Like it or not, your financial outcome is almost always a reflection of the decisions that your company has made in the past.
Typically when businesses start, the focus is on growth and delivering exceptional customer experiences. Decisions are often reactionary, and in most cases, the information needed to make strategic decisions isn’t always available.
However, as your business grows, your exposure to risk also increases.
You personally guarantee lines of credit at banks, you sign long term leases, the credit you extend clients increases, you bring on more full-time staff.
As your business matures, the way you make decisions generally changes too. This is the point where most small businesses start to wish they had access to senior financial leadership.
Someone to act as an extension of their leadership team, someone to coach and mentor their in-house team and someone to support and influence the strategic decision making process with the overall goal to improve financial performance.
So, how does a CFO influence strategic decisions?
A CFO will review your historical performance to get a good understanding of your risks and opportunities. Using this information, a CFO will work with you to understand your financial goals and will work with you to build a plan to get you there.
4 Ways a CFO influences strategic decisions in a business
- Translating accounting data into business insight
- Commercializing business strategy
- Impart a healthy dose of “realism” into the decision making process
- Use scenario planning to improve quality of decision making
1. Translating accounting data into business insight
Accountants are great at financial reporting, but the real art is translating this information into insight so that you can understand the drivers of performance.
For example, in professional service businesses, things like revenue per employee, capacity, staff cost ratios and client profitability are real drivers of performance.
Is your accounting team regularly producing information in a way that allows you to understand how you perform on these metrics? Do you know what your trends in performance are?
If they’ve improved over time, do you understand why? Having a CFO that will give you good access to this information and good awareness of your performance will influence the strategic decisions you make in the future.
2. Commercializing business strategy
As your business grows and matures, you may find yourself exploring new revenue models, adding new revenue streams and considering new investment opportunities.
However, it’s one thing to dream up these plans and another to ensure they are actually viable in practice.
With access to a part-time CFO, they can help you bring these opportunities to life.
You can count on your CFO to help influence strategic decisions around pricing, assisting with any commercial negotiations, ensuring you have the right financial infrastructure in place to support the new opportunities, and defining what success looks like.
You can also count on your part-time CFO to track performance of new initiatives and provide guidance on how to improve performance overtime if necessary.
3. Impart a healthy dose of “realism” into the decision making process
We get it. It’s easy to get excited about a new idea and hard to be the person that challenges its viability. That’s why it’s really important to have a process around decision making and having a steward of the process.
The goal here is not to say no or to become a blocker to doing business, but rather, to remove as much bias in the decision making process as possible.
If, for example new business is a priority, and there are no clear criteria on what a good client looks like for the business, it’s very easy to convince yourself that all new business is good business.
A consistent method to evaluate all new business opportunities will eliminate any emotion or bias in the decision making process and ensure a higher probability of consistently making good business decisions.
4. Use scenario planning to improve quality of decision making process
Normally when businesses are faced with decisions, there is more than one path the business can take.
Having access to a part-time CFO to model the likely outcomes of different scenarios can help you make decisions with better quality information.
Not only will this help protect your business against risks, but it will also help your business capitalize on market opportunities.
Scenario planning can also help you pivot if things don’t go as planned.
Ready to hire a Part-Time CFO?
We provide part-time CFO and advisory services to marketers, designers and architects. Check out the five questions to ask yourself before hiring a CFO, and if you think we’d make a good partner, contact us.