27/02/2012

By Andy Collier, FD Centre Regional Director

Ask any bank manager and he or she will tell you the bank’s worst customers are those who have no idea what is going on in their business. Some customers ask for finance or expect to maintain an overdraft, yet cannot even produce up to date accounts.

As a business grows, it will need to delegate key tasks to experienced and qualified team members. The areas which the business owner will seek help in first will be determined by the focus and needs of the business whether in sales, operations, admin or finance. If we look at the finance function, it is traditional to break it down into 4 roles:

1. Finance direction

2. Finance control

3. Book-keeping/basic accounting

4. Data entry

Many business owners think the finance role is transactional in nature and so concentrate just on producing accurate accounting records. This is essential in itself, but not enough to manage and develop a growing business. When focusing on the FD role specifically then, what are the key tasks of this role and what does the FD bring that the other finance roles do not? Why would you need an FD? I suggest the following three main areas of expertise and input:

1. Strategic

Coordinating and developing long term business plans; defining the implementation timetables; assessing the risks involved and seeking the funding required to deliver the proposed plans.

2. Operational

Developing internal controls; managing and developing the reports needed to run the business; improving profit levels; managing cash flows.

3. Support

Tax planning and legal issues; compliance issues; managing external relationships; outsourcing relationships;

The modern FD needs to be able to develop all this and more. There are many other considerations that go beyond the pure “job description” above.

Here are some of the main ones:

Financial or Management accounting? Management accounting looks forward and financial accounting looks backwards; it’s where your business is going that matters as the past cannot be changed.

Experience:

It is important that an FD has a wide range of commercial experience, not just financial. Good FDs do not learn their skills from textbooks alone, they learn by doing, and yes, sometimes by making mistakes. Commercial experience means leaving the ivory tower and talking to customers and engaging with the production and operations teams.

Qualifications:

Although a good accountancy institute qualification is important, it will not stand up by itself without the backing of a strong track record.

Personality:

An FD must be able to communicate at all levels. Communication with peers needs to be collegiate. An effective FD grows beans and gets team members to count them! A delegating personality is therefore essential.

Full or part time? It is clear that in an SME environment, there is not always enough to keep an experienced full-time FD busy. There is an increasing trend towards flexible, part-time FD services. This helps entrepreneurs keep costs down but at the same time enjoy the benefits of a high calibre FD directing the company’s finance function.

So 5 main things to consider:

1. Do you need a full or part time FD?

2. Make sure the FD has commercial mind-set by real life rather than textbook experience.

3. Some experience in general management is useful.

4. In a business, management accounting experience is more relevant than financial accounting experience.

5. Remember, the FD should be involved in all major strategic decisions. Many good businesses fail not through a lack of ideas, but a lack of finance.