To get through the recent recession, growth and middle market companies were forced to adopt a more disciplined approach to financial management. Nearly four years later, financial discipline has become a way of life for successful companies. CFOs at these companies understand the importance of a strong balance sheet, and that having sufficient cash on hand gives them financial flexibility and improves their ability to respond to an ever-changing marketplace. Maintaining such a strong level of financial discipline over time isn’t easy. As growth increases, and spending and investment needs put pressure on a company’s cash reserves, it becomes more important to manage working capital effectively. From negotiating better payment terms with suppliers to finding new ways of improving their cash flow, CFOs need to lead financial discipline at their companies to ensure they are in a strong financial position, so they’re prepared to compete in today’s unpredictable business environment.
When ready availability of credit evaporated in the recent financial crisis, successful growth and middle market companies lost little time in becoming more financially disciplined. They slashed costs and paid down debt at a ferocious pace, while working to eliminate excess inventory and improve collections in a competitive buyer’s market for goods and services. Financial discipline has become a way of life for successful growth and middle market companies. Financially discipline has resulted in a continuous focus to maintain a lean cost structure, a strong balance sheet, and optimal levels of cash, working capital, and liquidity.
Maintaining a high level of financial management discipline requires the CFO to have the skill sets and personal attributes to make this a part of a company’s culture. Maintaining financial discipline often becomes more difficult during periods of growth. Personnel across the company have less time to focus on the demands of financial discipline when they’re working to fill a growing number of orders with downturn depleted resources. Growth can also stretch working capital as urgent spending and investment needs outstrip the company’s immediate ability to convert inventories and receivables to cash—which means that cash and working-capital discipline becomes, if anything, even more important during growth periods. So it’s not surprising that CFOs of successful companies fully understand that financial discipline will contribute to be a competitive advantage, even in times of growth.
CFOs recognize that maintaining financial discipline carries a degree of risk—in particular, the risk of underinvestment at a critical juncture in an economic recovery, leading to a long-term competitive impairment. But the experience of the downturn has also taught many growth and middle market companies that maintaining a relatively conservative financial position can yield valuable benefits. In a difficult business environment, the most valuable of those benefits may well be increased financial flexibility and control. Financial flexibility and control can be a significant advantage—especially to those companies with limited borrowing capacity—to respond quickly to changing business circumstances. As companies continue to face an environment of fierce competition, price volatility, and continued economic uncertainty, a secure financial foundation is not a luxury—it’s a necessity.
Effective CFOs instill financial discipline to give their companies a competitive advantage and greatly improve the probability of company success. Harvest CFO provides CEOs, investors and management teams highly-skilled CFOs who deliver the leadership necessary to instill a culture of financial discipline. We make your CFO search an easy one.