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:
- Supply chain
- Cash on hand
- Accounts receivable
- Accounts payable
- 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.
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.
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.
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 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...
Recognizing Cash Flow Problems & How to Solve Them We know that the majority of small businesses fail within the first five years, but a study by Jessie Hagen, previously with U.S. Bank, drilled down into the reasons why this occurs. In her study, she found that...
In today's dynamic business landscape, having a strategic financial perspective is more crucial than ever. However, not all businesses can afford to have a full-time Chief Financial Officer (CFO) on their roster. Many choose instead to utilize virtual CFO services – a...
Financial Key Performance Indicators (KPIs) are crucial measurements of a company’s fiscal health. These metrics provide a window into the current and projected profitability of an organization, enabling managers and stakeholders to make informed decisions. By...
For many businesses, product inventory is their biggest asset. Effectively managing the inflow, storage, and outflow of inventory is critical to the financial success of the company. When inventory management is done right, customers can place orders with confidence,...
Preferred CFO recently added Human Resources Veteran, Tom Applegarth, to the Preferred CFO team to offer outsourced HR services in addition to or standalone from outsourced CFO services. In this video, Tom introduces his experience and key benefits he offers Preferred...
Your employees are the lifeblood of your business. However, labor is also typically the highest cost for most businesses. Costs associated with hiring, training, compensating, retaining, rewarding, and managing employees can easily spiral out of control when there is...
A financial audit serves as a valuable tool for ensuring a company’s compliance with legal and regulatory requirements, building credibility with stakeholders, managing financial risks, and maintaining transparency in the financial operations of the business....
A SaaS CFO is a chief financial officer with specific experience in the Software as a Service (SaaS) industry. A SaaS business is different from traditional businesses that require a one-time purchase or otherwise brief relationship transaction as a SaaS company...
Cost analysis and price analysis are two important procedures that are used by businesses to calculate the true cost of a product or service and determine the best sales price. By understanding and correctly utilizing these processes, businesses can make informed...
Before starting a new business—and periodically thereafter—it is important for company executives to carry out a market analysis, also called a market evaluation. Most entrepreneurs conducted a market analysis (to the best of their abilities) when they were developing...
A fractional CFO is an experienced CFO who provides services for organizations in a part-time, retainer, or contract arrangement. This offers a company the experience and expertise of a high-end CFO without the in-house cost—salary, benefits, and bonuses—of a...
Generally Accepted Accounting Priciples (GAAP) Financial reporting is an important part of business that communicates the financial performance and results of a company. It records and presents information about the company’s financial position, revenues, expenses,...