Businesses are complex entities and become even more so as they scale. While you once may have known everything there is to know about your company, that has very likely changed over time.
But as you add individuals to your team to manage the increasing workload, you also add subject matter experts to manage different aspects of your business – to specialize in marketing or operations and, of course, finance.
A chief financial officer is crucial for a growing business, and yet many owners and leaders forego this cost in favor of investments with a more direct line to revenue generation. They mistakenly believe an accountant or bookkeeper is enough to get the job done. In reality, it takes a seasoned financial executive to understand the financial performance of your venture and how to achieve your strategic goals.
What does that mean in practice? Consider the 5 questions below and ask yourself: Can you answer them? Because a CFO most certainly can.
1. What’s on your company’s long-term financial roadmap?
According to a recent survey, only 35% of businesses have a long-term growth strategy in place, so if this question is giving you pause, you are not alone. This is, however, a distinct area of strength for financial executives. They gain an in-depth understanding of the financial performance of a business. They work with their fellow executive team members to discern direction and competitive advantage. They discuss goals – both personal and business – with the owner(s).
The real superpower of a CFO is to take the goals and strategy developed above, tie them to the numbers of the business, and develop the financial roadmap to get you there.
2. What are your top revenue and profit streams, and what aspects of your business are dragging you down?
Many business leaders have a good sense of which customers, products, and services are the top revenue generators. These are the areas that are celebrated. Less well understood are the actual profit contributions by these customers, products, and services and whether the costs to deliver certain products or to certain customers eat up most, if not all, of the revenue generated.
Good leaders need to understand which areas of the enterprise are dragging the rest of the operation down, and once again, this is where chief financial officers can add tremendous value. We make it our business to know a company inside and out, which includes an in-depth profit analysis by customer, product, and service. More often than not, what we find comes as a surprise to the leaders we serve. This understanding is critical for leadership teams as they evaluate where to invest for growth and which customers, products, or services are a boat anchor to the business.
3. Are there new markets we should enter for revenue & client diversification?
Business owners and leaders are always thinking about the future of the business. At the same time, when you are constantly “in” in the business, it can be challenging to step back and identify new opportunities on the horizon. A fractional CFO, with decades of experience in other businesses and industries, brings a fresh eye on the market and the competition, as well as the business itself. With this ‘outsiders’ view, they can be a key asset in their ability to identify opportunities for new revenue streams and other areas of growth for the business.
4. What is our strategy for inorganic growth?
Many business owners have some degree of developed plan for driving organic growth, whether through improved service and profit margins, scalable operations, enhanced sales processes, or adding new products or services. However, most business owners don’t have a similarly thought out, methodical plan for growing their business inorganically through acquisitions.
Having a well-developed plan and set of criteria for making “good” acquisitions can greatly accelerate business growth. Conversely, making one or two bad acquisitions can sap your growth capital, disrupt your operations, impose additional liabilities, and distract your leadership team.
Preparing an M&A process in advance of any opportunities can position your company for higher likelihood of success and greater upside potential. Your CFO is a key part of building such a process and is often a key point person both in due diligence and negotiating terms.
5. What are our target KPIs for liquidity, profitability, and growth?
True to form, good CFOs know the numbers that run your business inside and out. In the process of building out your strategic financial roadmap, they can identify the key metrics to hit to not only achieve your operational goals but also to use your capital effectively. These numbers help you measure progress toward profitability or growth and give you a gauge of when your business may be in financial stress. Armed with this knowledge, leadership can adjust efforts accordingly.
If some of these questions gave you pause, rest assured you are not alone. And there is a solution: A skilled chief financial officer – whether full-time or fractional – can provide strategic guidance, highlight new avenues for growth, identify lagging parts of the business, and set KPIs to measure future success.
At FocusCFO, we built our business to provide small to midsize organizations with the financial expertise and guidance they need at a fraction of the cost of a full-time CFO. Schedule a consult today to find how we can support your business.
