Wednesday 20 August 2014

The Numbers Count – How to Spot a Great CFO

Sooner or later as the founder or leader of any entrepreneurial business you are going to need to hire a CFO.  Whether you hire full-time or part-time help, the necessary skills of a chief financial officer are not to be confused with the book keepers you have probably retained to keep tabs on the numbers early in your businesses growth or even the finance manager you may currently employ.

These are not in any way `bean counters` to be tolerated, they are strategic hires and getting the right one can be a make or break decision if you want to succeed in the long term.  So it’s worth thinking early on about the eventuality of hiring a decent CFO.  
Amazing creativity

If you are founder of a successful business you’ll have got pretty used to keeping a tight eye on the numbers from the start. But the best CFOs I’ve worked with never cease to amaze me in their creative ability to seemingly glance at set of company accounts, read them like a book, instantly spotting the key issues, in a strategic context, and describing them in plain English.
The ability to perform laser-guided reading of spreadsheets is usually a good indicator of a person you want to hire.  Particularly if they can show that they can use this information and combine it with experience to predict potential challenges in the future, advising on the potential financial approaches that will smooth the way forward for your firm.

Crystal balls
This is vitally important for entrepreneurial businesses where the rate of change is so fast and where you and other leaders are consumed by operational issues - from hitting the sales targets to getting the right people on board.  So don’t expect your CFO to have a crystal ball, but do expect them to have an uncanny ability to tell you what’s likely to happen next in your business, or at least have a reassuring grip of financial cause and effect and which fiscal levers to pull to push the company in particular direction.

In addition to making a major contribution to running the business on a day-to-day basis, having the right person in the role is also key in maximising the value of your operation. So in hiring a CFO you need to think not just in terms of their contribution in financial planning, management and governance but also about their role in looking  for the right investment, acquisitions or when, eventually, planning an exit. This means they’ll need to be able to do a pretty decent poker face as they will be key to some of your most important negotiations.
Suited and booted

Of course, the informal environment of most entrepreneurial businesses may have your CFO wedded to their jeans but they also have to be capable of facing externally towards the more conservative elements of the business community.  So they need to be someone who doesn’t baulk at getting suited and booted when it comes to meeting with auditors, banks, investors and, eventually, the City and who doesn’t look like they are being strangled by their tie.
You certainly don’t need a CFO who is a shrinking violet.  They need to be robust and not afraid to challenge any of their colleagues to a reality check. To that extent, your CFO should be the board voice of unequivocal, numbers-backed reason about what can really be achieved with what resources and in what timescale. 

Naturally, for me, one of the things that come to my mind in differentiating an excellent CFO from a merely good one is their communication skills.  It’s a sweeping but, I think, fair generalisation to say that those that are logical and good with figures are often not the most articulate in the room; just as those who are literate and can tell a good story often find it hard to add up.
Effective communication

But a CFO worth their salt needs to be able to assemble and pick out the key elements of budgets, forecasts and accounts and communicate them effectively not just to other leaders in the business but to the company as a whole.  There is nothing worse that the staff meeting where the assembled throng sit in dread of the earnest `numbers presentation` delivered in a way that leaves no one in the audience any the wiser nor clearer about what it’s supposed to mean for their role. Or that sends them to sleep.
This is important not just for tactical reasons but to ensure that the whole company thinks constantly and consistently in terms of the key numbers and their contribution to achieving them. In the same way as the best CTOs can highlight what is important and explain it in acronym-free and accessible language, CFOs have to bring spreadsheets to life.

Powerful and inspiring
So, as well as being in charge of the numbers, CFOs need to be business leaders in their own right and be part of a powerful and inspiring team. They will need to be able drive the finance team, but they also need to approachable and be capable of explaining that numbers exist in context. So a CFO must be able to visibly connect the work of finance to all aspects of day-to-day operations and demonstrate business smarts in doing so.  And that means being engaged in the whole of the business and its people. Being comfortable with managing by walking about is a skill all CFOs should master.

Problem solvers not problem creators
In this respect I’ve found it useful to rotate internal services teams, particularly finance and HR, around the business. If they sit with other operational groups for extended periods they build relationships outside of their immediate team and become intimate with all aspects of the business, being seen as problem solvers not problem creators.

Over the years I’ve worked with some CFOs who have been genuinely fascinated by all aspects of the business and its people.  This, in itself, is delightful but it was also vital to them not being seen as the head of the numbers ghetto as much as it was valuable in gaining an all-important real-time perspective on what made the company tick. And it’s that passion to understand everything about the business that ultimately marks out the leading CFOs from the also-rans.

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