How to Best Use a CFO

9 Tips to Work Well with Your Chief Financial Officer (CFO)

You’ve heard that at some point on your journey to scaling your business, you need to hire a Chief Financial Officer (CFO). Perhaps you’ve already made the leap. But do you know how to best use a CFO to achieve your vision of business success?

After more than three decades of working in CFO and Controller roles, as well as providing Fractional CFO services to women-owned businesses, I’d say that many CEOs don’t understand precisely what a CFO can do for a business. Let’s talk about how to best use a CFO, so you can maximize the investment you make in this strategic partner!

CFOs Look to the Future, Not the Past

One of the most common misconceptions is that CFOs are essentially glorified accountants and bookkeepers – though perhaps more highly trained, used to working with bigger companies, and more highly paid.

Here’s the difference: Accountants and bookkeepers are focused on the past. They capture, organize and report on decisions you made in the past and how those decisions impacted your finances. Their focus is on the revenue that’s been invoiced and/or collected, the money that’s been spent, and the debt that’s been incurred to date.

In contrast, CFOs are future-focused strategic partners. They determine the best way to achieve your organization’s goals in light of your financial resources. CFOs use the financial reports created by your accountant and/or bookkeeper to understand where the organization is right now, what trends are occurring, and the financial restrictions to consider when strategizing how to achieve your goals.

Your CFO may tell you “no,” but it’s not a sign of negativity or a personality conflict. It’s a sign that your CFO knows that the decision you’re considering would negatively impact your ability to achieve the strategic vision you’ve set.

For example, let’s imagine that you’re running a small business that you want to scale in the next five years. You find a gorgeous office building that you want to buy. You’ll use part of the space as your office and then rent out the rest. But your CFO says “no way.” Why? Because investing in real estate typically takes years to produce a significant profit and there are better ways to produce a more significant profit more quickly. Your CFO will also likely recognize that playing the role of landlord will take you away from your core purpose and business.

Maximizing Your CFO Partnership

If you want to know how to best use a CFO, here are 9 tips to get started:

  1. Gather Your Financials: Your CFO first needs to get a clear picture of where your company is today. You will need to gather all financial statements, books, and loan documents. Be thorough. Leaving out even one piece of information, such as an outstanding loan, can completely change the picture of where your company is and how to best get it to the next level.

A head up: Financial records typically contain inaccuracies that need to be corrected before your CFO can create a strategic financial plan that’s based in reality. Plan for the possibility that your CFO may need three to get your financials cleaned up.

  • Reveal everything: You may feel uncomfortable sharing everything with your CFO because you don’t want to face that your company isn’t doing as well as it could – or should. You may be embarrassed by past decisions you’ve made. You may suspect that your CFO will not be supportive of plans you’re making … so you figure that you just don’t have to share it all.

But omitting details or providing incomplete information limits your CFO’s ability to offer effective guidance. It’s like asking your doctor to tell you how to lose weight without acknowledging that you consistently overeat or asking for a prescription without mentioning that you have allergies. If you want to know how to best use a CFO, start with total transparency. Your CFO cannot help you without all of the information.

  • Prepare for a Reality Check: It’s essential to get an objective and clear assessment of where your company is starting. Your current financial reality will indictate the available strategic opportunities to achieve your goal within a given time period.

For example, there are many routes you could take to drive from Washington, D.C., to San Diego. You’d chose your route based on a variety of factors, such as time, mileage, or even wanting to avoid certain places as you go. But plotting a route that starts in DC is pointless if you’re in fact starting in Orlando.

  • Have Your CFO Supervise Your Accountant: As noted above, financial reports often have errors. Your CFO has the bigger-picture, more strategic view of your company. The financial reports prepared by your accountant are one piece of the picture. Require that your accountant report to your CFO and empower your CFO to review and approve financial reports before they are consider finalized.
  • Seek Advice Before Making Decisions: Your CFO is responsible for steering your company to its goals within your financial limitations. That means that your CFO needs the authority to decide what financial commitments you’ll make. Before making significant financial decisions (ask your CFO to set guidelines about what “significant” means), seek your CFO’s input. You need to understand how your choices will impact your company’s cash flow, strategic plan and long-term financial health. If you make decisions first and tell your CFO only after a commitment has been made, you’re not using your CFO’s talents and skills properly.
  • No Borrowing Without Approval: One of the biggest mistakes you can make is borrowing money or arranging financing without your CFO’s input. Your CFO can tell you how a loan will impact cash flow. Your CFO will also likely know of financing options you’ve never considered. Most importantly, your CFO can position your company for optimal financing terms and ensure that borrowing aligns with your strategic financial plan.

Imagine you find yourself in a financial pinch. Payday is coming up in three days, and you don’t have the cash to meet payroll. But you do have a large outstanding invoice that should be paid in two weeks. You just need a solution to get you through the next couple of weeks.

You don’t have time to fuss with a traditional loan (and you don’t want to jump through all the hoops that would require anyway). So you turn to a company that specializes in short-term loans. The interest rate seems a little high, but it’s okay, because you can meet payroll and you’ll soon have the cash you need to repay the loan. You told your accountant, who didn’t say anything. No problem, right?

Think again. What you didn’t realize is how quickly the combination of interest and principal repayment would accumulate – and how much it would impact your cash flow. Pretty soon, you’re in the same boat and have to take out another short-term loan … which means now you’re making an even bigger interest & principal payment. Before you know it, your company may be generating $100,000 a month in revenue, but $45,000 a month is going to loan payments.  

  • Collaborate with Your CFO: If you’re like many women business owners we work with, you like big picture numbers – like revenue and profit. But you’re naturally more focused on bringing in the sales and you’d rather not think too much about the nitty-gritty financial details. That’s where your CFO comes in. CFOs love numbers and understand intimately how all of the financial indicators in your business work together. They possess the expertise to explore various strategies and scenarios.  Collaborate with your CFO to identify the best path forward based on a comprehensive understanding of your financial landscape.
  • Recognize that “No” is a Good Thing: If you’re working with a CFO, you’re going to hear “no” – and that’s okay. When a CFO advises against certain decisions, the advice is grounded in a strategic assessment of your company’s financial well-being. Remember that CFOs try to optimize financial resources and accelerate growth. Quite often, a “no” means that your CFO is helping you avoid a decision that could derail your strategic plan.  Your CFO may suggest an alternative strategy that gets you where you want to go but avoids some of the pitfalls of your original plan.
  • Conflict is Normal; Trust is Essential: CEOs are visionaries. You recognize potential and are naturally hard-wired to withstand a greater amount of risk than most people. You are full of ideas and grand visions. Your job is to dream big and inspire your team.

CFOs are firmly rooted in reality. Their job is to tell you what course of action is most reasonable and sound. This creates a natural conflict that may feel unfamiliar to you, but that’s actually good for business. CFOs want to help CEOs achieve their dreams, but their ultimate loyalty lies in keeping the organization financially healthy. Your CFO is a financial steward who may say no, but recognize that the no is said out of concern for your company, not out of spite.

Should You Hire a CFO?

If you want to scale your business, you need a CFO to help you determine the best way to achieve your dreams given your financial resources.

If you don’t want to work with a CFO on a regular basis, you will still benefit from a periodic consultation. An annual or even quarterly review can provide a clear picture of your financial standing and strategic direction. Fractional CFO services offer a cost-effective way to access objective expert financial advice, making it an ideal solution for businesses at various stages of growth.

Get the Most from Your CFO

A CFO transcends the role of a mere financial overseer to become a crucial ally in steering your enterprise toward its fiscal objectives. Adopting a stance of openness, actively soliciting their advice for pivotal decisions, and treating your CFO as a cooperative partner empowers you to adeptly handle the intricacies of corporate finances.

If you want to know how to best use a CFO, it’s important to engage in consistent dialogues, whether your CFO is a part of your team on a permanent or part-time basis. Regular communication provides critical perspectives that inform and enhance strategic choices and corporate expansion. CEOs who adeptly apply these approaches are better equipped to tap into the wealth of knowledge their CFO brings to the table, ensuring their company not only withstands but flourishes amid the competitive dynamics of the modern business environment.

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