More than any other individual inside an organization – even the CEO – a CFO can determine both the short-term bottom line impact of a project and its long-term strategic value. Why is this so?
Entrepreneurs invest considerable time and resources in building their operations from the start-up to the cash flowing stage. A key goal in this process is achieving scale – leveraging the company’s operational assets, both human and physical, to grow revenue and maximize profitability. Operationally oriented owners will often see the finance and accounting function in this process as a necessary tool for measuring progress, but not always as a strategic asset to help scale the company up. Hiring a Strategic Chief Financial Officer (CFO) can be a critical step in ensuring a company’s rapid growth.
Here are six key advantages to hiring a strategically minded CFO:
- Future Orientation: An experienced CFO is more proactive than a passive record keeper or even an outsourced CPA providing an analytical review of financial metrics. A strategic CFO can accurately forecast future financial performance and help the CEO set achievable corporate goals, including budgeting, based on the company’s current capital and market position. More than just measuring the results of a company’s progress, a CFO can effectively define which assets provide the levers to fulfill a company’s goals and which mitigate its risks. Moreover, a CFO can help the CEO identify which resources and personnel not already in hand are necessary to scale up.
- Trend Surveillance: A strategic CFO is adept at identifying trends over specific time frames (monthly, quarterly, and annually) so they can both identify and capitalize on changing conditions. In addition, given their understanding of how daily operations positively or negatively impact EBITDA and cash balances, a CFO can help an operationally oriented CEO prepare for resource drawdowns or buildups within specific planning periods.
- Controls for the Controller: A strategic CFO will be well versed in establishing proper controls over the company’s financial transactions, starting with managing the underlying accounting team and its processes. A CFO will oversee and advise on product and service pricing, inventory management, cost-of-goods analysis, accounts receivable and payables timing, IT service choices, and banking and financial relationships. By freeing the CEO from these critical (and time-intensive) responsibilities, a CFO can help the CEO to focus on expanding market share and identifying critical growth strategies and competitive advantages within a marketplace.
- A Financial Eye on Operations: A good strategic CFO is also a Chief Operating Officer (COO) at heart. By analyzing costs and money flows, a CFO can suggest changes in business operations that will drive profitable growth. This may include getting their hands dirty on the shop floor, examining the value of traditional and nascent sales channels, weighing the costs vs. value of surplus inventory builds, or even monetizing data aggregations and customer information. As part of the ongoing budgeting and planning team, the strategic CFO is, along with the CEO and the operations team, looking throughout the year to augment top-line innovations with bottom-line efficiency.
- Growth through Acquisition: A good CFO not only assists a company in scaling through organic growth and leveraging formal internal processes, but he can also contribute by administering a thoughtful, analytical acquisition strategy. A strategic CFO will have experience in valuing industry participants, and can identify both vertical and horizontal acquisition prospects that will synch best with the company’s established competitive advantages, and whose acquisition will exploit accretive revenue and operational channels. Moreover, a strategic CFO can be essential in helping the CEO in the limited auction process that has come to dominate the professional M&A arena in the 21st century. A CFO, if well-versed in processing investment banking memoranda and diligence management teams, can be a critical cost-saving “first screen” in sifting through the multiple opportunities that a growing company might assess every year. Finally, an experienced CFO can coordinate financing contingencies – including debt and equity raises – that an acquisition-oriented company may seek to execute in its purchase activities.
- Ability to Prioritize: The previous points illustrate the multiple financial and operational duties entrusted to a strategic CFO, but the ability to prioritize company projects – even those of the CFO’s team – may be a CFO’s most essential role. A strong CFO can monitor the multiple projects within an organization, identifying opportunities for synergies and coordination of efforts within the company. Moreover, the ability to prioritize projects by management and operational synergy adds tremendous value, given how returns on capital are first and foremost a measure of the time value of money.
More than any other individual inside an organization – even the CEO – a CFO can determine both the short-term bottom line impact of a project and its long-term strategic value. The best strategic CFOs can also communicate these short- and long-term return results to the appropriate recipients thoughtfully and persuasively. This includes everyone from department managers who might seek to champion less-attractive returning projects, to board members seeking direction on longer-term return goals. A great CFO is a prioritizer first, and is therefore a critical asset to the CEO, the board, and the company.
The author would like to acknowledge the material input of two great “Strategic CFOs” in preparing this article: Mark Mintman of Flanders AAF (Louisville, KY); and Patrick Just, of Rough Country Suspensions (Dyersburg, TN)
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