The CFO'S Perspective

Budgeting and strategic forecasting creates a business roadmap to maintain stability and achieve growth. However, for forecasting to be accurate it needs to be modified when significant changes occur either internally or externally. This is especially important to consider this year, as supply chain disruptions and changing business regulations have drastically changed corporate outlooks across the country.

If you understand now that there is a high likelihood of needing to undergo reforecasting next year, you will be better equipped to do so when the time comes. Kory Wagner explains, “Expecting your assumptions to last through an entire year is at best naïve and at worst detrimental to your business. Incorporating reforecasting into your regular budget process, as needed, will keep you on track and help you roll with the punches.”

Some companies are reforecasting-averse, so they shorten their budgeting cycles from annual or semi-annual to quarterly or monthly to reduce their chances of needing to do so. But if 2020 has taught us anything it is that every company should be prepared to reforecast as needed because it could become a necessity at any time.

So, this year as you finalize budgets and forecasts, take the approach of “planning to re-plan.”

Who thought 2020 would be like this? We have made it through the lockdown, subsequent economic shock, and the scramble to put it back on track. Stimulus programs (like PPP) are done rolling out and payment deferral programs from lenders are ending soon. More tailored lockdowns are underway but with no certainty this time of any government support for impacted businesses.

You have stabilized the ship. What do you do next?

The COVID-19 impact is not going to be over soon. “Normal life” is likely at least a year away. Even if a vaccine arrives in 2021, it will likely take many months to become ubiquitous and effective.

The Role of a CFO

While a controller/accountant lives in the past, a CFO lives in the past, present and future.

An accountant manages data. A controller produces financial statements, implements controls, and may offer some analysis. A CFO helps lead the organization by overseeing all financial activities – living in the present and looking to the future through continuous scenario-based planning. CFOs take a forward-facing role by managing budgeting, forecasting, vendor relationships, tax strategy, compliance issues, and succession planning. Leaning on data and industry experience a CFO provides key insights to advise the CEO through all the company’s life stages.

Did you know that 58% of small business owners do not have a business succession plan and almost half believe they do not need one? Yet, despite the lack of prevalence, a succession plan is a foundational component for any business. The belief that your organization does not need a succession plan often stems from misconceptions around what a business succession plan looks like and what it should accomplish.

Many people think that a succession plan is a simple exit strategy document – something you put together when the owner wants to retire. As a result, companies with young, passionate, highly engaged owners often do not see the need to put one together.

Other times, business owners assume a succession plan would only be necessary if there was a catastrophic event. In this scenario, it becomes incredibly easy to put off formalizing a plan amidst the hustle and bustle of daily business demands.

However, a business transition can occur for any reason – such as retirement, M&A interest, or a changing industry landscape. In each of these scenarios, a succession plan spells out the details of selling a business to achieve maximum value for both the buyer and the seller.

Government-mandated closures. Supply chain disruptions. Customer nervousness. Public-safety protocols. Employee fear. PPP forgiveness. Union pressures. A national coin shortage. Enough already!

It’s all most businesses can do to survive these days, rather than thrive. In the midst of all of these challenges, there are relationships critical to our clients' businesses' short-term and long-term health.

One that keeps coming up, but isn’t addressed very often, is the relationship between business owners and their bankers. But how do you collaborate with your bankers during times of crisis and stress? How do you make this critical relationship work to your benefit over the long term?

Publicly traded companies get a lot of press when they commit corporate fraud, but financial fraud can happen at private companies as well. Furthermore, fraud is not solely reserved for large companies – it can occur at any size company, including small locally owned businesses. While fraud can arise in any number of unique circumstances, it typically occurs to secure bonuses for management or to appear more appealing to investors.

Though private companies are not formally required to abide by SOX (Sarbanes-Oxley Act of 2002), the requirement that companies conduct an annual audit of their internal controls is always a best practice. A business’s accounting practices and financials should be reviewed regularly (either internally or by a third-party) to look for vulnerabilities and discrepancies.

Like any other c-suite hiring process, hiring a CFO can be a daunting process at any organization. Whether the role is a newly opened position at a burgeoning startup, or a replacement for a long-standing CFO that is looking to retire, bringing in a CFO is a complex endeavor.

For companies that are accustomed to using recruiting services, the idea of using an executive placement agency to hire a key leadership role is a logical extension. However, businesses that typically handle hiring in-house may not see the benefit to using an executive search firm to hire a CFO. Some business owners may not even know that there are niche executive search agencies that specialize in finance roles.

However, using an executive search firm that focuses specifically on hiring key finance positions offers numerous benefits, which typically include:

In the last six months, we have seen unparalleled increases and decreases in sales and production volumes. Are you getting enough information (and the right information) from your Financial Statements to make good management decisions in these turbulent times?

The most complex segment of the financial statements for manufacturers and the most volatile in these changing times is the cost of goods sold. The different income statement formats and content significantly impact its usefulness for managing significant volume changes.

Let's look at the various formats of financial statements from using a small manufacturer as an example and review how they might or might not help in decision making.