To help you to find the right part time Finance Director for your needs I have written this guide which draws on my experience of having been an accountant in practice, a Finance Director for a large engineering company and a part time Finance Director for SMEs.
It is a service I no longer provide myself but I do see it as a critical role that many smaller businesses would gain greatly from filling and I covered the benefits of a part time Finance Director service in my introduction page..
This guide is split into six sections:
- The difference between accounting and financial management
- What to look for when recruiting a virtual or part time finance director
- When you really need a part time FD
- Recruiting a part time Finance Director
- How much does it cost to hire a part time Finance Director
- How to keep your costs down and maximise the benefits of your part time Finance Director
The Difference Between Accounting and Financial Management
Many smaller businesses don't appreciate the key differences between accounting and financial management until they experience it for themselves.
Put simply, your internal (or external) accountant keeps the books and records of the company and is responsible for transaction processing and the reporting of those transactions.
By its very nature, this accounting role is mainly backward focused as it records and reports the financial consequences of past events.
In contrast, your financial director has a forward looking financial management role where the primary concern is the future financial health of your company.
Financial management is about changing the future to one where your business can thrive and prosper. It's a proactive wealth creation role that involves making sure that the right commercial and financial decisions are made at the right time for the right reasons.
While different people on my Finance Directors register may work in slightly different ways, each will take you through a monthly financial review process designed to see the good and bad in your recent performance and explain the future financial consequences. You will be encouraged to identify solutions and take action.
Each Finance Director will also use some kind of budget or future forecast to make sure that you understand where you business is heading in terms of profit and cash.
If Your Professional Accountant Offers A Part Time Finance Director Service
Some accountancy practices offer a part time Finance Director service which usually includes the preparation of monthly or quarterly accounts.
I see this as a very positive sign if the accountancy firms do it properly but in my experience, the costs may be similar but there is no comparison in the value and benefits of the service you receive.
Problems I have seen include:
- The service is provided by young, inexperienced accountants with very limited Partner / Director involvement. Some services can be delegated but the analysis of the finance issues and needs to be given by someone experienced in managing finance.
- The "management accounts" provided are a cut down version of the annual accounts. These provide a long list of overhead costs which are easy to control but little detail or insight where the real action is in your sales and margins.
- The accounts often appear in week four of the following month or week one or the next. This is far too late.
- There is no focus on cash. I saw one occasion when a company could have claimed back £15,000 VAT on bad debts. The accounting was right but the cash consequences were not considered.
- No focus on improvement actions.
What To Look For When Recruiting A Part Time or Virtual FD
- You need a part time Finance Director who you can work
with and trust. The right person will be an invaluable member of your
management team.
- You must be confident that your part time Finance Director has the right finance skills and abilities that your business needs.
I recommend that you look for a chartered qualification - FCA, ACA, CA, (chartered accountants) FCCA, ACCA (chartered certified accountants) or FCMA, ACMA (chartered management accountants).
The F stands for Fellow and the A is short for Associate.
After an accountant passes the final exams and satisfies their Institute or Association that they have the appropriate experience, he or she becomes an Associates. After a certain number of years the accountant can apply to become Fellow if they can show more extensive experience.
- Your
virtual FD should be interested in your business and will want to get
to know it in detail. Every business is different and you want someone
who will look for and value the unique features which make your
business special.
- A good part time Finance Director will be experienced in working in different industries and in different sizes of businesses.
It can seem counter-intuitive but often it's a good idea if the person doesn't have experience of your particular trade. This way you get a fresh approach rather than the same old industry recipes that are used by everyone else. I see it as a good thing that your Finance Director can challenge existing practices and help you to see things with fresh eyes.
- Your
virtual Finance Director should be comfortable working under pressure
and achieving deadlines. Part time does not mean any less than full
commitment.
Your part time FD must care about your finances as if they were his or her own. There is no room for half-hearted commitment when it comes to money.
Look for someone who has made the career decision to work this way and has a small portfolio of clients rather than someone with a full time job who offers to handle your business finances in the evening. It will be much easier to arrange meetings and have the advice you need, when you need it.
- Find a part time FD who's been there and already done it.
Are you close to your bank overdraft limit and even losing money? Then find a part time Finance Director who is used to working in turnaround situations.
Are you growing fast? Look for a Finance Director who has helped companies through the inevitable growing pains.
- Your virtual Finance Director must be prepared to take responsibility and to be held accountable. An accountant sits on the sidelines and reports, a Finance Director makes things happen.
- Your part time FD must be capable
of giving you a flexible time commitment. If you need a meeting during
the day then your part time Finance Director service can't be limited
to an after hours service.
The more commercial your part time FD and the more he or she understands the real drivers of performance, the more successful the appointment will be.
When You Really Need A Part Time Finance Director
There are particular situations where it is very important to establish the strong financial controls a Financial Director will provide:
- You don't know how your business is performing - it's very common but scary when you stop to think about it. You can't manage what you don't measure, so without the right information, you can't manage for increased profit and cash flow.
- Profits
are not increasing as fast as sales - "turnover is vanity, profit is
sanity" is an old banking mantra but many business owners have been
fooled by top line growth which doesn't translate into profit.
- Your business is
growing fast, putting strains on cash, staff and systems. Growth is
exciting but demanding, constantly moving the company outside of its
comfort zone.
- The business is losing money. This can't be sustained for the long term and the sooner something is done, the
better the chance of a successful turnaround.
- You're
held back by a shortage of funds. Banks and investors need confidence
in the management and the lack of a skilled finance person will make
your team appear unbalanced and hold back your ability to raise finance.
When you have found the right part time or virtual Finance Director for your business, you need to clarify the rules of engagement.
If you take the person onto your payroll, the normal employment rules will apply with the person issued an offer letter followed by a contract of employment.
However I would usually expect your part time Finance Director to be self employed or to trade through their own company.
In this situation the accountant will send you an engagement letter explaining his or her understanding of the issues and the proposed work activities and details of fees. You will be asked to sign a copy of the letter and send it back.
The part time Finance Director is also obliged to carry out the same Anti-Money Laundering Regulations as banks, accountants and solicitors to check on your identity to report suspicious transactions.
How Much Does It Cost To Employ A Part Time Finance Director?
Cost depends on the experience and skills of the person you find as your part time Finance Director, your company's particular needs and your location.
This is a senior position and you do need to be prepared to pay for quality advice.
I would encourage you to look on this as an investment in your business. The right person will save you money and help you build your business in the way you want to develop it.
Think in terms of £400 to £1,000 per day (or even more in Central London).
It is a big range but you will be selecting between Finance Directors who can earn annual salaries of between £50,000 and £150,000 plus if they return to full time employment together with all the usual benefits like a car, pension and health insurance.
As a general rule, think in terms of 1% of the basic salary you would have to pay the person for a full time permanent position. You pay a premium because you only buy the small amount of time you really need the specialist high calibre skills.
Remember when you are paying an hourly or daily fee it takes away all the employment issues of national insurance, pension contributions, car allowances, training costs (qualified accountants have an obligation to remain up-to-date in the areas they work), computers, recruitment fees, sick pay and if for whatever reason it didn't work out, in lieu of notice or redundancy costs.
This is a situation where the Pareto 80/20 principle applies. You should get 80% of the benefits of a full time finance director through 20% of the usual time commitment.
How To Keep Costs Down?
You will find that some part time Finance Directors offer a fixed monthly contract price while others will offer an hourly or daily rate with their time commitment depending on particular circumstances.Each method has its advantages.
You don't want your part time FD to be dragged into many time consuming book-keeping and general administration issues. It is a waste of their special skills and will be very expensive for you.
Make sure that you have good processes - both computer systems and the general procedures that affect inputs and outputs - and make sure that your accounts staff are well trained and motivated. If you don't, make sure this one of the first tasks that your part time Finance Director corrects.
Your virtual Finance Director will want to minimise time spent working in the record-keeping and more time in making sure that you understand how the company is performing and how you can make it better.
Over time I expect your part time FD to train your staff and gradually transfer accounting responsibilities to your own staff. This will save them time and you money.
How To Find Out More About Part Time Finance Directors
Please take a look at the Finance Director register (for summaries) or the profiles of the Finance Directors in your area.
Contact details are provided so give your local Finance Director a call.
Summary
Part time or virtual finance directors bridge the gap in the finance function between a small company and big business.
While it's not a new concept, it is still not as widely known or used as it should be. Instead growing businesses recruit a full time accountant but they don't make this crucial jump from accounting to financial management - this jump from record-keeping to future wealth creation. And that means that they don't get the full benefits of their investment in financial management.
Please don't make that mistake - find yourself a flexible finance director, a part time finance director, a virtual finance director. The term doesn't matter, but the role could be crucial and there is no better place to start looking than our Register of Finance Directors.