The CFO role has many dimensions
The CFO role has never been so important. Companies are navigating uncertain territory and having a strong CFO that can manage the nuts and bolts of finance and help navigate the commercial as well is instrumental to how companies navigate this period.
The CFO role has never been so important. Companies are navigating uncertain territory and having a strong CFO that can manage the nuts and bolts of finance and help navigate the commercial as well is instrumental to how companies navigate this period.
The CFO is expected to know the numbers, manage the numbers and be proactive across the key financial metrics that can impact the ability of the business to do what it needs to do. The CFO needs to have the strength to battle the business when necessary, when the financial performance is below the budget/forecast view.
The CFO is also expected to be the strategist, working with the business to understanding/build and execute on the strategy. The budget and 3-5 year plan needs sufficient investment for the businesss to deliver on the longer term plan.
You can’t forget cash, cash is instrumental to ensure the business can operate, if you have a profit but don’t have operating cashflow, you get yourself into challenges. When COVID landed, many businesses that had not actively managed cash, needed to start, however there are businesses out there that don’t actively manage their cashflow, and this is a mistake.
You need to understand your timing of receipts, timing of payments, working capital requirements (inventory etc.) and understand how this interacts with your budget and forecast.
A 13-week cashflow forecast, is a must and allows you to look at your CF weekly against the budget and then roll another 13 weeks to understand the ins/outs of each cash. Once you understand cash, you can start to actively manage cash. Cash is king and in the current environment even more important than ever.
The CFO leads a finance team, sometimes owns other functions, works closely with the CEO and Executive Leadership team, and is actively involved with the Board, Shareholders and other key stakeholders.
The CFO also takes a leadership role with other projects, business unit to demonstrate the importance of Finance in supporting the other business units. Your shareholders will determine what kind of CFO you become…as in a private equity environment it’s quite different too, private ownership or founder lead company. Whatever the case, the role is varied, hard, challenging and rewarding.
If you are a CFO and looking for some tools, templates and relevant articles, see below Whiteark has some great tools for you to use in your role and with your teams. Jo Hands, Founder/Director of Whiteark has walked in your shoes and has some great experience with related topics and has some practical tools and templates you can use.
Check our CFO guide HERE .
Explore our thought leadership articles about Finance and CFO’s HERE
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My journey to CFO
I started on a typical path post university, 10 years at EY as an auditor……
I loved every minute of it.
Earnst & Young (EY) had a great culture, good clients, great people in the
I started on a typical path post university, 10 years at EY as an auditor…..I loved every minute of it.
Earnst & Young (EY) had a great culture, good clients, great people in the teams, great training, 360 feedback and opportunities to work on projects outside of client work.
I remember EY with fond memories and I remember the day I finished up there were many tears, it was 15th October 2010. EY pushed hard, but they also rewarded hard workers that delivered. I got overseas conferences (Japan, Venice), to lead a global project for a new tool, which allowed me the opportunity to lead, get people onboard and manage a big roll out for the ANZ region.
I loved my team, and my clients, favourite client being Village Roadshow – what’s not to love about Theme Parks and Movies. I learnt so much, but probably didn’t realise it until I left.
My first job out was Telstra, Sensis business unit – Technical, Reporting role. Likely considered a backward step – you are over-qualified in a lot of respects but under qualified in other respects. I was lucky to have a great team, peers and made some great friends along the way. I loved the industry. I loved being part of something and driving and making a difference and seeing that difference come through.
4 years after I started at Sensis, it was sold to Private Equity, which was where my career went from interesting to super-duper interesting. Working with the private equity firm to carve out from Telstra and set up the businesss under private ownership. It was a big change. I took a lead role in working with new shareholder to manage the transition and help build the business in the new world.
This included zero based budgets, cash flow reporting & forecasting and understanding the capabilities required to deliver on the change in strategy. It wasn’t just a big change for Finance but for the whole business, but finance become central to how the business operated and therefore the role I took was pivotal to the success.
Over the next 5 years, I worked as Deputy CFO, then transitioned to CFO and looked after Strategy, Finance, Operations and IT. My role continued to expand.
I really enjoyed the experience and breadth of the role. Navigating strategy, to building a budget and metrics to measure success and the capability in the business to drive the outcomes required.
We found over the period, people self-selected, and private equity wasn’t for everyone. It was about achievement, delivery and ensuring that all key metrics are met. Incentives ensured that the key metrics were measured, tracked and managed.
The private equity approach was hardcore and a lot of lessons were learnt along the way, but for me I realised this was the environment that I enjoyed, I loved the change, execution and an ability to drive an improved outcome in the results.
Since I finished up at Sensis, I have done a number of roles with other private equity firms – doing interim CFO roles, managing transitions, integrations, operating models, strategy, business plans etc, working with different companies to actively manage an acquisition (from DD) to the first 100 days, which will make or break a business and set the tone for the new world.
These projects require different skillset but a driver that can help move things forward and ensuring that there is a plan to deliver on the synergies baked into the plan. I have done this under the banner of Whiteark. I have other clients, but mainly working with PE on assessing, strategy, plan and execution for deals, and that is what I love.
I love the planning but then being able to get in there and really deliver. My finance experience, private equity experience and breadth of roles, has allowed me the opportunity to jump into consulting to private equity with both feet.
Not sure where my journey will land me, maybe back as a CFO one day, but for now enjoying the freedom, challenge and drive of working for myself and picking my clients and making a difference every day.
With my background as CFO – we have a range of tools and FREE templates that we have generated that might help you with your day-to-day life as well. You can explore and download the templates HERE
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Budgeting & Forecasting - it's not as easy as it used to be
The concept of budget and forecast was simple ….
Using prior year information and overlaying assumptions, historical changes, investments etc to deliver a new set up numbers for the upcoming year or years. Shareholders wanted to see an improvement and so as long as the percentage changes were going the right way then you were normally ok.
The concept of budget and forecast was simple ….
Using prior year information and overlaying assumptions, historical changes, investments etc to deliver a new set up numbers for the upcoming year or years. Shareholders wanted to see an improvement and so as long as the percentage changes were going the right way then you were normally ok.
Historical trends in all key metrics was the starting position to build the budget and forecasts and then work out what metrics you can improve, how you can improve and the timing to overlay into the budget/forecast.
Companies can take 3-6 months to prepare a budget, it’s a ridiculous amount of time, and time that should be spent executing the plan and driving a positive outcome rather than validating an excel model.
A budget should be driven from key metrics i.e. customer numbers, average revenue per customers, new customers, customer churn rate etc. Understanding what a customer generates and then costs, can ensure that the model is underlying based on key metrics. This means when you are measuring performance against the budget, you can understand why you are travelling higher or lower.
AND THEN THERE WAS COVID…
Covid landed in 2020 and developing budgets, forecasts and understanding the impact was hard if not impossible. Many businesses tried to do a forecast of where the year was going to land for FY20. The budget was useless and metrics and information that didn’t mattered, now mattered.
Companies were focused on building a forecast. CFO and finance professionals developing a forecast for an uncertain period, where history has little relevance and the future is new and therefor every uncertain. The best way to manage this would be to do scenarios that allow you a high and low scenarios and you know what the impact if each of these different book-ends happen.
Most of the forecast were wrong, as there were guesses but got the company through this uncertain period.
We are now in a getting back to normal period, post COVID (even though COVID still around) and this period is tricky…people were buying products online and now going back into stores, so the revenue from online will drop, back to pre-COVID probably not but what will be the level, how will this impact inventory levels, cashflow requirements and how the business operates.
Budgeting and forecasting has never been so difficult. Having clear business drivers and some scenarios to stress test, cash, debt and other key operating metrics and having a plan B if something occurs that was not originally expected.
It might be years, or never that we get back to the guaranteed budget that used history as the basis, but the more data and information we gather to prepare the financial modelling – budget and forecast the better.
If you are a finance person, you will smile at this article…it’s been your life for the last 3 years and it’s still impacts the way things are done.
Doing a zero-based budget, can help reset the way the business looks at the business, less reliance on prior year and resetting the cost base of the business by asking why do we need that expenditure, what is the return on investment?
There are some easy wins, and it might be what you need to balance your budget for FY24 and beyond.
Whiteark has a range of articles and resources for budgets/forecasts that we will share with you.
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Guide to Zero Based Budgeting
Browse and download the Whiteark guide to Zero Based Budgeting (ZBB). This is a method of budgeting where all expenses are justified at the beginning of each new budget cycle and all assumptions documented. We explore the benefits and challenges of ZBB and the 7 steps required to build your own.
Zero Based Budgeting (ZBB) is a method of budgeting where all expenses are justified at the beginning of each new budget cycle and all assumptions documented.
So, what exactly is Zero Based Budgeting?
Budgets are not connected to prior year spend
Funding is allocated to activities aligned to strategy
Eliminates sandbagging practices - evenly distributing expense increases/reductions across business units
Requires comprehensive understanding of activities and cost structure
Budgets are allocated to necessary business activities and based on the levels of effort required
Requires analysing and prioritising activities and expenses
The Benefits of Zero Based Budgeting
Strategic priorities and focus areas can be achieved more successfully under zero-based budgeting
Business units are forced to link their spend to focus areas/initiatives that support the organisational
objectives
The annual review ensures no initiatives continue beyond their productive life
Efficient allocation of resources, as it is based on needs and benefits
Identifies and eliminates wastage and out-of-date operations
Drives managers to design and develop cost-effective techniques for improving processes
Detects inflated budgets
Promotes questioning and challenging attitudes
Increases staff motivation because it gives them more responsibility and the ability to contribute to the
decision-making process
Increases communication and coordination within the organisation
The Challenges of Zero Based Budgeting
TIME & RESOURCES
It is time consuming having to justify each expense in order to arrive at a solid foundation to support the requirement.
A lot of manpower is required to successfully build a ZBB.
BIAS TOWARDS SHORT-TERM PLANNING
ZBB can reward short term thinking.
Can limit investment in growth because short-term benefits may take precedence over long-term planning.
DETAILED KNOWLEDGE
It is necessary to train managers well as they are ultimately responsible for the management, decision-making and the communication of the entire process.
Difficulties associated with ranking functions that are qualitative in nature mean there is a risk of cutting non-core costs that support a customer’s or consumer’s experience. This ultimately puts into jeopardy brand value in the long-term.
AWARENESS FOR DETAILS
As the volume of the required data & forms is very large, no one is capable of knowing every detail of its content and decisions.
There is a risk to compressing information and details because this might remove critically important data.
BIAS TOWARDS SHORT-TERM PLANNING
Honesty and consistency of the managers must be reliable and uniform.
There could be possible manipulation by managers to get more resources into their department.
How to build a Zero Based Budget in 7 Steps
Determine Group Strategic Goals/ Priorities
Align investment and initiatives to Group Strategy
Communicate budget process, timeline and expectations
Provide key assumptions and templates for each P+L item
Create templates for CAPEX, Balance Sheet, Cash Flow, Treasury
Document all assumptions and supporting data to refer to during budget reviews
Be courageous and curious when reviewing business unit budgets
If your business is having issues with cash, it's important to take proactive steps to address the problem before it becomes a crisis.