As a Chief Financial Officer (CFO), people often ask me: What makes a CFO so valuable to an organization? It’s not that we’re numbers people or that we have relationships with banks and financial institutions. What makes us valuable is our ability to take disparate facts from inside and outside an organization and use the information to make the business function better. In other words, a CFO is a well-rounded executive who understands your company’s operations within the context of macro-data and then is able to create specific and actionable plans for business owners and entrepreneurs.
Let’s walk through a few examples of how CFOs translate data to manage a business.
Data: Significant layoffs have been announced by big businesses in the technology industry.
Information: Financial executives that operate in the tech industry will understand that there will be a higher supply of experienced employees in the industry that they operate in. CFOs understand that there are more employees for companies to hire, if in a period of expansion, or will understand that wage growth within the company could be revised downward because of the growing supply of potential employees. Information like this is vital for forecasting results as well as determining optimum employee levels. In this specific example, for businesses outside of the tech industry, CFOs recognize the value, including different and invaluable perspectives, that experienced employees from other industries can bring.
Data: The GDP for the current quarter is lower than the prior year, and many economists are expecting that trend to continue for 2023.
Information: CFOs who work with companies who would be impacted by lower discretionary income for its consumers – restaurants, consumer goods, leisure activities – will read this carefully and consider a strategy pivot for the next 12 to 18 months. When consumers are nervous about their employment and maintaining purchasing power, companies in these industries tend to be more negatively affected. Being able to understand how global events impact consumer behavior allow CFOs to guide the business owner or CEO in making strategic decisions that reflect the current economic environment instead of what internal forecasts or sales organizations might feel is too rosy a viewpoint.
Data: A potential purchaser of your company requests information.
Information: With something as critical as a potential sale of your company, the CFOs involvement impacts whether the transaction closes and if the value for the owner is maximized. CFOs show greyscale KPIs in technicolor. For example, a bookkeeper will be able to say that sales have increased 10% year over year; however, a CFO will further explain the mix of clients involved in the increase, what the foreign exchange impact is on those results, and be able to talk intelligently about how long it takes a sale to go from being invoiced to when the cash is collected. Those bits of information are much more important to be a potential buyer than the standard information that an accounting student learns in the classroom. Your skilled CFO will be able to guide a disposition process so that he or she puts the company in the best light in a manner that adds trust and transparency to the process. Having finance stewardship throughout your transaction will go a long way towards having a buyer feel good about the process and understand what they are acquiring in greater detail.
Having the right finance leadership in place is really important for all business owners, especially in the SMB community. CFOs are more than scorekeepers – they can directly, and positively, impact the financial health of your company and help you achieve business goals more quickly. Fractional CFOs provide the proper guidance for entrepreneurs who know the direction they want to head towards, but don’t necessarily have access to the right information.
Take-away: If you own a company and are not sure if you are examining the right data points or are uncertain about the information you’re receiving, reach out to Brian and Scott at email@example.com for a discussion about how we help companies become more effective and efficient.
Co-founders & Managing Partners