Why should a business rely on an outside advisor to fulfill all or part of the role of the chief financial officer?
- While larger companies have personnel who work continuously on preparing budgets and forecasts, smaller companies may not have the financial resources to support the kind of expertise necessary to perform that role.
- An outside advisor will have experience in performing the same functions for many other companies and that experience is valuable to your company.
- The advisor will have relationships with funding sources, most often commercial lenders who have confidence in the advisor, and that confidence may translate into confidence in the advisor’s clients. The right advisor can make a significant impact on the likelihood that a lender will approve a loan.
- The advisor can alleviate the conflict that may arise between management and staff when there is constant inquiry into less than positive performance results.
- Because the advisor handles virtually all of the technical problems in budgeting and forecasting, and the analysis of performance shortfalls, management can focus more intensely on those things that add value and improve performance.
What are the most important relevant roles of the CFO vis-à-vis management?
- The process starts with the strategic plan. The CFO may help you establish the process for developing the strategic plan, but the strategic plan includes a vision for the essential nature of the business, a mission statement, and a set of goals. These are the responsibility of senior management. The CFO as well as the staff can offer critical responses that may influence the thinking and final decisions made by management.
- The forecast quantifies the goals in the strategic plan, and this can be prepared by the CFO.
- The budget shows the bottom line results. This can also be prepared by the CFO. The budget shows the consequences of the decisions made by management before the decisions are made. It therefore helps define the activities of the people who make the business operate,
- The planning, forecasting, and budgeting processes help align the thinking, attitudes, and performance of the entire organization so that everyone is working towards the same objectives.
- The process also enables senior management to hold people accountable for the achievement of their goals and objectives. The CFO will analyze on a line-by-line basis the differences between actual and budgeted results and ask the obvious questions: Why did they fall short? What happened in the prior reporting period and what will happen in the future if no changes are made? What changes should be made? As stated above, this not only requires considerable technical expertise, but also helps alleviate the potential conflict between management and staff.
- People often question how they can predict the future. But predicting what might happen is not the objective of this process. The objective is to set goals. The process allows for flexibility. If goals are not being met, changes should be made either to the goals or the activities necessary to achieve them.
- Finally, the entire process is critical in determining bonuses based on performance results compared to what was forecasted and budgeted.
Please contact us if you have any questions or would like assistance in implementing a strategic planning, forecasting, budgeting, and performance review process.