Can be narrowed down to three separate things:
- Forecasting and Management of cash
- Identification and assessment of all risk and preparation plans to mitigate those risks
- Understanding of the things that make the specific industry they’re engaged in unique.
It’s absolutely vital to grasp these 3 concepts as soon as possible if you’re a CFO. You can play a major role in the success of your company and their strategic plan once you’ve mastered those three things.
The CFO really needs to be in tune with the company’s cash flow (cash being, after all, the life blood of any business). The CFO must prioritize what needs to be paid when they’re trying to manage cash for troubled companies. The Chief Financial Officer should use a 4 to 6 week model to forecast cash needs, because this model has been shown to work best. With such a model the CFO can manage the cash according to what needs to be paid.
The business owner can find the land-mines in their business by assessing and identifying risk (an invaluable service CFO’s provide business owners). It’s the difference between a cloudy day and a rainy day, and if the CFO can differentiate between the two and let the business owner know, they will be worth their weight in gold.
Often people will ask me why a numbers guy needs to know about the industry in which they work, and the specific business for which they work. To them I say such knowledge is critical both to manage cash for your business and to identify risk for your business. With out first knowing about that business, trying to manage their cash or find any threats is like reaching for a light switch in the dark.
Finding the right number of “what if” scenarios in order to identify enough possibilities of what is going to happen is what business forecasting is all about. Many business owners mistake it as a way of knowing for certain what will happen in the future. That’s never going to happen, of course, because no one can predict the future. There are innumerable variables to consider that could throw off even the most sophisticated forecast.
When creating the best possible forecast, the Chief Financial Officer has the task of identifying the top seven (or so) most likely scenarios and doing a full “what if “ analysis on each of those scenarios. Included in the seven scenarios should be a best case and worst case. The tool to figure those out is one that has together in one a Profit and Loss, a balance sheet, cash flow, inventory plan and sales forecast. As long as they’re adaptable to retail, manufacturing, distribution or services (depending upon what type of business) schedules can be broken down by quarter, month or even by week. Key metrics and where the risks and opportunities are also need to be included in the model (the great thing about which is whenever a number changes anywhere in this model, all the other numbers adjust).
This type of model is a tool Next Step CFO uses in business forecasting as a part of its CFO Services. This model shows a wide range of scenarios to the business owner, along with all the risks and opportunities associated with those scenarios. When a business owner is provided with all the information a Next Step CFO business forecast gives them, they have the knowledge they need to make their decision making process much more thorough than a business owner who makes a sloppy or lazy forecast, or a business owner who forgoes creating a business forecast altogether. The more thorough the decision making process, the more reduced risk to the business owner will be, so every business owner needs to recognize the importance of Business Forecasting.
Does this sound a little out there? One CFO Service that I think adds real value to the business owner is a CFO who understands Search Engine Optimization (SEO). Who said that CFOs are all about the numbers? In todays business world the CFO has to provide services for their client that go beyond the numbers that really assess risk and find opportunity. In today’s High Tech world giving the business owner guidance on SEO can really provide another opportunity for the business that did not previously exist. The thing that makes SEO suited for the CFO as part of a CFO’s Duties is the detail orientation of a successful SEO plan. By understanding the components of a successful SEO plan and by properly delegating the plan to the right people the CFO can help the business owner generate more business and have added value as a CFO.