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The times when the finance department in companies only served to book receipts and prepare the monthly financial statements in a quiet room are long gone. Expectations of finance managers -- and especially CFOs -- have risen sharply. This has to do partially with the radically ongoing digitalisation of the working world, but also with macroeconomic events that lead to bottlenecks in energy supply and resource planning, and continue to fuel inflation.
Today, a CFO no longer just looks back at the existing financial data of the company, but must also act with foresight on the basis of this data and plan sustainably and intelligently for the future. In this article, we'll briefly outline the key CFO tasks when taking up a new position and the most important KPIs for CFOs.
New CFO tasks: What are the first essential steps?
If you have been hired as the head of the finance department, the Chief Financial Officer (CFO), you will be faced with numerous responsibilities and challenges right from the start. The latter include paying employees and suppliers on time, keeping the books clean and managing liquidity in all business accounts. But these are just a few of the many CFO tasks that await you.
In financial management, there are many sources of error that go unnoticed in everyday business. As CFO, however, you bear responsibility for the entire area and must be accountable to your CEO with a clear set of data. You do not necessarily have to know the ins and outs of the company and its industry from the start in order to be successful. What is important is that you, as a financial expert, learn the existing processes, question them, and optimise them. Planning is everything.
The main function of a CFO is to manage and control the finances of the company. Your first action should be to take an inventory of cash. This will ensure that there are no short-term financial risks. To do this, first take a look at the business accounts: the balance and recurring payments are valuable indicators of the level of cash flow, as well as current costs and income.
To monitor bank flows, you can introduce reporting tools that show you transactions in real time. In parallel, you can ask for an existing financial plan with a liquidity forecast. If this is not yet available in the company, you need to create one for the overview of all financially relevant activities.
But the figures do not tell the whole story. As a new CFO, you need to familiarise yourself well with the specific corporate culture. Only a deep understanding of how the company works will give you the context to properly assess why and where exactly money flows.
Key performance indicators for CFOs to look for
To assess the performance of the company and gauge its resilience, you should take a closer look at the following indicators:
Growth in sales: compare the growth of sales in the current year with the data of the previous financial year, month by month.
The gross margin: evaluate the turnover, the cost of goods sold.
Operating profit and its composition: use accounting data to develop a sustainable cost control strategy.
Current liabilities: anticipate any upcoming maturities and what impact they will have on available cash flow.
Cash burn, i.e. the consumption of cash in a given period: Put the liquidity forecast to the test on a monthly or quarterly basis with the help of this indicator.
If there is a budget, you should find out whether it is fully funded and whether there is sufficient cash. If there are discrepancies, you should anticipate them in the cash flow forecast to avoid any nasty surprises in the future.
New CFOs' 10 most important first actions
At the beginning of your tenure as a new CFO, you need to ensure that the basic conditions for long-term success are in place. To do this, you should take the following measures first and foremost. They will provide you with the basis for successful financial management.
Establish open and direct communication with the CEO and all relevant managers of the largest departments in the company.
Develop a strategic plan for the next 3 to 5 years based on your first impressions of the company. The plan does not have to be perfect, but it will give you a good basis to build on and optimise as you go.
Assess the current financial health of the business in a brutally honest way. Only when all numbers are assessed accurately and honestly can you do a good job.
Evaluate the financial management tools and processes for efficiency and time savings.
Find the places where money can be saved and where turnover can be increased.
Write a budget plan for the current and upcoming year with the biggest and smallest cost items. Do not leave anything out. Because even small cost items can add up.
Set financial management goals (both short-term and long-term).
Establish rules and processes for handling money in the company. What can be paid when and how? What is released where and by whom? Who has what financial responsibility in each department?
Look at the business accounts and decide whether the cooperation with the bank is really satisfactory.
And don't forget: Create a cash flow management plan!
Next steps for new CFOs
Once you have created the conditions for good communication in the team and in the company and established certain ground rules on how to deal with cash flows and reporting on them, follow these further steps to take your financial management to the next level:
Develop an investment plan.
Review your current investments and make recommendations on what should be maintained.
Evaluate current tax strategies and try to optimise them according to the current legal situation.
Develop a risk management strategy.
Establish internal control points to ensure compliance with applicable laws and regulations.
Establish a system for financial reporting.
Keep track of your performance figures on a simple dashboard.
Review existing contracts, enter into new ones, and weigh them all against each other.
Develop a strategy for your management of debt.
Review existing compensation plans in the company for employees and critically question them.
But most importantly: all measures are worth nothing without two modern cornerstones in modern finance management: prioritisation/scheduling of these measures and a strategy for the digitalisation of all data flows and work processes. Only then will your work as CFO be sustainable and future-oriented.
CFO tasks today go beyond the job definition of the CFO
CFOs are not only responsible for clarifying financial issues, they also share responsibility for the company's strategic decisions. So from day one, you should ensure that you and your team have the right tools to initiate and steer strategic decisions. At all times, especially in times of economic uncertainty, the CFO must be able to present all relevant data cleanly.
Based on this, the company's managers can make the right decisions for the company and the individual divisions. Thus, the CFO has a far-reaching influence on the company.
It's best to keep a detailed financial plan with one or more intelligent liquidity forecasts. This should then anticipate all possible scenarios (such as investments, a bad economy, etc.). Only in this way is a strategic decision justifiable.
As the newly appointed CFO, you already know that the first three months of your tenure will be very busy. Your time is short to make a financial diagnosis and propose a value-creating roadmap. You will therefore have to act efficiently to demonstrate your expertise and assert yourself within the teams to establish the financial balance sheet of the organisation, which is necessary to propose your first optimisations.
To save time in your diagnosis, it is better to be well equipped. Software solutions such as Agicap can allow you to optimise cash management in the company and easily create your dashboards according to different scenarios.
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