CFOs are increasingly are playing a larger role in the management of pricing decisions and profitability at many growth and middle market companies. CEOs and owners of these companies view pricing trends as a primary competitive challenge. Historically CFO focus has predominantly been on the administrative side of pricing – tracking and reporting, managing exceptions and enforcing policies. But within some industries, especially Manufacturing, Retail/Wholesale and Services, finance is playing a more strategic role around aligning pricing with corporate strategies, driving pricing approaches and getting value out of customer-specific investments.
Salespeople can be notorious for making overly optimistic sales forecasts that can result in a number of negative outcomes for the company. CFOs need to play a key role in the sales forecast process to ensure that the methodologies and disciplines lead to sales forecasts that enable timely and value-add decision making. The CFO who partners with the sales leader to implement sound sales forecasting disciplines adds value across the company.
Securing reliable working capital in sufficient amounts is usually the top business challenge today for companies with revenues of $2–200 million. Viewed from a macro level, working capital constriction for this group of companies is a significant problem for the U.S. economy as a whole. Businesses of $2–200 million in revenue account for roughly two-thirds of private sector workers and 45% of business revenues in the U.S. according to U.S. Census data, yet less than 5% of capital markets activity is devoted to funding them, leaving a substantial financing gap. And that gap has only increased during the global financial crisis, which has further restricted access to capital — which has increased the risk of becoming unsustainable for some businesses.
Traditional finance skills of analysis, reporting and control are in demand outside of the finance function and the role of the CFO is broadening far beyond its technical heartland into a role that is much more “strategic” — in the broadest sense of the word. Leading CFOs are overturning outmoded perceptions of finance as “business prevention units” and repositioning the function as an enabling partner to the business. For many CFOs, the acid test is the extent to which business managers consult them for advice on key aspects of strategy. For leading CFOs, this goes beyond being an “information provider” or “aggregator presenter.” Their business understanding and analytical skills mean that this proactive, yet supporting, role is a vital part of understanding how different decisions will lead to certain outcomes.
While managing inventory may seem like a mundane afterthought, CFOs need to recognize this task as a key part of a company’s overall business strategy. Inventory management should not be an afterthought. It is a critical element of a company’s business and should be considered early in the growth cycle and will need to adapt and change over time as the business matures. The term inventory management really describes the effective method of controlling objects and activities and ensuring that they get to the right place at the right time all within a cost parameter. Ultimately bad inventory management represents money that is being lost to a business as a result of excess inventory, or lack of inventory – which can result in lost customers.
Many CFOs view asset based lending as a financing outlet of last resort. While that may sometimes be the case, such a view can lead to lost opportunities. As companies confront the tight credit markets coupled with the potential for weaker operating results, many CFOs now view asset based lending as a viable option to finance operations and growth initiatives. Historically successful companies that have recently experienced losses may find the stringent bank underwriting parameters increases the risk that their existing traditional bank loans may be called and the company may be limited as to qualifying for increased or continued financing. Asset based lending (ABL) arrangements can be an option to be used to retire existing bank debt and provide operating and growth liquidity until traditional bank financing becomes available.