The New F*Word

Colin (00:00)
All right, welcome to another episode of the new F Word. And it's great to have with me as a guest today, Kevin Steele from Clarendon. And Kevin, why don't you tell us a bit about yourself and how you ended up in this role?

Kevin Steel (00:17)
Sure Colin, thanks for the introduction. I'm glad to be here. So my background is I worked in various roles in practice and industry while qualifying as a Chartered Accountant. Then I set up my own firm in 2015. I grew that to a few hundred clients, then sold it in 2019. And then took maybe 12, 18 months, kind of just chilling, do some consulting work at the side, and then took on a longer term role at a tech startup. And then,

After that, I took on again another longer term role working for a multi -entity group who were quite heavily focused on M &A. And then after that, decided to set up my own firm, which is now Clarendon Finance and Strategy, in partnership with my business partner. So the idea is that I do primarily the fractional CFO stuff. My business partner, he's an M &A expert and he handles the M &A side of things. So it's quite a good combination for the value chain.

we've got kind of the fractional CFO in the middle, we've got the M &A at the end, and we're maybe thinking about acquiring an accounting practice, so we'll see how that turns out.

Colin (01:25)
Right, yeah, because you're a fully qualified accountant as well. And I guess not every CFO, fractional CFO will be. Do you feel that that's an important thing for you to keep up? Do you just, do you resent paying the fees every month for that? Or are you happy that, you know, does it feel like it's still a useful part of the toolkit?

Kevin Steel (01:35)
Sure.

Yeah, I would say it's a useful part of the toolkit in terms of kind of that recognition when approaching slash speaking to potential clients. However, I would add the caveat that there are many, many very, very good non qualified accountants that can do just as good a job as a qualified accountant. But certainly having the in my case, the kind of ACCA to put against your name, it does help with that initial credibility for sure. And the ACCA do kind of provide some good ongoing CPD.

learning materials, that kind of thing. So yeah, I don't regret it, but it was a long hard slog to get there, but yeah, I definitely don't regret anything.

Colin (02:27)
And you're based in Scotland, same as us, which is fantastic. Does that mean you focus in Scotland or are you all over the UK, the world?

Kevin Steel (02:42)
Yeah, definitely. So I am based in Scotland up in a not so sunny Aberdeen and I operate remotely. So we don't have an office or anything and I just operate 100 % remotely for clients throughout the UK. Do I even have any clients in Scotland? I don't think I do actually know. All my clients are based in England. So that kind of ties into why fractional CFOs kind of they're becoming a lot more prevalent in the market these days.

because of the kind of rise of technology and remote working. Like for example,

It may previously companies might be a bit reticent to kind of hire somebody working remotely, especially in a kind of C -suite role. But there was a lot of unfortunate things about COVID. But one thing is it made the kind of general market for remote working a lot more accessible. And that kind of benefits the fractional executive definitely for sure. And again, linking to the technology side of things, tools like Xero, Float, et cetera, make jobs easier.

for Fractionals a lot easier these days than say 10 years ago, maybe 10, 15 years ago. You may have to kind of drive to your client's office, have a look at the books and records, maybe not 10 years ago, a bit longer. But as technology get better, it kind of allows Fractionals to operate on that remote basis for sure.

Colin (04:03)
Yeah, yeah, I mean, that's the thing. It does feel like it's COVID was the kind of almost catalyst for so much of this. When did you set up the firm?

Kevin Steel (04:12)
Mmm. Yeah.

So the firm was only set up recently in January. So we're a fairly new firm. But I've always worked remote. So when I set up my first firm in 2015, that was 100 % remote as well. And that was servicing clients, again, all throughout the UK. So that was pre -COVID. But it did seem to work quite well. I actually did hardly any advertising or marketing spend for my first firm. It was just all focused on client delivery, just communicating well, getting

getting things done super fast response times and it grew pretty much 98 % through kind of organic referrals. And if you're getting that kind of organic referral from an existing client, okay, I operate remotely with this guy. I've never needed to pop into his office to see him. In my case, didn't have an office, that kind of thing. So, yep.

Colin (05:04)
So what was the kind of catalyst for you then to set up the Clarendon and what was the story there?

Kevin Steel (05:14)
Yeah, sure. So I decided to set up because I wasn't kind of longer term engagements. That was kind of a more.

involved really in the companies I was working for, kind of in the C suite, kind of really in the trenches with those companies. But I decided, okay, what I like doing is I like a variety of work with different clients as opposed to like one to two main clients kind of thing. So I decided to kind of set up Clarendon to kind of more focus on working with different businesses and adding value. For example, some people's hobby might be painting, drawing, reading books, my hobby is working with businesses.

to kind of help improving them so the more kind of exposure I got working with multiple different clients then the better because that's what I like doing just being exposed to as many different industries as possible helping as many people as possible to do as good as they can.

Colin (06:05)
Yeah, makes so much sense. And how has it been? You know, like you say, most of your I see you're quite prevalent on LinkedIn. Is that your kind of primary channel for for acquiring a new client or like what percentage is it coming that way versus word of mouth?

Kevin Steel (06:22)
Yeah, definitely. So I would say a very high percentages coming from LinkedIn with the company only officially launching kind of end of January or start of February. I've always found when it comes to marketing for a fairly new firm slash company, it's best to focus in on one kind of area for marketing first. My kind of opinion is that businesses that are kind of below that one million mark, founder led marketing is absolutely key. For example,

I wouldn't waste money. I wouldn't say waste money is maybe the wrong term, but I wouldn't focus money on Google ads, LinkedIn ads, SEO, that kind of thing. It's just a case of do that founder led marketing. People buy from people. And in this case, I'm the lead fractional CFO at the moment. So basically people are buying me. So the more I can kind of focus on LinkedIn, providing value, I prefer to kind of post about CFO stuff and kind of provide value in a way that's simple to understand, because that's one of the key.

things not just on writing posts on LinkedIn but actually engaging with clients. Kind of sounding like a corporate robot or sounding like you're basically chat GPT kind of thing.

Colin (07:25)
Yeah.

Kevin Steel (07:33)
It's not great. One of the kind of key things I've always found is the simpler you can communicate something, the better. Trying to speak in like clever language, et cetera, it doesn't make you clever. It just makes you harder to understand. And finance is a technical topic anyway. So fractional CFOs who can kind of explain technical topics in a simple way can add a whole lot of value.

Colin (07:57)
Yeah, no, absolutely. And I think I totally agree with you. I think you're absolutely right. You know, when you see the human side of it and you see somebody posting and you sort of there's so many people I think that now where I find that I want to work with just through their posts on LinkedIn. And it is hard for some people to and it was hard for me as well to kind of get over that initial hurdle of putting yourself out there. You know, how did you find how did you finally like

Kevin Steel (08:16)
Mm -hmm.

Oh for sure.

Colin (08:26)
what kind of forced you over the edge like to tick, you know, it's not easy for people.

Kevin Steel (08:33)
No, it's definitely not easy. It's just kind of, it's an irrational fear to be honest. It's just a case of like when, when you first think, okay, right. I'm going to start putting out some content on LinkedIn. You think, Oh, my mates are going to see this. Oh, I'm going to get the Mickey taken out of me down the pub, that kind of thing. But once you start posting it, you kind of realize people only care about their own world. Like for example, if you see somebody else pulling to posting on LinkedIn or whatever, you're like, okay, it's cool content. You don't think anything bad about them, so to speak.

So it's just a case of, it really is just an irrational fear. And the best way to go over it is just put yourself out there and just start posting content. And then after the first or second week, it just becomes natural and you start to enjoy it. Instead of being scared of it, you start to enjoy it. And it just becomes, yeah, second nature, like having breakfast in the morning.

Colin (09:21)
Yeah, yeah, absolutely. Yeah. And so, so we're seeing like we're seeing this rise of fraction rules. And I was actually part of a of a group chat this morning where a couple of founders were sort of asking the question, you know, who do I need in my team? Have you guys hired a seat, a full time? Do I need a full time CFO? Do I need a fractional? Do I need an FD?

Is it a finance ops person? You know, what, what do you typically see the journey as for the companies that you work with in terms of the different types of people? And, you know, are you the only, do you do everything or do you typically recommend they bring somebody in house? Like what, what would your advice be to that company that are in that maybe in that stage of the million, you know, Mark starting to, to, um, to think about scaling up.

Kevin Steel (09:52)
Mm -hmm.

Yeah, definitely. So it can be very sector specific and kind of does depend on volume of transactions, et cetera, et cetera. But basically the kind of journey for businesses, they will of course kind of start with a bookkeeper who's basically the custodian of clean data, so to speak. And then kind of accountants to deal with the compliance stuff and maybe start offering some tax advice. And then once they get to maybe the million mark, they're probably going to need somebody, somebody maybe just a little bit above a bookkeeper, perhaps not a full

time financial controller, but somebody kind of.

Round about that level, a really good, really experienced bookkeeper may be able to do that because for the fractional CFO to do their work, everything comes down to clean data. Unless that data is clean in the background, the fractional CFOs, their wings are completely clipped and they can't do any kind of accurate projections, any kind of accurate forecasting. So kind of at that million mark, definitely like either a very, very, very good bookkeeper or perhaps one or two or a kind of financial controller.

to get in there or indeed.

if they are approaching a fractional CFO firm who can offer bookkeeping as well, that dovetails very nicely because the fractional CFO firm will have bookkeepers, we do in this case as well, who can handle all the bookkeeping side of things, rearrange the chart of accounts in a way that will actually be able to provide insights to the business, because that's one of the key things I see when I first look at a company. The chart of accounts, especially around about the million mark, is arranged in a way that the year -end accounts and corporations

tax will be able to be calculated correctly. However, is the data actually arranged to make this to make business decisions? Like one of the key things is you might see salaries just posted under one line of salaries. But hold on a minute. Some of those staff are part of cost of sales. So therefore the gross margins incorrect xyz abc 123. So like that's one of the main things at the start is really getting that quality of data and arranging it in a way that the business can make good decisions.

Colin (12:19)
Yeah, it makes sense. I love that about the everything comes down to clean data and assume like everybody has said, like that the crucial role of the bookkeeper is just seems to be, you know, it's almost it used to be. I think I think it used to be something that different people kind of saw as almost like an afterthought before we'll do the, you know, the VAT or the month and we'll just get the bookkeeper into.

Kevin Steel (12:26)
sure.

Colin (12:45)
to tidy things up and actually it seems to be that rule seems to be evolving into this kind of regular like a couple of times a week. Just tidy it up, go and do the bank reconciliation, set up something like, you know, Dext or to capture data so everything's flowing in. It's very quick to do.

Kevin Steel (12:53)
Definitely.

Mm -hmm.

Yeah, I would I would totally agree with that. Um, like um bookkeepers I think other perception of bookkeepers is slowly changing and that's a good thing. Um, pretty much like you said bookkeepers kind of just used to be viewed as okay fine They're just coming in there go click click click. Okay. Okay. Okay A lot of people might think it's it's it's it's kind of a low value function But it is so so so not a low value function a book like a really good bookkeeper is worth their weight in gold. It is such

an important thing because it comes down to garbage in garbage out like I mentioned before if the bookkeeping is reconciled incorrectly etc it's garbage in and that means any analysis is going to be garbage out so a good bookkeeper is really really really worth their weight in gold and a severely undervalued function in my opinion.

Colin (13:56)
Yeah, no, I totally agree. And do you have a network of bookkeeper? Do you do the bookkeeping yourself in house or do you like, how do you approach that?

Kevin Steel (14:06)
Yeah, so we've got a bookkeeper that kind of helps us in -house and some clients do prefer to kind of do it themselves. And if the clients are do it themselves, then we'll actually check in once a week. So we've got a kind of recording task set up in practice management system going, okay, every Friday go in, check the bank regs, check the postings. You can use tools like you mentioned Dex before, Dex Precision for example, do a quick scan, check everything's okay. And are there any duplicate supplier contacts, customer contacts?

VAT, has it been recognized correctly, that kind of thing. I generally find that weekly check -in is best if the client's kind of doing the bookkeeping themselves. And then just find a quick email to the client or the client's bookkeeper, just saying, hey, I've had a quick look at the bookkeeping. I've noticed XYZ, ABC, and you're kind of de facto training the client's bookkeeper as well. And it gets better and better and better as it goes along. So yeah, two ways to be done.

Colin (15:02)
And if you can, if you find, is there a point at which like a company will grow you where they'll, you know, they'll sort of decide, no, we need to bring somebody in -house full time or what would sort of seems to be, how does that work?

Kevin Steel (15:18)
Yeah, definitely. I generally put the limit on the fractional CFO round about that 15 million mark. Again, it is very dependent on the sector kind of thing. But generally at that point, I would be saying to a client, look, you're expanding rapidly. You've been working with fractional CFO for, let's say, 12, 24 months or whatever. You already have good system in place, that kind of thing. My own resources are being strained working with you kind of thing. And I really think it's best.

if you kind of got a full -time CFO because you really need that person to come in and really kind of spend that 40, 50, it was a startup 60, 70 hours a week kind of looking at things because the role of a full -time kind of CFO, it does tend to kind of bleed into other areas of the business as well, especially kind of operations, strategic oversight, kind of troubleshooting internally. So yeah, I would generally recommend running at that point. But again, it is highly specced sectors.

specific ad and company specific of course that's just a very kind of broad stroke number.

Colin (16:19)
Hmm.

Yeah, yeah, no, but that makes sense. And do you I'm just thinking for people who might be thinking of moving to becoming a fractional CFO or or taking the leap and setting up their own company. You know, how do you think about things like your capacity? You know, and maybe some people think, you know, I was working in a startup and it was burning me out and I just want to take on less hours. So, you know, maybe a couple of clients, you know, four to five hours. You know.

month or whatever and that'll be me. But what about a do you ever worry about not getting enough work or getting too much? How do you how do you manage the capacity?

Kevin Steel (17:03)
In terms of capacity for fractional CFO, especially kind of at the level I operate between that kind of one to 50 million. One thing I would comment on for anybody thinking about doing that is to be aware that if it's the first time that a company's thinking of hiring a fractional CFO, a lot of your work's going to be front loaded. Like I said, kind of before in terms of the quality of data, et cetera, you're going to come in and you're going to need to do a lot of work, maybe

rearranging the chart of accounts, kind of understanding the actual business's strategy because of the excellent CFO. It's not just about kind of doing the forecasting, doing the budgeting, that kind of thing. It's about understanding the strategy of the business and linking the finances to the strategy. Very, very important element. So a lot of the work will be front loaded, especially in that kind of, I would say five to six weeks, especially. So in terms of capacity planning, that's one thing to always bear in mind that the front loading.

is there but since we have such good good software solutions like float on the market and that can help monitor things going forward that means once the setup work is done it becomes a little bit easier as the months go by because you've automated a lot you've automated a lot of stuff in the background you've got the chart of accounts the way you want you've got the data flow in the way you want you you're kind of starting to understand the strategy of the company so you're really just kind of monitoring a lot kind of thing and then if the business is thinking

about perhaps a capital allocation decision, XYZ, ABC, then you can kind of get involved at that point. So that would be the kind of key thing I would say that the first kind of five to six weeks, sometimes a bit longer are going to be front loaded.

Colin (18:44)
Yeah, and do you factor that into the cost or do you kind of let that just sort of smooth itself out over time?

Kevin Steel (18:53)
Yeah, I smooth that out over time basically to de -risk the initial engagement for the client. Fractional CFO is still quite a new kind of thing on the market and a lot of clients think, well, okay, I've already got my accountant, I've already got a bookkeeper, my accountant maybe sends me a pack of management accounts every month. So really what kind of value can you add kind of thing? So I tend not to charge a setup fee. A lot of people do and perhaps maybe I should start thinking about that.

but I don't currently at the moment. I prefer to kind of just add the value upfront and smooth the cost out throughout the year. Cause on the understanding that a lot of my work will be front loaded, but maybe in month five or six, I'll be doing a bit less.

Colin (19:36)
Yeah, it makes sense. So you tend to work on a rotator basis of just a fixed beat. Yeah.

Kevin Steel (19:43)
Yeah, exactly. Just a fixed fee retainer basis kind of thing. And if the business, let's say, does take investment or it does or does seem like they need a lot more time, let's say in month six, they're going through an acquisition or whatever, then we would maybe think about flexing that kind of fixed fee, maybe up or down a little bit or a one -off invoice. So it's kind of reactive to the needs of the business, which is one of the key things why a fractional CFO is good for a business. They can kind of flex up or down as required.

Colin (20:10)
Yeah, yeah, absolutely. And what are your views on cash flow? We have to talk about cash. I know, you know, you're you'll be doing that kind of report. Have you seen, you know, companies moving needing that more so in the last, you know, couple of months? Or is it been, you know, did the company or your customers asking for that is something you have to educate them on? How does that typically work?

Kevin Steel (20:39)
Mm.

Yeah, I would say that word you mentioned there education is the key point. Business owners generally experts at what they do amazing in their domain. Not everybody is kind of boarding like me and loves finance. So a business may think, OK, there's my net profit over the last whatever months. OK, cool. That's much tax I've got to pay. That's so much I can spend on whatever. But that's not the case. There's things in balance sheet that need to be taken into account, etc, etc, etc. So like the main thing is educating clients.

on cash flows so they can make capital allocation decisions, which is the absolute key thing. This is on the assumption that the business wants to grow. So capital allocation decisions. So after they've accounted for cash inflows, outflows, tax outflows, dead outflows, et cetera, they'll kind of have free cash flows. So what should they use that on? Should they hire another marketing person? Should they look at an acquisition? Should they do something else kind of thing? And.

And that's something else all links back into the strategy of the business, which links back to what I was saying before in terms of strategy being super, super important. And it works in conjunction with finance. So kind of that's why we say cash flow is really, really, really important because different businesses have different names. Some businesses are looking for kind of slow and steady growth. Other businesses are looking for hyper scale. So the cash flow capital allocation decisions will depend on the strategy of the actual business itself and the

and indeed the actual end goals of the shareholders. Are they looking to cash out in three years? Are they looking to, again, just grow slow and steady? It all factors back into the strategy.

Colin (22:22)
Yeah, absolutely. Brilliant. Well, is there anything else we haven't touched on that you want to get into a little bit about your journey or any advice you would give for people that are thinking about moving into the road or businesses that are thinking of taking somebody on?

Kevin Steel (22:40)
Yeah, sure. I can actually do a quick screen share here at the moment. And I can show you and the viewers, it's kind of a mind map based on the business model canvas. And it's actually part of my discovery session when I'm going to engage with a new client. So I will just share screen just now. So share screen, share window, and I want to share this one.

Colin (22:42)
Crit.

Kevin Steel (23:13)
Okay, so hopefully you should be able to see that okay. Perfect.

Okay, so this is a mind map template that's based loosely on the business mobile canvas with a few of my own kind of questions thrown into the side. So what I do is after I've had an initial kind of 30, 40 minute call with the client, I'll arrange a 60 to 90 minute session and I'll run through this in the client's business. So I do this live on the call. So I ask these questions and as the client answers, I'll kind of type out in real time kind of thing. And then at the end of the call, this mind map template

will be like a huge tree of information. So we kind of run through this really, really quickly. So we'll cover kind of what does a business do? What's the infrastructure? So key activities, key partners, key resources, the customers for who is a business creating value, who are the most important customers, B2B, B2C channels, which channels are the customer segments reached by, how are they integrated, relationships, how does the company establish or maintain relationship with the segments, how costly are they?

And then we'll do a quick kind of high -level overview. This is before looking at the client's finance system. So revenue, current pricing structure, added deals, discounts work, what are the most profitable revenue streams, et cetera, et cetera. Cost structure and then margins. This question is thrown in here to kind of gauge the client's understanding of their margins. So I kind of ask, what's your average gross margin? What's your average net margin? And that kind of gives me an understanding of the client's financial skill.

Then I'll move over to the left -hand side and that's some key questions So what are you aiming for? Is it to scale aggressively or slow and steady growth? What are the three -year? What's the three -year goal for the business? Do you have a revenue net profit figure in mind? If so, what are the main things that might stop this being achieved? What's your biggest frustration right now? What's the number one priority in the next few months? And what does your personal journey look like over the next few years this questions especially in?

because a client's personal journey and a client's business journey may be two kind of separate things. So it's important to ask this question. And then I kind of round off with a systems map at the end, which asks what are the core systems that the business uses? And then after that, what I generally tend to do is then request guest access to the client's accounting system. So whether it be Xero, QuickBooks, whatever. And then I'll use the information from the mind map.

and I'll use the information kind of I gained from my analysis of the clients accounting system and then I'll send a long email usually about 1500 to 2000 words and it brings together everything and it goes okay cool so based on everything you've told me about the business your strategy and based on my own analysis of your finances this is what I think and here's a 30 60 90 day plan and what I want what I can do for you and then generally the client will hopefully accept the fee code.

Colin (26:18)
That's so good. Did you come up with that yourself or did somebody teach you that?

Kevin Steel (26:19)
after that and we'll get rocking and rolling.

Now I just, I came up with it myself. I mean, it is based on the business model canvas, which a lot of the stuff from the right hand side came from. But I know I basically, I think in mind maps, I plan in mind maps. That's just basically the way my mind works. So I've been doing, doing these for the last kind of 20 years kind of thing. So yeah, I just kind of use the business model canvas as a template and then added in some of my own stuff on the left hand side. And the client gets a copy of that full mind map as well. And even if they don't sign up as a client, one of the key things I've found in terms of

Colin (26:28)
Yes. Yes.

Yeah.

Kevin Steel (26:57)
feedback as well. I should have kind of done this high -level exercise on my business a long time ago. So the worst thing a client goes away with is a mind map analysis, a financial analysis, and if they want to sign up, then cool, good luck, and hopefully my information is useful to them.

Colin (27:11)
Yeah, brilliant. Oh, that's so good. I think having a system, anybody who's thinking about setting up, it's such a good way to build like repeatable practices. And ultimately, if you bring somebody else in to the business as well, then they can work through that system. And you know, it's just, it's all part of the growth stocking, isn't it? It's brilliant. Well, look, thanks so much, Kevin, for coming on to the new F word.

Kevin Steel (27:35)
Mm -hmm exactly totally

Colin (27:40)
really great to explore just this rising trend of what's going on at the moment and really value your contribution and your posts. And just, yeah, hopefully, you know, we'll see a lot more of you and really wish you all the best. So, yeah, thanks again for coming on.

Kevin Steel (27:42)
Pleasure.

Thank you sir, very much appreciated and I hope your viewers and listeners have found this useful and somewhat enlightening.

Colin (28:07)
Brilliant. Awesome. All right.