Would you fly on an airplane without a pilot?
What would the symphony orchestra sound like if the conductor didn’t show up? What would happen if one member of a tennis doubles team was unavailable?
In all these cases, the absence of a key person would have a material impact.
What about in business? Could a company survive without a CEO? Maybe… but after a while, the leadership vacuum will take its toll. What about a Chief Marketing Officer, a Head of R&D or a Head of Sales? Again, it will depend on the business and its stage of development.
But let’s talk finance. Finance strategy to ensure growth, stability and risk mitigation is critical, yet many businesses focus on compliance. A Chief Financial Officer (CFO) could be indispensable to your business considering they fulfil the following important roles:
1) Business Strategy
All strategic initiatives such as acquiring a business, divesting of assets, raising capital, investing in research and development, hiring employees and launching new products have significant financial consequences. Senior management should be advised on the strategic direction by a competent CFO. Many ‘great business ideas’ don’t make sense in financial terms.
2) Internal Controls
Management should know that the risk of fraudulent activity is minimized. But controls also ensure prudent cash flow management and spending practices. There may also be a need for credit policies for customers, improved payment terms, evaluation of inventory levels or other ‘performance measures’.
3) Strategic Project Management
Senior management should not get drawn into long-term, complex projects which detract from other activities. Entrusting the management of these to a CFO is highly advantageous especially where significant analysis is required. Budgeting, tax strategy, fundraising and scenario planning are obvious examples.
4) Relationship Development
You may have key relationships with banks and investors which need to be managed. Often neglected, these relationships can have a huge impact on business outcomes.
5) Advising the Team
The CFO will also spend time enhancing internal processes and skills so that the finance ‘engine’ runs efficiently. This may include planning, training and/or bringing in third parties on short-term assignments to fill a gap.
CFO Best Practices
Now that we have a pretty good understanding of the role of the CFO, what are some best practices in this area?
The CFO can only be successful where the basics of finance (accounting and treasury functions) can be delegated. Failing that, strategic initiatives will play second fiddle to being a controller (which is the opposite of what we want to achieve).
It may sound counterintuitive but many successful CFO’s have a background in fundraising rather than accounting. Different businesses will have different needs at different times in their development.
3) Business Skills
The CFO needs to understand the operations of YOUR business. Hiring from another industry can bring a fresh perspective so long as the CFO can quickly come to terms with your business drivers.
4) Long-Term View
Unless your business is seriously at risk, your CFO will be looking a year or more ahead, not just to this month or this quarter’s results. Planning is important.
Make sure risk is on the CFO’s agenda - both the risk from internal factors AND from external factors such as market changes, regulatory matters, litigation etc.
A person with the skills listed above may not be available or affordable to your business. In that case, you can consider ‘outsourcing’ the CFO role (or parts of it) to a trusted third party.
Your accountant has experience in providing strategic advice to many businesses and can support you in this area.