This episode explores the crucial role of efficient financial management in driving business performance and productivity. Guest Andrew Walker, a seasoned financial consultant, shares his extensive experience advising businesses on utilizing data for improved cash flow and strategic decisions. Walker emphasizes the transformation from traditional bookkeeping to strategic financial planning as businesses scale.
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About this episode’s guest: Andrew Walker, CEO, Improcus
Andrew, with over 30 years of executive management and accounting experience, across global and local markets, brings a depth of experience and credibility built across the manufacturing, retail, franchise, construction and transport sectors. Whether as CEO or on the shop floor, Andrew understands the challenges and demands of business. Andrew has an intuitive understanding of business in both financial and functional areas. His work experience includes:
- CEO of Improcus, a South East Queensland business improvement consultants company/business and has worked with 100 companies in 10 years with an aggregate annual turnover of $1.0b CEO of AAF Industries Plc, a London stock exchange listed company specialising in design, manufacture and installation of modular buildings in Europe. The Group also included a laboratory furniture manufacturing business and a scaffolding division.
- CFO BTR Dunlop Ltd, listed on the Johannesburg Stock Exchange, responsible for all South African operations and the Financial Controller for Africa reporting to BTR PLc. Turnover R1.0billion
- Divisional Finance Director of Dorbyl Automotive Components consisting of 16 divisions supplying various automotive components to OEM’s.
- Financial Controller for the Aberdare Power Group, the largest manufacturer of power cables in South Africa
What’s covered in EP232
- Introduction (0:00)
- Streamlining business processes to improve cash flow. (4:15)
- Automating business processes for efficiency and growth. (9:19)
- Improving business performance through financial analysis. (13:54)
- Financial management and growth in a business. (18:30)
- Financial management and business growth. (23:55)
- When businesses need a CFO or financial controller. (28:52)
- Private equity, AI, and business trends. (32:09)
- Business software and data analysis. (36:22)
- Business productivity, taxes, and insolvency. (42:37)
- Financial reporting and cash flow management in businesses. (46:54)
Takeaways
- The Peter Principle in Finance: Promotion beyond competence in finance roles can critically hinder a business’s growth. It’s crucial to elevate financial management capabilities as the business scales.
- Automation and Efficiency: Leveraging modern software and automating processes can significantly reduce time and errors in financial reporting, enabling quicker strategic decisions.
- Strategic Role of Chief Financial Officers: A CFO’s role transcends traditional bookkeeping, focusing on external growth opportunities, mergers, acquisitions, and stakeholder management. Understanding when to transition from a bookkeeper to a CFO is key for business evolution.
- Data Utilization for Decision Making: Effective use of data, including forecasting and performance analysis, is essential for driving strategic business decisions and identifying areas for improvement.
- Cash Flow Management: Proactive cash flow forecasting and management are critical for navigating financial challenges and seizing opportunities, underscoring the importance of a competent finance department.
Abbreviations used in the show
- ATO – Australian Taxation Office
- BOM – Bill of materials
- CFO – Chief financial officer
- CV – constant velocity, as in CV joint
- DIFOT – Delivery in full on time
- ERP – Enterprise resource planning
- GST – Goods and Services Tax
- IPO – Initial public offering
- PAYG – Pay as you go
Transcript: Unlocking the Financial Black Box: Transforming Business Efficiency w/ Andrew Walker – EP232
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Andrew Walker 00:04
I come across businesses, where the bookkeeper who started out with the original owner is now the CFO. And that’s the real old Peter principle that applies to finance departments as well. So, and when you have a person that has been promoted past the level of competency, what happens is they then start employing incompetent people below them.
Gene Tunny 00:33
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. This episode of Economics Explored explores business performance and productivity with our special guest Andrew Walker, a financial consultant who works with businesses to improve efficiency and profitability. Andrew has over 30 years of executive management and accounting experience across global and local markets. He’s advised major companies in the manufacturing retail franchise construction and transport sectors. In this episode, among other insights, Andrew talks about how businesses could better utilise data to improve cash flow and drive strategic decision making. This episode of Economics Explored is brought to you by Lumo coffee Lumo is seriously healthy organic coffee. Lab tests have confirmed that Luma coffee has tripled the amount of healthy antioxidants and poly phenols than regular coffee. Health benefits from these poly phenols include a lower risk of heart disease, anti inflammatory effects, and improved mental and physical performance. Lumo coffee would like to offer economics expert listeners at 20% discount off all coffees for a limited time only until the 30th of April 2024. Go to Lumo coffee.com. And at the checkout, use the code explored 20 That’s all uppercase, X floored and the number to zero for a discount on all Lumo coffee valid until April 3020 20. For that code again explored 20 Check out the show notes for further details. Right. Oh, we’d better get into it. I hope you enjoy my conversation with Andrew Walker. Andrew Walker, thanks for joining me on the programme. Yeah. Good to see you again. Gene. Yes. Excellent to see you, Andrew. So I’ve been along to some of your breakfast. You’re very good at organising people. And you’ve got a really good group here in Brisbane, of business people, people with experience in the practicalities of running businesses and growing businesses. And I’m keen to pick your brain today regarding business performance and business productivity, because as economists we drone on all the time about efficiency and productivity, making a penny Dewar pounds work as my grandfather used to say something very critical, not critical, but a joke about economists. So I’m interested in your reflections as someone who who does work with businesses and advises businesses. What is it that other barriers to high performance? What is it that’s limiting the efficiency? The productivity of businesses, please? Yeah,
Andrew Walker 03:49
well, Gene, I think one of the there’s there’s a number but let’s start off and talk about some of the key ones that I deal with from a financial perspective. For example, inefficient processes. You know, outdated, convoluted processes can slow down the operations, waste, valuable time and resources, inefficient workflows also, and redundant tasks and excessive bureaucracy can contribute to decreased efficiency, and some of these sorts of things. For example, if you remember back in the day of mainframe sales, IBM had a salesperson of business development and design team, a credit approval team, and they were taken up to six months to turn a potential quote into an order. And they actually changed the whole process and made the salesperson, the responsible person to make sure it went through all the departments efficiently, and they reduced the time substantially. So I did some work with a franchisor on his sales process for bringing in franchisees and they were taking exactly the same thing six months around actually trying to vet the people, get them in, talk to them. And if you’ve got good franchisees if They’ve got the money, they want to take the opportunity, they can’t wait six months for somebody to decide whether they’re going to come in. And so we went through a workflow process, identified the issues, and actually cut that right down to one month to get the activity of signing up more franchisees a lot quicker than waiting six months to go through the whole process.
Gene Tunny 05:18
Right? What what sort of business was it that were broadly what industry was
Andrew Walker 05:22
it? I it was in the, in the industry in motor vehicles?
Gene Tunny 05:26
Right. Gotcha. Okay. Right.
Andrew Walker 05:29
You know, and other processes. For example, when we talk about processes, people immediately think about a manufacturing process in an organisation. They are lots of other processes that are actually embedded in the business. For example, I did some work with a large scaffolding business a couple of years ago. And the important thing there was their debtors were, you know, way above what they should be, and we brought them down from I think it was 65 days to I think, 45 days, there was an inflow of $1.6 million in the small business now. That’s, people think, Oh, well, what do you do, but you’ve got to examine the whole process from taking a new a new customer on what’s their credit limit, what’s the process of resolving credit notes quickly and efficiently. And so that you remove all the reasons for them not to not pay the business. And so having identified the process made people accountable within the organisation we were able to bring, the data stays down. And that helped in the sale of the business, because what was happening is we were setting the business up for sale. And the working capital average, when you sell a small business always catches people, because they think that debtors are are going to continue at that high level. And when you bring them down in a sale process, you actually have created an average working capital higher than what you should have. And therefore you’ll end up having to chip money in at the end after the when the deal is done.
Gene Tunny 06:56
Could you just go over that? Again. I’m just trying to make sure I understand that book. So I think you’ve identified a critical issue for any business, which is the cash flow. I mean, cash is king, and a lot of businesses get into trouble because they can’t manage their cash. And you had an example where did you say debtors days? So the people who owe your business money? Was it 60 days or something
Andrew Walker 07:21
like that 60 days, and we had to bring it down to 45 days to bring it in terms. And so if you when you start negotiating the sale of your business, especially with the purchase, I will lock in a date. Yeah. And in order. And through that process, I look at the last 12 months. What is the average working capital? Yeah, and when the actual transaction happened six months later, they use the average working capital. And when you hand over the keys to the business, they then calculate what the working capital is on the day and apply amid the metric to the average working capital of the previous 12 months. And if the working capital is lower than the average 12 months, the seller has to put the money into. So before you sell a business, you’ve got to make sure your balance sheet is actually well organised. The debtors are clear the creditors are always paid in terms that you can have a really good quality working capital base.
Gene Tunny 08:18
Yeah, so you’re gonna get all that lined up. So with the 60 days, on average, they were taking 60 days to pay. Right? So this business wasn’t chasing the invoices up is that right? That they weren’t managing their invoices properly? Well,
Andrew Walker 08:33
there was a lot of issues in there. Because first of all, getting the right customers, okay, don’t take on customers who are probably dodgy. So part of the whole process is, make sure you’ve got good customers. Yeah, make sure they understand your processes, and your terms of trade. And if they have credit notes, it’s important to get those credit notes processed quickly, because that becomes a reason for non payment. Right? What
Gene Tunny 08:57
What do you mean by that? Can
Andrew Walker 08:58
you explain what you mean by if I have the business $100,000 And I’ve got $3,000 I’m queering and questioning because the service didn’t happen or the product wasn’t supplied, or it’s a bad quality product. I use that as a reason not to pay the full 100,000 Yeah, so you know, it’s about processing those credit notes really quickly.
Gene Tunny 09:19
Gotcha. Okay, yeah, sorting, sorting out those issues. And so
Andrew Walker 09:23
another another sort of area is lack of automate automation, in a in a business. And once again, we straightaway think of the factory with robotics and welding and that, but also in the whole financial process, automating all the different systems to produce the financial management report to the end of the month is important. And I had a client this goes back a good few years, and their finance team took 30 days to produce the management reports of the previous month. And it was just out of control. And it was spreadsheets upon spreadsheets upon spreadsheets reconciling, reconciling reconciling and and when you When you when I laid it out on the boardroom table, because the owner didn’t believe this was this was a 30 30 million is probably a 30 40 million business now. I laid everything out on the boardroom table and said, right, you reconsider your team reconciles the spreadsheet to that spreadsheet. And I said, this is a waste of time, I said, let’s just let’s invest in some software changes. And the software changes, push the data from the ERP system straight into the financial system, they were able to produce the reports within three days, which is where you get to real world class standards. Okay,
Gene Tunny 10:33
so just for those of us who aren’t familiar with the lingo, ERP stands for enterprise
Andrew Walker 10:38
resource planning. So it’s the whole, it’s the engine room of the business. So you’d have a financial system. And then you have the engine room. So if it’s a manufacturing business, it’s the bill of materials, it’s the labour, it’s the planning, all of those things around that create the activities, which then create a financial transaction that gets pushed into the financial systems in the business
Gene Tunny 11:01
by their software packages, or applications you’d recommend for this sort of thing? Well, no, it’s
Andrew Walker 11:05
about understand well, what I found in a lot of businesses that are getting involved in is the inefficiency is they’ve bought really good packages, right? The implementation has only a 20% delay, okay. And so it’s about understanding, yeah, people have done and then actually increasing the implementation of those packages up to the right level. And so in this instance, it was using the existing ERP system, changing the report writing, creating the link straight into the financial things. So there was no reconciliations and wasting time, they had a saving because we then were able to let the Financial Controller Go, which was $100,000, salary, wasting time doing all these requests, because that was they were they weren’t adding any value in the business. Yeah, in a perpetual income 100,000 a year, that’s a million dollars in 10 years that you’ve saved by simple small automation within a business. Yeah.
Gene Tunny 12:00
And this is, I mean, this is across the economy, right? This is what I think’s interesting about this, because as economists, we we tend to assume competition, competitive markets, weeds out the inefficient operators. And to an extent that’s true, right? I mean, that’s, that’s obviously true. You do have the situation where there are many businesses that just aren’t living up to their potential. They’re, like 10 or 20% off what their potential is. I don’t know if it’s that high. But for many it could be I mean, there are there a lot of there’s still a lot of inefficiency in business out there.
Andrew Walker 12:30
You know, I was dealing with a fast moving consumer goods business, and they were, they were processing different kinds of sources, which the order would come on a Wednesday, it would be cooked Wednesday night, it would be processed Thursday, it would be on a track Thursday night, into suddenly for the shelves for the weekend shopping. They they Dafydd delivery in full on time was was around 76%. And and you know, that whole process, they had implemented SAP, yeah, but they’ve never taken it into the production area. The production painting was sticky notes or post it notes stuck on production planners wore a telephone note, you know, telephone call and email, open the door, the wind blows, we’ve lost a few levels of
Gene Tunny 13:17
production cafe, right? Yeah,
Andrew Walker 13:19
exactly. And so what happened was, you know, I’ve, I’ve pushed this all out, and we then moved as SAP implementation into the production process. And that then opened it up. And after two months of working with the team there, I’ve got it up to 99%. Three months in a row, we achieved 99% The effort, and we also moved the business away from product centric, to customer centric at the same time, which customer centric had more margins than product centric, because product centric was high volume, this just get hot volume into this.
Gene Tunny 13:53
It’s gonna ask you about this die fight. I haven’t actually heard that expression, or haven’t heard it spelled as or set as die fight. It’s a good one. I understand what what you’re talking about. I mean, that’s 76% that’s, that’s terrible.
Andrew Walker 14:07
There’s more. So what happens is you lose then shelf space in the supermarket, because you’re not there on time. So you, you you get removed from the eye level shopper wants to pick off the comfortable level and you say your shelf space then moves down to the bottom shelf, because other people have got in front of you in terms of your your your space allocation within in the supermarkets and boutique.
Gene Tunny 14:29
Sorry, the supermarkets in the TV boutique shops selling the sources in APA Gotcha. Are they met other benchmarks for what all of these metrics? So you’re, you’re a former or you’ve got experiences as a chief financial officer, is that right? That’s correct. Yeah. And are there benchmarks or commonly accepted benchmark standards for what those data days should be for what die fight should be that sort of thing. Like when you go into a business that you Are you saying, like, based on my experience or based on industry benchmarks, you’ve got to be hitting these key metrics. I think
Andrew Walker 15:08
every business, you’ve got to actually look at it and understand it. You can’t just have a, there’s not a standard, there’s a standard bent benchmark, let’s say 45 days for dead end. But if half of your sales are cash, yeah, then it’s not 45 days, it’s probably 20 days. So when I walk into a business, and I start reviewing it through my model for real improvement, I have a look at that and say, Well, if 50% of your sales are cash, we exclude that out of the calculation. Otherwise, you look pretty good, because you might be reporting 30 days. And if the benchmarks 45, but you’ve got cash at 50% It’s actually misleading. So yeah, and our fight with that fight is about delivery in full on time. Yeah. 100%. Yeah. There’s no question that’s, that’s a standard you need to achieve. And so there are lots of different ratios. And the one has to just examine the business and identify, what are the key ratios and drivers that drive profit in the business?
Gene Tunny 16:06
What was his model for real improvement that you’re talking you’re talking about?
Andrew Walker 16:10
Okay, so I’ve I’ve developed some software offers a German platform, and the software is called jeddaks. And so that actually brings the financial information in. And I’ve developed a one pager that shows how to improve the business by making high level strategic decisions in the business, if I reduced it as days by X days, if I reduce stock by y days, and I put creditors out by another two days, what is the cash impact, but that is using all the historical information. And then I do the same on the profit and loss in terms of sales price increase, volume increase, expense increase, and then that’s all hinged around the DuPont, you’ll probably know the DuPont analysis, going back to the 60s, right created the return on capital employed. And then on top of that, I’ve then introduced cash flow to that to the point analysis, because now when he developed it was about return on investment return on capital employed. Today, it’s all about cash, cash is king, as you said earlier, so I’ve got this model for real improvement, which also helps then link corporate strategy to the financials. And then you develop that if you say you’re going to increase your your turnover by 10%, you then have to drive that in the rest of my modelling down to which product, which customer, what price, what product, what channel, and that then makes people within the organisation at the coalface accountable to the corporate strategy. So that’s the one of the big things that are found. We are very good at vision mission and fluffy stuff. But when it comes in to managing the actual coalface, it gets a bit difficult because it gets blurred. So my model for real improvement then looks at and says, that customer that price in that month on those products goes up by 5%. And that’s how you achieve it. And if you’re not achieving it, then people become answerable on that monthly management sort of review process. Right, which is what happens sometimes in businesses is the turnover goes up 10% For something totally different reasons. The core strategy is never dealt with. But we all pat ourselves on the back saying, Oh, we we achieving our corporate strategy, when in fact, we haven’t addressed the items that was identified at the strategic sort of review. Right,
Gene Tunny 18:30
gotcha. And how do you make sure that the people at the coalface are doing the things that need to be done to hit the targets? I mean, I do go and talk to them. You have dev workshop with them how to,
Andrew Walker 18:43
okay, so I’ve been, I’ve been working with a group of highly intellectual individuals in a business, I like to keep them the name out of the podcasts. And they were very focused around delivering their professional skills to their clients. Yeah, with no concept of profit. And there was just one high level p&l, then actually, and the profit had come down over a number of years. And you know, it was on a reduction, and I got involved to help them. And one of the things I did is turn it on its head and said, Well, hold on. You’ve got regions here, let’s let’s put in regional profit and loss statements, and then make the regional managers accountable. And then in this modelling of mine, I then took it down to how many hours are each of the people going to be working? What is the efficiency? What is the sale rate, what is their cost rate? And so now we’ve got this model that they can actually change every month in terms of this person is going to be off for three weeks or take him outside adjust the turnover. And this modelling then creates the three way financials, cash flow, balance sheet and p&l. And so that date in every, every month we review it and have a look at what’s happening within the business and make adjustments to look at the full We have forecast, as a result of I think, as a result to bring in that to play in the organisation, together with focusing around improving the efficiency of the computer system they’ve got they’ve got a cracking system, but they weren’t even touching the surface in terms of the capabilities of that software. I think the this year if it all goes to plan, we would have trebled the previous year’s operating profit.
Gene Tunny 20:25
Wow. Right. And that’s by giving people a better understanding of, of what actually contributes to the bottom line, what the
Andrew Walker 20:36
there’s an understanding hours rates, cost, expenses, margins, selling price to customers, all those things come into play when you’re having those discussions. Gotcha. Okay.
Gene Tunny 20:47
Are there any other barriers? We’ve been talking about barriers to to higher performance?
Andrew Walker 20:53
Yeah, I think, you know, I’ve got an interesting one. And this is, this is where the company starts out very small, the owner brings in the bookkeeper. And as the business grows, he doesn’t look at the finance department, and let it grow with the business and bringing the right financial level skill. So I come across businesses, where the bookkeeper who started out with the original owner is now the CFO. And that’s the real old Peter Principle and applies to finance departments as well. So and when you have a person that has been promoted past the level of competency, what happens is they then start employing incompetent people below them. And because they can’t afford to do the work because of the level of competency, and this always becomes manual and then and so I have this thing, we all know E because mc squared is speed of light, I say the Peter Principle of competency plussing competencies in competency cube, which is the speed to insolvency. And so and I’ve seen this before, we’re the bookkeeper, you know, rises to that position. So as a business is growing, it’s not a barrier, but it’s been able to recognise that as your business grows, you need to introduce different levels of people within the organisation. So you’d start out with a bookkeeper, maybe you then have the tax accountant to a point sometimes people hold on too long to the tax accountants, as the business is growing. And then you go to a financial controller, or Phantom, CFO, Lakhmi, or who then when it gets big enough, you need a real CFO and people don’t understand what a CFO is, versus a financial controller either, you know, CFOs, external mergers, acquisitions, stakeholder management, etc. And you’ve got to be ready to grow at that level before you start bringing CFOs into your business
Gene Tunny 22:46
for CFOs. You’re you’re about creating possibilities. We’re not just being a bookkeeper. But what are the risks? I mean, you can expand on that, but what are the risks of just having the person who started out as your bookkeeper become? Your effective, you know, become the CFO of as your business expands from being a small business to having, you know, millions or 10s of millions or hundreds of millions in revenue? What are the risks? What can go wrong?
Andrew Walker 23:10
Well, I think that the risks are, that person doesn’t actually grow with the business and start looking at the risk profile. You know, if we talk about a bookkeeper does the accounting the day to day bookkeeping of the business, but as you start growing, you start getting increasing your debtors? What about credit limits? What about the risk profile? What about your insurance? What about the systems as your business is growing? You know, a good CFO strike financial controller will be in the business, he’ll have the accounting work working really well. And a good solid bookkeeper is a person who consistently does the same thing all the time, at a high level of quality. And a good CFO will be across the business looking at systems and processes and thinking outside the box. Yeah, I think that’s the difference, I think. And I say this, and I’ve come up the finance route, so I can be critical of my own professional. Good Financial Controller doesn’t necessarily make a good, a good CFO, in the in the different financial controllers, inwardly focused, producing management reports, running the business. From that point of view, a CFO is looking externally outside the business risk profile opportunity to grow. Yeah.
Gene Tunny 24:22
So on these risks, I’m just so where the businesses get into trouble. I mean, they can I mean, some are just there are some that are going to be unviable. But there are many businesses that that actually end up. You know, they end up basically having to wind up because they mismanaged their cash or that if
Andrew Walker 24:41
you talk to any or most liquidators administrators and you say to them, what is the first impression you have when you walk into one of these distressed businesses? And they’ll tell you 80 to 90% of the time, the finance accounting departments in a mess, right, yeah. And that’s where you then have a bookkeeper who He’s become the CFO doesn’t understand the risks involved in running a much bigger business because their, their, their, their processes around transactional, yeah, processing, invoices credit, all those sorts of things and not looking at the bigger risk. And that’s that’s the real issue with regard to you know, these distressed companies, the accounts are in a mess. So you don’t know your product profitability, your customer profitability, where your market growth are, what’s your gross margin? What’s your breakeven, all those critical things that good? Finance controller Cummins CFO?
Gene Tunny 25:37
Net? Right. Yeah. So you could be losing money? Yeah, you’ve got you haven’t got your you’re not? You’re not selling in the right areas? You haven’t got your pricing, right. You’re not making enough money? Yeah, so yeah. Okay.
Andrew Walker 25:52
And so that comes to to what I call the financial blackbox. Yeah. So before you take off in there are playing on your journey of building this business, know what’s in the in the black box. And that’s around understanding what the financial department does, and how they can add value in your business. A lot of finance departments are seen as an overhead, an extension of the ATO to do the best and the GST and the PAYG, etc. But the finance department in a good business provides really quality information to help people make good decisions around what they do in in their business.
Gene Tunny 26:32
Okay, we’ll take a short break here for a word from our sponsor.
Female speaker 26:37
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Gene Tunny 27:06
Now back to the show. What are they doing? You’re doing modelling of, of, you know, what different scenarios? Are you thinking about shocks that could hit the business, what sort of works been done in
Andrew Walker 27:21
terms of just a normal. So the way I approach when I look at businesses and I’ve I’ve asked to come in and help, they could be distressed, or they could be growing exceptionally and need some support. The first port of call is the financial system, the financial systems have to be sound and producing accurate quality, timely numbers. And once you’ve got that in place, then you will identify then I start mixing in products, customers, margins, and the non financial elements and merge them together to get some kind of value reporting around. How do you improve the business? Once you’ve got that you can then start doing your ratio analysis and saying, where’s the gaps? Yeah. And then once you’ve got the gaps, and with my modelling, for real improvement, you can then say, what if? What if I put the prices up? And the volume goes down by percent? Or what happens if I put the the volumes up and prices up? What’s the impact, and that then gives you cash flow. But also having identified the gaps. I talked about the p to the power of four, which looks at the process, the process mapping the productivity of the people in that process, the proficiency of those people doing the processes, and then the profit and how the profit is generated. And that that then wraps into a good action plan to help the business go through its problems of getting back to normal profitability again. Yeah,
Gene Tunny 28:52
this is great. So you’re crunching the numbers. I like that. Yeah, because a lot of businesses I mean, they’re, you know, they’ve got founders and the founders, obviously doing something, right. Because they managed to, to grow from just being a micro business and they’re starting to, you know, they’re getting sales and they’re taking on employees, and they’re doing what works for them. But in your experience, you think all on their growth on on their journey through those like I often look at that I watch Dave Ramsey stuff. I don’t agree with everything he says, but I think he’s got some good points. I like his framework for the different stages of the business and how they, they start off with being a mum and dad business. So we get his actual terminology. But you know, the idea is you want to go through these different stages of being a trailblazer and then end up at at legacy and all of that. And I’m just thinking there, I mean, we we’re in the journey of being a business should should, should a business owner be thinking of getting a CFO or going you know, moving in If you’re having a bookkeeper or just having an accountant who helps them out with tax,
Andrew Walker 30:03
yeah, so I think I think it’s an that’s not a simple answer that if I hit this turnover, people have this perception I’m doing 20 million, I need to see it depends on a number of things in the business, you know, if you have a very simple business, which is purely trading, urbanna sell, and it’s a simple transaction, do you really need a CFO in your business, because you’re going to bring the CFO in, he’s not going to actually add the value you want. And invariably, he’s going to get bored. And you’ve wasted the the investment of recruiting somebody who then moves on very shortly afterwards, because it’s a simple business. But when you start getting into, for example, manufacturing, and you’ve got bombs, and you’ve got, you know, having to back flush your bombs in terms of understanding what’s happened in the business, then you should be looking for a financial controller in terms of getting into the nuts and bolts of reporting activities in the factory, the number of tonnes, the tonnes use the scrap, what does that bomb, say? Are we producing more scrap than what the bombs? Do? We need to adjust that that affects our price? What about the process of steel Steel’s gone from it? You know, it went up 25% Down again in the last couple of years. And if you didn’t have somebody on the numbers there, you could have lost a lot of money in an organisation.
Gene Tunny 31:19
What was what were you saying bombs? Will you believe material are sorry?
Andrew Walker 31:25
We’re not going to blog, anything but
Gene Tunny 31:29
materials, materials that
Andrew Walker 31:30
you know, and that’s important. And and then when you in again, back to understanding that the lifecycle of a business Yeah, is there is a point when you’ve established yourself, you’ve got a good business, you’ve got a good product, you know, everything’s good, the culture is good. And you want to now do the big the big expansion, that’s when you start thinking, I need a CFO, if I’m going to IPO it, you know, listed or stake other stakeholders in or I want to exit Yeah, you know, that’s when you need them the CFO. So and it’s not around turnover or number of people, it’s around the type of business and how you operate within that business. Yeah.
Gene Tunny 32:09
As someone who works with a lot of businesses. Do you have any thoughts on this whole, you know, the private equity, sort of, you know, that industry, because I’ve had, well, I’ve had a guest on previously who’s over in Rhode Island. And what he does is he’s looking around for smaller businesses that he can come in, and he can take over and then and then sell at a later date improve things. So I’m just wondering, do you have any, do you have any thoughts on that? I mean, like, there’s a lot of, you know, there’s a lot of negativity out there about private equity, there are people sceptical over there are people who accuse private equity investors have been vultures. Any thoughts on private equity at all? Andrew, I
Andrew Walker 32:57
think I think back everything, this is a spectrum of private equity companies. And if I could define it in the, at one end of the scale, they probably private equity, who want to buy a good business, and they can offer their investors a better return. So they don’t actually do anything, they try and buy low, and then they provide a bigger return. So if you, if you’re in high net worth individual, and you’ve got a couple of million, you want to check in with some of your mates, you can buy business, and you’ll probably get a better return than you would with the banks. But there’s obviously risk with that. So you get private equity that fill that space, and then manage the company. And sometimes you do find, you know, private equities, they have it for three or four years, and then they flick it on to another private equity, and it just keeps rolling around in terms of, but what they’re doing is giving their their investors a better return than what they would have got elsewhere. So that’s the one scale. Yeah, he got to the other scale, you get the private equity, who are looking for the roller. So for example, there have been a few good ones like that the vets the greed, CrossFit story, where they went around and rounded up all the small private vets and brought them into a single group got purchasing power, and helped them with their business, streamline their processes, and then IPO that and made a lot of money out of it. So you get to two scales and like everything, there’s good accountants, but I in my presentations, I have the good, the ugly, what’s the good, the bad and the ugly? And in that spectrum, you know, it’s the it’s a wide spectrum of people out there all looking to make some money and it’s how they do it.
Gene Tunny 34:40
Yeah, gotcha. Okay. Okay. Now, what are the big business trends you’re seeing at the moment? Andrew, do you have any thoughts on AI, for example, how that’s impacting Oh,
Andrew Walker 34:52
that’s, uh, I think in my area, I think we’ve got a long way to go. You know, everybody’s got this buzzword and we can all look up chat, GP or PIO, and get a big download of a whole lot of stuff. And I think we smart. But I think in the finance world, we’ve got this great opportunity to actually develop AI. But it’s going to take, you have to teach AI to produce what you want, for example, so analysing businesses, financial businesses, and then using AI, to, to benchmark that business against the local industry, in terms of what’s out there. And the National, and maybe the international share prices, exchange rates, all those things could have a big impact as your business is growing to use AI to, to give you some kind of understanding on what to do within your business. But I think we saw a long way before we get to that. I mean, AI is getting implemented in a lot of the software to be able to do that now and the software that I’m using jet ox, they’ve got a module on AI. And so you know, we, the, the corporate performance models are really starting to introduce that. But I think we slow way off. But it’s going to be like steel, steel, steel belt tires versus Canvas, you know, what’s ever going to happen. And when they crossed, it was almost exponentially he went to steel belt. So I think there’s going to be a point where AI will just really take off. Yeah, so what’s jet ox again, that jet ox is the software I use to do that I’ve used to develop my modelling. So it’s a big corporate performance management software, right, that big corporations are using in terms of producing this new way financials, their dashboards, because it can drill into different systems, financial, non financial, the ERP systems, and pull that data in and then create dashboards for for managers and team leaders and supervisors to see where they’re going. But then it also links it to the financial, so then you can start pulling your financial in and have really good quality ratios around using non financial data and financial data and creating activities around how do I improve the
Gene Tunny 37:07
business? Gotcha. Now this, hopefully, you can answer this, I think you can answer this question because it’s something I’ve always wondered. And I’ve sort of vaguely a sort of a vague understanding of what SAP or SAP is that system, what is it and how does it relate to the jet ox? Okay,
Andrew Walker 37:24
so, yeah, that’s, that’s an interesting question, because it blows open a hole. Right? In terms of, if we start on the other end of the scale, you’ve got my OB, and you’ve got zero and all these packages. And they produce financial results. And then what they’ve done is they’ve linked other applications or apps to create other kinds of things around the financials, the payroll, or CRM packages, Customer Relationship Management packages. And that’s it. It’s a very small thing. S AP is right at the top where they try and do all of that for you in one package. Right? Which makes it really expensive. Yeah, because then you also almost are actually customising the software to suit your business. Yes. And the business has changed. I think in Australia, there’s a lot of small to medium sized businesses and SAP are now coming up with as it was, I don’t know how long it’s been out. But it’s a PB one, which is for smaller businesses. Because I’ve seen there’s an opportunity in the market. But you know, all the software you finding, they can’t cater for everything, you’d have a really good software package that looks after an engineering shop is a cut up so they’d have the nesting of how you cut your, your laser cutter to not only one big sheet of steel, you’d want to nest all the products on once you get maximum use of the steel. And all so that’s been designed by a really intelligent engineer understanding that business Yeah, but he has no idea of financials or raw customer relationship. So then you have these add ons. Yeah, where’s SAP tries to do everything in one raw. Okay, so jet oxen sits on top of those, that software not not SAP, where you’ve got an ERP system, you’ve got Salesforce manager, you’ve got a financial package with sage or BB or QuickBooks or NetSuite, whatever it is, and you can draw it and he’s competing in, in the space of Power BI, which I don’t really write in terms of raw of widget oxes because jeddaks is right up there with some of the top players.
Gene Tunny 39:43
Okay, I’m gonna have to look at jedoch so I haven’t come across it before.
Andrew Walker 39:47
It’s new in Australia. Yeah, um, practice. One of the gold partners of Jeddaks
Gene Tunny 39:53
Oh, great. Yeah. Okay. Yeah, definitely have to check it out. I think what what you’re This discussion is highlighting to me just how challenging it is really, if you’re in a corporation, you’re in a business or any, you know, even an SME, just how challenging it is getting across all of the data or the financial and performance information within your business. And that’s why you need to have those systems and you need someone like yourself or, or a team that can actually drive it and make sure all the data are sort of, you’re getting the data you need, and is producing those reports that are necessary to make the decision so you can move in time to take advantage of the opportunities
Andrew Walker 40:35
that are in that it’s very interesting, because there’s so much data coming at us new skill, in my view, is is how to interpret that data quickly. Yeah, and get it in a succinct format to make decisions. Yeah, and now you get in every way you look, whatever you’re doing, there’s a data recording. When you’re shopping at Coles or woollies, or you know, all that’s happening all the time. And so those suppliers, and those manufacturers and producers are getting all that data and there’s a there’s an opportunity or not an opportunity. But it’s it’s a problem, because you can end up with data overload. Ron and organisation. So you’ve got to have the skill to be saying, what data do I need out of all this data? And how do I best presented to understand what’s happening in a trend? Or and then make decisions on it? Yeah, and just coming back to your previous question, genius, you have all these systems. And what I believe is, you’ve got to create the electronic thread through your business. And that that thread takes every single system and it weaves its way through. And once you get this electronic thread, you’re actually creating a competitive advantage that nobody can steal. If you make a product, people will take the product, they’ll reengineer it, they’ll ship it to an offshore country, and have it manufactured and come in and smash your costs to your selling price and, and take your market. But if you’re a business, and you’ve got an electronic pipeline, that links your front end of the business, the customer end right down to cash in the bank, the inquiry all the way through to cash in the bank. And if you if you work on getting that really efficient, what it does is nobody can steal it, they can steal people out of your organisation, but that could actually creates a really good culture. And it also then what it does, it makes your systems efficient. So you can put more volume through that swelling the belly. Andrew, do you have any? And
Gene Tunny 42:37
I know this is almost an impossible question to answer. But do you have any feeling for what you know what percentage improvement across industries we could get from? You know, just sorting this sort of stuff out? Right? For, you know, among, among businesses out there? Because it sounds like, look, there are a lot of the sounds, it sounds like there’s potentially a lot of inefficiency or a lot of bad processes that that need to be fixed up across businesses in even in advanced economies, such as Australia. I mean, obviously, we’re, we’re probably far ahead of businesses and some other countries, but what’s the what’s Do you have a general feel for that?
Andrew Walker 43:16
Ah, I think in the businesses operating with small to medium, you know, Bologna, 100 million turnover. Every business, I walk into this opportunity, every single and but the problem is, is people don’t recognise that the owners believe the business they’ve created, they’ve developed it, and you’ve got to have a catastrophic event to happen for them to say, I need help. And that’s, you know, where were you then get the introduction into going into these businesses, and then creating the opportunity? I think, in every single business I’ve worked in over the last 1617 years in Australia, I’ve created increased wealth for for the owners, what percentage and how does that relate from, from your point of view of the macro environment? I couldn’t I wouldn’t even ever guess at a time. That’s
Gene Tunny 44:06
okay. It’s one of those very difficult questions to answer. I’ll have to look to the economic literature and see if anyone’s tried to quantify that that recently, because there are all sorts of studies of, of, you know, how far firms are from the world’s best practice, or you know, what they call the efficiency frontier? Yep. So I might go back and look at that literature and see what that says, but just just chatting with you. It occurs to me too. I mean, yeah, there could be some real productivity gains that we could make in our economy. And that gets me thinking. And, you know, if you’re thinking productivity, you probably shouldn’t then government, but is there is there anything government should be doing? Are there any policy levers that should be that could be pulled or changes in In tax or regulatory settings, do you have any thoughts on that? You’ve gotten
Andrew Walker 45:04
into the big macro worlds? Yeah, in terms of taxes and reducing taxes. And, and that’s those are all very complex discussions to bring down into something simple. I think, you know, I said to most of my clients say always bitching about paying too much tax. Yeah, I say to them, You know what, the more tax you paint means you’re more successful. So let’s get away from, you know, worrying about that to focus on your business, and drive your business rather than worrying about tax and regulations and things like that. Yeah,
Gene Tunny 45:35
I think that’s a really good point. Now, just going back to our discussion of the risks, and one of the risks is, you’re not you’re not managing your cash, well, you’re not actually accounting properly for the fact you will owe tax in the future. And so so many businesses get into into trouble like that. And now the ATO our tax, our Australian Taxation Office, they’re chasing our businesses, and they’ve been pretty hard headed. Yeah, really aggressive about it. And then that’s what’s driving up the insolvencies to an extent here,
Andrew Walker 46:06
I think that’s a bit of a lag from the COVID era that people businesses that should have gone, gone to the wall then survived through job keeper, those sorts of things. And but I think we now seen that and we also seen the person insolvency starting to come through they also up a lot higher compared to the previous year. Yeah, I think that’s a hangover from the COVID days. Yeah. But you know, I mean, if you look at what why did why businesses, why did they go insolvent or be put into administration? And I would say, 80 to 90% of the time, it’s management, it’s bad management in the organisation, you’re going to have catastrophic events, major data fails on you. But as management, you would have seen it, it’s a large data. How did you do the risks? What risks did you take? Did you take insurance on it? So? Yeah, I think that yeah, in terms of, of businesses, and risks, and cash, if you’re running your business well, and you can see the margins and you’re getting monthly reporting happening, that is where you actually drive the business. But if you have a bookkeeper who’s been doing the work and is now in that elevated position, they don’t understand the importance of of producing results three or four days after month in and out of interest from Alan Jackson and and if you know Alan Jackson, he used to sit on the reserve, the Australian Reserve Bank, O ra going back, I don’t know 2025 years ago, when I was going through the BTR thing I had to ask the comptroller for Africa for Dunlop, and three days off the mantained i to produce to London, a set of turnover and operating profits for the Dunlop business in Africa. Yeah, in seven days, I had to produce a set of financials three way with the reconciliation waterfall analysis. And by day 10 We were in the boardroom was Alan Jackson and he wasn’t a con man. He was a real driver. He took the business from, I think about 700 million to $3.4 billion and increased operating profit from I think 14% of sales up to 16%. So he drove that business but one of the real principles on that was monthly financial reporting as quickly as possible and if you didn’t get it I tell you the phone was red hot. Yeah,
Gene Tunny 48:25
so just what was the abbreviation BTR a
Andrew Walker 48:29
Bter? BT and Alex I think Australia as BT in the UK, the listing was BT RPL and yeah, so um, Dunlop. They had a lot of businesses. The African element was, was all around the Dunlop products Slazenger, golf balls, cricket pads, rubber conveyors and all that sort of thing. We used to call it blood tears and repression. And Alan Jackson was, yeah, Alan
Gene Tunny 48:56
Jackson was the CEO to look at look it up. And that it was that an operating profit? Increase? You’re talking about like it sounded. There was hugely impressive. Do you know how that roughly what he did? I mean, it was at all he went on acquisitions.
Andrew Walker 49:11
Right. And he grew the business through acquisitions. But then there was a very strong once I’ve taken over a business, I had a very clear plan. Yeah, this is what’s going to happen. That done the due diligence properly, okay, people that needed to go left on the day, they had the team that were taking over stepping in. And then I had the financial performance, the last three years driven to their standard, and you were expected by the next month to be reporting in their level and they reviewed him and he’s his CFO, Kathleen O’Donovan. Yeah, they used to just keep going around the world. All the locations, so we, we, we’d seem Tinder is regularly or every month in and they would be going through our financials because they had standard throughout the world. So yeah, say the financials in a When I was running the Zimbabwean business we had, we had, we had a coffin business in Zimbabwe, it was prospering because of the, the Isaac. But we had a set of financials, which would have been the same as a company in Coventry, producing CV joints. And that’s how they drive the business. And that’s why finance departments and good financial people in your organisation are important to take it to the next level.
Gene Tunny 50:26
Yeah, it sounds like they were very hands on. You said they were travelling and visiting the businesses. Yeah. Yeah. That’s fascinating. Yeah, not to have to look, look more into that. Anything else we’ve we’ve missed Andrew. I mean, I’ve enjoyed learning about all of this. And it’s, it’s made me think more about the the, you know, the importance of understanding your what is driving profitability, and really getting across that. And then all of the data, the the number crunching that needs to be done, and
Andrew Walker 50:57
let’s come in, as I’ve just said, every month, you’ve got to be reviewing that every month, because people they get one month, and then it just wanes, going to have that, that, that good discipline, and routine happening in your business to then take action to make sure you you’re taking the action in a timely manner. The other thing I think, is, what I found is a lot of businesses don’t actually look at cash flow. And then try and project it forward and come across a lot of financial people, it’s too hard to forecast your cash. Well, no, you do the best you’ve got with the current information. And then you keep tweaking it. And every time you’re doing that you’re getting better at it. And I always say to my clients, when I come on board with them, let’s get the cash flow, three months, six months ahead. So we can know in three or four months time we’re going to hit a problem. Yeah, you can deal with it now. Other discount your products, get cash in or, or have a chat to the ATO and try and extend your terms of payment or whatever, or talk to the landlord. There’s lots of ways to manage your cash and that seems to be lacking. Yeah.
Gene Tunny 52:01
I mean, I do that myself in my business. Just because I’ve learned what one I’ve learned from experience, it’s important to do it and, and to we also did it in in government in Treasury because we needed to make sure that the the Australian Government had enough money, like day to day in the, in the official public account, the Reserve Bank, so the the team at the Australian Office of Financial Management used to do a detailed daily cash forecast for the Australian Government. And yeah, they, you know, they managed to do it. And, you know, the Australian Government is being hit by all sorts of shocks all the time. So, yeah, I think the Australian government can do it, your own small business can do it. That’s a lot less complicated than the Australian Government. I’m
Andrew Walker 52:45
sure it is. But yeah, but that’s a key element of of understanding your business. And that’s from the finance department.
Gene Tunny 52:51
Yeah, absolutely. Okay, Andrew, this has been terrific. Any anything? We’ve missed anything else you’d like to add?
Andrew Walker 52:57
Um, no, not really. I think I mean, there’s a lot of topics we could feel like talking down going down different elements of this. But yeah, and I think for business now is, you know, if we look at it, look at your finance department. And I’ve been doing some, some presentations to different groups around the blank box, opening the financial blank. And I get, I get the CEOs that come to the thing, the presentation to score the finance departments in two different ways that gut feel, yeah. And then score on performance around management accounts. How long do they take? Budgeting, forecasting? zero based budget? All those things? Yeah. And I think I’ve probably, I’ve just I’ve had present, I’ve done presentations to probably about, it must be in excess of a billion dollars of companies all added up an annual turnover. And, you know, What surprises me is it’s 50%, the satisfaction ratio of the CEO, and his finance department is a 50% level. That is, that is frightening.
Gene Tunny 54:06
Yeah, at the moment that the current labour for you
Andrew Walker 54:09
Yeah. And then I go through the whole process with them. And then, and then are related back. How much are you paying these people? Yeah, and you only have 50%. And it’s funny, I said to the one guy said, If you bought if you bought your fancy Maserati, yeah. And then any came was one wheel, how would you feel about it? So, you know, you’ve rented your finance department at 50% value producing the car with two wheels, you know, and so, and I think that’s where I have a problem. It’s my own profession, you know, but I think there’s a really there’s no real standard in in in how financial departments should perform. You look at it manufacturing, they have to produce the product with quality, service with quality or the report with quality. When it comes to the finance department. The scale of a printout out of the system, which is used is used There’s a chocolate via God to a proper set of financials. It is just so broad and a lot of CEOs don’t actually understand it. And so I spent a lot of time on doing presentations to make people aware. What should a good financial department deliver? Okay,
Gene Tunny 55:15
I want to put some links into if there are any presentations you’ve got in the public domain, Andrew, I can put links to them. And I’ll also put a glossary and we’ve covered some yeah, there’s some interesting new terms the the delivery in full on time the die fight. I love that. I’m going to start using that. And the bomb the vom the bill of materials. That’s a good one, too. Very good. Okay. Henry Walker. Thanks so much for your time. I really enjoyed the conversation.
Andrew Walker 55:44
Yeah, that was good to be a gene and always happy to come back and maybe explore a sliver of dollars because there’s a lot of detail in this. Absolutely.
Gene Tunny 55:52
I think I think we might have to do that. So Andrew again, thanks so much. Yeah, thank you, Rod. Oh, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
56:46
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.