By Alysha Randall
At times, there can be a misconception on what the CFO role is. The CFO doesn’t just protect the business from risks and manages the finances, but also helps to shape the business. Therefore, the CFO is much more than just a financial controller, but is instead a strategic partner.
A CFO has the beneficial lens across all departments and functions, how they interact and cross over. Not only do they possess a high level of visibility but also an understanding of how each function is performing, the key risks, the resource allocations and the potential trade-offs. Due to this insight, they are often best placed to actively shape the direction of the company, rather than just report the outcomes.
As the business environment is changing at a rapid rate, here is how a CFO can be utilised, and how the CFO role can be a strategic partner.
Capital Allocation
Particularly with start-ups and scale-ups, but perhaps also relevant for larger companies, the CFO plays a key role in capital allocation.
Both time and cash are resources that businesses have a limited access to, and deciding the best way to utilise these limited resources is where a CFO can really guide the leadership team.
As all teams have different needs and want to prioritise what they’re working on, the CFO is able to see the bigger picture, how these projects feed into the overarching strategy, and what potentially will give a better return on investment or rather help reach the goals in a more straightforward fashion.
The CFO can make data driven decisions based on both growth investments and cost control and give a commercial view on what is best for the business to meet its goals.
Business Model and Margin Strategy
As a CFO has the high level oversight, lots of experience, and all the history at their fingertips, they are able to challenge assumptions, stress test models, and guide pricing, product mix and margin optimisation.
A CFO should always be part of the conversation and decision making of any commercial and strategic changes, pivots, or implementations so that there is not only a financial sense check – but a commercial one as well.
I have seen first hand how business decisions made without a finance leader can be detrimental to the commercials and the business longer term, particularly with an early stage startup where decisions are made quickly.
Growth Planning and Forecasting
It won’t be a surprise that the CFO owns the financial modelling, scenario planning, and forecasting. However, the CFO role here is bigger than just producing a spreadsheet.
The main part to play is to gather (or help set) the strategic goals and encourage the business to set operational goals that align with the strategy – to ensure that the business will meet these longer term goals and then to sense check that they make financial sense when finalising the financial model. The budget is there to check that the strategic and operational goals make financial sense. It is not an independent exercise.
If the operational goals don’t make financial sense, then the CFO needs to work with the business to pivot these decisions to ensure that they are financially sound.
Risk and Resilience Strategy
Strategy isn’t just about growth, it’s also about surviving the bad times. Which might be quite topical right now.
The CFO is quite pragmatic when reviewing the plans of the business. A consideration will always be on cashburn and cash runway – particularly with startups and scaleups. But also other concerns such as compliance.
Even though the whole business may be focused on growth and hitting their goals, consideration does need to be made on mitigation and ensuring that the ship stays afloat.
Investor and Board Alignment
Often it’s the CFO who is the translator between the board’s expectations and the internal strategy. The CFO generally understands the board’s motivations and can own the narrative around why the business has chosen a particular strategy, why this strategy is key to be implemented now, and how it will deliver the value.
There can be a few challenges on both sides if the above tasks aren’t being completed by the CFO. Firstly, some new CFOs, particularly in early stage companies may be promoted for their technical skills, however they may lack the strategic experience or the confidence in stepping up to the strategic challenge that the business needs.
Separately, some leadership teams or even founders may also not realise what an asset a CFO can be to the commercial direction of the business and may just see the finance team as a cost centre.
Another challenge may be that the CFO is forced to spend a lot of their time on compliance or heavy reporting requirements and may not have time or the headspace to focus on anything else.
To move forward, CFOs must lead across finance, data, ops, and strategy. Skills required by finance leaders have always been focused on commercial acumen, communication, data and leadership, and with the continued improvements in automation and with the continued pace and challenges the global markets see – these necessary skills are becoming increasingly important.
Strategy without finance is theory; finance without strategy is admin. A modern CFO must sit at the heart of both.
About the Author
Alysha Randall is the author of “Financial Leadership Fundamentals” and the Founder & CEO of Fast Growth Consulting Ltd, where she conducts courses to train new and aspirational FDs and CFOs. Starting at LoveFilm in 2006, she took on the role of director of finance, and she worked for Amazon as they acquired the business. Since founding her consultancy she has collaborated with multiple fast-growth businesses, such as Collagerie, GoTrade, Just Move In, Legl, SideQuest VR, Super Payments, and VenueScanner.
Financial Leadership Fundamentals is the ultimate guide for those seeking a tried-and-tested path to success as a CFO, providing both the practical and mindset tools needed to take ownership of this influential role in a Start-Up environment.
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