10 steps to engineering financial success in business

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There is a golden thread that can be seen in each success story in the modern business environment.

According to Louw Barnardt, co-founder and managing director of financial management firm Outsourced CFO, these can be broken down into 10 critical steps.

Barnardt says his company has learnt that financial success in business can be engineered, beginning with a change in mind-set, followed by automation and scaling.

He compares OldCo and NewCo, both established companies with product and service income, but subscribing to different schools of doing business. OldCo is not very interested in new technology and processes, but instead focuses on what it knows best, while NewCo has had a change in mind-set. It believes technology, innovation and access to the right information gives it a competitive advantage in a fast-paced global business environment.

Here are Barnardt’s 10 steps to engineering business success looking at the difference between these two theoretical companies.

Rethink financial systems and controls

“It is no longer the companies who have access to the information that hold power, but rather the ones that are able to sift through, analyse, interpret and execute on a wealth of available information,” says Barnardt.

He said this holds true when dealing with internal information as much as when looking at external factors.

“In rethinking financial systems and controls, access to financial information that is produced accurately, timeously and effortlessly yields huge decision-making value. A control environment that limits risk and Standard Operating Procedures (SOP) that leave no gaps will help you leverage two key drivers of your company’s value – profitability and risk,” he says.

So, whereas Old ColdCo OldCo sends a box of slips and bank statements to its accountant, who prepares financial records on a system that only works on one computer at the accountant’s office, NewCo has access to live financial data because their bank feeds are automatically updated to their financial records and matched daily. It also has a time-tracking system implemented that ensures every minute of work gets invoiced.

Rethink financial reporting

Barnardt quotes Karl Pearson: “That which is measured improves. That which is measured and reported improves exponentially.”

Only when identifying, tracking and reporting on the key metrics of your business are you able to improve them significantly, he says.

“Traditionally boring management packs can be transformed into valuable decision-making tools when available for scrutiny at board meetings,” Barnardt says.

In this scenario, whereas OldCo does not really look at management reports at board meetings because too much else is going on, NewCo has access to accurate financial information neatly compiled three days after month-end. It then targets key metrics, allowing the team to identify inefficiencies and improve.

Rethink cash flow

“Cash flow is the lifeblood of every business,” says Barnardt. “But somehow it remains an area that is not monitored on an adequate level by most directors.”

According to him, rethinking cash flow means implementing the right tools and templates that enable a business to plan ahead and pro-actively identify cash constraints early on.

“This way, rough seas can be effectively navigated and disaster prevented.”

NewCo navigates these seas by having a cash flow tool that enables it to monitor it closely. Checks take place weekly or even daily, while it also forecasts cash flow month in advance in order to identify large cash flow needs. OldCo, on the other hand, checks bank statements only when received to see how much is in the bank, becomes frustrated when the bank cannot assist fast enough to meet they need bridging finance, and makes decisions on cash flow based on gut.

“Good habits around managing cash flow could often be the difference between survival and closing your doors in times of tribulation,” Barnardt says.

Rethink compliance

“The difference between passing an internal due diligence and failing one could be the difference between getting a big new contract that takes the business to the next level and losing one that has material downside effects,” says Barnardt.

“Rethinking compliance means understanding the value of having all the boxes ticked so that business can flow unconstrained.”

Whereas OldCo does not pay much attention to compliance, omitting to take the new codes seriously and subsequently losing the 30 per cent of their business that used to rely on government contracts, NewCo takes it very seriously indeed. In fact, its up-to-date financials, tax clearance and good governance is getting it new business from both corporates and government.

Rethink risk

According to Barnardt, an understanding of the unique risks of your industry, your business model, your leverage, the global business environment and a technologically advancing playing field is critical to business success.

These risk are evolving, he says.

“New York’s scrap yards are full of yellow taxis who never thought that their industry could be disrupted by an app. Banks are shivering because of the evolution of fintech and blockchain. That and many other business risks has made their lending policies to SMEs more conservative,” he says.

“It requires a keen mind to stay on top of the new business and financial risks presented by our fast evolving business space.”

Rethink Opportunity

These new risks are, however, creating unprecedented new opportunities in your industry, for your business model, around your leverage, in the global business environment and in a technologically advancing playing field, Barnardt says.

“Those who can adapt fast and move first will reap the biggest reward.”

With this in mind, NewCo has built an industry-first online platform that extends its reach to thousands of new customers overlooked by OldCo’s traditional model. Its understanding of digital marketing and brand building has seen its sales steadily grow, while it has been accepted onto a Dutch accelerator programme, where it has met an angel investor who has offered it a low-interest loan to serve as expansion capital.

Automate accounting

“Using the latest in cloud accounting software technology, there is no reason for this process to take up so much of your time. Implementing the right system could drastically decrease time spent on capturing transactions,” says Barnardt.

OldCo, in this case, keeps boxes of slips and some Excel spreadsheets. They will see the full picture when they get their management accounts from their accountant in a couple of months. NewCo, however, uses one of the available software tools to capture slips and costs, with software also allocating bank feeds and payroll directly into accounts.

Automate dashboards

Creating high impact, fully integrated live dashboard puts the information you need at your fingertips, says Barnardt, meaning NewCo’s directors can monitor key metrics live from anywhere in the world.

Automate other systems

Automation, in fact, is key to ultimate business success. Barnardt says it allows the entrepreneur the freedom of continuing to create and innovate while their business is running successfully in the background with little to no inputs from them.

“NewCo values efficiency. They have implemented many systems and processes that make running their company easier,” he says.

Enquiries and communication automatically feed to their CRM system, building a strong database for sales lead generation, while retainer clients can sign up online and their engagement contracts are automated into the process, as is a debit order system.

NewCo has also created digital content of all their best practice approaches to business, with e-books, audio courses and how-to videos on a subscription model generating a passive stream of income that ups their bottom line.

Build to scale

“The ability to scale is what takes a good company from success to significance. Rethinking your processes, finance, business model and opportunities to build a scalable company is key,” Barnardt says.

“These ten steps seek to challenge you to understand the value of rethinking finance and systems, automating processes and building for scale. To make growth a reality, we need to build more, better, faster companies that can employ people and create wealth.”

Businesses are now operating on a global playing field, with the speed of change rapid and the use of technology a necessity.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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