Facebooktwitterpinterestlinkedinmail

In every company, there are important decisions to be made on a daily basis. Some decisions are mundane and have only short-term consequences. Others are strategic and can affect the company’s performance and profits for years. Too often, these critical decisions are colored by the biases and false assumptions of individual executives. This is when a CFO can be of great help.

Why the CFO’s Input Matters

Company executives are often influenced in their decision-making by their personal biases, such as their confidence in the company, their feelings about risk, and their desire for personal gain. Entrepreneurs tend to make hasty decisions based on “gut feelings” or simple impulses. Sometimes these decisions work out well, other times they may lead to problems or disasters.

In many cases, the Chief Financial Officer has the least self-interest in the decision-making process. This is especially true if the CFO position is outsourced or part-time. The CFO uses reporting and forecasting tools to make strategic, data-backed decisions.  A good CFO will be able to provide level-headed insights based on a thorough understanding and analysis of the data.

What Is the Role of the CFO in Decision Making?

Many business executives are great leaders but have limited experience with accounting and financial analysis. A CFO can provide a counterbalanced perspective. Over time, the role of the CFO has evolved from simple number crunching to strategic thinking.

Sometimes the CFO is stereotyped as a “Dr. No” who tries to shoot down every innovative idea that costs money. In reality, the CFO is someone who can help point new endeavors in a direction that will lead to the most propitious outcome.

In a 2019 interview with Forbes Magazine, Kathy Crusco, CFO of Epicor, said, “the CFO must find the balance between protecting the assets of the company and fostering innovation. These are both important goals and CFOs must carefully weigh the risks and rewards of financial strategies because, at the end of the day, innovation doesn’t matter if a company’s assets aren’t protected.”

What Data Can the CFO Provide to Decision Makers?

Ideally, the CFO has access to current, accurate financial figures regarding the following:

  • Operations
  • Supply chain
  • Cash on hand
  • Accounts receivable
  • Accounts payable
  • Sales
  • Marketing
  • And more

The CFO may also have access to relevant data from other companies in a similar position, as well as past personal experience.

In addition, the CFO will usually have access to sophisticated software tools that can generate financial forecasts and explore “what if” scenarios.

The CFO as a Business Enabler

As a strategic asset to the executive team, the CFO provides input based on data rather than intuition. A good CFO builds teams and processes that ensure accurate real-time financial data across all areas of the enterprise. CFOs never lose sight of the profitability and viability of the business, nor the satisfaction of the customer.

Business leaders can use the CFO as an objective, independent sounding board for their ideas. The CFO will be able to answer questions such as:

  • If we do this, will it grow the business?
  • Can we afford this?
  • What is the likelihood of success?
  • How could this idea be tweaked to maximize profitability and minimize risk?
  • What effect will this have on other areas of the business?

The CFO can also help turn an idea into a realistic model with numbers and forecasts.

CFOs add value to the decision-making team by being a voice of reason and reality. They can help ensure that decisions are well thought out and based on sound assumptions. Then, once a decision is made, the CFO will make every effort to ensure that things go according to plan and objectives are achieved.

What Kinds of Decisions Can a CFO Best Help With?

It is unfortunate that some corporate officials think of the CFO merely as a high-level accountant or a glorified controller rather than a strategic partner. Consulting with the CFO can be of enormous value when any decision is contemplated that could affect the company’s cash flow, market share, or bottom line.

Some areas where the CFO can be particularly helpful in decision-making may include the following:

Initial Public Offering (IPO)

When a company prepares to go public, it is vital to have a sound investment thesis—that is, a clear and compelling reason for investors to put money into your business. The CFO can help determine what kinds of potential investors to target, what financial information they need, and what message might best attract them. The CFO can also provide financial forecasts and ensure proper post-IPO financial management.

Corporate Expansion

Adding new product lines, new markets, or new territories can be an expensive and highly challenging proposition. Preparation for such a move may include obtaining additional funds, complying with new regulations, hiring new employees, and adapting to different tax laws. The CFO can help determine the costs and benefits of the expansion plan, as well as identify hidden risks and considerations. The CFO may also be able to find credits and benefits such as grants and tax incentives that might otherwise be overlooked.

Construction and Relocation

A CFO can be very helpful in identifying the true costs of building new facilities and relocating operations. They can prepare forecasts that include both the cost of construction and the cost of ongoing maintenance of new facilities. They can help determine the most cost-effective ways to sell or dispose of facilities that are no longer needed. Corporate executives without strong financial backgrounds may not anticipate “soft” costs such as employee turnover and customer confusion. The CFO can take these and other hidden costs into account and make appropriate recommendations.

Marketing Initiatives

New marketing ventures can give a valuable boost to company revenues if they are done right, but they can be spectacular failures if poorly planned and executed. The CFO can help determine whether an initiative is likely to succeed and how best to proceed.

Mergers, Acquisitions, and Exit Strategies

The CFO’s input is of vital importance at every stage of the deal planning process. If the plan moves forward, the CFO will be heavily involved in due diligence, financial modeling and forecasting, transitioning the business, and much more. The CFO is the official most able to determine whether the proposal is viable and beneficial or not.

In Conclusion

When major corporate choices are to be made, the CFO can and should be a major player in the decision-making process. CFOs have the knowledge, data, and experience to help determine the likelihood of success and the best way to proceed.

How can your company benefit from a partnership with a CFO? Contact Preferred CFO today for a free financial consultation.

About the Author

Eric Dorfman CFO Preferred CFO

Eric Dorfman

CFO

Eric Dorfman is a growth- and results-driven CFO with over 20 years of diverse experience in strategic finance leadership for public & privately-held companies in a wide range of industries.

You may also be interested in...

Leveraging Financial Ratios to Assess Company Performance

Leveraging Financial Ratios to Assess Company Performance

Overview Financial ratios are crucial tools for any business or investor looking to assess the financial health of a company. These ratios provide insights into various aspects of a company's operations, such as liquidity, solvency, profitability, and efficiency....

Exploring Different Financing Options for Business Expansion

Exploring Different Financing Options for Business Expansion

Exploring different options for business expansion is essential for companies looking to thrive in today’s dynamic business environment. By expanding their businesses and benchmarking financial performance, entrepreneurs can unlock new opportunities, drive sustainable growth, and achieve their business objectives.

Business Budgeting Essentials

Business Budgeting Essentials

Crafting and implementing an effective business budget is a dynamic and ongoing process. With a strategic and adaptable budget, businesses can enhance financial stability and pave the way for sustainable growth.

Tax Planning Strategy For Small Businesses

Tax Planning Strategy For Small Businesses

Business Tax Planning Strategies:A Small Business Owner's Guide to Savings & Compliance Effective tax planning isn't just about minimizing liabilities; it's about strategically positioning businesses for long-term success. From small enterprises to larger...

Financial Advice for the New Entrepreneur

Financial Advice for the New Entrepreneur

Profitability is not just a financial metric; it’s a mindset that should permeate your business operations. By prioritizing profitability, you can grow your startup into a financially stable and sustainable business that can weather economic challenges and thrive in the long term.

Guide to HR Outsourcing: Strategies for Modern Business

Guide to HR Outsourcing: Strategies for Modern Business

HR Outsourcing for your business  In this dynamic and ever changing business landscape, the questions of "What is HR outsourcing?" and “Do I need a fractional HR team?” have become increasingly relevant. HR outsourcing is a strategic practice that involves delegating...

Managing Business Expenses in Inflationary Times

Managing Business Expenses in Inflationary Times

Inflationary times pose challenges, but with strategic expense management, businesses can navigate these periods successfully. By understanding the impact of inflation, implementing cost-cutting measures, engaging in strategic financial planning, and embracing sustainable practices, businesses can not only weather economic storms but also position themselves for long-term success.

Why You Need Fractional CFO Services in 2024

Why You Need Fractional CFO Services in 2024

Why You Need Fractional CFO Services in 2024  In the fast-paced, ever-evolving business environment of 2024, companies across the globe are increasingly recognizing the need for innovative financial management strategies. The US and global economy is in a state of...

20 Things Every Entrepreneur Needs to Know about Accounting

20 Things Every Entrepreneur Needs to Know about Accounting

While entrepreneurs don’t need to become professional accountants, having a solid foundation in accounting principles and practices will enable them to make informed financial decisions, communicate effectively with financial professionals, and ensure the financial health and success of their business.

Top Human Resources Strategies for 2024

Top Human Resources Strategies for 2024

Welcome to our insightful webinar featuring Tom Applegarth, a renowned expert in the field of Human Resources and our expert Outsourced Human Resources Manager at Preferred CFO. In this webinar, Tom shared with us his valuable strategies and insights for HR success in...

Is it Time to Sell Your Business?

Is it Time to Sell Your Business?

Deciding whether and when to sell your business is a significant and complex decision that should not be undertaken lightly. If the timing is right, the offer is right, and the necessary work is done correctly, selling your business can be highly beneficial. However,...

Facebooktwitterpinterestlinkedinmail