How do you define the success of a small business?
It’s a big questions and it depends on your point of reference. For example, if you are from a marketing background success may be defined in terms of new customer acquisition or followers on Instagram. If you are a technician, success may be defined in terms of operation efficiency or quality of product or service provided. Ultimately small business success is reached when all various departments of the business ae optimised and reaching their goals.
I have found the best small business operators are listeners first and decision makers second. They recognise that they are not experts in every aspect of their business and therefore seek advice from trusted advisors to make better informed decisions.
A Virtual CFO is a trusted advisor that can make a significant impact to the financial performance of a business. Virtual CFO’s do this by providing high level financial analysis and advice on a regular basis without the need for a full time or part time CFO. The services provide higher level skills in identifying issues and improving efficiencies. They help guide the business owner in much the same way that a CFO guides a CEO to achieve financial success in larger organisations.
The starting point in a small business Virtual CFO engagement is to start with Gross Profit margin. It is the key metric for small business financial success. The business owner needs to know what their Gross Profit Margin is and what their Gross Profit margin goal is. The impact of just a few percentage point change makes a significant impact to the bottom line. For example every 1% improvement to the Gross Profit margin in a business with sales of $1 million is $10,000 additional net profit.
Virtual CFOs don’t leave anything to chance to understand the drivers of business performance, they will analyse the clients business in granular detail and measure business trends and cross reference against Australian business benchmarking data and help establish realistic and achievable financial and operational KPIs. A 12 month business budget is essential for business planning and business KPI measurement.
The best VCFOs ensure a monthly board meeting is in place and an agenda item for that meeting is business finance. Having the financial performance agenda item ensures that monthly financial analysis of results against pre-determined targets is discussed, understood and is used a driver of action items for the next month.
VCFOs create business value by implementing financial plans, measurement and review. The process ensures that business risks are mitigated, addressed and solved.
If you would like to talk to us about how our VFO service may help your business, call Next Level Accountants on 1300 360 137.