Your business’ success is largely determined by your decision-making processes. In the early stages, much of what you do is reactive to the situation on the ground. And while “winging it” might work in the early stages of growth, it’s not a feasible strategy for long-term success.
As your business grows, so too does your risk exposure. To mitigate and respond appropriately to your enhanced risk profile, you will need to align yourself with key players that can help your business sustain and drive a scale—namely, you need the services of a chief financial officer (CFO).
Modern CFO’s are more than just number crunchers. In fact, the right CFO can have a massive impact on the financial and strategic decisions your business takes down the road. They can spell the difference between a failing or successful business.
This guide explains how.
How a Great CFO Influences Strategic Decisions for your Business
The Role of a CFO
In the past, the role of a CFO was mostly limited to three chief roles:
- Handling the company’s books and records
- Financial reporting
- Statutory compliance
The CFO of yesteryear was typically the person in the company who shot down ideas “due to budgetary constraints.” Planning and other strategies were left to the other members of the C-suite. But CFOs of today are different. The role has evolved. Now, they are value creators, strategic decision-makers capable of helping grow your top and bottom line.
From financial planning, reporting, and analysis, to bookkeeping and risk management, A CFO may have countless tasks to juggle on a daily basis. For the sake of simplicity, Deloitte breaks the CFO’s role into four main facets:
- Steward – A CFO safeguards the important assets of the company, ensuring compliance with regulations, closing the books accurately and promptly, and relating value and risk issues to key stakeholders.
- Operator – A CFO manages and operates the organization’s financial services, including planning and analysis, treasury, and tax.
- Strategist – A CFO helps plan strategy that directs the company forward. They help leaders align their goals and strategies with the underlying financials.
- Catalyst – A CFO can be a vehicle for change within an organization. Backed by the company’s financing, they can strategically apply resources where they are most needed or push for other financial goals like cost reduction or optimization.
By working with the CEO, a chief financial officer can help create and then implement business transformations that steer the business in a more profitable direction. They work alongside FP&A teams, accounting departments, and the C-suite to identify risks and opportunities the business faces and then strategize ways to mitigate the former and pursue the latter.
How Does a CFO Influence Strategic Decisions?
So, how can a great CFO impact your company’s trajectory for the better? They can influence strategic business decisions in one of three primary ways:
Turning Numbers Into Strategic Insights
One of the most important value-adds a CFO brings is an ability to analyze a company’s financials and then use those insights as a springboard for action. For most people—even those that are business savvy—P&L, balance sheets, and cash flow statements are just data on the page. But for a veteran CFO, financial statements and ratios tell a story that can guide them toward the optimal business decision.
While a CFO may need to make radical changes, most often, the ones that make a tangible difference are those that enhance the margins of existing operations. In order to create this lift, McKinsey states that it requires, “An understanding of the organization’s marginal economics—that is, the costs and benefits of producing one additional unit of product or service.”
A CFO can help your team paint a better picture of the risks and the marginal value of optimizing business activities related to success. Even small changes have the potential to transform the company in the process.
Having a Gut Feel for the Industry
Over time, a CFO accrues experience. They make right and wrong decisions. There are failures and successes. As the years pass, a savvy CFO will be able to learn from both their mistakes and achievements and then utilize that knowledge going forward.
But a CFO cannot solely rely on numbers. Sometimes the financials do not paint the whole picture. Or, at other points, you simply will not have enough information to go off of but still need to make a decision.
This is where instinct comes into play.
According to a study on more than 1,500 CFOs, approximately 46% of CFOs rely on “gut feel” to help them make business decisions.
Put simply, a great CFO has years of previous experiences to draw on when the numbers are not enough. Rather than getting caught in choice paralysis, an effective CFO knows how to use their instincts to guide their choices.
Providing a Voice of Realism
It is easy to get excited about some new endeavor or potential strategy. However, sometimes that enthusiasm needs to be tempered by a healthy dose of reality.
In their role as a steward of the business’ financials, a CFO is not there to simply say no to things—instead, their job is to ask questions like “Is this viable?” By delving into the upside, risk, and affordability, a CFO can help you see whether or not the solution or strategy aligns with the P&L.
Although you may instinctively regard them as a roadblock, it is important to remember that sometimes the actions you do not take are just as important as the ones you do.
CFO Hub—Your Source for Strategic Decision Makers
Whether it’s converting accounting data into business insights, relying on their instincts, or acting as a voice of reason in a decision-making process, an effective CFO can make a significant impact on your entire organization.
But how do you find the right CFO? Where do you start your search, especially if you’re a small- to mid-sized business?
You’re already here. At CFO Hub, we offer outsourced CFO and accounting solutions to growing enterprises. Whatever your industry, we can curate a team of financial and accounting professionals that are perfectly aligned with your long-term goals.
The right CFO can impact your strategic decisions for the better. Contact us for a free consultation and planning session today.