By Brian McKay
A company’s CFO is one of the most crucial positions to fill with the right person. A CFO can help grow a company or make recommendations that slowly kill it.
Looking at a financial statement can tell someone a lot. A couple minutes with an income statement can reveal what line items might cost more than they should or where too little is being spent relative to income. A scan of the balance statement can discern what quality of assets are comprising much of the worth of the company and the makeup of debt, whether it be short term or long term.
The ability to discern so much in a short period of time is excellent. A longer and more intricate look might involve comparisons to industry standards in percentages of expenses and ratios. From this a more complex picture is drawn, but it still isn’t the total picture.
A CFO can be the person that leads the development of financial projections, calculates the modified internal rate of return for potential projects, figures out when certain types of debt instruments or investments are preferable and recommends cuts in certain expenditures. All very important things, but they mean nothing if your CFO doesn’t have an accurate picture of the company. Sitting behind numbers and financial statements does not create an accurate picture.
If all a CFO does is look at the numbers, he can be a company killer. Decisions are made without proper understanding of the company’s inner workings. Financial comparison to other’s in the industry is a great start but only a start. A CFO needs to understand what the company does differently from others in the industry and where it differs in costs and long term investments from others in the same industry.
A disruptive company is in the business of being a little different and a CFO that helps grow the business by truly understanding the company, is crucial.
Your disruptive company doesn’t want an old guard CFO that sits in an office, but one that is out exploring the operations and discerning the purpose and need of cost centers. The CFO has to determine if the company is paying 4% more for labor because it utilizes a model that creates more value for the customer, not just mandate that the cost need be decreased ASAP. To do this, your CFO has to be an active participant across all sections of the business.
One of the greatest travesties in business is seeing a company slowly die as it leaves its long term growth prospects handicapped by cutting too much of operations necessary to the long term vision. zenruption has written in the past how short-termism is destroying American companies. The CFO is central to the vision that either craters to that short termism or understands what is needed for long term growth. A CFO must be able to ask if something is an unnecessary cost or an investment in the future of the company and to do so requires being an active CFO that interfaces with all aspects of the business.
In filling a CFO position for your startup, it is necessary to stress the active part of the CFO description. You are doing things differently and out capturing the customers the big boys forgot. Your costs are not going to directly align with industry standards and you need a CFO that takes the time to understand this.
As a disruptive business, you have a different long term vision of growth and what is necessary to get there. Your CFO needs to be out on the floor talking with other managers, watching how the company operates and developing a comprehensive picture of company operations. The CFO that sees the long term vision and integration of the numbers in it, can truly help grow a company.
A CFO that lives by the numbers alone will be a business killer.
Brian McKay is a co-founder of zenruption and has his MBA from Boise State University. He is passionate about startup and small businesses as he feels they are true value creators and disruptors. It is his hope to facilitate their growth in any way he can. It is also his hope to go have a beer later.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license