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Outsourced CFO Services
by Nihar Kothari | NOV 03, 2019
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Case Study

We were recently approached by a mid-sized Events Management Company having a successful track record across several GCC countries. The Company performed much better than the young entrepreneurs had expected in a short span of time. Due to the inherent nature of their business, most of the revenue was collected in advance, thus making it a cash-rich Company. The entrepreneurs were happy to see their bank account flowing with cash and resultantly began to indulge in fancy business meetings, business class travel and investing in Associate Companies that were not doing so well.

Suddenly, they got the shock of their life when one of their suppliers refused to provide any further event management related services to the Company - followed by a few more suppliers. As expected, the event was the biggest failure in the history of the Company. The event sponsors blamed the Company’s management for making false promises and underperforming. Aggravated with the sudden change in attitude of suppliers, the Management decided not to renew their contracts and appointed an alternate chain of suppliers. Surprisingly, the same issues started trending for other events which affected the reputation and goodwill of the Company even more.

The Board of Directors identified key problem areas in the business cycle:

  • Continuous decline in revenue. Due to them having a lesser number of projects in hand, the sustainability of the Company was being questioned. 
  • Bank account balance was used by Management. Looking at the declining trend of business, bankers reduced their facility limits and charged a higher rate of interest to safeguard their interest.
  • Low-quality services were provided by suppliers
  • Employee turnover started rising in the Company

Since most of the issues were finance related, they hired Affiniax to provide Outsourced CFO Services. The intention was to identify the root cause and provide solutions. After two months of interaction with their team and suppliers, we came up with the following observations:

  • The Company hired the best category of suppliers in the first place. Their services were at par with their big brand competitors. However, they were not paid in a timely manner. This exposed the Company to various legal cases. Even though the Company was cash-rich, the process of approval and payment took a long time. As a result, these suppliers stopped engaging themselves with the Company for any future projects. 
  • The news was widespread in the market for non-payment of dues which ultimately affected sales and impacted negatively on the goodwill of the Company.
  • The Company was making reasonable profits from all their projects individually. However, the Company was not prepared to incur the additional expenses of the young entrepreneurs. The money they spent on their lifestyle was supposed to be paid to their suppliers in the first place. It is a common practice and a big mistake for entrepreneurs to consider bank balance as their profits. 
  • Employees started leaving the Company as they felt stuck in the same position in the Company for years. Regular appraisal/performance-based bonus was never made a part of the Company’s policy. As a result, they lost their best talent to their competitors.
  • The Company maintained a very high level of inventory. This not only exposed the Company to obsolete items but also increased the cost of storage.
  • We helped the Company to re-negotiate terms and conditions with their bankers. 
  • We gave them an insight into market conditions and recommended they amend their contracts to ensure compliance with local authorities.
  • Potential business opportunities were discussed with the management.

Concept

Outsourced CFO is a financial management solution that renders a combination of visionary and technical service to accomplish the ambitions of SMEs.

How it works

An outsourced CFO model involves a part-time, temporary or project-based CFO. This gives small business owners the strategic financial expertise they need while saving them money in terms of salary, benefits and additional overhead that is typically associated with hiring a full-time CFO with a hefty salary. 

The responsibilities of an outsourced CFO may include overseeing financial and accounting functions, training staff on accounting best practices, developing cash flow improvement programs and evaluating internal controls.

Services Provided under Outsourced CFO

  • Management of the finance infrastructure (accounting, treasury, finance)
  • Financial, business, and strategic planning and implementation
  • Hands-on guidance during transitions 
  • Cash flow management and projections
  • Budgeting and forecasting
  • Assisting with private equity and debt financing
  • Bank financing and investor meeting preparation
  • Key metrics benchmarking and trend analysis
  • Accounting software selection and implementation
  • Financial and operational improvement plans
  • Mergers and acquisition support
  • Risk management
  • Contract review

How Affiniax Partners can help?

We have a talented and purpose-driven team of Chartered Accountants and finance professionals that help entrepreneurs to identify their key areas, focus on providing customised business solutions, report on cost-benefit analysis, provide market updates, automate systems and scale up their competence in pursuit of business eminence.

Article written by Nihar Kothari, Partner, Affiniax Partners

The author can be contacted at nihar@affiniax.com

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