I have recently heard a commercial banker state to me “a great CFO is worth his weight in gold.” Thinking about this statement, the average CFO weighs maybe 200lbs, at the current $1,650 per ounce this statement can be interpreted as a great CFO is worth approximately $5,000,000 – which I believe in many situations is very conservative. However, the truth around this statement seems to be sorely missed in many companies to the detriment of the owners, investors, commercial bankers as well as its employees, customers and suppliers.
The CFO is the one who has to be able to translate operations into the financial numbers. The CFO needs to explain why capital is sitting in the balance sheet, or why the income statement or the cash flow statement is the way it is. He needs to be able to intelligently communicate what the statements and results mean and also about the success or failure of the organization as it tries to achieve its goals. The ability to consistently perform these tasks well, regardless of circumstances, is what makes a great CFO.
The other thing a great CFO should do is to drive the understanding of the financial metrics through the organization and also its investors including private equity backers and commercial bankers. It’s not enough to sit there and tabulate the numbers and say, “This is what we did.” How is the company improving profitability? What drives decision-making within the organization? The CFO is the one who can determine, even more than the CEO or in conjunction with a good CEO, what kind of metrics they want the entire organization to pay attention to – such as improving rates of return on invested capital, increased contract gross margins or revenue growth. That’s where the CFO has a tremendous amount of influence.
Good CFOs also have a strong command of the financials – or the numbers; that goes without saying. Great CFOs also convey a strong understanding of the operations and the strategic direction of the business, and are able to tie it all together. Great CFOs are much more integrated into operations and strategies. Anybody can make a budget, and anybody can say operations didn’t come in the way they said they were going to; but the CFO who has his finger on the pulse of the operations and has a hand in the strategic direction of the company should, theoretically, have a better budget and a better idea of where things are going. These are the CFOs who deliver value and drive financial control and add a lot more credibility, and confidence in the organization for the CEO, investors, private equity investors, commercial bankers, etc. Great CFOs give others confidence by their actions that show a deep understanding of how to not only manage the company’s balance sheet and cash flows, but also invest for the future.
One of the most important aspects of a successful CFO is that he or she has the full trust of the CEO, investors, private equity backers, commercial bankers, etc. A great CFO has to be relatively outspoken. CEOs and investors have to know what positions the CFO is taking on behalf of the company and where he or she stands. Understanding the CFO’s positions today will be helpful in predicting how the CFO will behave in the future. It can’t be a black box.
It is also critically important that a CFO has to also have the mindset and perspective of an investor and have excellent communication skills. This includes an ability to understand and construct equity valuation models for the company and communicate the impact on value that arises from decisions as to how to allocate capital, as well as the value drivers and detractors in the business. A great CFO understands how his company makes money, where to invest capital and also has deep expertise as to measuring the business and is able to impart that knowledge to investors, private equity backers, commercial bankers, etc.
Extremely important personal characteristics that make a great CFO are honesty, integrity and transparency as well as a sense that the individual is looking out for the best interest of the company, including all its constituencies, clients, employees, shareholders, etc. Just as the value of gold has increased dramatically over the past number of years, the value of having a great CFO has also increased as the business climate becomes more competitive and demanding. Harvest CFO Consulting can help your company achieve its desired long-term results by providing your company quickly with the skill sets of a great CFO.
