Preface: A CFO will manage the accounting process and provide oversight to financial reporting, but the real value of a CFO is working to make your enterprise even more successful, which goes far beyond monthly reporting and period-ending statements.
Skills Every Chief Financial Officer Needs (Segment 2) (2015)
Credit: Donald J. Sauder, CPA | CVA
Capital and Cash Management. A CFO should understand cash management and budgeting. Planning for capital expenditures, debt repayment, working capital requirements, strategic acquisitions, investments in research and development, and alternative investments of profits all weave into capital and cash management. A CFO should have experience in forecasting cash sources and uses to maintain tight financial controls. Maybe your CFO can prepare a rolling forecast with updated data to improve financial decision making and track free cash flow (operating cash flow less capital expenditures and other funding such as research and development).
Well developed and managed cash flow models build a foundation for monitoring key financial performance and improve cash flow planning. Cash flow models should give the most attention to receivables, inventory, and payables to lead to the greatest effectiveness. Armed with this knowledge your CFO can manage receivables for timeliness, assess and optimize peak-to-trough inventory levels, monitor duration of cash conversion cycles, while developing key ways to measure, analyze, monitor, and manage cash flow and financial performance precisely. This gives your team greater accuracy and confidence in financial decision-making for short or long-term goals, such as an incentive plan for the sales team for this quarter.
Financing. A CFO must establish and maintain quality relationships with lending sourcessuch as banks, for existing and future credit needs. A bank will be increasingly more likely to extend credit, at least with better terms for the umbrella, when the sun is shining. When you negotiate with your lender, your CFO should request the largest line of credit the bank will extend so you’re covered beyond just seasonal inventory demands and receivable summits.
If your strategy includes acquiring businesses with 1 bolt-on acquisitions such as a competitor, vendor, or subcontractor, or 2) platform acquisitions such as new business sectors like a residential framer acquiring a commercial contractor, or 3) transformation investments–venturing into new ideas such as an auto dealership investing in an internet site for consumer-to-consumer auto financing, you will want a CFO that has experience with intrinsic values, due diligence, and business planning. Many small business entrepreneurs can defer to their CPA firm when these opportunities are on the table.
Accounting and Internal Control. This is commonly what most entrepreneurs think of when discussing the role of a CFO. Yet, financial reporting and monthly reporting are only two of the many roles a CFO can fill for your business. A CFO will monitor internal processes including segregation of duties, the expertise and experience of the accounting personnel, the independence of board members, and the entrepreneurial style of the management team. Segregation of duties will minimize fraud. Experienced accounting personnel will lead to greater accuracy and timeliness of financial reporting. A CFO will manage the accounting process and provide oversight to financial reporting, but the real value of a CFO is working to make your successful business even more successful, which goes far beyond monthly reporting and period-ending statements.
Organizational Management and Leadership. Many larger businesses will have a controller who reports to the CFO. Yet for financial reasons some businesses have all accounting staff– accounts payable department, accounts receivable department, and inventory manager–report to the CFO. The CFO should develop plans for financial personnel development, hiring, a systematic chart of accounts, financial systems and software(such as inventory modules and methods), financial management, and third-party professionals such as a payroll firm, CPA firm, management or sales consultants.
If you have a developing business, the ability to hire a CFO who can develop future accounting staff is well advised. Like Jack Welch said, “Business is about people… at the end of the day, it’s only the people that matter.” A well- trained and competent accounting department begins at the top, and as said earlier, the real role of a CFO is to make good businesses even better. That includes making good people even better, too.
In summary, a CFO should have skills in strategic thinking, business risk planning, capital and cash management, financing, accounting and internal controls, and organizational management and leadership. This takes years of experience and years of development–easier said than hired. Continually encourage your enterprises chief financial officer to engage in activities towards further development in these key areas of CFO expertise.