Why every SME business should have a Finance Director
Why every SME business should have a Finance Director
Every business, irrespective of its size needs financial strategy, clarity and control. Ultimately this is the responsibility of the board of directors but is usually delegated to a specialist Finance Director (FD) due to the technical knowledge and experience required. Larger businesses have the resources to employ a full-time FD but SMEs often do not have the budget for this. As a result, many SME directors take on this specialist role themselves with support from their bookkeeper, finance administrator or external accountant. But there are limitations with this approach. Financial strategy, planning, understanding and control will be weaker and this in turn results in limited business’ profitability, value, stability and growth.
The good news is that this does not need to be the case. Professional FDs are available on a part-time basis at an affordable cost to give every SME the financial strength it requires. As a result no SME business should be without an experienced professional in control of their finances. The experience and expertise that an FD brings will make your business more profitable, more financially secure and build greater value for when you plan to exit your business. In addition to this, it gives you the reassurance that there are no nasty surprises in your finances.
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What does a Finance Director do?
A Finance Director plays a critical role in driving a company's financial health and strategic growth. They provide expert financial guidance to ensure effective budgeting, cash flow management, and profitability, as well as safeguarding the company’s assets. In addition to overseeing financial operations, they deliver insights on risk management and long-term planning, helping business leaders make informed decisions that support sustainable growth. For SMEs, a part-time Finance Director can offer high-level expertise without the full-time commitment, enabling directors to focus on growing their business with confidence.
Areas that you can expect an FD to help include:
Financial planning and analysis to ensure your financial plans are aligned to your business plans
Presentation of monthly management accounts and other financial results from a commercial perspective to reveal how your business is performing against the financial plan
Explanation of the business impact or meaning of the financial results to ensure the other directors understand and can interpret financial information effectively
Facilitating commercial decision-making based upon financial evidence resulting in choices based on fact, not just anecdote or instinct
Implementing excellent financial disciplines, processes and controls allowing you to relax and focus on leading and growing the business
Business budgeting so that every part of the business has financial limits in place
Cost control to ensure expenses are proportionate to the business and budgets are achieved
Cashflow forecasting and cash management so your capital works hard for you including ensuring debts are collected and creditors paid
Implementing ways to improve profit using a variety of methods
Obtaining the funding for your business including bank lending, business growth funding, small business grant funding and investment funding
Building an effective internal finance function for your business so your employed finance administrators or controllers are well-trained, highly skilled and operating best-practice finance disciplines
Leading finance-specific projects including business exit planning; mergers and acquisitions; migrating to new accounting software; or forensic financial investigations or analysis
Providing the reassurance and expertise necessary to turn things around if your business is struggling financially
What’s the difference between a Part-Time FD and an Outsourced FD?
There are a number of different titles given to independent Finance Directors so it can be very confusing for SME business owners to know where to start. Aside from Part-Time FD and Outsourced FD, you will sometimes hear the terms Part-Time CFO (Chief Financial Officer), Virtual FD, Fractional FD and Interim FD. Despite the various titles given, the function performed is similar. Here is a breakdown:
Part-Time Finance Director, Outsourced Finance Director, Part-Time Chief Financial Officer, Virtual Finance Director and Fractional Finance Director: In each case the FD carries out all of the tasks normally associated with the Finance Director role but they do not work full-time in the business and they may work remotely. The number of days they provide services is set by you based on the needs of your business and can vary over time. When they are not working for you they will be providing similar services to other companies so you benefit from best practice being implemented in your business.
Interim Finance Director: just like the others, an Interim FD can carry out all of the standard FD responsibilities. The main difference is that the role is likely to be carried out over a specific time frame for a defined purpose. For this reason it is likely that the role will be full-time or close to full-time. An Interim FD is usually used to cover the absence of a company’s full-time FD for example maternity or long-term sickness or to bridge the gap in employment between one FD leaving and a replacement being hired. In this instance the Interim can support the recruitment and training of the new FD. Interim FDs can also be very useful for undertaking a specific financial or accounting project that the employed FD does not have the time or expertise for. This might include: detailed financial forecasting or planning, preparing a business for acquisition, merger or sale; migrating to new accountancy software; or for undertaking in-depth financial investigation or analysis to solve a particular problem.
I’ve got an accountant so why does my business need a Finance Director?
Every business requires an accountant, or a firm of accountants to file annual statutory accounts to ensure the company complies with company law. In addition to this, external accountants offer a range of other services including payroll, VAT submissions and tax advice, both personal and business. They provide an essential service but it is different from the value an FD brings to a business. The two are complementary and should be viewed as such. So what is the difference between an accountant and a Finance Director?
An external accountant specialises in compliance with financial regulations and company legislation. They ensure their clients meet financial reporting requirements and provide technical guidance and taxation advice.
The most significant difference with an FD is that they work inside rather than outside the business. As a result they are commercially rather than compliance focussed. They see and experience the inner workings of the business and understand its customers, operations, marketplace and plans. This knowledge forms the basis of everything they do including: financial modelling; reporting accurate margins; improving profitability; controlling costs and managing cashflow. Their commercial awareness is tailored to the business so an FD brings insightful advice and guidance to company directors to make good financially-based commercial decisions. And being part of the management team means that they can be expected to take management responsibility for business actions. The FD also manage the relationship with the external accountant meaning that they are able to provide them with business-specific direction. It also works in reverse with the specialist advice being given by the accountant being more readily applied when in the hands of an FD who speaks the same language.
Strengthen Your Finance Team
Secantor can bring all these benefits to your Leadership Team. Our FDs are professionally qualified, commercially experienced and experts in getting SME business into good financial health. Read our chocolate business and optician case studies that demonstrate the impact our FDs have on SMEs. Why not book a call with one of our experts for a no-obligation chat to find out the difference it will make to your business?
