Why you need a CFO?
The simple is: to give you, the owner or manager of a business, the complete and correct information about where the business is and where it can go. With finance as the language, all this information can be translated into objective input for decision making.
But the level of sophistication that is needed differs. Local mom & pop stores have a different need and different complexity than a multinational. An eCommerce website has different needs than a venture capital funded SaaS startup.
So how to look at these different needs?
Hierarchy of Financial needs
The finance field is wide. It often touches on all other roles in the business. The financial needs of any business falls somewhere in the 'Hierarchy of Financial needs'.
Let’s start with the various financial roles in a business. Each role has a specific use and a specific set of skills needed.
In the most basic level, the financial role tracks all the transactions in the business. This includes sales and purchases, expenses, rent and everything else. It is focused on recording what has happened in the past.
Most distributed teams outsource this to a bookkeeper and/or accountant.
Having the records of what happened is the foundation. Reporting translates these records to information for managers and founders. They use these reports to understand and get insight in what has happened in the business. Think about your profit & loss statement or your cashflow statement as the basic version. Many business owners perceive these reports as of little value. However, tailored reporting on the past performance of specific products, processes or clients can give a much better understanding.
Also, the value of the reports is directly linked to the skills of the person making them, and their understanding of the key processes in the business.
There are many tools available to help with these reports, but the value depends on understanding the business to select the right variables to measure and manage.
This is the stage where a controller or CFO is starts to add value based on a thorough identification of the key drivers.
The landscape keeps changing. The demand of your customers keeps changing. Therefore your business needs to keep changing. The statement from Churchill ‘He who fails to plan is planning to fail” holds, especially for those businesses in fast changing environments.
The fundamental difference with the previous steps is that those were all backward looking. Reports provide information and insight in what has happened in the past. Financial planning on the other hand looks to the future and gives insight in what may happen. It shows the probable outcomes of your current path and future choices.
A good forecast uses historic information and combines this with information about the future to produce a forecast for the next time period.
An experienced CFO is a value creator here by providing insight in the future consequences of management decisions made today, and the ability to identify problems before they occur and take action.
Strategic Business Partner
Finance has become an integrated part of your business, of your strategy and your operations. The CFO function actively cooperates with each process and each team. Together they identify opportunities to increase revenue, increase conversions and opportunities to reduce costs. So the business benefits optimal from the value of the CFO.
On a higher level, the CFO enables and drives strategy, providing a lasting impact on your business. This could include M&A decisions, international expansions and business models.