31/05/2011

By Colin Mills, Managing Director, The FD Centre Limited

Most entrepreneurs possess considerable personal courage and drive — without it they could not achieve their goals. Although they have great business ideas, innovative products and powerful selling skills, their financial skills are often severely limited. This problem is exacerbated because most entrepreneurs rarely admit to any limitations when it comes to their business skills.

Unfortunately, these normally fearless people often find themselves prone to fears about their business finance because they are out of their depth. The issues tend to creep up from unexpected quarters and can affect a thriving business as easily as failing business.

Financial problems are not the sole province of the entrepreneur whose business is in trouble. When a business is a runaway success with seemingly endless growth, significant financial problems remain.

Facing financial fears

Many entrepreneurs fail to consider the financial demands of a fast growth company. They cannot articulate financial plans or present proposals in terms that banks need to hear. They are carried away on the wave of their success, and rarely forecast and manage cash flow effectively. They recognise there are problems but they are usually unable to identify and deal with them and this makes them uncertain.

This feeling of uncertainty increases as the entrepreneur is on unfamiliar ground and doesn’t like it. The energy and enthusiasm, which drove them at the outset, starts to falter as financial concerns, for which they have few answers, take up an increasing amount of their time. As a result, the driving force behind the business is dragged into managing finance — albeit rather badly — and the business starts to suffer.

Many entrepreneurs allow their fear of finance to take over their common sense. The approach is often: “What the heck, business is growing at an amazing rate all we need is continued growth and the worries will go away” - not a sensible option.

Unlike successful entrepreneurs, those facing hard times hardly take their eyes off their financial problems. They are consumed 24 x 7 with survival. In some ways they are more focused on finance than those facing runaway success. However, they tend to suffer similar problems to their more successful counterparts. They hope that the problems will eventually go away, they fail to understand cash flow and financial management — and they are usually scared.

Again they seek comfort in a familiar attitude: “We’ve survived another month, it’s bound to get better” — a dangerous attitude.

It’s a fact. Financial problems that remain unresolved get worse. This has an insidious effect on the entrepreneur. The process that begins with fear develops an edge of uncertainty, as this escalates the previously ‘driven’ entrepreneur suffers self-doubt. This may sound improbable but unfortunately, it happens. The result? The business that’s growing out of control runs off the rails and the struggling business vanishes without trace.

Escalating the problem

The only solution is to raise the profile of the problem rather than hide it, realise that it exists and seek out a remedy - even if it means finding someone to help. Not the easiest thing for an entrepreneur to do.

So how do they eliminate the fear and deal with the finances? The short answer is they don’t — they get someone else to do it.

Most entrepreneurs need a skilled financial adviser who understands their business. Accountants, internal or external, rarely have the necessary business acumen to offer an answer, so the obvious solution is to employ a financial director (FD), but highly skilled financial people don’t come cheap.

Although the entrepreneur needs the support of a board-level finance person they perhaps don’t need a finance director on the payroll full time. That’s where outsourcing presents a sensible option. Engage a part time Finance Director, with the qualifications, skills and board-level experience gained in large corporations and gain all the benefits of a full time FD but at a fraction of the cost.

The difficulty many entrepreneurs have with this is the need to trust the part time FD — perhaps not with their lives - but certainly with their business. It’s crucial to get the right person. So how does the selection process work?

Asking the right questions

Ensuring that you get a part-time FD capable of removing the fear and delivering peace of mind can only be achieved with the right match. There is no absolute panacea for success, however the following guidelines are a good start:

- Ensure the part-time FD supplier can provide someone with sufficient time to be available when you need them

- Get someone who has relevant experience in all the areas you need — from presenting meaningful figures to raising finance

- The chemistry between you has to be right — you have to work closely so you had better get on

- Sector experience — this might bring more help than you think, seek it if at all possible, the more they know about your business the better

- Discuss a clear task list with the part-time FD, review it regularly to assess progress and adjust it where necessary.

The part-time FD presents a cost effective solution for entrepreneurs and business owners. Fear, uncertainty and doubt associated with the business finance can be eliminated - enthusiasm, energy and fun released back to driving the business forward. A part-time FD is a resource for the entrepreneur to use as the business demands - delivering the success the entrepreneur dreamed about at the outset.