Here are some guidelines to follow for overworked CFOs working in high-growth companies.
The business world is evolving faster than ever before, and CFOs require every assistance they can get to keep the order of things and remain focused on the strategic direction of their business. The vast amount of data that companies collect can help to anticipate business needs and identify the most promising new projects.
But, if your team’s analysis is likely to provide strategic value in the long run, they must be flexible and backed by efficient processes.
With this in mind, regardless of the speed at which business issues are surfacing, certain principles remain the same. Here are four guidelines to help CFOs of growing companies keep their order and improve processes.
Never compromise on transparency.
Look at the performance of the most successful businesses in the present, and an underlying pattern of transparency will be apparent. If it’s communications or progress towards goals, successful companies establish transparent processes that every person within the organization, from the mailroom to the boardroom, monitor and provide inputs to.
You can increase transparency by making assertions in your financial reports and then proving the assumptions within your forecasts. Making your thinking process visible to the larger organization will enable you to avoid echo chambers and create projections that are relevant to the real world.
For instance, Amazon’s infamous six-page memo compels executives at the highest levels to think through and convince their readers of the direction their projects need to follow. The process forces executives to look at potential objections and think through their arguments rather than simply ignoring the specifics and putting everything into a PowerPoint document that the board would never watch.
As the FP&A solution provider DataRails states in their guide for improved board reporting for CFOs, “The CFO’s role expands not just to provide the numbers, but also become a trusted business advisor to their management and the board.” To achieve this through an ad-hoc analysis of corresponding data, DataRails’ solution allows CFOs to alter projections during the presentation and answer questions from board members when they arise using actual data and models. Data.
Focus on only the metrics that matter.
Tracking key business performance metrics over time is a sensible method of quantifying the results and evaluating progress. But, if they are not given context, these numbers can be misleading. For example, measuring the growth in revenue per product line is a common practice. But an intelligent CFO can dig even further into data and find patterns in the sales of products.
What regions are driving growth, and how do those patterns relate to seasonality and the population’s income? What is the distribution of sales across regions? For example, if one particular urban area is responsible for the bulk of sales, you need to consider why other locations in similar areas are struggling.
Kevin Carmody, a senior partner at McKinsey and Company, writes that “CFOs can access data and have a multi-functional view as well as a growing role as a value manager and strategic partner.” Access to data is fantastic; however, it can also be an issue if it is not used correctly.
The vanity metrics can be beneficial when measuring the general awareness of a product. However, they’re not helpful to you. For instance, the decreasing cost-per-click (CPC) figures in digital ads suggest excellent ad copy and engagement. However, if the higher CPCs do not translate into sales, the campaigns aren’t delivering.
In this case, you need to reconsider how you manage your marketing budgets and develop more effective metrics to gauge efficiency. Together with the CMO, discover the causes of marketing failings and help push the company to improve its fit between product and market.
Ask the difficult questions.
Curiosity could be why the cat died, but it is a powerful tool for CFOs. M&A specialist and fractional CFO of Tivoli Brewing Company Eric W. Neumann points out the benefits of being inquisitive. “When you’re interested in something, you’ll enter the field and gain knowledge,” he says of the role of CFO. “This learning process alters everything. It broadens your perspective and increases your chance to make the right choices.”
CFOs who are adamant about the pursuit of knowledge and questioning will always look for ways to improve how they measure business performance and decode sector trends. A curious CFO is active, constantly questioning assumptions and scrutinizing numbers.
For example, if discrepancies occur between projections and actual figures, a shrewd CFO may look into the root causes. While most CFOs build an allowance for variances in forecasts and actuals, a more discerning CFO would try to minimize these deviations and then look into the root cause.
The businesses they work for will benefit from their work. A shrewd CFO will look out for potential headwinds and ensure the strength of their balance sheets. This can assist your company in dealing with crises and recovering quickly as the tide changes.
Be ready to scrap your predictions.
Forecasting is a fundamental part of the work of a CFO. Unfortunately, humans are notoriously bad at forecasting the future. However, it would help to reconsider what it takes to make forecasts. Instead of viewing them as a model for the coming years, consider the frameworks as guidelines requiring more details.
Consider, for instance, scenarios where financial analysts determine that an innovative product has the potential to increase company revenues. The product team develops it and then encounters difficulties as the plans develop. A CFO who regards projections as fixed ignores warning signals like low feedback from the pilot groups.
The narrowing of the vision occurs because the CFO is trapped by the numbers and forgets that they are more than educated estimations.
Forecasts are a broad guideline, not a precise strategy, and you should make sure you leave room to adjust them if circumstances differ from expectations. When you place your projections within this context, companies can quickly develop better forecasts and react to future events.
The CFO who is flexible and data-driven
The modern CFO isn’t an analyst of numbers. You’re a vital component of your organization and an integral contributor to growth. Utilize the suggestions in this article to increase your company’s capacity to grow to higher levels.
