There’s a growing trend among SMEs to forsake a full-time finance director and instead to hire a part-time one. This might be a good idea for many firms strapped for cash, but in need of expert help
A lack of experience and know-how or ‘management capital’ can prevent a business from growing and reaching its full potential. It’s a common problem in entrepreneurial businesses, where employing someone on a six-figure salary is always going to be a big step. Experienced and qualified staff don’t come cheap, but sometimes their know-how is an essential investment. The hiring of a finance director (FD) is such an appointment. Full-time FDs regularly earn circa £120,000 plus benefits. This is often too much for a small business and, in any case, the company wouldn’t have enough work to keep a full-time FD occupied.
But entrepreneurs experiencing rapid growth do benefit from having a wise head in their team providing them with detailed information, advising on strategy and dealing with banks, financiers and investors on their behalf. Therefore, it’s not surprising that many successful businesses have opted for the growing trend of hiring people, such as finance directors, on a part-time basis. These employees will cost a business in the region of £1,000 per day, however, they will only be working three to five days per month. They are also on call and available to provide advice over the phone.
This need was spotted as a gap in the market about a decade ago and there are now several firms that provide part-time FDs to businesses at an affordable price. Sara Daw is the chief executive officer of one such firm, The FD Centre. Daw says the concept of the part-time FD has grown rapidly in the seven years she has worked at the company. The FD Centre now has over 100 FDs working for it in the UK and also has offices in Australia, South Africa and Canada with a combined turnover of approximately £10m.
Daw, an experienced FD herself, says her company carefully vets all of those on her books and any business thinking of hiring one must ensure they have a person with both the right skills and attitude. “All our FDs have to be qualified accountants and finance directors for numerous companies. They need experience of working for blue chip companies but also have the right attitude to work with SMEs,” she says. “Many have run their own businesses and have performed non-finance roles, they are business people at heart. Finally, they must pass the barbecue test – we have one every year and everyone comes – if we wouldn’t want to invite them to it they won’t get the job.”
Finance directors are often seen as glorified accountants, someone in charge of the purse strings. However, their role revolves more around strategy and planning rather than simply counting the cash. Entrepreneurs who would benefit from an FD are those looking to invest or spend large sums of capital on assets, expand into new markets, perform mergers and acquisitions, exit from the business or prepare for a stock market flotation. “Businesses that use us are entrepreneurial and owner-managed and all want to grow,” says Daw. “They haven’t always grown as much as they would’ve liked, but they want to do something about it. Their turnovers are usually between £2m and £50m.”
Entrepreneurs who feel they are in need of better financial information when making decisions might very well need the services of an FD. James Bell is the founder and managing director of FoundOcean, an £18m turnover business which fixes offshore structures, such as wind turbines and oil platforms to the seabed. His business is very niche and predicting costs and profitability was often an issue, particularly as the company was being offered larger contracts. “We’d got to a stage where we’d run a project but wouldn’t really know how profitable it was until maybe six to eight weeks after the completion of the project term. So we were conscious that as our projects got bigger it was important to have real-time weekly, maybe even daily, information on individual project performance,” says Bell.
Bell hired a part-time FD through The FD Centre and says his business has rapidly grown since then, confident in the knowledge that its progress was financially sound. He says the company’s growth since he took on an FD demonstrates the importance of the role. “We turn over approximately £18m a year at the moment. Five years ago that figure was only about £2m a year. Everything that we have achieved in terms of growth has happened in the last five years,” he says. “We also needed someone to help us deal with external finance businesses such as banks, insurance companies, auditors and so forth.”
It is often the case that entrepreneurs who have excellent skill sets for starting and establishing a business, don’t have the right ones for running and managing a much larger company. They need to hire people to help them manage but this can be a major leap of faith for the man or woman who is used to forging their path in the world as the one in charge. Also, entrepreneurs often find themselves on a plateau, where they aren’t quite profitable enough to take on bigger contracts, more staff and expand. These business owners really need some quality advice and information to help them form a plan that can transform their small enterprises into national or international operations.
Sue Whitehead founded the male grooming and barber chain Jacks of London in the mid-1990s. Her business was growing well, but as the company developed into a multi-salon national business it became obvious she needed stronger financial management. “Although I have a really good business, I needed someone to help me get back on the straight and narrow because, being a hairdresser first and foremost, my forte is not dealing with finances,” says Whitehead.
So she hired a part-time FD, Jim Bellingham, who set about organising the business’s finances and systems. Whitehead says there was a whole range of issues for Bellingham to get involved in. “He helped me secure a slightly bigger overdraft by dealing with the bank on my behalf. He also helped me sort out some problems I had regarding tax and VAT with a lease and the landlord. I needed to make small tweaks right across the board and to sort out my cashflow so that everything was working properly for me. Practically speaking, he has created spreadsheets and payslips that are easier to understand and use. He has assisted in setting up procedures that make the day-to-day running of the business much easier.”
Whitehead says her experience of a having part-time FD has meant she is better able to fulfil her primary role: running her business. Her FD created the systems and can provide Whitehead with the information she needs to make good decisions based on financial realities. “Although we turn over a fair amount of money, we are a small business, which means I can be doing anything at any given time and having financial systems in place helps me to focus on what needs to be done,” she says.
Similarly, Bell says his FD has helped to give him better information and this means he has more control over his business. “The most important thing of all is to know your numbers and to have them available when you need them. When I had to juggle the FD function with my role as business owner, I really only got to know those numbers when it became really important to know them,” he explained. “With an FD on board those numbers became available all of the time.”