In years past, a company's financial leader was largely disregarded when it came to strategic planning. In fact, many CEOs believed that a solid group of accountants could negate the need for a CFO altogether. Fortunately, these ideas have evolved.
Your company may have the most ground-breaking products or services and eye-popping marketing campaigns, but this is not enough to ensure financial success. This requires a closer relationship between the CEO and CFO, as well as the supporting roles within your company's finance team.
Take Seattle startup Bizible as just one example. This web analytics software maker is one of the PNWs fastest-growing companies, with a 2,405 percent three-year growth rate in revenue. The company has produced a host of B2B solutions but also required capital to fuel growth. Its finance leaders were not only able to facilitate an $8.1 million funding round in 2017 but also position the company as an acquisition target by marketing and tech giant Marketo in April 2018.
Explosive growth, successful funding rounds, and lucrative partnerships generally don't fall into the laps of the unprepared. A CEO who wants to achieve both short and long-term success will need to establish a supportive relationship with their company's finance leader.
Support from Your Company's Finance Leader
Successful companies measure and inform their achievements through their finance leader and team. Small businesses with founder/owners who are actively involved have different needs than their counterparts who are either preparing an exit strategy or underperforming. But all require actionable information to reach their goals.
How the finance leader directly supports the CEO can and will impact overall business success. A high functioning finance leader:
- Is aware of all key financial data points, processes, and controls.
- Assesses the business's human resources.
- Assesses the business's information resources.
- Provides a financial strategy that enables the CEO to achieve their vision.
A finance team comprised of the right roles, individuals, and size appropriate to the business will enable a company to move from a reactionary role to more of a strategic planning focus.
What are Your Finance Team's Roles?
Corporate finance may not always be prestigious, but it is vital to the success of any business. Some of the functions of your company's finance team include collecting and recording data, making accounting entries, analyzing data, creating and enforcing internal controls, regulatory compliance, and strategic planning. Not every member of the finance team will participate in each of these functions, which is why you have a "team." Some of those team members and their roles include:
- CFO. The Chief Financial Officer is forward thinking and outward looking. They are responsible for the financial well-being of your company. The person holding this position accomplishes this goal by managing a staff that delivers accounting services, as well as prepares financial projections and strategic growth plans. The CFO will monitor the company's financial performance, develop strategies to maximize the return on all company resources, and create and enforce certain human resource strategies. The position will also evaluate internal and external trends and work with the CEO to develop forward-thinking strategies for cost reduction, growth, and other means of economic expansion.
- Controller. A company's controller has a wide range of financial responsibilities. They are process oriented, inward looking with a strong tactical approach. They direct and coordinate operational accounting functions and manage the budgeting process. A controller will also coordinate all internal and external audits, as well as evaluate internal control systems. They may develop and monitor some business performance metrics, oversee regulatory compliance, and manage the accumulation of data to report accurate business results. The controller might also be involved in the hiring and training of accounting staff.
- Accounting Manager. The accounting manager is your company's Accounting Department oversight. They will manage the activities of the accountants and bookkeepers by ensuring that all actions are accurate and have complete internal and external compliance. They will have an intimate knowledge of GAAP and will either prepare or review the company's ledger entries and reconciliations. The position will also be responsible for the preparation of monthly, quarterly, and annual financial statements and assist with any other regulatory compliance.
- Accountants and Bookkeepers. Accountants and bookkeepers are essential members of any financial team. Accountants will review and reconcile bank statements, maintain general ledger charts of accounts, and assist with evaluations of internal controls. Bookkeepers might tag and monitor company assets, process company payroll, pay and monitor company debt, make bank deposits, and issue invoices to customers.
Business "Must-Haves" From the Finance Team
When you have your finance team assembled, they will be responsible for a wide range of essential functions that will allow your business to remain open, keep it out of trouble with the authorities, and provide the insight you need for future planning. Some of the "must-have" aspects of a winning finance team include:
- Balance Sheet Basics. There should be no disconnect here. Your company should be able to determine at any point in time what it owns (assets) versus what it owes (liabilities), therefore coming to a value for the business. A high functioning finance leader enables the CEO to comprehend and act on the information the balance sheet contains.
- Budgets & Forecasts. Budgeting and forecasting are not one and the same, but they are both tools that drive key business decisions. A budget is generally prepared annually and estimates revenue and expenses over a future period based on the company's current financial position and goals. Forecasting allows company managers to decide how they will allocate their budget over a future period to achieve goals and forecasts are usually updated as conditions change. Both are prepared by your finance team and provide value to the organization with actionable insights.
- Cash Flow Report & Projections. Your company will need to continually evaluate its inflows and outflows to ensure that it doesn't end up in a cash crunch. Regular cash flow reports and projections from your financial team will give you a snapshot of past activity and project your future position based on anticipated sales and accounts receivable and payable activity, as well as answering “what if” questions related to business growth and expansion.
- Revenue Recognition Procedures. Your finance leader can recommend the most beneficial ways for your company to recognize revenue while also staying in compliance with the latest rules. What was acceptable one year may not be so the next.
After twelve years of work, the Financial Accounting Standards Board (FASB) and their European counterpart the International Accounting Standards Board (IASB) issued new standards for recognizing revenue from contracts with customers in 2014. The goal was to simplify and harmonize revenue recognition practices.
The result is that companies have to completely re-evaluate when and how they account their revenue. Right now thousands of accountants are scouring through old contracts to determine whether their sales need to be booked differently.” – Forbes.com
- Payroll Process. If your company isn't paying its employees or is making mistakes with payroll taxes or other benefits, this is a serious issue. Your accountants and bookkeepers, with oversight from management, will gather employee payroll and benefit data, and make the proper payments and withholdings. This function also requires being up to date with current tax law changes and other requirements.
- Software. Gone are the days where financial management, tracking, and planning are all accomplished through vulnerable and fallible Excel spreadsheets. There are now robust and multi-function financial management software suites that deliver all of the essential financial reports as well as an integrated solution for budgeting, compliance, forecasting, and strategic planning. Your CFO can spearhead your company's search for the right system to fit your company's needs.
- Controls. No company likes to think that it could be subject to fraud or a data breach, but every organization should have controls in place to prevent such a disaster. The CFO and CEO can work together with other top managers to design and implement controls related to cash, collections, payroll, inventory, accounts payable, investment accounts, and all forms of online access.
- Data and Information. Your company's finance team will use raw data to create necessary financial reports and projections. Your CFO will also produce valuable information that facilitates decision-making. This might include information about internal or industry trends, the cost of resources, or the availability of new sources of capital for growth.
- Communication. Corporate finance has evolved over the past several decades to a business function that no longer exists in a vacuum. It is now evident that the most successful companies have a financial team that is highly engaged with each other, as well as with other members of the organization. Having a CFO and other finance professionals on board with strong communications skills is a must to ensure healthy team performance as well as encourage strategic vision attainment.
A major consideration when developing or adding to the finance team is knowing the extent to which the business needs to provide information to outside third parties (lenders, investors, board members, potential business partners). Some companies have no need for this. Absent that need, the finance function can be much thinner. But if that need exists – particularly if the need includes forward-looking information – a more robust function is probably required.
“I once worked for a CEO who told me, “It is of some value for the finance function to tell me what happened and why. It is of significantly more value for finance to tell me what is going to happen and why, and how we can either assure that it happens (if good) and avoid it happening (if bad). This should be the objective of all owners and CEOs in empowering their finance leader.” – Dave Saporta, CFO
Choose the Right Finance Leader for Your Company's Future
A CFO should have the authority to carry out their key responsibilities, but they will also need much more in terms of a working relationship with the CEO to ensure organizational success. CEOs and owners should equally provide CFOs with responsibility, authority, and accountability - three things that can't and shouldn't be separated.
Instead of just a reporter of numbers, today's CFO should be a collaborator in growth, someone who is going to communicate strategic vision with insights based on hard data. By creating the right finance team for your business, you can make this vision a reality and put your organization's plans into action.
Whether you have a successful small to mid-sized business, an underperforming one, or are planning for a business transition you may have needs that require an interim or fractional CFO or Controller. If that is the case, you can contact us here.
