As your company’s Chief Financial Officer, you wear a few hats. Generally, you track and manage the financial aspects of your company as a whole. However, that means that you monitor day-to-day activities as well as create big-picture planning for the future. You also analyze the strengths and weaknesses of the company from a financial perspective. You make investment recommendations and decisions, and you control the overall capital structure for your company.
Getting each of these financial aspects under control can be daunting, and getting your team on board with whatever strategy you choose can be a full-time job in and of itself. However, you have to mix your know-how with some creative strategies to ensure great results for your firm. We have a few tips on how you can do just that.
If you want your company to grow, you cannot standstill. Intuitively, you know this, but making risky decisions when it comes to funding and investments can be difficult because it affects the whole company. However, when you are in a growth economy or even a growth stage in your company, that is not the time to hedge your bets.
Instead, leading CFOs will identify growth prospects and refocus their available capital toward those opportunities. Research indicates that growth leaders are:
While the current COVID-19-induced economic decline is certainly not over, planning today to make large jumps when the economy begins to turn around will put you leaps and bounds ahead of other companies.
While making big jumps is important, you cannot take risks without a backup plan. Having a portion of unallocated capital can be extremely helpful in two overarching situations: rainy days and strategic innovation.
Having capital in emergencies is a no-brainer. Keeping some portion of capital out of investments that you cannot liquidate quickly will help you address problems with projects that exceed timelines or need additional funds to complete. It will help you solve vendor problems, a cybersecurity disaster, or sudden personnel challenges.
Having unallocated capital on hand also helps solve an additional issue that may come up—perhaps a new opportunity presents itself, and you need immediate funding to take advantage of it. This opportunity could come in the form of a new product or service, or it could be a new technology that will help your company become much more efficient. Having this cushion available to you at all times will help your company realize growth and earning potential where it otherwise may not have been able to make a shift.
You cannot make sound decisions if you do not have good information. Having real-time data across your company will help you not only see what is happening quickly, but you can also make immediate adjustments to avoid potentially huge problems before they strike. Data changes quickly, and as a company’s business becomes larger both in terms of numbers and geographic scope, it can be even more challenging to keep up.
Having the right data gathering, projection, and organization software and support can be extremely important in your role as a CFO. It will also help you promote transparency and collaboration with your team.
Former CFO of Ford Motor Company, Bob Shanks, notes: “Operating a global business in a fast-changing world, you have to be grounded in real-time in the external environment, have complete transparency, be fact-based and working with a great, collaborative team.”
As a CFO, you have two primary audiences—the internal stakeholders and the external stakeholders. While the CEO and CIO are an extremely important audience, you also need to be able to talk to your stakeholders in a way that they understand as well. Your CEO, for example, is living the company day-in and day-out, just like you. It is easier to use common terminologies and understand one another.
External stakeholders, on the other hand, will often require a different level of communication. While investors and shareholders may be the same people in a smaller business, that is not always the case.
You can know your numbers and strategy better than anyone, but if you cannot learn to communicate effectively with the key players in your company, then you will not be viewed as effective. Making sure you are as comfortable with the people as you are with the numbers is a must for a great CFO.
You need to tell your business’s story in a way that engages both investors and the analyst community. This general rule applies to both your presentations and your reports, too.
Even CFOs have to learn not to put all of their eggs in one basket. For some, that can mean traditional investing. For others, it can mean creating ranges of products and services or different areas in which to focus funds on research and development. Having both long-term and short-term investments as well as projects, is often an important way to diversity, as well.
Keep in mind that investing in your company first is still a good way to diversify as well. Having that buffer to ensure that the company does not go in the red is one of the best investments you can make.
If you are trying a new investment or strategy, you should build in a cut off point. As you manage bigger or riskier investments or projects, you should have a discussion with the stakeholders about when you need to get out. Perhaps that point is a specific date, or maybe it involves a certain loss point. It could also mean simply creating a timeline to re-evaluate what is happening as well.
What works well for one CFO or whole company may not work for you. Your industry, stakeholders, and personal risk tolerance will all play a role in how you operate. Just do not be afraid to make leaps and take some risks—that is the only way your company will grow and thrive.