How part-time finance directors add value – and where to find them
Matt Thomas explores why more of you are turning to part-time finance directors
Traditionally misunderstood as bean counters and bad cops who actually cost a lot themselves, financial directors (FDs) are increasingly in vogue.
Instead of putting off their recruitment for as long as possible, small growing businesses like yours are now proactively tuning in to the many strategic advantages of having a highly qualified board-level finance person on-side as early as possible. But their popularity owes more to the acceptance of outsourcing than fashion. The idea of bringing in talent and skills as and when you need them has permeated business activity and, as a result, FDs have now become a viable option for businesses that previously couldn’t afford them. Welcome to the emerging world of the part-time FD.
Nick Schwefel, managing director and founder of children’s shoe shop chain One Small Step, One Giant Leap, knew from the outset that his management team was lacking financial time. “My experience was all in retail, another director’s knowledge was all about product and our early financial expertise was from a non-exec investor who couldn’t devote the time we needed,” says Schwefel. He raised it up front with venture capital investors who helped finance the roll out of further stores. “One of the conditions of the deal was that we got an FD within three months of completion of the investment.”
The company didn’t need and couldn’t afford a full-time FD, though. “We were very aware we needed an FD to tighten up our finances and deliver the extra reporting the VC wanted, but couldn’t justify a full-time one as there wasn’t enough work,” says Schwefel. “What’s the point of paying someone a top salary when you don’t need to?”
Instead, Schwefel’s non-exec turned to one of the rising number of specialist FD recruitment agencies, The FD Centre, to source an FD on a part-time basis. After meeting a couple of prospective candidates, the company took on the services of Alison Clifford-King, a former FD of Mothercare. “It was an amazing fit for us; a perfect match. We went from not being able to generate the degree of reporting we needed to having someone with deep knowledge, experience and empathy for our sector and product.”
After an initial period getting to know the business and updating its forecasts and business plan, Clifford-King now spends on average four days a month with the company. Her role and influence, Schwefel insists, has gone far further than he originally anticipated. “She’s used to very high level reporting and has brought something to the business that I can now see was lacking,” he says. “By benchmarking our stores against current industry standards she has highlighted several areas where we can improve our business, which has helped enormously.”
Schwefel says the willingness to fully integrate his FD’s skills and opinions to the core of the business is based on trust and chemistry – prerequisites for such an appointment to work. “You have to choose someone you’re going to be able to work with as well as someone acceptable to investors,” he says, “and someone you can trust to be professional enough to work the right number of hours. For us this has worked very well indeed.”
For Gary Laurence, MD of recruitment agency Huntress Group, it worked less well. A poorly managed acquisition had highlighted the need for him to appoint a top-level FD. “We asked the FD we had, who was really a financial controller with the title FD, to assist in the acquisition but it was abundantly clear he didn’t have the experience. It made us realise he was peddling fast to stand still and that we needed someone with the necessary skills and experience going forward.”
Until then, the company’s strategy hadn’t had financial input despite the Huntress Group building a £25m turnover. “There was a general realisation that we needed someone planning for the future not just yesterday’s performance,” says Laurence. Consequently, he over-recruited and found a vastly experienced independent FD with a track record of working with £500m-plus turnover public companies.
However, the candidate was also a non-exec for a listed company and didn’t want to give it up so requested to work part-time. Assured the FD would be able to manage the company’s finances part-time and recruit a strong finance function below him to cope while he was away, Laurence agreed. However, it was soon apparent the appointment wasn’t going to work. “He was more heavily involved with the public company than we realised and it appeared to be his priority,” says Laurence. “He couldn’t turn off his phone and it was eating into our time. The crunch came when we had a group of frustrated clients waiting for a meeting while he was sat in his office on our time talking to the other company.”
Laurence acknowledges there are advantages to part-time FDs, although he insists he’d never use one again after such a bad experience. He also accepts that the stage his company was at, it probably warranted a full-time FD and it was unrealistic to expect a part-time FD to manage the workload with other outside responsibilities. The overriding lesson he learnt though was the critical need to establish both parties’ expectations right from the start of the partnership. “It’s essential to settle it contractually from the outset,” says Laurence. “They need to know what you expect of them and when.”
What do you need them to do?
The key to deciding if you need a full-time or part-time FD is to establish clearly what you need them to do. Then try to work out how long that might take. Of course, the hard part is to establish that task list in the first place.
Many entrepreneurs of growing businesses underestimate the importance of the finance function and accounts. A mail order business, which cannot be named, grew to a £10m revenue and sensible profitability only to go bust because it lost control of its numbers. It took too long to replace an FD who left, and in the meantime didn’t keep good enough track of who it owed money to. It then thought it had more cash than it did, and subsequently spent it, while not paying its suppliers, who consequently stopped supplying it. The founder, and investors, lost everything.
One of the company’s investors says: “The main task for any FD is to ensure that accurate and reliable management accounts get produced regularly. This simple measure would have saved the business. And even where there is a good bookkeeper around, someone should check this is happening regularly and sensibly. All too often, it is the last area to get considered when companies grow fast. Be warned.”
FDs are also important for fundraising, whether bank, VC, or going public, and can offer help with strategy, providing you with decision-making support. Proper projections for potential new business ideas, for example, is something which might not get done without an FD around. An FD can also relieve you of responsibilities in areas such as property, IT, HR and legal requirements, which should be well within their capacity.
Stephen King, founder and MD of FDUK, which supplies more than 30 FDs to growing businesses says companies come to him because they’ve reached one of five points. “Either they need to raise money and need an FD to hold their hand through the process; they need a new business plan putting together; need help selling their proposition to investors or clients; they’ve got to a certain point where they need better quality management information to go forward; or they’re looking to exit the business,” he says. “Whichever it is, they’ve outgrown the bookkeeper, accountant or financial ‘person’ who has taken them to that point.”
Equally, businesses looking to recruit an FD typically have different expectations of how involved in their business they want them to be – and often don’t fully know until that person is in the business. The thing to remember is that your needs today will change as your company grows, so you need to ensure you’re in a position to vary your requirements.
Time equals money
Salaries for full-time FDs tend to start at £60,000 and rise to £100,000 or more for positions with medium-sized growing companies. Many will also expect performance-related bonuses and equity deals. Unless you’re at the stage where you have the capacity to keep an FD active with FD-level duties, it’s probably a false economy to take on such overheads.
In turn, it wouldn’t make sense to recruit a part-time FD on a daily rate or flat monthly fee – expect to pay an average of £600 a day – if you then find you need that person in the office more than three weeks out of four.
Colin Mills, founder and MD of The FD Centre, which supplies One Small Step, One Giant Leap with Clifford-King, doubts many businesses like yours will command such capacity – even if it appears you, or companies equivalent to your size, have in the past. “I previously worked as a well-paid FD for a £50m turnover company but spent, at most, two days a week on duties that justified my salary. The rest of the time I was number crunching and a financial controller could have done that,” he reveals. “It boils down to value for money. Why pay 100% FD salary when you only get 20% value and you could cover the other 80% at a much lower rate?”
So, if you’re currently employing a full-time FD, are you sure you need to be? While many small businesses are tapping into the resource of an FD earlier and earlier, just as many larger more established companies are realising they could probably cope with seeing their FD just a couple of times a month to oversee a financial controller and for board meetings and strategical input or specific projects. The crux of switching back from full-time to part-time is the level and complexity of activity you expect in the future. However, there are certain activities any business will need a full-time FD for. If you’re a public company or planning a flotation, you’ll probably need someone all of the time. Christopher Jenkins, MD of accountancy and business advisors Wingrave Yeats, assesses: “In a public company it’s an outward facing role and you’ll definitely need someone full-time to speak to brokers and the press and you can get into serious trouble if you don’t.”
And while it’s possible to secure venture capital without a full-time FD, many investors will want to see one in place. Alternatively, if you only need a specific project or piece of work completing you might need full-time attention for a short period of time making an interim FD the best option.
Who are they?
Part-time FDs are typically experienced, qualified accountants who have worked for both small and large companies and often set up and run finance functions. They then look to apply the skills and experience across three to four, possibly five, companies depending on the time requirements of each. A growing number of female FDs are also finding part-time roles the ideal route back to work following childbirth.
Where do you find them?
As with most things, you should look to your circle of contacts to source an FD, whether that’s fellow entrepreneurs or your accountancy firm. According to Jenkins, any reputable accountancy firm will be happy to recommend the right candidate if it can, even if it means reducing the amount of business it gets from you. “We’re like nursemaids,” he says, “it’s our job to nurture clients but then let them go when they’re ready. It’s the same with a good part-time FD, they should know when it’s time to say the company needs someone in a full-time position and be ready to step away.” Alternatively, you can advertise in the press, recruit or headhunt through the standard channels.
However, the fastest growing source of part-time FD recruitment is from specialist agencies such as The FD Centre, FDUK and 2020. Stephen Hay, co-founder of 2020, says: “Five years ago you couldn’t find a part-time FD, but now people are moving to it and coming to companies like ours in droves.” Hay also believes there are distinct advantages to hiring an FD through a specialist agency as opposed to recruiting an independent FD who works for themselves across several companies. Not only does he believe an agency offers a wider selection of skills, but the resources an agency is able to provide means the FDs are more likely to remain up-to-date with the latest developments in the industry – as well as about how to be an effective FD part time.
“Being an FD is a lonely role,” says Hay. “Independents don’t have a pool of knowledge and other FDs to contact if they’re unsure of something. They’re also reliant on their past experience, which can mean they don’t know the latest regulations or technologies, whereas to protect our brand we need all our FDs to be conversant.”
Schwefel says he felt more comfortable working with a part-time FD for the first time through an agency because of the freedom to end or amend the agreement it offered. “If we’d recruited somebody independently it wouldn’t have been on a consultancy basis and we’d have to have given them all the benefits that go with being a proper employee,” he says. “It’s a lot easier this way if things don’t work out.”
Making the most of your FD
Hay says businesses often underestimate the value an FD can add to overall strategy. In fact, he’s often alarmed at the complete lack of one. “I’d say less than 10% of companies we speak to have had a board meeting in the last three months; it’s very easy for companies to simply plod on,” he says. “However, an FD can add real value especially once there are proper forecasts.”
Laurence adds that it’s essential to let your FD get on with transforming your business into the smooth-running, bigger, operations they’re used to working with. “Let your FD improve efficiency from the back to the front office,” he says. “They’ll know where you should cut spending, where you should increase it. Can you reduce people anywhere in order to ultimately improve efficiency and speed of delivery? Can you improve your banking? Successful entrepreneurs are those who appreciate bringing in expertise and are not afraid of hiring people better than themselves.” Jenkins, though, warns that you need to be careful letting an FD run riot without consulting the rest of the board and communicating what they’ll be doing – you may realise their value but others may just see a fancily-named accountant. “Make people aware you’re not just employing someone in a treasury role but someone to be involved in overall strategy,” says Jenkins. “The modern day FD is a quasi-pseudo business person with expertise in finance and you need to look at their wider role within the management team.”
From part-time to full-time
Jenkins also warns that a part-time FD shouldn’t necessarily be for life. “The company you are in 2005 won’t be the company you are in 2008 and perversely a part-time FD’s ambition should be to do themself out of a job.” In turn, just because you need or have a full-time FD at the moment, it doesn’t mean the position needs to be set in stone. As Mills concludes, “there’s no such thing as a job for life”, and FDs are just another resource, albeit a valuable one, you should use according to demand.
? Make sure the FD can make sufficient time available when you need it
? Get someone who has experience in all the areas you need (e.g. fundraising)
? The chemistry has to be right ? could you work closely with them?
? Sector experience ? this might bring you more help than you think; seek it if at all possible
? Discuss a clear task list up front with the FD and meet at least monthly to assess progress on it and whether to adjust it going forwards
PART-TIME / INTERIM FD:
Range: ?500 to ?1,000 a day
Average: ?600 a day
Range: ?60,000 to ?100,000+ (performance-related bonus and equity stake also usually expected)
Average: varies too widely to provide a sensible figure