CFO sitting

120. So what does a CFO actually do?

We are often asked this question; usually phrased something like:

I already have a Financial Controller who manages the data entry and provides good management information and I have my accountant when needed – so why do I need a CFO and what can they add?”

So, what value does the right CFO bring to your business? Simply, they should make your life easier and allow you time to focus on growing and developing your business.

If you have that nagging feeling as a Board that you are struggling to understand the underlying financial performance of the organisation and worry about the level of financial control you have in place, then you will benefit from the insight and experience of a senior finance professional who has operated at CFO/FD at (main) Board level.

Anyone running a business is “flying blind” if they do not have reliable and appropriate management information (or MI). And a CFO will struggle to add value without it.

The first job of the CFO is then to make sure that the ‘MI factory’ is producing concise and useful data that provides user friendly reporting and analysis for the business focused on the strategic aims of the organisation

This means that you must have an efficient and focused finance function; and there are 3 building blocks, or layers:

  1. Proper financial systems, supported with the right controls and processes in place, variances and issues of non-compliance investigated and addressed
  2. Reporting the right data at the right time – the right sort of timely MI*
  3. Intelligent selection of the right KPIs and advanced analysis and investigation

All 3 layers need to be in place to reap the real rewards of investing in your finance team; and a CFO is just the right person to make it happen.

*Tectona Tip – There is MI and MI, so what is the right sort of MI? Can you easily digest and understand the key points in 15 minutes or is it perhaps a large bundle of monthly management accounts that just tries to show someone is on top of things? We say that MI should be focused and concise – less is often so much more.

For all this to work properly your commercial CFO will focus on:

  • Ensuring the right systems, processes and controls are in place and being applied consistently
  • Making sure that you have the right team with the right skills
  • Motivating that team

It is perhaps little surprise that some CEOs and business owners do not fully understand their own accounts. An interesting conundrum for some is that they are expected to know what all the numbers mean – and there comes a point when it is very difficult (not to mention embarrassing) to put your hand up and ask for an explanation. In most cases it is not the fault of the CEO or business owner – it is the fault of the MI they are receiving as it does not focus on what matters.

In addition to getting the right team and the right MI, there are four other areas that a really good CFO will add value:

  1. Bringing that MI to life

In crude form, MI is simply numbers. A highly skilled CFO will tell you the story and show you precisely what it means for the business (this is especially true in smaller businesses).

Clearly the approach and the level of detail will vary from business to business. But one thing that is important is that you are told the truth, exactly how it is; this often means plain or blunt talking, cutting through the normal niceties and keeping it focused on what actually makes a difference to your business

  1. Being a catalyst for change

A healthy business will be pushing the boundaries and there will inevitably be tensions between functions – typically sales/marketing and production/operations.

A great CFO will earn the respect of these functions by showcasing Finance as a business partner – and not just an admin or control function. They will do this by demonstrating how financial and operational improvements, including project management and commercial negotiations, can lead to savings and more funds available for those functions.

Your CFO will earn the right to challenge by carefully framing their questions, being professional, supportive but showing no favourites. They will be able to diffuse tensions and act impartially.

You will have started with a plan and one thing is certain – that plan, no matter how good, will not be 100% accurate and will not still reflect the current situation the business faces. The current pandemic has very starkly demonstrated this.

So when things deviate from the plan you really need someone to be able convert your original plan into tangible outcomes and relate the outcomes back to your business vision whilst identifying how and why things are different than expected.

A great CFO will be able to quickly understand where the original assumptions have changed and, if necessary, model new scenarios. The exciting and insightful bit is knowing when and how to change the financial priorities of the business to fit the changing market landscape so that you still achieve your big vision.

  1. Leading and motivating the finance team

The functioning of your finance team is very important. A great CFO will lead the team from the front (and the top), coaching and mentoring the team members and will willingly transfer their knowledge. So, excellent communication skills at all levels are a requirement; as are empathy and understanding of all the roles each member undertakes in the team.

In a nutshell, the right CFO will be your ally, your sounding board and your confidante. They will be a valued business partner and adviser.

About Tectona

Tectona Partnership helps business owners sleep at night by embedding one of our 15 commercially minded CFOs in your management team. Very often, a part time CFO is the most effective solution for smaller businesses.

We make sure you have the necessary management information and strategic insight to make informed decisions. We will tell you (bluntly, if necessary) what you need to know, when you need to know it.

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