What Makes a Good CFO in Challenging Times? [4 Questions to Consider]

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In the COVID-19 world, companies need someone in the role of Chief Financial Officer who brings more than a knack for financial analysis to the table.

This situation calls for a CFO who can offer guidance, insights, and problem-solving skills.

It requires a CFO who can do much more than close the books at month-end, or compare forecasts with actuals to flag areas of overspending and missed sales targets.

Following are four key questions business leaders can use to assess whether a CFO has what it takes to help guide a business through challenging times.

#1 – Does the CFO really understand the business?

In a “business as usual” environment, small companies may think of the finance function mostly in terms of bookkeeping and accounts payable, and often justify not having a CFO at all.

Many mid-sized businesses have a CFO who is good at accounting and budgeting but does not truly understand the company’s cost structure, profitability drivers, and customer needs.

That is sub-optimal, but the drawbacks are not always obvious in a “normal” environment.

Clearly, we are not in “normal” mode. In a time when creative thinking combined with judicious cost-cutting may be the only path to survival, a CFO’s lack of knowledge, or not having a CFO at all, can lead to unforced errors, such as failing to communicate clearly with investors, not knowing that a big customer is about to go under, or overlooking important signals from sales data.

While no one expects year-over-year comparisons to be particularly meaningful in this environment, a CFO should be able to extract useful information from trends in sales, gross margins, inventory, SG&A expenses, and other key metrics.

He or she should be updating base case and worst-case 13-week cash flow projections by talking with the right people who are in the trenches, to determine whether the company might be in trouble in the near term.

A CFO should also do industry-level intelligence gathering, to assess whether your business is struggling more or less than your competitors.

Then, the CFO should be able to use that intelligence to produce robust financial analyses that identify the source(s) of any problem areas – perhaps an under-producing sales person, or pricing structures that don’t reflect reality, or a top-heavy customer support structure, or quality control issues.

#2 – Will the CFO challenge assumptions that need to be challenged?

The ability to ask uncomfortable questions in a way that does not antagonize others is a valuable skill and one that is critically important in difficult times.

If sales are down, can your CFO probe into what is behind the decline and whether the forecast needs to be revised, without making the sales manager defensive (remembering that everyone is under stress these days)?

Assumptions about the factors that drive profitability may need to be examined right now.

Years of historical data might show a consistent relationship between a given macroeconomic variable and the cost of input X or the demand for product Y in your business or industry; in this environment, a CFO needs to challenge those types of built-in assumptions. As an example, historical data will show that when oil prices go down, airline profits go up. Not this time.

The CFO should challenge views about when your industry is likely to recover – and develop best-case and worst-case forecasts accordingly.

He or she should also question what “returning to normal” will look like. If your business is benefitting from the fact that customers have to stick close to home (and some are), a CFO needs to challenge optimistic assumptions about how long that is likely to last.

#3 – Can the CFO go beyond the numbers to help find solutions?

In the intro to this article, we raised the notion that a good CFO helps to guide a business through challenging times – guidance means much more than just analyzing numbers in spreadsheets and generating reports.

The CFO should be one of the CEO’s most trusted deputies, someone who can propose ideas about how to generate more cash, who can offer insights, and identify opportunities in the patterns that are revealed by the numbers in the spreadsheet.

Read More: Adapt & Survive – 5 Battlefield Directives for Business Owners During the COVID-19 Crisis

It is a cliché, but “outside of the box” thinking is critical in this type of environment. When discussing staffing levels and supplier relationships, can your CFO offer ideas that go beyond which expenses to cut?

For example, a great CFO faced with challenging times might proactively analyze whether the supplies needed to manufacture products for different markets could be sourced together to generate cost savings, or whether packaging could be shrunk to lower shipping costs, or whether third-party logistics providers get deliveries to customers faster.

Not every idea will pan out, but the CFO should be part of the brainstorming effort.

#4 – Can the CFO help with the vision for the company’s future?

In a post-COVID world, there are likely to be some permanent changes in terms of expectations for both customers and employees.

There are also likely to be new imperatives regarding the use of technology and perhaps even the physical space you occupy.

The large-scale “work from home” experiment that COVID-19 thrust upon so many companies has turned out to be a game-changer for many. If your company’s office lease is up for renewal within the next two to three years, it is not too early to start thinking creatively about what kind of space you really need, and how much of it.

The CFO needs to take a lead role in finding opportunities, analyzing possibilities with the help of the management team and other staffers, and communicating with investors about these analyses.

If you think your business is too small to have a CFO…

Start-ups are often not focused on generating a profit – they are building a product, acquiring customers, and living off seed capital. But that does not mean start-ups do not have a need for a CFO (part-time or outsourced could be the best approach). In this environment, product development can slow down, quality assurance can take longer than expected, customer acquisition costs can change, etc., increasing the company’s burn rate. A good CFO would help a new business to stay on top of these issues. and stay viable.

Every business depends in part upon factors it cannot control, but in the COVID-19 world, it can feel like everything is out of control.

Demand for products and services has been (and continues to be) radically uncertain, supply chains – even if they are entirely U.S.-based – have been altered, and it can be impossible to know whether some customers will be open for business next week. It is precisely in this type of environment that a strong, insightful CFO can make a real difference.

If you are not sure that your current CFO’s skills are what your business needs right now, G-squared can offer guidance. We can confidentially evaluate the state of your firm’s financial planning and analyses and point out areas for improvement.

If there is a need, we can even provide coaching to your CFO or, if appropriate, help you decide if you need to make a change to help you survive and reach a new level of growth.