The most important asset for every business is the people that are a part of it. Every business owner knows this, and for this reason, one of the biggest aspects of making sure your business grows consistently is having the right talent. The problem then becomes a matter of being able to afford the talent you want.
Since people are such a big part of every business, this also prompts the question: What expertise can your business no longer spare if it is to keep on growing? It’s under this umbrella that CFOs fall in.
There’s a point in every business growth path where they can no longer afford to be without someone that focuses exclusively on the financials. Even though it was probably part of what you did as a founder at the beginning, as your business grows, your job as CEO becomes increasingly strategic. So it becomes unrealistic for a CEO to continue to handle CFO duties as well.
This article covers how having a CFO or someone carrying out CFO duties is key to forward planning and making sure you reach your growth goals.
What is the Job of a Modern CFO?
“Sorry, we don’t have the budget for that…” That’s the one phrase that most business owners think they’ll be hearing from their CFO. Often maligned as bean counters and other not-so-nice nicknames, the reality is that today’s CFO’s role is not so much about saying No, but about saying YES at the right time.
This is to say that today’s CFO’s role is much more about making sure that the financial strategy matches the operational goals set by the CEO. Not limited to these, here are the 3 main areas where CFOs focus:
- Financial Reporting: This is the area traditionally attributed to CFOs. They make sense out of your books and make sure there are no serious problems that can have a negative impact.
- Financial Strategy: This is one of the more critical areas where the role of the CFO has evolved, especially with startups. That’s because of the ever-increasing need to be able to set the right financial strategy to match the company’s overall growth strategy.
- Risk Management: Being able to know how to get past rough times and any unexpected turn of events is another of the key attributions of the CFO. That’s because the first place to look at when something goes wrong is at the businesses’ finances.
Forecasting, Planning, and Execution
CEOs and founders are typically attributed to the task of being dreamers and innovators, while the CFOs were just about looking into the financials. That has changed. Today you’ll find that modern CFOs have a more active role in the day to day operations. That’s due to the fact that there are more dynamic financial data management tools and the feedback loop between operations and finances has shortened. So CFOs and CEOs collaborate extensively in making sure the business grows. Some of the main tools used by CFOs are the following.
- Financial forecasting and scenario building: Being able to prepare or knowing how to react to any scenario, both good and bad, is an incredibly valuable asset to have. In a best-case scenario, it allows you to capitalize and make the most of the opportunities ahead. In a worst-case scenario, it allows you to act quickly and minimize the damage done to your business.
- Financial planning and budgeting: Knowing how much cash you’ll have and by when is one of the most valuable pieces of information you can have to make the right strategic decisions.
- Budget execution: Another aspect that falls under the umbrella of the CFO is financial execution, said differently, the CFO looks into if you are getting the return you expected out of where you are spending your budget.
- HR planning and keeping track of top HR metrics: For many businesses, their biggest expense comes from acquiring and maintaining their talent. So making sure that you are hiring the right talent and the right time is another one of the key areas where CFOs focus their attention.
Focus on Cash Management
Needless to say, cash is a big concern for startups and small businesses alike. It’s so critical that if your cash flow takes a turn for the worse, the hit it makes on your business might be something you won’t be able to recover from. This is why startup and small business CFOs spend such a large amount of their bandwidth focusing on cash management. Here are 3 metrics your CFO can help you keep track of:
- Operating Cash Flow: Since startups and early-stage businesses can have a variety of funding sources, this metric helps you keep track of whether your business is generating enough to sustain itself.
- Burn Rate: This metric is critical for startups that are funded, as it essentially lets you know how much time you have left to start making a profit or get additional funding.
- Total Available Liquidity: This is a great indicator of the overall health of your business, as liquidity takes into consideration cash and other highly liquid assets available to your business.
Making Sure Operational Goals are Having the Expected Impact on Financials
As a founder or business owner, you have big goals. But the question remains, are the goals you set for your business making the impact you need on your bottom line? This is one of the main roles of the CFO. It’s not about setting the right goals, but rather about collaborating with you to make sure that the goals and direction you set for your business are being reflected on your business’ books.
Choosing the right KPIs to focus on
There are dozens of KPIs to keep track of progress, but which ones should you choose to focus on? To help you steer away from excessive reporting or spending too much time looking at spreadsheets, here are 3 KPIs that work well with both operational and financial goals.
- Customer acquisition cost (CAC): This metric keeps track of how much cash you are investing in acquiring a new customer. Investors look deeply into this metric as it gives a clear indication of what growth to expect from a given investment.
- Customer Lifetime Value: Similar to the CAC, this sales metric gives you an idea of what your total revenue can be in a given timeframe since it measures the total revenue you’ll generate from each user.
- Monthly Active Users: This is particularly relevant to businesses that rely on a large user base, as the growth of users gives a direct idea of the growth and sustainability of a business.
Are you working with a modern CFO?
Having the expertise of a financial expert side by side with you on your business is key to making sure your business takes off and doesn’t crash back down. The good news is that even if you can’t afford to onboard someone into the CFO role, there are other options to explore. Feel free to reach out to us to talk about how Pasquesi’s CFO expertise can be implemented in your business.