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Five Questions Every CFO Must Answer

Joe Ptak on Feb 18, 2016 10:06:00 AM

The most strategic of CFOs are able to answer the tough questions, and answer them well. They create clear visibility into what's driving -- or veering the company away from -- profits and growth. Intacct Corporation recently hosted a webinar entitled, "5 Questions Every CFO Should Expect From the CEO," explaining that financial executives are playing a larger organizational role than ever before. Businesses look to their finance department to provide leadership in understanding the dollars and sense of how their company is truly running under the hood. All while asking them to balance the monetary aspects of the business with the operational.

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Here are the five main questions CFOs need to be ready to answer for their organizations, down to the last decimal:

1. What's our current cash status and what will it be down the road?

All businesses run on money, making it the most important metric one can track. Cash should trend based on expected sales and a cash conversion cycle should be used to forecast. Forecasting is the greatest tool at a CFO's disposal and is often successfully applied with a three-legged approach: "high expectation, high risk,"  "low risk," and "most likely." It is not critical or even possible to get a forecast right from day one, but the important move is for the CFO to keep coming back to tweak it as he or she learns more and more about what's unfolding at the organization. Because of this, financial professionals need to have a constant awareness of the rate their business is growing.

2. What's going on in our sales funnel?

The CFO should know what the pipeline looks like by month, by quarter, by product, and by business unit. They need to be able to decipher the probabilities of each potential new sales opportunity by feeling (top down) or by data (bottom up). Financial decision makers have to be adaptable and learn from the instances where their calculations are off so they can make the necessary adjustments. They should strive for accuracy and not worry if what they discover is less than ideal -- the truth is the only way to improve.

3. How is our business performing?

Financial executives are in charge of deciding on the best methods for measuring their organization. The KPIs (Key Performance Indicators) used will depend on the nature of one's business.  The key is to search for consistent and supportable data that can be trended. The numbers should then be monitored on how they're affected by economic occurrences, customer base behavior, and time. CFOs should be able to notice when "X" happens, that "Y" tends to happen and then take the appropriate measures to counter. They should analyze as much data as possible, but keep in mind that the top five KPIs settled on will provide the biggest windows into the organization's health.

4. Where would we invest the next incremental dollar in our company?

The options will vary from business to business, but CFOs need to accurately critique how the organization is prioritizing investment opportunities. They must first fully grasp what the company is strategically looking to do to decide where the biggest bang for the buck is located. Then they need to do ample ROI analysis, modeling and anticipate the internal and external factors that may be at play. In short: collect the data, understand what's going on right now, and then model for the future. Financial executives should take what they find and challenge management to be more proactive about current expenses and how they could be adjusted. The data can help make verdicts on cutting costs, shifting allocations, as well as shed light on where the company is underinvested. Each decision should be tracked individually so that when the inevitable, "How are we doing on this?" is asked, the question can be answered in the click of a mouse.

5. What should our company be worrying about?

Financial executives need to be aware of any hidden risks in the operational choices being made. The best way to attain this intelligence is to always have an open dialogue with the staff. They're in the trenches and invested in the outcomes. Creating a transparent and honest culture will help management find out what's wrong with the business before it's too late. CFOs can also be tipped off about potential dangers by fully understanding their customers. In general, knowing your top 20 customers up and down will allow you to answer 75% of the questions about what's going on with your company. In the same vein, knowing your top 20 vendors on this level can have a similar effect on the input side of the business. This information should lead to the CFO having a solid contingency plan in the event something major happens with a top customer or vendor.  

CFOs who master these five questions are the ones who find the answer to financial prosperity.

Looking for more financial enlightenment? Check out the 2016 Prime Advantage CFO Survey Report.

2016 CFO Survey

Topics: Group Surveys, Analytics and Technology

Joe Ptak

Posted by Joe Ptak

Joe Ptak is the Manager of Marketing Communications for Prime Advantage. Joe is a perception engineer who contemplates the meaning of life every time he stares at a spreadsheet for too long and has never, Ever, taken an elevator to the 2nd floor.

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