CFO Series: Rising To The Challenge

In today’s business environment, companies need someone in the role of Chief Financial Officer who can rise to the challenge and bring more than a knack for financial analysis to the table. You need a CFO who can offer guidance, insights and serious problem-solving skills. A CFO who can do much more than close the books at month-end or compare forecasts with actuals to flag areas of overspending and missed revenue targets.

Here are four key questions you can use to assess whether a CFO has what it takes to help guide your business through challenging times.

Does your CFO really understand the business?

In a “business as usual” environment, small business owners may think of the finance function mostly in terms of bookkeeping and accounts payable, and believe there is no real need for a CFO. Mid-sized businesses may have a CFO who is good at accounting and budgeting but does not truly understand the company’s cost structure, profitability drivers and customer needs. These deficiencies may not be obvious in a normal environment.  However, in a time when creative thinking combined with judicious cost-cutting may be the only path to survival, a CFO’s lack of broad expertise – or not having a CFO at all – can lead to unforced errors such as failing to communicate clearly with stakeholders, not knowing that a significant client is about to go under, or overlooking important signals from sales data.

 

While no one expects year-over-year comparisons to be particularly meaningful in the current environment, a CFO should be able to extract useful information from trends in sales, gross margins, inventory, SG&A expenses and other key metrics. They should be updating best case and worst case cash flow projections by talking with the people in the ‘trenches’ to determine whether the company might be in trouble in the near-term. A CFO should also gather industry intelligence to assess how your business is performing compared to competitors. They should be able to use that intelligence to produce robust financial analyses that identify the source(s) of any problem areas – perhaps an under-producing sales person, or pricing structures that don’t reflect reality, or a top-heavy customer support structure, or quality control issues.

Does your CFO challenge assumptions?

The ability to ask uncomfortable questions in a way that does not antagonize others is a valuable skill, and one that is critically important in difficult times. If sales are down, can your CFO probe into what is behind the decline and whether the forecast needs to be revised, without making the sales manager defensive (remembering that everyone is under stress these days)?

Assumptions about the factors that drive profitability may need to be examined right now. Years of historical data might show a consistent relationship between a given macroeconomic variable and the cost of input X or the demand for product Y in your business or industry. A CFO needs to challenge those types of built-in assumptions today. As an example, historical data will show that when oil prices go down, airline profits go up. Not this time.

 

The CFO should challenge views about when your industry is likely to recover – and develop best case and worst-case forecasts accordingly. They should also question what “returning to normal” will look like. If your business is benefitting from the fact that customers have to stick close to home (and some are), a CFO needs to challenge optimistic assumptions about how long that is likely to last.

Does your CFO go beyond the numbers to find solutions?

Earlier mentioned that a good CFO helps guide a business through challenging times – guidance means much more than just analyzing numbers in spreadsheets and generating reports. The CFO should be one of the CEO’s most trusted deputies – someone who can propose ideas about how to generate more cash, and who can offer insights and identify opportunities in the patterns that are revealed by the numbers in the spreadsheet.

 

It is a cliché, but “outside of the box” thinking is critical. When discussing staffing levels and supplier relationships, can your CFO offer ideas that go beyond which expenses to cut? For example, a great CFO faced with challenging times might proactively analyze whether the supplies needed to manufacture products for different markets could be sourced together to generate cost savings, or whether packaging could be shrunk to lower shipping costs, or whether third-party logistics providers get deliveries to customers faster. Not every idea will pan out, but the CFO should be part of the brainstorming effort.

Does your CFO help set the vision for the future?

In a post-pandemic world, there are likely to be some permanent changes in terms of expectations for both customers and employees. There are also likely to be new imperatives regarding the use of technology and perhaps even the physical space you occupy. The large-scale work from home experiment that COVID-19 thrust upon so many companies has turned out to be a game-changer for many. If your company’s office lease is up for renewal within the next two to three years, start thinking creatively about what kind of space you really need, and how much of it. The CFO needs to take a lead role in finding opportunities, analyzing possibilities with the help of management team and other staffers, and communicating with stakeholders about these analyses.

Startups need CFO skills too!

Startups are often not focused on generating a profit – they are building a product, acquiring customers, and living off seed capital. But that does not mean startups do not have a need for a part-time or outsourced CFO. In this environment, product development can slow down, quality assurance can take longer than expected, customer acquisition costs can change, etc. – increasing the company’s burn rate. A good CFO would help a new business to stay on top of these issues and stay viable.

 

Every business depends in part upon factors it cannot control, but right now it can feel like everything is out of control. Demand for products and services has been and continues to be radically uncertain. Supply chains – even if they are entirely U.S.-based – have been altered, and it can be impossible to know whether some customers will be open for business next week. It is precisely in this setting that a strong, insightful CFO can make a real difference.

Conclusion

If you are not sure that your current CFO’s skills are what your business needs right now, please reach out to us.

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