’ll put the right processes in place to give you the information you need to adjust and correct your financial journey.
As you expand and need other sources of funding (series ‘A’, loans, or an overdraft) they will assess the risks and the rewards of each option and guide you to choices that fit with your strategic decisions.
In smaller companies there isn’t much difference between the two. They are both responsible for the financial management and strategy of their companies. However, in larger organisations the FD will be responsible for the high-level accounting, while the CFO will be responsible for business strategy development and implementation.
The biggest companies may have an FD for each business unit or country, regional FDs or CFOs and a global CFO.
When you’re small and starting out you often can’t afford to employ an FD full time. An interim/part-time FD is the answer. You will be employing an individual with a range of skills for a fraction of the cost. They’ll be able to provide you with a range of skills and services, from strategy development, investment activities, investor relationships, cash flow management and expansion planning.
They will attend all board and development meetings and, depending on your size and requirements, they may spend one or two days a week or month.
Your Financial Controller (FC) is the FD’s second in command and is responsible for the integrity of your accounts department. They manage the day to day tasks of financial transactions which include manging your debtors, creditors and financial assets. They will produce monthly management accounts, VAT returns, payroll, and other HMRC obligations (e.g. EC sales list reporting).
When a company first starts it often outsources this responsibility and so get access to an extremely skilled team for a fraction of the cost. Once more established a firm may have an FC with one or two finance assistants, depending on the complexity of the company’s business.
Often when a business starts it is usual for an administrator to do these tasks but the rules can be very complex (for example, did you know that a UK Company can invoice you in any currency and still charge VAT) that it’s better to bring someone with the right skills into the business as soon as possible.
Absolutely! They will assist you in forming your business plan and getting you ready for seed funding. Their network will introduce you to possible funders and business angels. Their knowledge of the tax regime and grant givers can help you obtain cash in your initial stages.
When you begin trading, they will develop reports that help you understand the drivers in your business (and you’ll be surprised to find that sometimes they are not the things you thing they are). Cash management is key, and they will assist you with that. Their knowledge of the statutory landscape will keep HMRC from knocking on your door, and if they do come, you FD will be the best person to work with them and send them away happy.
You don’t have to hire a full-time FD or accounts department when you first start, you can hire an out of house team who will give you all the skills you need in your crucial early years.
Your monthly management accounts are your BFF (best friend forever). Just like a friend would, they will tell you when you’re doing the right things or the wrong things. They’ll give you insights into the financial health of your business and you’ll use them for day to day management and for strategic direction. Once you’ve got a bit of history behind you, you’ll be able to see trends and spot anomalies.
They will consist of an Income Statement (aka the profit and loss account) and A Statement of Assets and Liabilities (the balance sheet). They should also include Key performance indictors that are appropriate for your business (new customers gained. Customers lost, average revenue per customer etc). It’s best if they are produced monthly, as this will give you enough time to make any changes that your business needs.
Normally after your first year of trading, your management accounts at that time will be used to produce your statutory accounts which will be filed at Companies House (if you trade via a limited company). This will also be used for the basis of calculating any corporation tax that may be due.
Without regular management accounts you won’t be able to effectively grow your business.
Practical tips include:
- Forecast your cash in and out flows asap – know where you stand!
- Invoice as quickly as possible
- If possible, get a deposit paid before you start the work
- If you can, invoice your larger clients for a year in advance (rather than for monthly payments)
- Foster a good relationship with your suppliers’ accounts department – when people like you they pay you faster