The Case Studies detailed below are from actual Dial a CFO Associate engagements and demonstrate breadth of skillset and the positive change management arising from the assignment.
CASE STUDY A: CLIENT OUTGROWS INTERNAL FINANCE RESOURCE
Opportunity
Resignation of senior finance resource creating immediate need for cover.
Engagement
The Financial Controller held the senior financial management position in the company, having been promoted throughout a long tenure with the business. The business grew exponentially over a three year period and the Board of directors grew increasingly uncomfortable that the Financial Controller lacked the necessary experience to handle the increasingly complex stakeholder engagement. The decision to appoint a commercially focussed CFO was made and communicated to the Finance team, whereby the Financial Controller resigned requesting a short hand over. The Dial Associate was “parachuted in” very soon after to cover the interim period while the recruitment process was undertaken.
The risks and rewards at stake
The risks were that the Board was not being provided correct information regarding the financial performance and position of the company. Also, that an appropriate governance infrastructure was not implemented, meaning that visibility and comprehension of business risks were neither understood nor managed. Finally, that any commercial decisions were not given the rigour required prior to any commitment being made.
The cost to complete
The Associate was engaged on an hourly rate of $100 per hour plus GST for approximately 40 hours per week over an eight month period.
The process adopted
An initial review of the Balance Sheet highlighted a material misstatement across a number of accounts that when adjusted eliminated three years of after tax trading profit, the restated number closely aligned with a dwindling bank balance further illustrating that trading margin was unsustainably low. This initiated in a body of work to improve profitability where the Dial Associate led and in some cases completed projects.
Given the adverse restatement of the financials resulted in non-compliance with banking covenants, the Dial Associate negotiated revised covenants that were more appropriate and relevant to the Client and the bank as well as an agreed timeframe for achieving compliance.
Additionally, a body of work ensuring that the Financial Statements were IFRS compliant was initiated by the Dial Associate.
It became evident that the business had outgrown its legacy year end and tax chartered accountants so the Dial Associate initiated and conducted an audit / tax RFP resulting in a prominent 2nd tier firm being appointed.
Similarly, the Delegated Authority was impeding critical decisions being made so the Dial Associate developed and presented to the Board an alternative which was passed with small amendments, which decentralised decision making and empowered 2nd tier managers.
Other initiatives included:
-
Implementation of a whistleblower policy and procedure in conjunction with KPMG Forensic;
-
Investigating options regarding capital restructuring which resulted in the decision to initiate a public float process;
-
Oversee the prioritisation and implementation of a number of technology projects;
-
Implementation of a revised treasury framework;
Time period over which this was completed
Eight months full time
Achievements and enduring benefits from the engagement
This enabled visibility of a deteriorating operating performance which if not identified would have severely compromised the viability of the business. Stakeholder confidence was achieved and resources deployed in a more effective manner.
Learning opportunities for the Client
Key learning opportunity is that quality high level finance resource pays for itself.
CASE STUDY B: HIGH GROWTH BUSINESS EXPANDING IN TO NEW MARKETS REQUIRING NEW CAPITAL
Opportunity
Start-up company reaching several important decision points on growth path – Dial Associate engaged to work with CEO and advisors to achieve optimal solutions.
Engagement:
In early 2010 this New Zealand based start-up in Biotechnology field was already dangerously stretched. Manufacturing was based in China, markets for the products were in North America and cumulative cash flows were negative. The CFO resigned and an experienced CFO (now Dial Associate) took over for an 18 month assignment.
The risks and rewards that were at stake
The group needed investment from within the industry where longer term value would be created. However, the mix of founders and more recent ‘Venture’ type investors with conflicting agendas caused conflict and internal dysfunction. Furthermore once such an investor was identified and brought on board, more disciplined approaches to strategic planning/financial reporting/governance were needed for which the Group had very restricted financial resource.
The cost to complete
In this case a Dial Associate with the required and relevant skills was available on a part time basis, otherwise at least two senior resources in law and accounting would have been needed at a combined cost of approximately NZ$300k.
The process adopted
Once 2010 statutory group accounts were completed work began to accelerate negotiating investment and supply contracts (through due diligence phase) with a major US and UK based industry participant. Once contracts were finalised, the Dial Associate coordinated preparatory statutory work (revised constitution, several shareholder issues and complex voting agenda at the AGM). The Dial Associate undertook a review of group wide transfer pricing arrangements /intangible property and engaged valuation work in the USA and New Zealand which resulted in better alignment of ownership with functional location.
The Associate recommended a mandarin speaking, New Zealand based CFO to lead the finance function in the future and this was implemented.
Time period over which this was completed
18 months part time
Achievements and enduring benefits from the engagement
2010 and 2011 statutory accounts, AGMs (the group is widely held) plus US and New Zealand tax obligations met. US$3M rights issue to New Zealand, US and People’s Republic of China (PRC) based shareholders. Execution and implementation of subscription agreement (new share class) plus 5 year supply contract with US based industry player. The re- alignment of Intellectual Property optimised utilisation of tax losses across three jurisdictions (New Zealand USA and PRC) preserving NZ$500,000. The Dial Associate upgraded the monthly reporting and management reporting packs to meet requirements of local executive team and several investors - also engaged and implemented a global cash flow platform with an international bank to simplify the control of cash on hand in all three countries from the New Zealand head office. An appropriate CFO was located and engaged (from the Associate’s contacts) to take over from late 2011.
Learning opportunities for the Client
The key learning opportunity was that Dial a CFO can provide multi skilled well connected senior finance resource able to covered reporting, tax, treasury and governance.
CASE STUDY C: ASSET IMPAIRMENT REVIEW
Engagement
The company contacted the Dial Associate directly who was known to the client to undertake an impairment test in accordance with IFRS requirements.
The risks or rewards at stake
The company faced the potential write-off of up to $2m of goodwill. This was in respect of operating assets that had been acquired in the previous three years but which had not been performing to expectation.
The cost to complete
The full project was charged at $8,000. This is estimated to be less than half that commonly charged by a large CA firm for a similar project.
The process adopted
The project required an impairment test of several operations in the hospitality sector, several of which had not been performing to expectations. The project required a review of actual financial performance, consideration of operating and earnings forecasts, the allocation of asset values, the determination of appropriate discount rates, and the identification of applicable cash generating units. The project also required site visits to interview management and to physically view the operations and refurbishments.
The time period over which this was completed
The project entailed six days of chargeable time over a period of five weeks.
What was achieved and enduring benefits from the engagement
This resulted in successful arguments against taking impairment write-downs that were accepted by the company’s external auditors. It also allowed the CFO to concentrate on other year-end projects.
Learning opportunities for the Client
The client gained an understanding of impairment test work, including the determination of independent cash generating units. This enabled the client to undertake the test using the templates provided at the subsequent balance date.
CASE STUDY D: DISTRIBUTION CENTRE RATIONALISATION AND CONSOLIDATION
Engagement
Recognition of inefficiency of four separate locations in Auckland – a national office/Distribution centre, sales office, smaller distribution centre/sales office – need to consider relocation options. A “once in 25 year decision”.
Project role – internal lead role comprising development of economic case for recommended solution, obtaining required US parent company approvals, managing RFP to market for new purpose built premises, appointing and managing all external experts to completion (Development PM, lawyer, etc), negotiating long term lease, appointing and managing all internal project resources to completion, internal communications, external publicity.
The risks and rewards that were at stake
Risks – 400 staff including national office support teams, $15m of inventory, servicing 50% national Client base, national IT data and communication centre.
Rewards – modern efficient premises and equipment, significant cost savings, significant soft savings, room to grow.
The cost to complete
$150k relating to Associate throughout engagement relative to the following:
Project dimensions - $35m commitment - $25m lease, $10m fit out capex, development build circa $30m.
The process adopted
Role required significant internal coordination working with the wider management team to ensure engagement and by-in.
The time period over which it was completed
Initial work completed over a year developing the options and economics – maybe 0.1 FTE. Most project work completed over a two year timeframe, c 0.1 FTE in first year, 0.5 FTE in second year including full time in three months prior to relocation.
Achievements and enduring benefits from the engagement
Successful relocation project delivered on time and within 5% of budget, all major required outcomes achieved, significant cost savings and soft savings achieved.
Learning opportunities for the Client
Significant up-skilling of internal resources in project management skills, experiences outside of their normal roles, long term changes to property management processes, contract review and supplier management. Many of the disciplines learnt now embedded across their property portfolio and far more willing to tackle what would have previously been seen as too hard.
