In today’s business climate, every key management position needs to offer more value, and the Chief Financial Officer is no exception. Due to the broadening scope of the role, it’s crucial for CFOs to go beyond their financial reporting duties and take an active role in their company’s strategic planning.
Your financial expertise is a strength that can be leveraged in multiple scenarios. That knowledge can be used in partnership with identifying the key constraints holding back your company’s growth.
The following seven questions will help you determine those constraints – and how you, as a strategically-minded CFO, can help overcome them:
What’s the company’s plan for growth? Many companies plan growth, whether organically – that is growing through finding new markets or creating new products – or by weighing the pros and cons of mergers and acquisitions. The CFO’s role in all of this is to help understand the cost and potential ROI of the growth strategies and to ensure affordable capital is available for the growth strategies to be profitable.
What are the challenges to your company’s growth plan and how might you overcome them? Planning to create a new product or service is a great idea – as long as there’s a product or service your company can provide that is marketable and can be profitable. Expanding into new markets can be a challenge or an opportunity, depending on your company’s culture – is it a sales driven culture? What would the associated costs be with new market expansion?
Your company’s debt burden also can be a challenge – paying a heavy amount of interest can negatively affect cash flow, increase the cost of goods and give competitors an edge. Debt burden can be a significant constraint, especially if your competitors are able to finance growth through M&A and other strategies much more efficiently. Some challenges may be out of your control or difficult to overcome, but identifying them is the first step in managing them.
What uncertainty is your company facing and how can you help negotiate it? CFOs should request their finance, planning and analysis departments to model consequences of different outcomes in order to make informed decisions on whether to take on the risk and how to mitigate it. Uncertainty can halt decision making – CFOs can reignite the process by providing research to resolve the uncertainty, developing a plan to navigate it while managing risk through insurance or creating a detailed plan for real-option investment as uncertainty arises.
Where does your company spend the most without proven ROI? For example, if your company spends a lot on advertising or events but can’t quantify a benefit, it could be an area worth weighing in on. One caveat is to consider whether you have given a new program enough time to mature and capture the financial benefits, which can be a costly mistake. Developing guidelines and improved disciplines on significant line items are often a source of quick strategic wins.
Are your company’s growth goals big enough? Doubling revenues is a standard company goal. If you’re trying to reach such a goal, you’re likely weighing several projects or scenarios, some that come with financial risk. So what if you thought bigger? A failure of a $400,000 project would be a serious hit to a $2 million company, but not as much to a $20 million company. Your company’s ability to invest in future growth elevates by increasing your scale not twofold, but tenfold, through a series of mergers and acquisitions. Suggesting such a bold growth plan to your CEO and board starts a conversation that could be truly transformative for your company.
What could halt your company’s goals and what could help nullify it? What if your top competitor were to undertake a profitable acquisition or develop a new product or process that dramatically changes the marketplace? Instead of fearing the competition, CFOs should investigate whether they could use the likely playbook of their top competitor and also leverage financial planning and analysis capabilities to model out disruptive scenarios and help frame responses.
What should your company consider stopping? Lastly, are there underperforming divisions or customers who are not profitable? If you’re not able to turn these losses around, it may be best to dispose of them to free up capital and resources for more profitable business endeavors. Dropping unprofitable customers or increasing their fees to cover the costs could increase long-run returns.
These crucial questions help CFOs identify advantageous opportunities and develop a strategic mind-set. But even the most forward-thinking CFO can’t do it alone – in addition to working hand-in-hand with your CEO, it’s important to have an experienced financial advising team in place, including bankers, financial planners and CPAs who work in your industry.
Since the 1920s, Concannon Miller has been working with CFOs to help their businesses grow and is the proud sponsor of the Lehigh Valley Business CFO of the Year Awards. Seeking more advice on how to improve your company’s finances? Contact us here.