CFOs Must Create a Strong Core

CFOs at growth and midsize organizations retain their core financial planning and analytical responsibilities as they are increasingly taking on responsibility for a larger number of organization-wide activities. At the core, the CFO is responsible to the company’s owners and management team for all accounting and financial matters.  The CFO core functions include managing risk and providing a foundation for success by establishing company-wide objectives, policies, procedures, processes, programs, and practices to assure the company of a continuously sound financial management and reporting structure.  This article addresses the key core CFO responsibilities that enable growth and success.

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CFOs Increasingly Play a Strategic Role

Today’s increasingly unpredictable economic conditions create business challenges that must be managed. These same conditions can also create business opportunities for companies who have the internal processes and disciplines that enable them to respond quickly and more intelligently than less-prepared competitors.  CFOs are increasingly playing a more strategic role in applying financial modeling and analysis to assess and plan for potential risks and opportunities.  However many small to middle-market companies lack the financial skills, disciplines and processes to conduct adequate financial planning and analysis.

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Negotiating Bank Covenants for Current and Long-Term Operating and Financial Goals

Commercial bank lending is the most common source of business financing and is also usually the least expensive form of capital. Across industries, the recent financial crisis has decreased access to bank financing making this form of historically available financing more difficult for companies. Lending standards have also become stricter, and the declining value of real estate has reduced available collateral. Access isn’t the only thing that’s changed. Tighter oversight of banks has brought a renewed emphasis on bank loan covenants, which can put constraints on a company’s growth, increase the overall cost of debt, and raise business risks.

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Cost Containment vs. Value Creation – the CFO Dilemma

Companies are continuously confronted with a difficult dilemma. On one hand, there needs to be an ongoing focus on reducing costs and structure/create/modify operations to deliver profits and ongoing value. On the other hand, there needs to be a focus on investment and innovation to create long-term value for shareholders, customers, employees and other stakeholders. The CFO plays a key role in managing these seemingly opposing goals that are both required to grow company value.

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Benchmarking and Budgeting for Success

For many companies, reviewing and managing financial results is simply an exercise of looking at the P&L and balance sheet after the close of a month. Management then makes a brief determination as to the results usually based on how current month compares with the prior month close, or the same period of the prior year. In essence, the company is informally benchmarking and budgeting against its own actual results. This style of financial management does not take into consideration how the company’s results compare with its industry or competitors, or even with the goals of management and investors. Establishing and utilizing benchmarks and budgets to gauge and improve financial results should be a part of every company’s best practices.

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Benchmarking and Budgeting

For many companies, reviewing and managing their financial results is simply an exercise of looking at the P&L and balance sheet after the close of a month. Management then makes a brief determination as to the results usually based on how current month compares with the prior month close, or the same period of the prior year. In essence, the company is informally benchmarking and budgeting against its own actual results. This style of financial management does not take into consideration how the company’s results compare with its industry or competitors, or even with the goals of management and shareholders. Establishing and utilizing benchmarks and budgets to gauge and improve financial results should be a part of every company’s best practices.

Continue reading “Benchmarking and Budgeting”