The company had just taken over a competitor business, doubling its size overnight. It had relocated to allow the two businesses to be co-located and had lost key finance staff as a result of the move. In addition to this, immediately prior to the acquisition, the business had undergone a G/L implementation that had been poorly project managed resulting in unreliable data. Ultimately the company was looking to integrate the two businesses in order to achieve synergies and to resolve issues within its finance function.
The business faced a number of challenges. Firstly cash flow management was an issue. Due to the sub-optimal G/L implementation, it was hard to tell which sales invoices were genuine and which needed cancelling, leading to poor credit control and an overdrawn cash position,
Secondly, the company had historically used allocations to spread overhead costs, which meant it was difficult to determine the actual profitability of its’ four key product groups. The business was also run as if it was four separate businesses, which added unnecessary complexity and bureaucracy to business decision making.
In addition, there was a need to rebuild the finance team, to overhaul the G/L to ensure data integrity and to ensure the credit controller was chasing genuine invoices
Finally, the company needed to realise economies of scale that had been a prime reason for making the acquisition.
The first step was to bring the management team together and design a simplified business structure. This made decision making easier and encouraged cross-selling of products as there was a greater understanding of how the various segments of the business fitted together and a sense of being one company. At the same time a transition plan was developed (including costing for the proposed changes and estimates of the benefits to be achieved) to move both businesses onto common software platforms, reducing the number of systems that needed supporting.
Immediately after this, the management accounting process was re-worked to align it to the new company structure and allow greater insight into the business. The removal of allocations meant it was easier to understand the performance of each business stream and also ensured people had direct control over the costs and revenues they had responsibility for.
The next step was to overhaul the accounting system to deal with the implementation issues. Using an iterative process, the underlying problems identified and fixes agreed and implemented, thus ensuring output was accurate. The cleaner data led to improved credit control and healthier cash balances as the number of disputed invoices was reduced.
Having determined the new company structure and reporting requirements, the finance team was rebuilt and re-configured to ensure the team was fit for purpose, with the right people in the right roles, and that the data that was produced was both timely and accurate.
The next step was to focus on Business planning. Again, working with the management team to ensure their bought in to the new process, annual budget and longer term forecasting models were developed that (i) gave insight into the drivers within the business and (ii) allowed managers to take responsibility for the inputs, giving them a greater sense of ownership of the numbers when actual results were tracked against budgets.
Throughout this process there were clear lines of communication with the business owners. By explaining up front what the issues were (and more importantly what steps were being taken to rectify them) on a regular basis, relations with the owners improved and the credibility of the management team enhanced.
Overall, cash-flows were significantly improved, moving the bank position from overdrawn to positive. Management had a clearer understanding of both the drivers within the business and the impact they personally had on the overall results. Decision making was simplified and the sought for synergies of combining the businesses were realised.
“I worked with Andy from 2004 to 2015. He is an exceptional CFO: we worked closely on budgeting, forecasting and strategic planning. Andy exercised strong management of the various accounting functions , and developed a high performing team. The exceptional performance of the business and its’ growth into a global business were in no small part down to Andy’s shrewd insights, his experience, common sense and total commitment. I recommend Andy wholeheartedly.”
Jonathan Nowell – CEO
EFM Expert: Andrew Sugden