Why I love working with Private Equity?
Over the last 10 years I have worked with Private Equity, in a CFO role, interim CFO role & through Private Equity firms as a consultant.
I love working with private equity, I’ll give you 5 reasons why.
Over the last 10 years I have worked with Private Equity, in a CFO role, interim CFO role & through Private Equity firms as a consultant.
I love working with private equity, I’ll give you 5 reasons why.
1. Fast paced – private equities have made an investment, and they want a return. Speed is the name of the game. Spending money to accelerate a project / return is justified as getting to exit with the required valuation as early as possible is the name of the game. I like this.
Spend money to save time, is a great strategy when you work with Private Equity. With private equity you need to put your runners on, red ones so you can run. Long hours, quick turnarounds & a team environment to drive an outcome in a short period of time.
2. Results oriented – private equity care about results. Whether it’s revenue, EBITDA or cash or all three they want results and they will incentive management to deliver. The incentives offered by private equity firms to deliver a financial outcome are part of the DNA. If you are an ambitious business leader, you can make some money driving very hard for private equity.
I love being results / outcome driven, it’s the way businesses should be. It’s not about the presentation packs, it's about what financial outcomes you delivered.
3. You know where you stand – honest, direct feedback from private equity means you know where you stand. If you are not performing, you won’t work there anymore. So don’t worry about what they think and continue to deliver the results at the speed.
4. Know your numbers – the PE firm expects the CFO to know the numbers, all the key numbers and be able to speak to the why behind the results. This means you need a strong team behind you that will deliver and ensure you can run along at the strategic level and ensure you also know the detail.
5. Cash is king – It wasn’t until I worked in Private Equity that I understood cash. When you report cash daily and do a 13-week cashflow forecast you start to realise that understanding all the timings and levers of cashflow is critical and while the Income statement is critical, knowing cashflow and how to pull the levers becomes critical.
What you learn is that cashflow doesn’t lie. Understanding earnings to cashflow means you can really understand where you are leaking cash.
Not every Private Equity firm is the same, so this article is a generalisation however it gives you a flavour and feel on the 5 key reasons I love Private Equity
At Whiteark we provide a number of services to Private Equity portfolio companies:
👉 Transition work
👉 Integration work
👉 Transaction work
👉 CFO transformation and operating model
👉 Transformation work
Led by Jo Hands who has experienced, capable, hands-on professionals who have done this before and want to help your team and business too.
We have a number of publications that you might find interesting:
Our work at Whiteark is focused on value creation levers, we have case studies for each of these levers that you can see on our website: https://www.whiteark.com.au/
We also have a number of articles that are relevant around private equity.
You might want to explore other thought leadership articles
Driving value creation
Jo Hands writes all about driving value creation. Value creation is a word that’s used a lot, but what does it mean? Creating value - customer, consumer and financial. When a company buys a business, they focus on value creation. The business case assumes that there is value to create. This value can be created by pulling either strategic or operational levers.
Value creation is a word that’s used a lot, but what does it mean? Creating value - customer, consumer and financial. When a company buys a business, they focus on value creation. The business case assumes that there is value to create.
Value can be created by pulling either strategic or operational levers:
Mergers and Acquisitions: Buy-and-build deals are where a Private Equity firm buys a company and aims to enhances that platform through add-on acquisitions.
Strategic Pricing: Strategic pricing incorporates best pricing practices and ensures that your pricing strategies, analytics and processes complement your business strategy. A product’s price is based on the value to the customer, or on competitive strategy, rather than on the cost of production. By creating strategic pricing policies, analytics, and processes, you can directly capture customer value and translate to shareholder value.
Distribution Strategy: Distribution strategy is a plan to make a product or a service available to the target customers through its supply chain - to make sure the it can reach the maximum potential customers at minimal or optimal distribution costs. A good distribution strategy can maximise your revenue and profits.
Geographic Expansion: With access to new markets, a business has the potential to build a new customer base.
Product Strategy: A product strategy outlines the desired outcomes to be achieved by the product including the end-to-end vision, and how it supports the company’s strategic objectives. The product strategy is brought to life through the product road map and can be used to support any tactical decisions that the company needs to make.
Product Innovation: Product innovation represents a new way of solving a problem a high number of consumers have:
There are no products on the market that address the problem statement - unexplored market spaces could potentially generate high profits or;
There may be other products on the market that address the problem but in a different way to your innovative solution
Digital Transformation: Digital transformation is the use of technology — software enabled, connected, transactions, and interactions, across all areas of a business. The goal of digital transformation is disrupting existing business models, improving customer experience, and creating operational efficiency to drive economic value creation.
Customer Segmentation: the benefits of customer segmentation include focus, competitiveness, expansion, retention, communications effectiveness and profitability.
Aftermarket Service Strategy: The concept of aftermarket service is as important as sales, the saying “it takes years to build a reputation but just moments to ruin it” addresses the importance of keeping a customer happy and satisfied. Aftermarket service does not generate any revenue for the company, but it increases the goodwill in the market and amongst the customers.
Data Strategy: Data strategy is a central, integrated concept that articulates how data will enable and inspire business strategy.
Pricing Optimisation: Price optimisation is the practice of using data from customers and the market to find the most effective price point for a product or service that maximizes value for customers and sales or profit for the company.
Sales Force Effectiveness: Sales force effectiveness is driven by the decisions, processes, systems and programmes that sales leaders are accountable. By managing sales force effectiveness drivers, companies can build high-quality sales teams that better meet customer needs, increase productivity and successful conversion, and consequently result in improved turnover and EBITDA margins.
Procurement & Managing Suppliers: Smart procurement practices are fundamental for companies across all industries to optimise operational efficiencies and improving EBITDA margin.
Product Portfolio Optimisation: Product portfolio optimisation helps managers assess their products’ current level of success - it provides a centralized view of an entire suite of products against the prevailing marketplace for those products. Effective product portfolio optimisation highlights future opportunities for improved resource allocation, greater returns, growth and profit, and reveals products that are generating a negative contribution.
Operational Efficiencies: Operational efficiency refers to a company’s ability to reduce waste in time, effort and materials as much as possible, while still producing a high-quality service or product. Financially, operational efficiency is the ratio between the input required to keep the company going and the output it provides. When improving operational efficiency, the output to input ratio improves. The greater the operational efficiency, the more profitable a company becomes as it can generate greater income or returns for the same or lower cost.
Cost to Serve: Cost to Serve focuses on aggregate analyses around a blend of cost drivers. The analysis exposes the variation in customer demands for different activities and has a different cost profile. Without understanding the cost to serve a customer, a company is unable to determine the value that customer is contributing to their business.
The value levers are a great way of prioritising what's important.
The levers that drive the biggest value result in an improved performance that leads to greater valuation.
If you are:
1. Getting your business ready for sale
Executing initiatives that drive value and can be in the run rate results will result in a higher sale price
2. Buying a business.
Your investment case is critical to drive the appropriate acquisition price. This will also drive what transformation program looks like once the business has been bought to ensure the business case is achieved/exceeded
3. Running your own business.
Driving value is what you do everyday but sometimes it's easy to miss the levers to pull to achieve the greatest success.
At any point of a business lifecycle it's imperative that driving value is something you focus on to drive consistent and stable earnings with a positive trend.
Article by Jo Hands, Co-Founder Whiteark
Looking for more support? Download our Private Equity Playbook for the ultimate guide to value creation.
Looking to create value in your organisation? Let us help.
Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes. We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business.
Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au
Are you making money?
Jo Hands asks the question - are you making money? It's a very simple question. Forget accounting standards and rubbish reasons your results look crap are you making sustainable earnings in your business. If your wondering how to know, here are a couple of tips…
It's a very simple question. Are you making money? Forget accounting standards and the rubbish reasons your results look crap… Be frank. Are you making sustainable earnings in your business?
If you’re wondering how to know, here are a couple of tips:
1. Cash doesn't lie - if you are cashflow positive, you are making money.
2. Majority of your costs are variable - therefore are aligned with revenue.
3. Your pricing covers your fixed and variable costs.
Now, regardless if you are making money or not - the next question is could you make more? In most cases the answer is yes. So how do you do this?
Increase revenue
increase price
more effective salesforce
more effective marketing
Reduce costs
look at ROI on all costs
review fixed costs to make variable
review operating model
Drive improved working capital
credit terms reduce to increased cashflow
use pcards to pay suppliers
improve process to reduce time to receive cashflow
There are many levers to increase profitability of your business. That's what we do at Whiteark.
See some example case studies here.
Need support in your organisation? Reach out.
Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes.
We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au
Article by Jo Hands, Co-Founder Whiteark
Forecasting
Mark Easdown writes about forecasting. The prediction process starts with propositions, then verified, quantified and made actionable. A robust peer review occurs and 95% of predictions are modified along the way. Plummer routinely scrutinises predictions with actual events and these results are highlighted at conferences – championing the successes and sharing insights across those that were wrong. “Nobody here is hired because they’re psychic; there hired to generate insights that are useful – even if they turn out wrong. It’s useful to get you thinking”.
Article written by Mark Easdown
Decision Making & Planning, Ways of Working with Uncertainty
“The only function of economic forecasting is to make astrology look respectable.”
“Forecasts usually tell us more of the forecaster than of the future.”
“There is great value in bringing together people who attempt to address a common problem of forecasting from different perspectives and based on very different kinds of data.”
“Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won’t come in.”
“For superforecasters, beliefs are hypotheses to be tested, not treasures to be guarded.”
“I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge that is likely to be false.”
“The Lucretius underestimation, after the Latin poetic philosopher who wrote that the fool believes that the tallest mountain there is, should be equal to the tallest one he has observed.”
A forecast is a statement about the future. (Clements & Henry, 1998)
As authors of “Forecasting” (J.Castle, M.Clements, D.Henry) note; a forecast can take many forms;
Some are vague and some are precise, Some are concerned with near term and some the distant future
“Fore” denotes in advance whilst “Cast” might sound a bit chancy (cast a fishing net, cast a spell) or might sound more solid (bronze statues are also cast)
Chance is central to forecasting & forecasts can and often do differ from outcomes
Forecasts should be accompanied by some level of certainty/uncertainty, time horizon, upper/lower bounds
The domain in which the forecast occurs matter, especially if no-one knows the complete set of possibilities
The authors consider the history of forecasting;
Forecasting likely pre-dates recorded writing with hunter-gatherers seeking where game of predators might be, edible plants and water supplies. Babylonians tracked the night sky presumably for planting and harvesting crops
Sir William Petty perhaps introduced early statistical forecasting in 17th Century and thought he observed a seven year “business cycle”
Weather forecasting evolved with Robert Fitzroy in 1859, who sought to devise a storm warning system to enable safe passage of ships and avoid loss of vessels &/or ships staying in port unnecessarily. Forecasting of nature extended to hurricanes, tropical cyclones, tornadoes, tsunamis and volcanic eruptions.
Yet, history is littered with failures in forecasting, large and small;
Ambiguous forecasts from Oracles of Delphi and Nostradamus
UK storms 1987, with lives lost and approximately 15million trees blown down
Failure to predict 1929 Great Depression or severity of Global Financial Crisis, mid-2007 to early 2009
“When the Paris exhibition closes, the electric light will close with it and no more be heard of it” – Sir Erasmus Wilson & “a rocket will never be able to leave the earth’s atmosphere” – NY Times 1936
What do we want from forecasts ?
Do we want just accuracy? To what degree is that even possible across complicated and complex domains?
Do we want cognitively diverse teams to make us more aware of extreme events? Thus, minimising downside risks?
Do we just want comfort, ideological support and evidence of our existing beliefs? Do we want entertainment?
Do we want to influence a target audience, shift consensus or established beliefs?
These answers may differ if you are a CEO, CFO, Head of Sales, Head of Innovation, an Insurance Actuary, Epidemiologist, Politician, Economist, Intelligence Agency, Shock Jock or Sports Commentator.
For example, it was a mainstream view of epidemiologists across last 20 years that a pandemic was a prominent risk;
“The presence of a large reservoir of SARS-CoV-like viruses in horseshoe bats, together with the culture of eating exotic mammals in southern China, is a time bomb. The possibility of the re-emergence of SARS and other novel viruses from animals or laboratories and therefore the need for preparedness should not be ignored.”- David Epstein 2007
https://davidepstein.com/lets-get-ready-to-rumble-humanity-vs-infectious-disease/
https://cmr.asm.org/content/cmr/20/4/660.full.pdf
So, is COVID19 perhaps SARS2? Clearly, forecasting a pandemic is desirable. How do we give prominence to diverse voices & data and what are the better practices to observe and implement?
SUPER-FORECASTING
In October 2002, the US National Intelligence Estimates (a consensus view of the CIA, NSA, DIA and thirteen other agencies with > 20,000 intelligence analysts) concluded that the key claims of the Bush Administration claims about Weapons of Mass Destruction in Iraq were correct. After invading Iraq in 2003, the US found no evidence of WMDs. “It was one of the worst – arguably the worst - intelligence failure in modern history” notes Philip Tetlock and Dan Gardner in their book “Superforecasting : The Art and Science of Prediction”
In 2006, IARPA was formed to fund cutting-edge research with the aim of potentially enhancing the intelligence community work. IAPRA’s plan was to create a tournament-style incentive for top researchers (intelligence analysts, universities & a team of volunteers for the Good Judgement Project (GJP)), to generate accurate probability estimates to questions that were;
Neither so easy that an attentive reader of the NY Times could get them right , nor
So hard that no one on the planet could get them right
Approximately 500 questions spanned: economic, security, terrorism, energy, environmental, social and political realms
Forecast performance was monitored individually and in teams, and Tetlock’s GJP team proved 60% more accurate in year 1, 78% more accurate in Year 2.
What did these forecasting tournaments learn about the attributes of super-forecasters that may be of relevance in Commercial or Government organisations? Here are a few;
Superforecasters spoke in probabilities of how likely an event would occur (not in absolutes : yes/no), this better enabled them to accept a level of uncertainty – it made them more thoughtful and accurate
Superforecasters were often educated yet ordinary people with an open-mind, an ability to change their minds, humility and an ability to review assumptions & update forecasts frequently, albeit at times by small increments
Actions which were helpful included;
Breaking the question down into smaller components and identifying the known and the unknown, focus on work that is likely to have better payoff, actively seek to distinguish degrees of uncertainty, avoid binding rules. Consider the “outsiders” view, frame the problem not uniquely but as part of a wider phenomena
Examine what is unique about problem and look at your opinions and how they differ from other people’s viewpoints. Take in all the information with your “dragonfly eyes” and construct a unified vision, balancing arguments and counterarguments, balancing prudence and decisiveness – generating a description as clearly, concisely and as granular as possible
Don’t over-react to new information – a Bayesian approach was useful
The GJP found that while many forecasters were accurate within a horizon of 150 days, not even the super-forecasters were confident beyond 400 days, forecasts out to 5 years were about equal with chance.
What about forecasting teams versus forecasting individuals?
o With good group dynamics, flat and non-hierarchical structures and a culture of sharing – teams were better than individuals – aggregation was important. In fact teams of super-forecasters could beat established prediction markets.
o The note of caution around low performing teams came when people were lazy, let others do the work or where susceptible to group-think.
“Unchartered : How to map the future together.”
Daryl Plummer of Gartner, a technology advisory firm who produces forecasts for customers who wish to discern hype from reality.
The prediction process starts with propositions, then verified, quantified and made actionable. A robust peer review occurs and 95% of predictions are modified along the way. Plummer routinely scrutinises predictions with actual events and these results are highlighted at conferences – championing the successes and sharing insights across those that were wrong. “Nobody here is hired because they’re psychic; they’re hired to generate insights that are useful – even if they turn out wrong. It’s useful to get you thinking”.
The author notes “that what matters most isn’t the predictions themselves but how we respond to them, and whether we respond to them at all. The forecast that stupefies isn’t helpful, but the one that provokes fresh thinking can be. The point of predictions should not be to surrender to them but to use them to broaden and map your conceptual, imaginative horizons. Don’t fall for them – challenge them.”
“How to Decide” : Annie Duke – Simple Tools for making better choices
The author presents some useful tips that teams can use to elicit uninfected feedback and leverage the true wisdom of the crowd in decision making. This is especially useful where key forecast & value chain insights and institutional knowledge is held across multiple SMEs and stakeholders;
The Problem;
“When you tell someone what you think before hearing what they think, you can cause their opinion to bend towards yours, often times without them knowing it”, “The only way somebody can know that they’re disagreeing with you is if they know what you think first. Keeping that to yourself when you elicit feedback makes it more likely that what they say is actually what they believe”, “To get high quality feedback it’s important to put the other person as closely as possible into the same state of knowledge that you were in at the time you made the decision”, “Belief contagion is particularly problematic in groups”
Tips to elicit those insightful cross-functional perspectives;
Elicit initial opinions individually and independent before the group meets. Specify the type of feedback or insights required and request an email or written thoughts be provided before meeting. Collate these initial opinions and share with group prior to meeting. Now focus on areas of “diversion”, “dispersion”, avoid using any language around “disagreement”
Anonymise feedback to group – this removes any influence from the insights or opinions of higher status individuals
Anonymising feedback also gives equal weight to insights and opinion and allows outside-the box perspectives to be heard
Anonymised feedback will also allow mis-understandings to be discussed and the team to grow in knowledge together
If the team needs to make a decision within a meeting; try
Writing down insights and passing to one person to write on a whiteboard – maintaining anonymity
Writing down your insights and pass to another person to read aloud to the group
If you must read your own thoughts to group – start with most junior member and work towards most senior
“Radical Uncertainty: Decision Making for an unknowable future”
Authors: John Kay & Meryn King
“The belief that mathematical reasoning is more rigorous and precise than verbal reasoning, which is thought to be susceptible to vagueness and ambiguity, is pervasive in economics”& Jean-Claude Trichet of the 2007-2008 GFC; “As a policy-maker during the crisis, I found the available models of limited help. In fact, I would go further: in the face of the crisis, we felt abandoned by conventional tools”
The authors draw a number of helpful lessons in the use of economic and financial models in business and in government;
Use simple models and identify key factors that influence an assessment. Adding more and more elements to a model is to follow the mistaken belief that a model can describe the complexity of the real world. The better purpose for a model is to find “small world” problems which illuminate part of the large world radical uncertainty
Having identified model parameters that are likely to make a significant difference to your assessment, go and do some research in the real world to obtain evidence on the value of these parameters to customers or stakeholders. Simple models provide flexibility to explore the effects of modifications or scenarios.
A model is useful only if the person using it recognises it does not represent the world as it is really is, rather it is a tool for exploring ways in which decisions might or might not go wrong.
Uncertainty : Howard Marks : https://www.oaktreecapital.com/insights/howard-marks-memos/
In his May 2020 newsletter to Oaktree Clients, Howard Marks notes the field of economics is muddled and imprecise, there are no rules one can count on to consistently show causation, patterns tend to repeat, and while they may be historical, logical and often observed, they remain only tendencies. Excessive trust in forecasts is dangerous.
When considering current forecasts, he notes the world is more uncertain today than at any other time in our lifetimes, the ability to deal intelligently with uncertainty is one of the most important skills, the bigger the topic (world, economy. Markets, currencies, interest rates) the less possible it is to achieve superior knowledge and we should seek to understand the limitations of our foresights.
A forecast is a statement about the future, a future we cannot know everything about , yet it remains a useful tool for decision making, scenario modelling, stress testing and planning. The map is not the territory, so with forecasting we should learn from better practices around collating diverse views and data, building cognitively diverse teams, constantly challenging assumptions, leverage the wisdom & insights of your subject matter experts, maintain intellectual humility & resiliency facing uncertainty, use models wisely and adopt a bayesian approach.
“No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future.”
LOOKING TO CURATE YOUR BUSINESS STRATEGY? REACH OUT.
Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes.
We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au
Article written by Mark Easdown
The Ultimate Private Equity Playbook
Private Equity firms must have a clearly defined playbook containing value creation initiatives in order to succeed. This 40+ page playbook by Whiteark is the ultimate guide to realising value in your Private Equity transaction. An asset’s full potential is realised through a holistic approach, that focuses on optimising operational performance, enhancing strategic capabilities and effective capital management.
Private Equity firms must have a clearly defined playbook containing value creation initiatives in order to succeed. This 40+ page playbook by Whiteark is the ultimate guide to realising value in your Private Equity transaction.
An asset’s full potential is realised through a holistic approach, that focuses on optimising operational performance, enhancing strategic capabilities and effective capital management.
Playbook Inclusions:
✔️Overview
✔️Strategic Levers
✔️Operational Levers
✔️Identify Value Creation Initiatives
✔️Types of Value Creation Initiatives
✔️The M&A Benefits
✔️Strategic Pricing
✔️A Sharp Focus - where to target your efforts
✔️Distribution Strategy
✔️Types of Distribution Strategy
✔️Geographic Expansion
✔️Geographic Considerations: Entry to new markets, New sales, Access to local talent, Increased business growth, Competitive advantage, Operational efficiencies
✔️Product Strategy: Product Vision, Goals, Product Initiatives
✔️Product Innovation
✔️Digital Transformation Approach
✔️Digital Transformation
✔️Digital Strategy
✔️Customer Segmentation
✔️Aftermarket Service Strategy
✔️Data Strategy
✔️Data Strategy Principles
✔️Pricing Optimisation
✔️Approach to Pricing Optimisation
✔️Sales Force Effectiveness
✔️Procurement & Managing Suppliers
✔️Successful Procurement Management
✔️Pricing Optimisation
✔️Benefits of Product Portfolio
✔️Operational Efficiencies Focus Areas
✔️Cost to Serve
And more…
Get your hands on the PE playbook
Want your copy of our 40-page Private Equity playbook? Click the button below to proceed.
Private Equity is our thing. Qualified, experienced, and connected, our team is on hand to help you exceed all expectations.
With extensive experience working with private equity firms, we have the ability to drive true value in portfolio investments. Globally, and locally, our team’s combined experience bridges the gap and fills in the blanks, so we’re ready to help - exactly when you need it.
Our approach is rooted in data, ensuring the right decisions are made – based on accurate information. Hands-on, we get into the trenches with you, working directly with the management team to realise outcomes expected by shareholders. We offer a range of transformation services which can be tailored to suit standard private equity options; always accompanied by a laser focus on profit optimisation of the business.
The life of a CFO – how to thrive
The CFO role is not an easy one - there is a real struggle between short term financial objectives and long-term strategic outcomes. Both are very important but need to be balanced. Getting your priorities right will ensure you thrive and not just survive which ultimately is the goal for every organisation.
The CFO role is not an easy one - there is a real struggle between short term financial objectives and long-term strategic outcomes. Both are very important but need to be balanced.
Getting your priorities right will ensure you thrive and not just survive which ultimately is the goal for every organisation.
While there is a lot to do, I have narrowed down 5 key priorities that any CFO can apply to their role.
The key 5 priorities of a CFO
1. Financial Governance
Focused on financial governance through month-end, balance sheet reviews and working capital management. This eliminates any surprises during an audit. Building a robust process for accurate and timely reporting and forecasting so that good decisions can be made in a timely manner. This creates confidence with regulators and auditors.
2. Optimise the financial position
A CFO is expected to proactively manage and optimise the financial outcome. This requires good forecasting ability, business partnering and the ability to make good commercial decisions.
Work through strategic and operational strategies to optimise the financial position of the company by:
o Actively focusing on working capital management
o Actively managing investments including cashflow timing
o Actively managing government rebates, tax benefits and obligations
o Actively managing strategies to deliver financial outcomes both short term and long term
3. Alignment to strategy
The CFO must work closely with the strategy department to ensure alignment between long term strategies, priorities and the 3-5 year business plan and associated financials. This clear linkage is critical to ensure it all hangs together and will give confidence to the board. The CFO must work through the linkage to ensure key metrics are measured and tracked to ensure lead indicators for managing the success/delivery of the strategy.
4. Holding the business to account
As the CFO it's your job to hold the leadership team and the organisation to account on expenditure, investment, key metrics and achievement of the plan. You must do regular call out of results and ensure you hold the business to account.
5. Building an exceptional team
The quality of the finance team is paramount and ensures the business has the commercial support for decision making. The role of the team to provide insights and business partnering is critical to ensure the Executives and others in organisations have the support to make good commercial decisions.
The CFO role is not easy, but it is enjoyable and rewarding helping the organisation navigate through strategy and financials and measuring success while having the confidence of the regulators and auditors. There is always a lot to do - so focusing on your top 4-5 priorities.
“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.”
At Whiteark we have hands on practical experience to help CFOs navigate and set their company up for success, whatever is the challenge. Please reach out for a no obligation conversation.
Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes.
We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au
Return on investment
Return on investment is an overused phrase but an underused concept in business. What return are you going to make for that investment? What is the payback period and how confident are you on the return? Say a company can only afford to spend $20 million on investment each year how does it decide what to invest in?
Return on investment is an overused phrase but an underused concept in business.
What return are you going to make for that investment? What is the payback period and how confident are you on the return?
Say a company can only afford to spend $20 million on investment each year how does it decide what to invest in?
Key criteria
• Is the investment aligned to strategy?
• What are the benefits of the investment?
• What is the payback period for the investment?
• What metrics will the investment improve?
• Are there ongoing financial benefits of the investment?
I am a big believer in working out where your investment will give you the biggest return. If measured correctly, more money can be invested if there is a clear ratio of investment versus return on investment.
Making good investment decisions will be critical to the success of any organisation especially during the current environment so take the time to consider:
• How much money you can invest?
• What's your criteria for investment?
• How are you going to track benefits?
• How and who will you hold to account?
Somehow when people get project money, they forget it's cash out the door - it’s real money, it's costing the company. While there are financial reporting, tax and other benefits of consideration when investing, don't forget you are outlaying cash. Spend what you need to deliver the outcome / return on investment.
Post Covid-19, companies need to be very focused on where they spend their money and payback period. If the pay period is longer than 3 years, leaders will need to consider if it's a good investment.
How do you think about return on investment in your company? Does it need a review? Is your payback period more than 3 years? Maybe you need to reconsider.
“The biggest room in the world is the room for improvement.”
Do you need to assess the ROI in your business and make some changes? Let us help.
Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes.
We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au
Measure what matters
It seems simple and makes sense but many companies struggle to track and measure their financial and strategic performance. At the beginning of the year, as you reset your priorities post covid-19, it is imperative that you understand a range of metrics and measurement tools. Having a weekly scorecard that measures your top 10-15 metrics is critical.
It seems simple and makes sense but many companies struggle to track and measure their financial and strategic performance.
At the beginning of the year, as you reset your priorities post covid-19, it is imperative that you understand the following:
• Lead indicators of financial health
• Key measures that are aligned to your strategic priorities
• Targets for your key measures
• Accountabilities for the key metrics
• Investment required for each metric
• How each metric feeds into the financials of the company
Having a weekly scorecard that measures your top 10-15 metrics is critical. When metrics are off target having clear accountability for someone to build a plan to address and reset expectations and understand impact on the financials.
A very simple scorecard is a very useful tool to drive the right focus across the company. If you have too many metrics, you will lose your focus on the ones that are most critical.
Example metrics:
It is important to use a simple format that calls out variances to targets or prior comparative period. See below example.
A weekly / fortnight meeting to walk through metrics with actions and follow ups is critical to driving the right behaviour. Performance reviews and incentives should be aligned with these metrics to drive the desired strategic/financial results.
At the beginning of 2023 make sure you spend time getting this right. If you need help please reach out to us, we have a lot of experience with building metrics scorecards for companies and help drive accountability across the leadership team.
I believe driver trees are critical to determining your key metrics – please check out our recent article on driver trees here.
Guide to Zero Based Budgeting
Browse and download the Whiteark guide to Zero Based Budgeting (ZBB). This is a method of budgeting where all expenses are justified at the beginning of each new budget cycle and all assumptions documented. We explore the benefits and challenges of ZBB and the 7 steps required to build your own.
Zero Based Budgeting (ZBB) is a method of budgeting where all expenses are justified at the beginning of each new budget cycle and all assumptions documented.
So, what exactly is Zero Based Budgeting?
Budgets are not connected to prior year spend
Funding is allocated to activities aligned to strategy
Eliminates sandbagging practices - evenly distributing expense increases/reductions across business units
Requires comprehensive understanding of activities and cost structure
Budgets are allocated to necessary business activities and based on the levels of effort required
Requires analysing and prioritising activities and expenses
The Benefits of Zero Based Budgeting
Strategic priorities and focus areas can be achieved more successfully under zero-based budgeting
Business units are forced to link their spend to focus areas/initiatives that support the organisational
objectives
The annual review ensures no initiatives continue beyond their productive life
Efficient allocation of resources, as it is based on needs and benefits
Identifies and eliminates wastage and out-of-date operations
Drives managers to design and develop cost-effective techniques for improving processes
Detects inflated budgets
Promotes questioning and challenging attitudes
Increases staff motivation because it gives them more responsibility and the ability to contribute to the
decision-making process
Increases communication and coordination within the organisation
The Challenges of Zero Based Budgeting
TIME & RESOURCES
It is time consuming having to justify each expense in order to arrive at a solid foundation to support the requirement.
A lot of manpower is required to successfully build a ZBB.
BIAS TOWARDS SHORT-TERM PLANNING
ZBB can reward short term thinking.
Can limit investment in growth because short-term benefits may take precedence over long-term planning.
DETAILED KNOWLEDGE
It is necessary to train managers well as they are ultimately responsible for the management, decision-making and the communication of the entire process.
Difficulties associated with ranking functions that are qualitative in nature mean there is a risk of cutting non-core costs that support a customer’s or consumer’s experience. This ultimately puts into jeopardy brand value in the long-term.
AWARENESS FOR DETAILS
As the volume of the required data & forms is very large, no one is capable of knowing every detail of its content and decisions.
There is a risk to compressing information and details because this might remove critically important data.
BIAS TOWARDS SHORT-TERM PLANNING
Honesty and consistency of the managers must be reliable and uniform.
There could be possible manipulation by managers to get more resources into their department.
How to build a Zero Based Budget in 7 Steps
Determine Group Strategic Goals/ Priorities
Align investment and initiatives to Group Strategy
Communicate budget process, timeline and expectations
Provide key assumptions and templates for each P+L item
Create templates for CAPEX, Balance Sheet, Cash Flow, Treasury
Document all assumptions and supporting data to refer to during budget reviews
Be courageous and curious when reviewing business unit budgets
Need help to build your own Zero Based Budget? Reach out.
Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes.
We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au
Cashflow is King
It’s not complicated, confusing or easy to manipulate, it doesn’t lie and shows the real health of a business. Even non-accountants understand cash as they all have to manage their personal cashflow – to ensure there is more inflows than outflows and …
It’s not complicated, confusing or easy to manipulate, it doesn’t lie and shows the real health of a business. Even non-accountants understand cash as they all have to manage their personal cashflow – to ensure there is more inflows than outflows and managing the debt levels for the inflows in the household.
When assessing the underlying performance of a business cash is the best indicator to show how the business is performing, how healthy the business is and being able to accurately determine if your business model is viable for the long-term.
Despite the fact that cash is king, everyone understands it, and without it, a business can’t function. Businesses don’t spend enough time understanding their cashflow to be able to proactively drive improvement in the cashflow of a business.
There are four key things to consider when managing your cashflow:
Understanding the past – understanding the activity that drives cash inflow and cash outflow and the timing of these elements
Shape your future -
Make changes to your business that bring cashflows in earlier (change in payment day terms, utilise credit cards for customers to pay etc)
Take an aggressive stance to work with customers that pay you for your services. Pre-screen customers for credit history to ensure you are not generating revenue with no cashflow
Make changes on how to delay cash payments going out the door through utilising credit cards, changing payment terms, negotiating extended terms or move monthly to quarterly, delay purchasing until required
Daily cashflow forecasting helps you really manage tightly the cashflow of the business
Daily reporting on cashflow drives good discipline and an ability to make quick decisions. This reporting can show actuals versus forecast.
Making even a small change can make a huge impact on ensuring your business is maximising its cashflow position.
If you want some more advice around maximising your cashflow reach out to Whiteark; we have experience in cashflow improvement.
COVID19 has challenged many companies specifically in how to proactively manage cashflow to be able to stay viable; some tips to consider that might help your business maximise cashflow in this period:
Ask your customers to pay you as early as possible
Provide other payment options for customers (credit cards, afterpay etc) so you can get your money sooner
Negotiate payment terms with key suppliers
Review expenditure that can be stopped / delayed or deferred
Utilise credit cards to delay payments to be made; credit cards can be used for majority of transactions and even most suppliers take credit card as well
Need to take a closer look at your cashflow?
Let us help. To learn more about how to make cashflow king in your business, then contact us on whiteark@whiteark.com.au
The CFO role has never been so important. Companies are navigating uncertain territory and having a strong CFO that can manage the nuts and bolts of finance and help navigate the commercial as well is instrumental to how companies navigate this period.