Situation: Developing financial expertise quickly:
The owner of a company, which did $10 million in annual sales, was frustrated because his financial reports were incomplete, incorrect and late. He knew something had to change but did not have expertise to to solve the problems.
The finance director, a trusted and hard worker, had come up through the ranks but didn’t have the in-depth skills or experience needed to operate at the CFO level. Fast growing small and mid size companies frequently outgrow their inhouse expertise.
The owner hired KRM to examine their books, improve their accounting and finance practices and train the finance manager to take on a CFO level role.
Approach: Assess needs, train financial staff
KRM started by conducting a thorough assessment of the company’s accounting, finance and treasury functions.
- The company did not close its books at the end of a every month. It would have big tax adjustments at the end of each year. These adjustments affected its bank covenants and stressed its banking relationship. The financials were worthless for measuring business performance or using as a business planning tool.
- The company relied on on-the-job training for its finance director which severly limited the contribution they were able to make. For example, financial information was never used as a learning or strategic planning tool.
- The company saw finance as an after-the-fact chore and tax requirement. It didn’t employ financial information in its and major decision making process.
KRM worked with the company for 14 months to develop best practices in accounting and finance while training the finance director for the company’s senior finance role.
Results: Faster Close, More Profits
Within four weeks the company had solid financial processes and could close the books in four working days after month’s end.
That meant the company:
- had the tools to focus on planning and improvement for the future.
- was armed with better insight on how company products performed in the pastallowing it to introduce new products more quickly with more confidence.
- avoided a bank default.
- received better interest rates on its loans.
- had a major win when recapitalizing the business. The company needed $800,000 in operating capital, but the bank was so impressed they loaned the company $1.1 million. The owner was able to take $300,000 off the table.
- was able to start a monthly financial incentive plan for employees because the financials were accurate and timely.
The company couldn’t have put an incentive plan in place before because it couldn’t even calculate how much it should award. With the new incentive, employees were motivated to attain goals and the company’s profits grew.