It was {that a} chief monetary officer’s main focus was on the normal capabilities of the job: monitoring money stream and monetary actions; serving as a controller and accounting professional; limiting pointless spending; and making certain that monetary choices conformed to plain working procedures.
These duties are nonetheless crucial, in fact, however they’re more and more changing into secondary to the strategic roles CFOs are being requested to play. Because the tempo of enterprise accelerates and know-how advances, the fashionable CFO should take a broader, extra forward-thinking and growth-oriented strategy to the job.
The consulting agency Accenture captured this transformation in a 2022 survey, discovering that typical finance chiefs now spend most of their time spearheading companywide efforts to remodel and optimize enterprise operations, with an emphasis on accelerating income and revenue development.
It’s a brand new actuality that I’ve seen play out amongst fast-growing small and medium-size healthcare companies the place I’ve held a lot of management positions. These firms not solely count on you to be a useful CFO, delivering on fundamental accounting obligations, additionally they count on you to be a strategic CFO, working with the management crew to discover development alternatives and maximize profitability.
So how do you develop this strategic experience? By trial and error, I’ve realized that the simplest means is to focus in your present finance capabilities and obligations—these capabilities which might be already inside your purview as a CFO—and elevate them to ship the strategic perception your organization wants.
On this article, I share six areas the place I like to recommend you focus. The event of the talents I focus on will be utilized broadly to development firms and employed throughout a large spectrum—by fractional CFOs working with later-stage startups, by interim CFOs in distressed conditions, and even by finance chiefs employed by public firms.
On the subject of increasing and bolstering your present capabilities, I focus on the best areas first. The later ones, particularly company imaginative and prescient, will most likely devour extra of your time, however I count on you’ll discover that mastering them is nicely price it to you and your organization. I embrace examples to indicate you the way I put every of those ideas into motion.
1. Reporting and Forecasting
Reporting and forecasting are desk stakes for a finance chief. The proliferation of software program as a service (SaaS) and cloud companies has made it simpler and cheaper to combine highly effective accounting methods throughout a corporation. A useful CFO should make sure that everybody who wants entry to those methods has been totally onboarded and is utilizing them, whereas a strategic chief appears to be like for alternatives to delve deeper into the knowledge to floor actionable insights for the group.
I can finest clarify learn how to develop this space by sharing how I demonstrated to at least one firm that totally onboarding a crew is an important step—even for management. I labored for an early-stage healthcare companies firm the place the CEO tracked company financials on an Excel worksheet he saved on his desktop and up to date at night time and on weekends. This observe created apparent issues. First, his shadow financials had been typically incomplete. Second, his observe precipitated a disconnect that prevented the finance crew from growing a routine of updating data and producing helpful and well timed insights for the CEO. With out this routine, the CEO was flying blind when it got here to gross sales and profitability decision-making.
Once I joined, I helped the corporate standardize all of the accounting, operational, and monetary reporting templates, and the chart of accounts. The corporate and I then agreed on a reporting calendar for when the finance crew would give the CEO and board the newest earnings assertion, stability sheet, money stream assertion, and customer- and product-level segmentation. That report additionally usually offered data on the efficiency of particular person departments, evaluating the figures for every with that division’s finances, forecast, and prior-year numbers.
We didn’t cease with standardizing companywide reporting, nevertheless. We leveraged the knowledge to suggest operational modifications that may enhance areas of monetary underperformance. This not solely freed up the CEO’s nights and weekends, but in addition gave us strategic perception into the corporate’s operations whereas decreasing the administration crew’s nervousness and stress underneath the earlier fragmented reporting system.
2. Monetary Planning and Evaluation
The subsequent logical step for a strategic CFO is to search for methods to use standardized databases and quantitative abilities in monetary planning and evaluation. FP&A is usually used to provide data-driven solutions to monetary and operational efficiency questions going through any facet of the corporate. Some are routine analyses, resembling evaluating the present interval’s efficiency to the prior one’s, whereas others are advert hoc analyses resembling calculating the return on funding for a brand new gross sales enablement know-how platform. A strategic CFO makes use of the identical processes and should tackle a number of the identical questions as a useful CFO however takes a extra proactive strategy.
Once I joined a pharmaceutical producer as CFO, I discovered that few of the corporate’s senior leaders knew which buyer, product, or geography generated the very best development or income. This grew to become an issue when the corporate needed to shortly improve profitability. After implementing fundamental reporting enhancements, I performed a complete profitability evaluation of the corporate’s a number of enterprise and buyer segments to start to reply broader strategic questions.
Utilizing FP&A enterprise intelligence instruments like Microsoft Energy BI, we pinpointed the sources of the very best development and the best earnings and losses. We then broke them down by product class, product SKU, buyer, enterprise unit, and geography. However we didn’t simply produce a report that sat in colleagues’ inboxes. We looped in cross-functional groups to assist us design, develop, and glean insights from the experiences, and hosted in-depth conversations with government leaders of every useful space about business and operational modifications that may maximize monetary efficiency.
Inside a short while, the corporate had a holistic understanding of which segments contributed earnings. Simply as necessary, we had full alignment amongst senior leaders that we must always give attention to essentially the most worthwhile segments. This technique allowed us to just about double the corporate’s profitability in lower than a 12 months.
3. Danger Administration and Mitigation
If finance leaders thought danger administration was simply an administrative footnote to monetary oversight, then the COVID-19 pandemic and breakdowns in international provide chains upended that false impression. At this time, CFOs should take a task in pushing groups throughout the group to make danger assessments and usually tackle questions of mitigation. On the identical time, they should see danger administration by the prism of alternative, in search of the place it creates potential business openings.
For instance, from 2017 to 2020, I used to be accountable for a gaggle of firms that imported crucial elements for medical merchandise to China or assembled them there. The businesses loved cross-border, lower-cost arbitrage and constantly expanded gross margins for a few years. Nonetheless, once I joined, I may see operational, regulatory, and macroeconomic dangers on the horizon. We engaged senior leaders in thought-provoking quarterly discussions to anticipate potential hazards so we may dedicate sources and take motion to mitigate essentially the most urgent materials dangers. The groups constantly highlighted the potential operational and monetary dangers of cross-border commerce boundaries disrupting crucial part shipments.
This proved prescient when a commerce conflict flared up between the US and China in 2018. As a result of we had been ready by our danger planning, my group of firms was in a position to decrease provide chain disruptions by leveraging backup part sources in different components of Asia and Europe. Integrating danger administration into the corporate tradition allow us to not solely scale back or neutralize dangers, but in addition restricted impression on the underside line, creating business alternatives for our gross sales and advertising groups to extend market share. We continued reliably delivering merchandise and options whereas our opponents had been nonetheless dealing with disruptions.
4. Digital Transformation
It’s routine for a CFO to ask division heads to do extra with much less. Finance chiefs can prepared the ground by doing so themselves, inspecting methods to automate back-office operations to free workers from repetitive duties whereas saving money and time. Automation can even support the finance division because it offers with the fixed cycle of labor spiking inside tight timetables: month-to-month closes, pressing evaluation requests, and the crunch interval round mergers and acquisitions. Being perpetually in need of arms and hours inevitably results in excessive ranges of stress.
I realized how essential this transition was firsthand. After a reorganization at a worldwide manufacturing agency, my finance crew was staffed with simply two enterprise analysts. This lean crew was accountable for reporting and analyzing monetary outcomes for 25 portfolio firms each month inside two enterprise days. It merely wasn’t possible for 2 folks to finish this spreadsheet-based copy-and-paste mission inside 48 hours. Automation was the one resolution.
We invested a small quantity into robotic course of automation to deal with routine reporting processes and restructured the crew’s strategy, serving to the 2 analysts develop into specialists in enterprise intelligence and visualization programming. Utilizing these applied sciences, the 2 had been in a position to full the reporting duties in a single working day. They used the time they saved to undertake evaluation and work with enterprise leaders to enrich the reporting with actionable insights.
Seizing on these learnings, our company growth groups took the same strategy: They automated their month-to-month outreach, permitting them to contact 10 occasions the variety of potential acquisition targets and thus domesticate a bigger accomplice pipeline.
5. Expertise and Tradition
One worthwhile means a CFO can take a extra strategic function is by changing into extra instantly concerned in recruiting and cultivating expertise. As an alternative of simply advising HR on staffing necessities, a strategic CFO will accomplice with HR to create alternatives to convey high-performing monetary expertise into the group.
For example, I as soon as helped recruit a really gifted government to a small healthcare machine manufacturing firm that my agency owned, despite the fact that I knew we had been going to promote it throughout the subsequent 12 months. We requested this individual to hitch because the vp of finance, stabilize the corporate, and efficiently full the sale—despite the fact that we didn’t have a selected function lined up for him afterward. This could have been a tough promote had we not approached this candidate with transparency, honesty, and a dedication to retaining him in a senior function.
A 12 months after the sale, we delivered on the dedication and he grew to become CFO of our largest portfolio enterprise. Three years later, he was promoted to be the holding firm finance chief, overseeing all portfolio firms.
As CFO, taking an lively function in growing a high-potential finance chief meant I used to be contributing to the corporate’s long-term technique by serving to to safe an worker who may steer the corporate in a post-sale future. Whereas all of this transpired within the finance division, others in several useful areas seen and adopted comparable approaches to recruiting and cultivating high-potential expertise in gross sales, advertising, operations, and know-how.
6. Strategic Planning
Corporations worth the exhausting information and empirical mindset {that a} finance chief lends to strategic planning. The CFO can use this as a possibility to contribute to the transformation of an organization’s business objectives or capabilities, for example, by championing acquisitions or introducing partnerships to increase aggressive benefits.
I had the chance to place this into motion whereas working with an rising markets cardiovascular diagnostic firm that made coronary heart screens. The corporate had aggregated terabytes of coronary heart rhythm information by the hundreds of units it had offered. This information was a novel asset, however the firm didn’t use the knowledge for any business functions. As CFO, I thought of any massive supply of distinctive information as a potential alternative in a world the place SaaS enterprise fashions will be commercialized shortly.
I challenged the crew to make use of that information as the premise of an analytics service whereas defending affected person confidentiality. After months of growth with native software program companions, the crew unveiled a brand new service to hospitals to offer real-time monitoring, evaluation, and alerts if the software program detected irregular rhythms in a affected person. The service deepened buyer relationships and added a extremely worthwhile income stream.
With better visibility and deeper insights concerning the firm, the strategic CFO develops a viewpoint about what merchandise, capabilities, and M&A alternatives can create transformative worth for his or her firm. But it’s necessary to understand that what actually elevates your contribution to a development firm comes right down to management.
The demand on companies to satisfy targets is immense, particularly as macroeconomic pressures rise and enterprise capital, personal fairness, and public market expectations for monetary efficiency proceed to climb. Corporations want management, and leaders should ship development. The strategic CFO is uniquely empowered on this respect. When the fashionable CFO rises above their useful obligations and supplies worthwhile strategic insights, they might help their firm remodel and develop for the long run.