The CFO'S Perspective

The adage says, “cash is King,” and this could not ring any truer for small and mid-sized businesses. Cash is a crucial component of any successful business, especially startups and new ventures.

Cash flow is the lifeblood of organizational success.

Positive cash flow leads to profitability and provides the funds needed to reinvest in the future of the business. However, proper cash flow management is difficult for many companies to undertake successfully.

Some businesses fail to analyze cash flow projections appropriately to identify potential shortcomings, while others suffer from mismanagement of payment terms and an inability to collect outstanding payments. New businesses are prone to spend recklessly and make poor inventory choices because they lack the awareness needed to make cash flow-centric decisions. Companies struggling with cash flow management often err on several of these key elements, fueling the vicious cycle of cash flow issues.

Business executives who have problems with cash flow at their organizations (or want to avoid future issues) will benefit from earmarking these cash flow tips:

With so many variables across industries and business life stages to consider, a one-size-fits-all approach to KPIs will never succeed.

The most important metrics are those most closely related to what investors expect. For private companies this means tracking the KPIs that owners and financers need to make sound decisions. While the specifics can vary between businesses, the common thread is analyzing metrics which can inform short-term and long-term operations.

Overarching business goals such as profitability or liquidity will also influence KPI choices because KPIs can address different business objectives.

How quickly are you turning your Accounts Receivable to cash? Every business needs working capital to cover operating expenses, including inventory costs. You don’t want your cash tied up unnecessarily in accounts receivable. Collection of accounts receivable is essential to the health of your business. So, the faster you receive payment from your customers, the more cash you have in your business, and the faster you can grow your business.

Knowing which KPIs to track is the first step towards financial awareness, but the real goal is to use that awareness to monitor the health of your business and inform intelligent business decisions. Business owners and top-level executives must understand how to use KPIs to formulate a financial analysis that is accurate, actionable, and predictive.

These KPIs should be provided by finance and/or accounting personnel to help bridge the knowledge gap at all levels of an organization. Transparency among business groups regarding key metrics is one of the most commonly recognized ways to effectively monitor business health and meet short and long-term business objectives.  

What are 'Key Performance Indicators - KPI'

Key performance indicators (KPI) are a set of quantifiable measures a company uses to gauge its performance over time. KPIs provide a way to measure how well companies, business units, projects or individuals are performing relative to their strategic and operational goals. KPIs can also compare a company's finances and performance against other businesses within its industry.

KPIs can help to reduce the complex nature of organizational performance to a small, manageable number of key indicators which are crucial to decision making and ultimately, to improving performance.

There are many, many KPI’s for every kind of organization.  The following are illustrations of some of the more common and ubiquitous metrics.

Why do we need a CFO?

The right CFO in place will optimize the returns of your organization’s activities by carefully managing all aspects of your finances.

The CFO role is strategic by nature, creating budgets, analyzing financial statements, and strategically interpreting the data. They provide an active partner to the Executive Director (ED) and bring a forward-looking and proactive stance to managing the organization’s finances.

Whether an organization begins to spiral downward or have high-speed growth, a CFO might be needed to help you respond when decisions are required in a quickly changing financial landscape.

When an Executive Director becomes burdened with too many hats, it limits opportunities.  With a CFO in place, an Executive Director can feel empowered because they have a financial executive who knows how to solve problems and run the organization financially.

The right CFO will bring clarity when you lack detailed financial analysis that is critical to making sound business decisions.

Your CFO has been a part of your organization for many years and is now planning to retire. You have the great fortune to have CFO Selections help you find an outstanding replacement with CFO executive search services or CFO consulting services.

Some say that CFOs are now more important than CEOs and the financial crisis in 2008 made companies more dependent on CFOs in order to focus on accumulating cash as a brace against further turmoil similar to the credit implosion. A corporate CFO is a professional who must find ways to protect the bottom line while instilling confidence in their company's financial statements. Beyond their financial expertise, CEOs of leading companies are looking for a CFO who can help them manage the business, complement their skills, and offer leadership.

Published In: Puget Sound Business Journal - Corporate Citizenship Supplement
Author: Alisha Gomez
Excerpted from a longer article, on corporate foundations:

“For Tom Varga, managing partner at financial recruiting firm CFO Selections, corporate philanthropy had to be part of his company’s culture from the start.  ‘I don’t think a lot of businesses, when they get going, think about the fact that as a corporate citizens, there’s a larger responsibility other than making a profit for your shareholders,’ Varga said.