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November 7, 2022

Contributors: Tom Shemanski

How many times in the last year have you thought to yourself, “If I could just get one week to catch up, I’d be able to get to my project list. I could build that new budget model, work on a profit-by-job report, or update my machine rates.”

There are several problems with your recurring wish. One, it’s recurring. Two, stopping time isn’t, in fact, possible. Three, while taking a weeklong “vacation” to catch up on work is possible, it’s also a proven performance (and personal life) killer. And, finally, four, the surefire way to cripple your company – you’d be prioritizing tasks of the past over strategic plans for the future.

Trust me, I get it. But whether your company is bringing in $5 or $50 million in revenue, growing rapidly, remaining stagnant, struggling to stay profitable, navigating some dynamic change (say, a possible acquisition, planned retirement, unexpected turnover, or the aftermath of a global pandemic), or you’re simply unsure what its future should or even could look like, there’s something you should know: You not only need a sound financial strategy but also one that is underway, continually monitored, and adjusted if expectations aren’t being met or the future throws another curveball.

Tragically, most business owners — especially those wearing more than one executive-level hat or feeling under pressure from internal or external forces — assume there is only one way to shift from a reactive reality to a proactive one. They believe you must push yourself or your team even harder — or bring on a seasoned expert in financial and operational analysis and strategy to develop and enact proactive plans on your behalf, i.e., a CFO.

 

Argument No. 1: “I can’t afford one.”

My answer: You can. It doesn’t need to be a full-time CFO. In many cases, it shouldn’t be.

 

Argument No. 2: “I already have one.”

My answer: The CFO title does not a CFO make. The work of a CFO is — and must be — high-level strategy planning. So maybe you already have a CFO, or a bookkeeper, controller, and/or accounting manager doing solid work. They’re managing the month-end close processes, running numbers to see if your cashflow can support potential investments, and perhaps even doing some basic forecasting and planning. But if they aren’t able to collect and structure data in a way that measures apples to apples so that you and your management team can make informed decisions to best position your company for the upcoming quarter, next year, and five years from now, their roles are transactional; they’re not, unfortunately, strategic.

 

So what should a CFO do for you? At minimum:

• Drive Value.��A strong CFO will consistently drive more value into your organization. It’s important to be able to articulate your company’s value proposition in the marketplace and help your team maximize your margin capability. The CFO should be facilitating projects that are focused on improving profits, increasing efficiencies, and optimizing overhead structures.
• Provide a Long-Term Outlook.��Any CFO worth his salt understands that basic financial reporting and cash forecasting is a data-rich foundation and not the full house. To build the house, a CFO will design a financial model that works in conjunction with your core revenue and expense relationships, which in turn supports and feeds your company’s five-year plan.
• Conduct 13-Week Cashflow Analysis & Forecasting.��Any company that isn’t sitting on a pile of cash must have a strong handle on its 13-week cashflow. Think beyond what needs to be paid and ask questions like: “What is our cashflow conversion cycle? What needs to be paid out? What’s in the pipeline? Is there anything out of the ordinary we need to account for?” That granular understanding is necessary to ensure your company will have the cashflow and lending capacity available to meet its obligations — even during a slow sales cycle or when other issues possibly crop up.
• Offer Actionable Insights.��An effective CFO will naturally lead. A CFO will leverage their experience to drive strategic planning processes. Consider how you’re navigating key business decisions such as: whether or when you can buy capital equipment or fund a project in the next three to nine months; when or how to assess the effectiveness of your banking relationship; and whether to grow organically or through an acquisition. (Tip: Here in particular, a seasoned, well-connected CFO is critical; they can often leverage established relationships with banks.)
• Understand the Who, What & Why of What’s Happening.��Forecasting is an exercise in futility unless your CFO is continuously tracking performance — revenue, sales volume, cashflow, margins, budget levels, and a multitude of other critical metrics — against projections. Deep and frequent dives into meaningful metrics are essential not only for ensuring the model’s accuracy and dispelling false optimism (or pessimistic paralysis) but also for adjusting to keep performance on track and ferreting out opportunities to improve margins and liquidity.
• Map Out Disaster Prep & Contingency Plans.��Forecasting isn’t fortune-telling, unfortunately. But as the pandemic demonstrated for far too many organizations, unexpected crises happen, and if you don’t have a plan in place (and in motion), your years of hard work and entire organization can vanish. Rather than risking what you’ve built and reacting in the heat of a crisis, you should have preparedness plans for a variety of scenarios. Here are my top three:
  • The Big Dip.��My motto: Always be prepared for a downturn, whether in the economy or in your business. If you lost your biggest customer tomorrow, would you have access to enough capital and cash? Do you have a plan for how you would adjust operations and/or downsize? Too often, organizations caught off guard will wait too long, hoping for an upturn or weighing too many options before making decisions. Weighing options might be better than making quick decisions under pressure, but if you’re burning through cash while considering different paths over the course of 12, six, or even three months, those decisions often come far too late. A CFO will quickly evaluate options and drive decision-making, so your company can respond quickly and confidently when a big dip hits.
  • A Cyberattack.��A company doesn’t have to have millions in cash or clients to be a target of a cyberattack. Yet I see very few companies (and sadly, their CFOs) who have in place the structure, support, or plans to prevent and respond to cyberattacks. Today’s CFOs must include cybersecurity as part of a company’s strategic plan.
  • Your Human Resources.��Attracting, hiring, and retaining talent — it’s always a priority, but recent years have seen a tremendous shift in what employees want and expect from their workplace. The Great Resignation (and Great Regret that followed) are not to be ignored. Attracting the right talent is tough; losing valuable employees is a very real risk. Are employees at all levels of your company cross-trained? Do you have redundancy in key positions? In terms of retention and recruiting, what can you truly pay? What kind of bonuses can you afford? Is deferred compensation an option? And how does all of that fit into the overall budget and growth strategy?

In summary, crunching numbers, controlling expenses, and doing some basic forecasting is not all you should expect (or get) from a CFO. Forward-thinking; the ability to navigate complex financial and operational issues; and the tools and experience to tailor responsive, quantifiable short- and long-term strategic plans for your company are critical parts of the job, too.

If you sense you’re doing too much, your company is doing too little, change is afoot, or your organization is simply operating in a reactive rather than proactive state, rest assured that, in this case anyway, it’s not too late to act. Give me a call to discuss your pain points, and I’ll be happy to offer some fresh, objective perspective and, if you’re interested, help you determine how our fractional CFO services could impact your next quarter … year … or five.

To get started, download our one-page guide – The Great Advantage: 5 Outcomes Your Organization Can Experience with Outside Help:��

In addition to 20 years of experience as a chief financial officer for a business consulting firm he co-founded and a $110 million multi-site Tier I automotive supplier, Tom has significant experience in financial executive leadership, business financing and debt restructuring, facilitating rapid turnaround to profitability and assisting organizations through ownership transfer and leading company acquisition teams. You can reach Tom at �������ϲʿ����������ͼ’s Jackson, Michigan, office: 517.841.4266,��[email protected].