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Why The Gig Economy Is A Huge Opportunity

It’s easy to get despondent about your future job security and finances these days with doomsday predictions of the impact artificial intelligence (AI), Big Data, machine-learning, robotics and nanotechnology will have on the world of work.

Back in 2013, two Oxford University researchers sounded the alarm for the future of work by predicting that 47% of US employment was in the high-risk category for being automated within two decades. That included jobs in transportation, logistics, office and administrative support, and the service sector.

Since then, barely a month goes by without an expert issuing a dire forecast about how the work we do now will soon be carried out by machines or robots, making us redundant long before we reach the statutory retirement age.

This fear of automation is nothing new of course. In the 17th century, for example, England’s Queen Elizabeth I refused to grant Reverend William Lee a patent for his revolutionary knitting machine for fear it would destroy the traditional hand-knitting industry. (Despite this, Lee’s machine would go on to improve rather than decimate the knitting industry. Parts of his design are still used in machines today.)

People also feared the worst when the first railways opened, believing they posed a threat to the social order of the day (poor people would be able to travel—nothing good would surely come of that!). They even suspected train travel was a danger to human life (people might die of asphyxiation or melt travelling at 20 miles an hour).

Likewise, the invention of the telephone terrified some people. In Sweden, for instance, preachers were convinced it was the instrument of the Devil and others feared telephone lines were conduits for evil spirits.

These stories just illustrate the point that our fears of innovation and change have always been with us.

It’s up to us whether we see them as a threat or an opportunity.

And let’s face it—it’s easier to accept innovation and change as opportunities than try to resist them. Trying to fight them is like standing on a beach and attempting to stop the waves coming in.

Unless we want to give up work altogether and live ‘off-grid’ in grim survival-mode, the best thing we can do is prepare for and take advantage of whatever innovation and change comes along.

Take, for instance, the ‘on-demand workforce’ or ‘gig economy’, in which the labour market is characterised by a plethora of short-term contracts or freelance projects rather than permanent jobs. It’s already a reality for many: a McKinsey Global Institute 2016 study found that 20-30% of the labour force in both the US and the EU are independent workers who are self-employed or do temporary work.

It will become a reality for so many more in the next few years, according to a 2015 study by the financial management software company Intuit.

To some, the prospect of leaving employment and working on one freelance project after another for a stream of different employers is terrifying. Where’s the financial security, they ask.

But to others like our team at The CFO Centre, working in a gig economy is the closest we will come to total freedom. We contingent workers see ourselves as being liberated from the constraints of paid employment. We are free to pick and choose our ‘gigs’ or assignments.

As with most things, of course, there are benefits, and there are drawbacks. Fortunately, the benefits of working on a contingent basis tend to outweigh the drawbacks.

Granted, we can no longer depend on the security of a monthly salary and the usual benefits of employment—the paid annual leave and sickness pay, the bonuses, and medical insurance, and other perks like company cars—are a thing of the past. So too is the protection of our workers’ rights by unions.

The career training we undertake to keep up with developments in our fields we now pay for rather having it come out of an HR budget.

And to some extent, we don’t have the pleasure of working with the same team of colleagues for prolonged periods like we once did.

But on the plus side, we enjoy a sense of autonomy that full-time employees will never have. We decide when we work, how long we work and for whom.

Our lifestyles are more flexible than they ever were as full-time employees. Suddenly, there’s more time to spend with family and even to follow a great passion, like travel, golf or photography.

We don’t have to commute to the same office day in, day out. We can hold meetings in a Starbucks if we want. Or sit on our couches at home and speak with clients wherever they are located in the world.

The financial rewards we receive are dictated by the amount of effort we put into securing and retaining contracts with individuals and companies and the value we subsequently provide, not by a job position or title.

You might think there’s no financial security working in this way but having five or six clients means that if for any reason we lose one, we still have the remainder – and, importantly, the skills with which to find new ones. There’s no doubt that this way of working takes some getting used to. It can be challenging in the beginning, especially when it comes to attracting and retaining clients. It’s not something we historically have experience of.

One of my overseas colleagues at The CFO Centre, for example, said his biggest challenge early on as a part-time CFO was learning to adapt from working as a Finance Director in a multi-national to working in a consultative, strategic role for SME clients. He realised after losing one or two contracts that his ‘full-on’ big corporate style was perceived as being too dictatorial by the owners of the medium-sized family-owned businesses.

Like so many of us working on a contingent basis, he had to adapt very quickly to survive. He learnt to offer advice rather than issue directives and work in a more relaxed style. Since accepting that things move slower in small organisations, he’s built up a portfolio of loyal clients.

And like so many of us working in this new way, he gets huge job satisfaction and fulfillment. Like us, he’s confident that in his role as a part-time CFO he’s helping many more companies to succeed than he would have done had he still been working for one multinational company.

Our CFO Saved Christmas, Reveals Santa Claus

Santa Claus, now in his 1,747th year, reveals for the first time how his part-time Chief Financial Officer helped Christmas Inc. claw back from near-disaster.

“Last year we were hit by so many problems. Money problems. Health and safety issues. Capital funding problems. Bad PR. The lot.

Fake News

“Someone posted a story on Facebook last August that said I hated mince pies and was allergic to milk. Dreadful business. I had bags and bags of letters from angry dairy farmers and retailers. And emails from worried parents asking what they should leave out for me on Christmas Eve if I didn’t want mince pies and a glass of milk. Some got a wee bit personal, a tiny bit sarcastic, which wasn’t nice. That went on for several weeks.

“Not long after that another story appeared that said I mistreated reindeers. Someone started a Go Fund Me page for Rudolph and the rest of the gang and children across the world were urged to donate their pocket money. Luckily, the authorities tracked down the culprit before any money changed hands. That man was definitely Number One on my Naughty List last Christmas. Those two stories were really damaging. It wasn’t a happy time at Christmas HQ while all that was going on.

Elf and Safety Issues

“Then we had a scare with compliance. One of the elves in the workshop slipped on some wrapping paper and broke his leg. We hired a Health and Safety inspector to help us prevent more accidents and she found that the workshop wasn’t fit for purpose. It’s a very old workshop and needed to be updated. We’d just added bits on as we grew so it was a bit higgledy -piggledy but we loved it all the same. Getting it modernised cost a fortune.

“The Health and Safety Inspector hit the roof when she discovered that some of the elves were sleeping underneath their benches. I tried to explain that they do it because they love making toys and have such fun at work they don’t want to leave. But she said that it had to stop immediately. She insisted on staying in the workshop until we’d dismantled all the tiny beds and wardrobes. Some of the elves, who’ve worked with me for more than 1,000 years were heartbroken. They’d created little homes from home underneath their workbenches.

“That meant I had to create sleeping quarters for the elves and didn’t know where the money was going to come from to finance the whole thing. But then Mrs Claus read a blog about how you could hire a part-time CFO for the same amount you’d pay an office junior. She said he could help sort us out. I’d never heard such a thing but decided to try it.

Our Part-Time CFO

“Hiring our part-time CFO, Peter, was the very best thing we’ve done. Peter helped us find funding for the elves’ sleeping quarters. And he sorted out our cashflow. This is the first year, for example, that we haven’t had a cashflow crisis. Every year, we employ thousands and thousands of elves to help make presents and that’s always thrown our budget so by January, the cupboard has always been bare. Peter stepped in and helped us arrange funding and so for the first time, we’ll be able to look forward to January. No more living on baked beans in January for Mrs Claus and me, I’m happy to say.

He’s also helped us move into new markets and made sure we had all the licenses we need. And in April this year he stopped a Mr Grinch from stealing our Christmas market franchise. That was the same naughty fellow who wrote those fake news stories last year. That’s all behind us now, I’m very happy to say.

No Exit Planning

“Peter and I get on extremely well but there’s one thing we disagree on and that’s exit planning. Peter has been trying to convince me that I should start looking for a successor and thinking about an exit plan. But I don’t want to stop doing this. It’s what I was born to do. Retirement isn’t for me. Besides, Mrs Claus wouldn’t like me sitting around the house all day, making cups of tea and eating mince pies. So, Peter and I have agreed to disagree on this one matter. So, you can look forward to me popping around on December 24th for many, many years to come. Ho ho ho.”

How to Overcome the Problem of Late Payments

When your company is facing yet another cash flow crisis caused by late paying customers, it can be hard to believe there might be a solution.

But there are steps you can take to overcome the problems delinquent payments cause and to avoid them happening again.

Late payments are something that hundreds of thousands of SMEs experience. Of the 1.7 million SMEs in the UK 640,000 say they have to wait beyond the agreed terms for payments, according to Bacs Payment Schemes.

Nearly 40% of them spend up to four hours a week chasing late payers and 12% employ someone specifically to pursue outstanding invoices.

Late payments can threaten SME’s ability to trade, and stifle appetite for growth and recruitment, says Ian Cole, Head of Invoice Finance at Siemens Financial Services. In worst cases, it can lead to insolvency. Mike Cherry, National Chairman at the Federation of Small Businesses, said if payments were made promptly, 50,000 business deaths could be avoided every year.

So too could the problems that late payments cause. Of those SMEs facing late payments, 16% struggle to pay their staff on time, while 28% of company directors reduce their own salaries to keep essential working capital inside their businesses. A quarter (25%) rely on bank overdrafts to make essential payments, and 15% find it difficult to pay business bills like energy, rates, and rent when they’re due.

Late payments take an emotional toll on business owners and CEOs too.

Over a quarter (29%) of UK SME owners struggle with depression, anxiety, increased stress, and other serious mental health related issues caused by the worry of late payments, according to research commissioned by The Prompt Payment Directory (PPD).

The survey polled 1,000 UK small to mid-sized company owners who all suffer from poor cashflow due to late or outstanding invoice payments.

More than a third (34%) regularly lose sleep over poor cash flow caused by clients paying late and 7% even claim to have lost their hair because of the anxiety, the PPD revealed.

Nearly a quarter (21%) struggle to pay their mortgage or rent or have been forced to sell the family home. The consequence of these late payment pressures is also destroying people’s marriage, family, and social lives.

The amount of time SMEs are kept waiting beyond their previously agreed payment terms is a big issue. Almost a third of companies face delays of at least a month beyond their terms and nearly 20% are having to wait more than 60 days before being paid.

UK businesses with turnovers of under £1million wait an average of 72 days for payment of invoices, according to the Asset Based Finance Association, the body representing the asset based finance industry in the UK and the Republic of Ireland. By comparison, businesses with an annual turnover of between £1 million and £10 million wait about 53 days and businesses with £500 million-plus turnovers wait about 47 days.

Solutions

Fortunately, there are measures you can take to protect your company from the worst effects of late payments and to ensure you are paid promptly in future.

Research prospective clients

Before accepting a new client, carry out a credit check and find out if the company has a reputation for paying on time.

Agree prompt payment terms

Get clients to sign a contract or agree to terms and conditions that specify when they must pay your invoice and late or overdue fees. Include your payment terms on every invoice.

Send invoices promptly

Don’t delay in sending out invoices. Check that the details are correct to avoid delays.

Offer a range of payment options

Make it easy for customers to pay you by offering them a variety of payment options such as Direct Debit, PayPal, and credit card. If your clients are based in a different country, accept payment in their currency.

Use invoice finance

Invoice finance will give you essential working capital (90% of the approved total invoice) while you wait for the outstanding invoice to be paid. You’ll receive the remaining 10% when your client pays your invoice.

Use an invoice tracker system

You’ll receive an alert when invoices are overdue.

Keep to a schedule

Invoice on the same date every month so that your clients known when to expect your invoices.

Set up internal invoice reviews

Hold regular weekly or monthly internal finance meetings to review your invoices.

Don’t back down

If you have late fees for overdue invoices then make sure you follow through and charge them. By law, you can claim interest and debt recovery costs if another business is late paying for goods or a service.

If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either:

  • the customer gets the invoice
  • you deliver the goods or provide the service (if this is later)

You can agree a longer period for payments from one business to another—but if it’s longer than 60 days it must be fair to both businesses.

Hire a part-time CFO

For a fraction of the cost of a full-time CFO, the CFO Centre will provide you with a highly experienced senior CFO. Your part-time CFO will assess your company’s cash flow position and take the following steps:

  • Identify and address all the immediate threats to your business. It might involve chasing late paying customers, using invoice financing to give the business an immediate cash injection, or arranging short-term loans or overdraft facilities with your bank.
  • Determine where improvements and savings can be made.
  • Instigate the use of regular cash flow forecasts. This way you’ll know in advance if your company is going to face a cash shortfall and can make arrangements for extra borrowing, or take other action.

End your late payment and cash flow problems now by calling the CFO Centre today. To book your free one-to-one call with one of our part-time CFOs, call +65 9776 0969 or just click here.

Confessions of Part-Time, Portfolio CFOs

Leaving lucrative and secure C-suite positions mid-career to build a part-time portfolio might seem crazy but many of those who’ve done it say it is one of the sanest decisions they’ve made.

Take Michael Citroen, who at 58 years old is a 14-year veteran of the part-time portfolio job world. The former Group Finance Director (CFO) relishes the challenge and excitement of working with half a dozen SMEs in his role as a part-time CFO. “It’s nice going into different businesses and meeting different people and having different challenges to deal with. There’s so much more variety every day.”

He particularly likes that the businesses he deals with are all at different stages of growth. Some are very new, others are more established, and a couple have been guided through a sale with his help.

Citroen had been working full-time as the Group CFO of a large privately-owned company when he made the decision to go freelance.

“It was getting very political,” he recalls of his former company. “And I also wanted to be in control of my own diary,” he says.

So, in 2003, he resigned and joined FD UK, a company that offered part-time CFOs to SMEs. When that company was bought out by the FD Centre (parent company of The CFO Centre) five years later, Citroen stayed on and is still working with them today—part of an expanding international network of part-time portfolio CFOs.

“That’s another great aspect of working within a network of part-time CFOs: there’s massive backup. If there’s anything you need to know, you just ask the network, and you’ll get answers back really fast. I wouldn’t have that if I was working alone.”

Besides the enjoyment of working flexibly with entrepreneurs and with other part-time CFOs, Citroen says he values the security that being a part-time CFO with half a dozen clients brings.

“You don’t have all your eggs in one basket,” he says, explaining that if one client leaves he knows he can attract and retain another, so his income isn’t at risk.

“The FD Centre is very focused on helping its part-time CFOs to win new clients,” Citroen says. “I could never have done as well as I have if I’d had to do it on my own. I had no idea about marketing and the technical aspect of things like websites when I first began.”

Like many people starting out on the part-time path, Citroen had been worried about giving up a salary with perks initially. “To begin with it was a little insecure, giving up a regular job.”

He quickly discovered that the financial return you get is contingent on the amount of energy you’re willing to expend.

He realised early on the new lifestyle would enable him to spend more time with family whilst maintaining a good level of income.

“It gave me time to be with them without having to answer to anybody.”

It’s something that another part-time CFO Neil Methold has appreciated about this way of working. Being a part-time CFO for the past six years has meant he’s been able to play a large role in his teenage son’s life: getting him settled into senior school and being able to attend almost every one of his sporting events.

“If I’d been working full-time I wouldn’t have been able to do that. And that’s priceless,” says 53-year-old Methold.

Like Citroen, Methold has found the move into the part-time portfolio world beneficial in so many ways. Not only has he been able to enjoy more family and leisure time but he’s had the pleasure of coaching and mentoring people working within his clients’ companies.

“My greatest satisfaction comes from coaching and mentoring people within these companies so they become self-sufficient and can do more and more of the work themselves.

“Nowadays I say to clients ‘My success here will be inversely proportionate to the number of days I charge you. In other words, the more I can get your people to do the work on a daily basis the less I have to do’. I see it as my responsibility to ensure the work is done, not necessarily to do it all myself. I think that has a significant impact on client retention.”

So too does learning to adapt your style of working to each client, says Methold. It wasn’t something he was aware of when he first started out, he confesses.

“But one day, I was mowing the lawn and thinking it all through in my head. That’s when I realised I was being too harsh, too demanding, too assertive, too telling. You have to be direct in a big company because there are shareholders and high expectations.

“But that doesn’t work with SMEs. You have to use a different style—you have to be softer and more accepting that things don’t necessarily move as quickly as they do at large corporations and that there are going to be different priorities.”

It was when he began to adapt his style of working to suit each client rather than going in “full guns blazing” that he started to enjoy much better relationships. It’s why he has retained his clients for so long, he says.

“You can’t go in and be all corporate. SMEs don’t want that. They want someone they can trust and rely on and build a good relationship with. A friendly face. Not just a very clever big shot. You need to be down to earth and people-focused.”

“When I really accepted that and started to slow down my own pace I become more accepted. You have to adjust and be a bit of a chameleon to suit how they are and not how you think they should be.”

Citroen says the ability to communicate is critical in your role as a part-time CFO. “You have to have the ability to talk to your clients on a personal level and to be able to relax with them. Clients will call you late at night or on a weekend because they’ve had an idea they’re excited about and want to share with you. People who can’t handle that aren’t successful as part-time CFOs.”

Both he and Methold agree that time management is key to success in the part-time portfolio environment.

“Although I’m not in contact with my clients every day, I do keep in touch with them every week, whether it’s a phone call, text or email,” says Citroen. “It’s all part of the relationship I have with my clients.”

Successful part-time CFOs need to take the initiative when it comes to client contact, says Methold. “You have to work really hard at proactive communication with your clients. It’s easy then for them to see you are valuable. I will go to see a client, and on the way home have three 20-minute conversations with three other clients who I haven’t been with that day just to keep moving them forward.

“You have to commit to doing that extra stuff. You can’t just go in for a day, leave and send a bill.”

This obviously takes a lot of organisation, and that’s another skill a successful part-time CFO must have (or develop!), he says.

“I have various lists, so I know what I have to do and at what point each week to make sure I don’t drop any balls because when you have lots of clients doing different things, it’s very easy to forget stuff.

“You need to be aware of what’s happening with each client and what you last spoke about. You can’t go, ‘Ah, can’t remember that last meeting. Sorry.’ When they are talking to you, you are their CFO.”

Being willing to deliver such high-quality service is something that makes a difference when it comes to client retention, he says.

“Clients really do value that you put yourself out to ring them at the weekend or speak to them late at night or when you’re on your holiday. That’s when you and the clients really do start to cement the relationship.”

The relationships you have with clients is what helps to make this such a rewarding way of life, he says.

Citroen agrees, adding that working full-time for one company pales in comparison with working part-time across a number of growing businesses. “The job satisfaction you get working as a part-time CFO is enormous. I would definitely never go back to full-time employment.”

If You Want To Succeed, You Need To Embrace The ‘F’ Word

What do Sir James Dyson, the Mercedes F1 team, Pixar, Google and the airline industry have in common?

They’re hugely successful, yes. But the thing that links them is they never shy away from the ‘F’ word—Failure. Instead, they face and learn from their mistakes, errors and mishaps. So says Matthew Syed, award-winning Times journalist and best-selling author of ‘Black Box Thinking: Marginal Gains and the Secrets of High Performance’ (John Murray).

“We have an allergic attitude to failure,” he says. “We try to avoid it, cover it up and airbrush it out of our lives.

“For centuries, errors of all kinds have been considered embarrassing, morally egregious, almost dirty.

“This conception still lingers today. It is why … doctors reframe mistakes, why politicians resist running rigorous tests on their policies, and why blame and scapegoating are so endemic.”

This notion of failure needs to change, he writes. “We have to conceptualise it not as dirty and embarrassing, but as bracing and educative.”

That’s because success in business (as well as in sport and in our personal lives) can only happen when mistakes are confronted and learnt from and there’s a climate in which it’s safe to fail.

It’s what the airline industry has done so successfully, he says. Instead of concealing failure, the aviation industry has a system where failure is inherently valuable and data-rich, says Syed.

In fact, his ‘Black box thinking’ refers to the black box data recorders that all aircraft must carry to provide information in case of accidents. One box records instructions that are sent to all on-board electronic systems and the other records the voices in the cockpit.

“Mistakes are not stigmatised, but regarded as learning opportunities,” he says. After a crash, an independent team investigates.

“The interested parties are given every reason to cooperate since the evidence compiled by the [independent] accident investigation branch is inadmissible in court proceedings. This increases the likelihood of full disclosure.”

What’s more, after an investigation into an accident is completed, the report is made available for everyone.

“Every pilot in the world has free access to the data,” writes Syed. “This enables everyone to learn from the mistake, rather than just a single crew, or a single airline, or a single nation.”

Syed gives the example of United Airlines Flight 173 which took off from JFK International airport in New York on December 28, 1978, bound for Portland Oregon.

Just before the airplane went ito land, the flight crew became convinced the landing gear hadn’t locked into place. They then spent so long trying to fix the problem that they ran out of fuel and had to crash-land into a residential area, killing eight people onboard.

An investigation discovered that the flight engineer hadn’t been assertive enough in telling the Captain the fuel was running low. The Captain meantime was obsessed with trying to fix the landing gear problem and avoid giving passengers a bumpy landing.

As it turned out there had not been a problem with the landing gear in the first place.

Afterwards, new protocols were put in place and training methods were revised. As a result, nothing quite as bad has happened again.

So much so that flying on airplanes is now safer than any other form of travel because the industry investigates and learns from its mistakes.

“Openness and learning rather than blaming is the instinctive response – and system safety has been the greatest beneficiary,” Syed told Director magazine.

Dyson Vacuum Cleaners

Sir James, the designer, inventor and entrepreneur, is another committed to learning from failure.

He made 5,127 prototypes of his bagless vacuum cleaner before he got it right. This practice has obviously paid off because Sir James is now worth more than $3 billion.

“Creative breakthroughs always begin with multiple failures,” says Sir James. “…True invention lies in the understanding and overcoming of these failures, which we must learn to embrace.”

Without them, innovations won’t happen, he says. “Failures feed the imagination. You cannot have the one without the other.”

Great inventors always develop their insights not from an appraisal of how good everything is, but from what is going wrong, Sayed wrote in the Daily Mail.

Using Failure To Grow Your Business

Obviously, failure is only useful if it’s acted upon. “You can build motivation by breaking down the idea that we can all be perfect on the one hand, and by building up the idea that we can get better with good feedback and practice on the other,” says Syed.

Some of the world’s most innovative organisations like Pixar, the Mercedes F1 Team and Google “interrogate errors as part of their strategy for future success.”

Take Google’s decision to test which shade of blue in its advertising links in Gmail and Google search worked best, for example.

Rather than ask its designers to choose the shade of blue for those links, Google decided to run tests known as ‘1% experiments in which 1% of users were shown one blue and another in which 1% of users were shown another blue. Then Google went further and ran 40 other experiments showing all the shades of blue.

It paid off: Google found the perfect shade of blue (the one that users were more likely to click on) and made an extra $200 million a year in revenue.

Why Don’t Companies Embrace Failure?

One of the biggest problems in business is the collective attitude we have to failure, says Syed.

“We love to think of ourselves as smart people, so we find mistakes, failure and sub-optimal outcomes challenging to our egos,” Syed said in an interview with Director magazine. “But the reality is, when we’re involved in complex areas of human endeavour—and business is very complex—our ideas and actions not being perfect is an inevitability.

“If we’re threatened by our mistakes, and become prickly when people mention them, we don’t learn from them. We need to eradicate the idea that smart people don’t make mistakes.”

To really be successful, businesses need to encourage a company-wide failure-embracing culture which in turn will create a “process of dynamic change and adaptation”.

“Success happens through a willingness to engage with, and change as a result of, our failings. Get that right and everything else falls into place,” he says.

If you would like to download the CFO Centre’s report on Risk you can do so here

You can also arrange a complementary 1:1 Finance Breakthrough Session with one of Singapore’s top CFOs here

A True Toy Story: LEGO’s Incredible Turnaround Tale

The story of how LEGO, the family-owned toy company went from teetering on the brink of disaster and hemorrhaging cash to delivering the highest revenues in its entire history and being voted the 2017 Most Powerful Brand in the World makes for a truly inspirational tale…

 

Fourteen years ago, LEGO’s Head of Strategic Development Jørgen Vig Knudstorp delivered the kind of assessment that most managers would gladly superglue their own ears shut to avoid hearing.

“We are on a burning platform, losing money with negative cash flow and a real risk of debt default which could lead to a break-up of the company,” warned Knudstorp at that meeting.

He’d discovered during six months of examining the company that there was a lack of profitable innovation, according to David C. Robertson, author of ‘Brick by Brick: How LEGO Rewrote The Rules Of Innovation And Conquered The Global Toy Industry’.

“LEGO had plumped up its top line, but its bottom line had grown anorexic. All the creativity of the previous few years had generated a wealth of new products, but only a few were actually making money,” wrote Robertson. “To make matters worse, the LEGO Group’s management organisation and systems, shaped by decades of success, were poorly equipped to handle a downturn.”

The company’s management team—twelve senior vice presidents who oversaw six market regions as well as such traditional functions as the direct-to-consumer business and the global supply chain—didn’t collaborate but instead operated in their own silos.

The result was that the LEGO Group was expected to suffer a thirty percent fall in sales with £193 million in operating costs. It had a negative cash flow of more than £124 million.

By the end of the year, it was likely to default on its outstanding debt of nearly £620 million. Its net losses were likely to double the following year.

Knudstorp’s stark assessment should have come as no surprise. Something was going badly wrong at LEGO HQ Denmark: in the years from 1932 through to 1998, the company had never made a loss but from then on, the losses had increased year by year. First there had been a little loss in 1998 but by 2003—the year of Knudstorp’s no-holds barred assessment—that had grown to something deeply worrying.

Much worse results followed a year later when the company recorded its biggest ever loss of about £217 million. By then, Knudstorp had been appointed CEO.

“In 2003, we pretty much lost thirty percent of our turnover in one year,” he told Diana Milne in ‘Business Management Magazine’.

In 2004, the company had a further ten percent fall in turnover. “So, one year into the job, the company had lost forty percent of its sales. We were producing record losses and cash flows were negative. My job was how to stop the bleeding.

“We had to stabilise sales and cut costs dramatically to deal with the new reality of selling forty percent less than we had done two years earlier. We had too much capacity, too much stock. It was sitting in the wrong countries. The retailers were very unhappy.”

Knudstorp, a former McKinsey analyst, told James Delingpole of the ‘Daily Mail’, “We had a dress rehearsal of the world financial crisis: a strong decline in sales and a massive increase in our indebtedness.”

The losses were partly a result of the company’s attempt to diversify in the late 1990s, in the belief its brightly coloured building bricks were losing appeal and were under threat from computer games and the internet.

It was coming under pressure from other toy manufacturers since the last of its plastic toy brick design patents had run out in 1988 and the monopoly it had enjoyed for so long in the plastic toy brick market had begun to erode.

LEGO’s diversification saw it expand the number of theme parks it owned in a bid to help increase visibility of the LEGO brand across key markets. This was despite it having little hospitality experience. Unfortunately, these capital-intensive developments didn’t provide anywhere near the expected returns.

And the company had dramatically expanded the number of products in its portfolio, according to the ‘Brick By Brick’ author. In the years 1994 through to 1998, it had tripled the number of new toys it produced.

“In theory that was a good thing: experimentation is the prelude to real progress,” wrote Robertson. … “Problem was, the LEGO Group’s once-famous discipline eroded as quickly as its products proliferated.

“Production costs soared but sales plateaued, increasing by a measly five percent over four years,” Robertson said.

The company had little idea which products were making money and which were failing to produce an adequate return on the sometimes-heavy tooling investment, according to a case study from John Ashcroft and Company.

LEGO had even created its own lifestyle clothing range and brand shops and launched its own TV series, DVDs and video games.

So, by the time Knudstorp delivered his assessment, the company was in serious trouble.

The Turnaround Begins…

Which is why with the help of Finance Director, Jesper Oveson (former Chief Financial Officer of one of the largest banks in Scandinavia, the Danske Bank), Knudstorp began to make sweeping changes.

Oveson discovered there was an inadequate degree of financial analysis within the company. While there was a profit and loss account by country, there wasn’t product analysis or line profitability, according to John Ashcroft and Company. In other words, the company didn’t know where they made or lost money. Likewise, the theme parks were a massive cash drain but no-one knew why.

The two men decided on a short-term life-saving action plan rather than a long-term strategy for LEGO, which would involve managing the business for cash rather than sales growth. Key moves included:

  • Setting financial targets. Ovesen introduced a near-term, measurable goal of 13.5% return on sales benchmark and established a financial tracking system—the Consumer Product Profitability system. It measured the return on sales of individual products and markets so the company could track where it was making and losing money. Every existing or proposed product had to demonstrate it could meet or surpass that benchmark.
  • Cost-cutting (including cutting 1,000 jobs)
  • Improving processes (many processes were outsourced which meant employee numbers could be cut by another 3,500)
  • Managing cash flow
  • Introducing performance-related pay
  • Reducing the product-to-market time.
  • Selling the theme parks and slowing retail expansion.
  • Cutting the number of components from almost 7,000 down to about 3,000.

The result of these and other changes was that LEGO recovered and went on to become the most profitable and fastest-growing toy company in the world. During the worst of the recession in the years 2007 through to 2011, for example, LEGO’s pre-tax profits quadrupled. Its profits grew faster than Apple’s in the years 2008 through to 2010.

LEGO the Super-Brand

LEGO’s success has continued. Earlier this year, LEGO (now being run by Bali Padda as Knudstorp has moved into a role where he can expand the brand globally) announced its highest ever revenue in the company’s 85-year history.

And it overtook Ferrari and Apple to be voted the world’s most powerful brand. Each year, Brand Finance, a leading brand valuation and strategy consultancy, puts thousands of the top brands around the globe to the test to find the most powerful and most valuable of them all. This year, LEGO won.

“LEGO is the world’s most powerful brand,” it announced. “It scores highly on a wide variety of measures on Brand Finance’s Brand Strength Index such as familiarity, loyalty, staff satisfaction and corporate reputation.”

Its appeal to children and adults in this tech-centred world also garnered praise from Brand Finance.

It continued, “The LEGO movie perfectly captured this cross-generational appeal. It was a critical and commercial success, taking nearly $500 million [£338 million] since its release a year ago. It has helped propel LEGO from a well-loved, strong brand to the worlds most powerful.”

Which goes to show that even when disaster seems certain, it is possible to revive an ailing company. Of course, it helps to have a top-level financial advisor working with you to ensure the changes you’re making are the right ones.

What To Do If Your Company Is Suffering A Cash Flow Crisis

If your company is in dire straits, take action now—don’t imagine you can wish the crisis away or continue to do whatever you’ve been doing in the hope things will get better. They won’t.

Until you identify and fix your cash flow problems then put systems in place for managing cash flow, your company is at a very grave risk of insolvency.

Without well-defined and well-managed strategies to avoid running into cash flow problems and a plan to improve cash flow if such problems should arise, your company will continue to flounder.

Fortunately, you don’t have to do it alone. The CFO Centre will provide you with a highly experienced part-time CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO.

He or she will assess your company’s cash flow position and take the following steps:

Identify and address all the immediate threats to your business

Prevent cash flow problems from recurring and

Instigate the use of regular cash flow forecasts.

Having control of your company’s cash flow will allow you to operate within your means, and move away from a ‘feast and famine’ situation that plagues even the largest companies.

Having the right cash flow management processes in place and being able to spot peaks and troughs in trading to improve cash flow is one of the most critical components of any finance function.

Put an end to your cash flow problems now by calling the CFO Centre today. To book your free one-to-one call with one of our part-time CFOs, just click here.

 

 

Sources

Brick by Brick: How LEGO Rewrote The Rules Of Innovation And Conquered The Global Toy Industry’, David C. Robertson & Bill Breen, Crown Business, 2013

How LEGO Became The Apple Of Toys’, Jonathan Ringen, ‘Fast Company’, August 1, 2015

How LEGO clicked: the super-brand that reinvented itself’, Johnny Davis, ‘The Observer’ magazine, June 3, 2017

LEGO Annual Report 2016’, www.LEGO.com

‘The LEGO Case Study 2014’, John Ashcroft and Company

‘When LEGO lost its head- and how this toy story got its happy ending, James Delingpole, ‘The Daily Mail’, December 18, 2009

The Twelve Days of Christmas with your Part-Time CFO

On the first day of Christmas, my part-time CFO gave to me an introduction to business reporting and advice on creating a business strategy. 

On the second day of Christmas, my part-time CFO gave to me more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the third day of Christmas, my part-time CFO gave to me the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the fourth day of Christmas, my part-time CFO gave to me ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the fifth day of Christmas, my part-time CFO gave to me the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the sixth day of Christmas, my part-time CFO gave to me better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the seventh day of Christmas, my part-time CFO gave to me the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the eighth day of Christmas, my part-time CFO gave to me the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the ninth day of Christmas, my part-time CFO gave to me the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the tenth day of Christmas, my part-time CFO gave to me a great exit strategy, the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the eleventh day of Christmas, my part-time CFO gave to me the benefit of business planning, a great exit strategy, the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

On the twelfth day of Christmas, my part-time CFO gave to me a way to stop fiddlers fiddling and protect my equity, the benefit of business planning, a great exit strategy, the way to keep my bank happy, the way to keep cash flowing, the way to do business legally, better ways of business processing, the key to productivity, ways of doubling profitability, the secret of lowering my tax liability, more ways to attract money, an introduction to business reporting and advice on creating a business strategy.

And in the spirit of Christmas, you can discover all that I learnt by downloading these 12 free business growth reports—jam-packed with practical ideas and information for every SME owner.

Business Reporting:

  • The three key financial statements you need and why they are so important
  • How to interpret your key financial statements and use the information to drive growth
  • How to reach a place where you actually enjoy reviewing your financial statements!

Strategic Funding report:

  • The main sources of funding available to SMEs (including advantages and disadvantages of each one)
  • New funding sources which make funding available in days or weeks rather than in months or years from the application date
  • How to get independent specialist advice to walk you through the process and present your case for the best chance of success.

Tax Planning report:

  • The benefits of ensuring your business is optimised for tax
  • The importance of using the best tax advisors
  • The importance of using the best legal advisors.

Profit Improvement report:

  • Why you need a clear, measurable strategy for increasing your profit
  • The four ways to increase your profit: sell more, get customers to buy more frequently, increase prices and reduce costs
  • The main reasons for low profits and how to avoid being unprofitable.

Outsourcing report:

  • How to access expertise that you would otherwise not be able to afford
  • How to source talent to focus on important priority areas in your business
  • How to increase efficiency and productivity across all areas of your business.

Internal Systems report:

  • How to create systems and get fully in control of your business
  • How systems and internal controls create more headspace for the senior team
  • The benefits of great systems and internal controls for making your business more efficient and more valuable.

Compliance report:

  • How to free up headspace and sleep better at night by devising a strategy to ensure your business is always fully compliant;
  • Why it can be disastrous for business owners who don’t have a compliance strategy;
  • How The CFO Centre can devise a strategy specific to your business, to ensure you always remain fully compliant.

Cash flow Management report:

  • Why poor cash flow is the number 1 reason businesses fail
  • How to create a cash flow management strategy to avoid running out of cash
  • How to find cash in places you may have never considered.

Banking Relationship report:

  • Why the banks lend to some businesses but not others
  • How to secure lending from your bank
  • How to secure preferential rates and better terms from your bank
  • How a part-time CFO can manage the relationship with the bank so that you don’t have to.

Exit Strategy report:

  • The things you need to do early in the process to plan your exit
  • Why ‘exit planning’ has a lot to do with ‘running a good business’
  • How to make your business attractive to potential buyers and what they are looking for
  • How to evaluate what is important to you when selling your business
  • How to maximise your sale value and increase your multiples
  • Property, Pensions, IP, Contracts, ‘The Numbers’
  • The due diligence process and how to make it much easier for yourself.

Implementation Timetable report:

  • The best way to build (or redesign) your business plan so it works as a simple but effective tool for ensuring you reach your goals
  • Key elements of a great business plan and how to decide what to include and descaled
  • How to set clear milestones for your implementation timetable
  • How to get your team aligned so that everyone is working towards a common goal.

Risk Assessment report:

  • How to sleep better at night by identifying major risks and building a strategy to avoid them
  • How business owners of great businesses manage their risk so they can free up head space and focus on creativity, innovation and growth

How a part-time CFO can conduct a full, watertight risk assessment process with you.

How To Lose 40m Euros By Being Too Trusting Of Your Emails

Imagine being the employee at German manufacturing giant, Leoni AG who recently fell prey to online scammers and approved the payment of bogus invoices totalling 40 million Euros.

The scam, which came to light in the past few weeks, involved cyber criminals sending official-looking payment requests via email to a Leoni satellite in Romania. Leoni is the world’s fourth largest manufacturer of wires and electrical cables and owns four factories in Romania.

The emails were received and handled by the unfortunate employee. Since they appeared to be emails from one of Leoni’s top executives in Germany and it was normal practice to pay even large invoices in this way, suspicions weren’t aroused. The fake invoices were subsequently paid to a bank in the Czech Republic. Bye bye 40 million Euros!

Of course, Leoni is far from alone in falling prey to email scams like this: earlier this year, toy making giant Mattel lost almost $US 3 million in a phishing campaign.

So how safe is your company from cyber criminals? Or even from your own employees?

If you have formal internal controls in place your company might be relatively secure from internal and external theft. But without such internal controls, designed to help your company achieves its goals and limit the internal and external risks and threats you’re likely to encounter, your company is a lovely soft target for the criminally-minded or for those who have something to hide.

People like the employee of French banking group Societe Generale (SocGen) who used his in-depth knowledge of the bank’s fraud control systems to circumvent checking procedures so he could hide trading losses of $US 7 billion.

He built up large positions and made unauthorised bets on stock index futures, and as his losses mounted, covered his tracks by using his knowledge of the bank’s technology systems.

Of course, internal controls do more than minimise the risk of fraud. They also help your company to:

  • Reach your performance and profitability targets
  • Prevent the loss of assets
  • Ensure financial reporting is accurate and reliable
  • Achieve compliancy with regulations and laws.

Without formal internal controls, you and your fellow Directors will never know if the information about your business is accurate, reliable, or up-to-date. Worse, a lack of internal control systems means you’re putting your company’s future in peril.

 

The essential elements of an internal control system

There are five key elements in a good internal control system:

  1. Separation of duties
  2. Authorisation
  3. Documentation
  4. Supervision
  5. Reconciliation

If you’d like to find out more about internal systems, you can download a free report by clicking here.

Remember, without both preventative and detective internal controls, your company is extremely vulnerable.

The benefits of having strong internal systems are obvious: putting the right systems in place allows you to see the business from a much clearer vantage point. Decisions to grow the business can be made in the knowledge that the underlying model is scalable and robust.

But it’s not enough to create internal controls: they need to be regularly reviewed to ensure they are keeping pace with the company’s growth. Pressure to create, develop and innovate means that old systems can quickly become redundant and need rethinking and rebuilding. This is really one of the biggest headaches a business owner faces.

If you’re like many business owners, it can be difficult to know where to start or to assess whether the controls you do have are as effective and as efficient as they should be. You need the help of someone with the experience and expertise to carry out such work. In other words, you need a Chief Financial Officer.

But as an SME, you probably don’t have the resources or the need to employ a full-time CFO. So what can you do? You can try to manage the entire process on your own. Or, you can make it easy on yourself by hiring a part-time CFO to manage the entire process for you.

The part-time CFO will help you to create the necessary controls framework in your business. Meanwhile, you can get on with what you do best. You can watch a 3-minute video here which explains the part-time CFO model.

The CFO Centre will provide you with a world-class CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. It’s the business equivalent of having an Olympic coach to help your business thrive.

To get started, just book your free one-to-one call with one of our internal control specialists—just click here now.

The Simple Way to Dominate Your Market

Want an easy way to outsmart your competitors and dominate your market? One that doesn’t involve an investment of time or funds in social media, Google AdWords, email marketing, SEO or any of the usual suspects.

Nor will you have to employ a swathe of graduates from Oxford, Cambridge or Harvard to carry this one out on your behalf.

And it’s one that will give your organisation a distinct and profitable advantage over the majority of SMEs, no matter your industry or specialty.

So what is it?

Well, you may be surprised to discover that it’s the oh-so-humble business plan. Yes, that often derided document can indeed give your company a distinct competitive advantage over the rest of your market. (If you’d like to find out more about how to create and use an effective business plan/implementation timetable as a working document to keep your business on track to achieving your desired objectives, you can download a free report now by clicking here.)

Our experience, and just about every survey you read, shows that SMEs who have and use a business plan are consistently more successful and more profitable than those that don’t. A survey commissioned by business and finance software provider Exact, for example, found companies with a business plan were consistently more profitable (70%) than those that did not (52%).

So why don’t all SMEs have a business plan, one that details the company’s operating and financial targets, its strategic direction, and tactics? Apparently, many don’t consider it necessary. Or their entrepreneurial owners like to keep everything ‘in their head’. That’s probably fine for a start-up but fatal for a growing company.

There are so many benefits to having and using a well-constructed business plan. It will help you and your management team to:

  • Clarify objectives and develop suitable strategies
  • Understand your market
  • Identify and overcome internal and external threats
  • Seize opportunities
  • Organise the company
  • Raise external funding
  • Obtain raw materials
  • Develop new products or services
  • Generate sales
  • Comply with regulations, define job duties, etc.

 

There’s a catch however. While having a business plan is mission-critical, creating it can be arduous, which is probably why so few SMEs have one.

After all, thinking through objectives and likely outcomes which may occur many years down the line is, by nature, challenging. But it is the hard work up front which makes for lighter work down the road as all of our team of part-time FDs will attest to.

It’s the case that most CEOs and MDs just don’t have the time to spend on quality strategic thinking and to document and communicate that thinking in a way which allows the whole business to buy into the vision.

Likewise, they don’t have the time and specialist knowledge to manage such a business plan.

That’s unfortunate because a business plan provides CEOs, MDs and management with an ability to foresee threats and opportunities and course-correct when necessary.

Not spending quality time on strategic planning usually leads to a chaotic working environment. Opportunities get missed. Threats aren’t identified until it is too late. Small wonder that our clients often talk about ‘not feeling in control’ and ‘not really knowing what is coming around the next corner’.

Business planning and getting it right brings a real sense of clarity and direction to a business – this is where an experienced FD or CFO can make a significant contribution. They can help you to create and manage a highly-effective implementation timetable.

CFOs often possess a different albeit complementary set of skills to CEOs/MDs. What’s more, they can act as devil’s advocate to ask the right questions and help to steer the company in the right direction. Meanwhile, you can get on with what you do best. This 3-minute video explains the part-time FD/CFO model in a little more detail.

Now, if you’re like many SMEs, you probably don’t have the resources or the need to employ a full-time CFO. So what can you do? You can try to manage the entire process on your own. Or, you can make it easy on yourself and your management team by hiring a part-time CFO to manage the entire process for you.

The CFO Centre will provide you with a world-class FD or CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. It’s the business equivalent of having an Olympic coach to help your business thrive.

To get started, just book your free one-to-one call with one of our business planning experts today—just click here now.

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