Start-ups and small businesses often look to their accountant to provide the financial expertise they would otherwise get from an in-house finance director. How does this work, in practice, and how do SME’s benefit? John Squire, Partner at accountancy firm Graham Paul, explains.

The ability to be able to bring an experienced and qualified financial director into your business without the employment overhead costs is an invaluable resource for many growing businesses.

The November 2003 issue of Management Today showed that a small company would pay between £42k and £62k for an FD while a medium-sized company would pay £49k to £80k. Part-time outsourcing, through a firm like Graham Paul, could be a cost effective alternative. Businesses get all the benefits of qualified, experienced accountancy resources who also have access to additional resources within their own practice and network.

The key role for a freelance Financial Director is essentially to act as mentor, controller, analyser, advisor and questioner. As a result you should have the scope to increase profits through their advice in implementing cost savings, advising on future strategies, reducing compliance and company risk, improving cash flow and allowing other management to concentrate on developing the business. You may choose to use the FD service on a project basis handling individual assignments or on a retained basis where they integrate fully into your business.

The benefits to any growing company are significant says John. Firstly, you will have access to skills that are normally only available to larger companies that can afford to employ at this level. In addition to access, you also have the ability to pay for the skills on an as-needed basis. Of course, because this person is not with you full time you have to make sure that you spend time developing the relationship with them. The onus is as much on you to get the best from them in the same way you would expect commitment to the job from an employee.

Experienced financial directors will have a network of contacts, usually other professionals who can also probably help your growth strategy. This means that you can tap into bankers/lenders and auditors armed with the credibility that your freelance FD should bring with them.

The main benefit however, comes from their work with you. The FD’s key responsibility is to ensure that you are provided with timely management information enabling you to focus on developing your business without administrative distractions. One area that many FD’ s concentrate on will be that of management accounts, which may be easy to produce from a computerised accounting system, however, interpreting them to the benefit of the business is another matter.

The whole ethos of management accounting, explains John, is to provide information to the business decision-makers to enhance their decision-making. To encourage businesses to manage their processes as efficiently as possible, be that as a manufacturer of widgets, a firm of solicitors, or a call centre.

Your freelance financial director should work with you and your accounts team to produce regular management accounts. These documents will allow you to review the financial performance of your business. The key to making this information valuable is to work with us to use the information in order to improve the business strategy and processes.

Management accounts help make fundamental commercial decisions on issues such as funding, risk minimisation and performance improvement. In addition, they can offer a direct financial benefit such as the identification of unclaimed VAT, supplier overpayments and areas of capital allowances. In these instances the process is validating the information rather than merely providing a report on the previous period’s activity.

Business planning will also form part of your freelance FD’s remit, which is essential if you are to maximise the profit potential of your business and achieve your own personal objectives.

Experience shows us a good business plan is the common factor linking many successful businesses. The business plan should be a living document of your vision, says Graham, showing where you are, where you want to be and how you are going to get there. It is vital in providing potential investors with sufficient information for them to make an assessment about providing finance.

An effective business plan will provide:

A framework for cohesive decision making.
The process of preparing the business plan will focus your ideas into credible decisions on future goals and define your vision.

A forum for communicating ideas to team members within the business.
The business plan should be an open document from which team members in your business can identify with the goals and assist in their attainment.

A benchmark against which can measure business performance.
The business plan should translate your vision into achievable financial and operational goals against which actual achievements can be regularly measured.

A reflection of the business strengths and abilities of the management team.

It is vital to build on the strengths of the business and its management team. Whilst minimising the risks of its weaknesses.

Your freelance FD should have a comprehensive breadth of experience in preparing credible business plans for owner managers and business start-ups.

Your freelance FD will also focus on Cash flow, which is the lifeblood of any business. Failure in your cash flow inevitably leads to failure in your business.

Businesses which forecast their future financial performance and cashflow are much better equipped to deal rapidly with any unexpected hiccups than those who do not plan ahead.

In depth knowledge from your FD enables the provision of cashflow advice and forecasts for use either internally in managing your business or for presentation to third parties such as bank managers.

Recent statistics conducted in the local area by a leading business publication demonstrates the benefits of working more closely with your accountants in this way. Over 200 businesses were interviewed about business development issues with 82% agreeing that accountants demonstrated the highest levels of expertise and trustworthiness in assisting in business growth issues. Coming in significantly higher than consultants, bank managers and solicitors.