In this environment of tightening liquidity, increasing leverage, and high-risk performance, is your CFO up to the challenge? Weak operations in finance can pose legal and financial risks to your company while also undermining the credibility of your finance department itself. As a business owner or CEO, getting your financial house in order is one of your first and most important responsibilities.

As a side note, if you are not sure if your business should have a CFO or Controller at the helm of your finance team, we suggest you read DWH’s blog article, “Does Your Company Need a Chief Financial Officer?”.  We believe that these two positions are very different and require different skill sets.

Below are five skills your current CFO should possess to ensure they are maximizing cash flow and minimizing risk for your business.

  1. Anticipation

A strong CFO focuses on creating and increasing the value of the business for the benefit of shareholders and all stakeholders. This is done through intimately understanding the activities which impact operations and, ultimately, the performance of the business. In addition, they identify “game-changing” information and global trends which impact your industry and are able to assist in the development and execution of strategies to successfully address what is happening in order to protect and take advantage of opportunities.

While finance doesn’t own the business’s strategy, they are responsible for being the institutional memory of the company and should be offering a framework against which the company can present strategic choices of how they are going to develop and grow.

2. Critical Thinking

Developing a comprehensive financial strategy requires a CFO to balance the current needs of the company with the long term financial health of the company. He/She should be able to develop different cohesive long term strategy options using a deep knowledge of the company’s cost structure, and ability to analyze current and potential core business vs. non-core business opportunities and an ability to integrate input from sales, operations, and leadership.

In addition, your finance department should have solid procedures and internal controls in place to protect company assets, reduce risks, and allow key functions to grow and achieve the company’s business strategy. These controls also allow the CFO to evaluate the risks associated with the opportunities your business is facing. An example is the utilization of a capital acquisition template to calculate the payback time of a company’s investment.

KPI’s should be in place and regularly used to manage business value and performance, including Debt to Equity, Current Liquidity Ratio, Debt Service Coverage, EBITDA, Return on Net Assets, Return on Invested Capital.

3. Interpretation

A strong CFO seeks multiple data points before developing a viewpoint. While respecting the boundaries of other department leadership, he/she then provides unbiased analytics to promote a structured fact-based approach to decision making. This information is shared using communication methods best understood by other departments and leadership, which may include the utilization of pictures and analogies, not just purely analytical numbers.

The CFO must be able to work well with other leaders within the company to gather the relevant information and synthesize it for decision making and analysis.

4. Decision Making

A capable CFO balances speed, quality, and agility to avoid ‘analysis paralysis’ during the decision making to arrive and execute on ‘good enough’ positions. Effective CFO’s develop and utilize a variety of tools to assist them in making and communicating decisions.

As an example, a conservative twelve to twenty-four-month forecast, rolled monthly, allows a CFO to evaluate current and future liquidity needs, available capital, and understanding future risks and opportunities.

Timely and accurate financial and operational reporting, which measures actual results against budgets and long term plans, should be received by appropriate stakeholders. This should include income statement(s), balance sheet(s), cash flow and schedules, monthly budget versus actual performance with an explanation of variances by the 5th business day following the end of the month.

Additionally, and especially relevant in the current economic crisis, a CFO should have a detailed 13-week cash flow forecast that can be used to manage liquidity (make decisions on cash in and cash out) and communicate with key stakeholders.  For more information on effective cash flow forecasting, please see DWH’s article “Preserving and Improving Liquidity During a Crisis.”

5. Alignment

Lastly, your CFO/Controller should be engaging key stakeholders in ongoing professional dialogue so as to build trust and instill a deep focus on value creation throughout the organization. They should be sharing the business strategy and the necessary framework to support it through all written, verbal, and face to face (or virtual) forms of communication.

External communications with lenders and other important external stakeholders regarding the current state and future plans of the business are just as important as internal communication. This consistent and accurate communication will build trust and credibility with these stakeholders, which is the key to successful collaboration.

Leadership is a series of behaviors that determine outcomes. If your current outcomes are unacceptable or are inadequate, then the underlying thinking and expectations need to change so that fundamental changes in behavior can occur. Having competency in the five categories above will help drive the outcomes your company establishes in its strategic plan.

You are not alone. At DWH, we’re here for you, even remotely. A lot of our clients have questions about how to mitigate business value erosion and how to manage communications with banks/creditors/ vendors/customers, etc.  We are here to help you.  Please feel free to contact us.

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Heather Gardner, Senior Director

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