The Pain of a CFO
“The job of a CFO is to make sure the company is still around in 10 years time.” No other phrase better sums up the role of a CFO and just how crucial that role is in any organisation.
Over the last few decades technology and accounting software has freed up finance departments from some of the more mundane functions such that CFOs have seen their role blossom to become the strategic partner to the CEO. The CFO is no ‘back room boy’ producing reactive profit and loss statements but someone at the top who must understand the entire enterprise, see the “big picture” and provide sound financial advice to the management team. It’s all about thinking around how to create capital and resources for the future.
It is, however, a role which comes with a lot of real pain. CFOs have a plate full of issues and pain points – everything from procurement of services and products through to tackling the ever rising cost of auditors, health insurance and pension plans and addressing shareholder activists.
The three top painful issues facing CFOs today are compliance, communications and corporate reporting and planning
Financial and accounting rules are changing all the time, and the need for completely up to date information on current developments is paramount. Annual accounts reporting, quarterly and monthly management accounts and tax reporting at all levels – corporation tax, VAT, PAYE and NIC – are crucial. But compliance also extends to the requirements and provisions of the Companies Acts, Companies House, and the Data Protection Act among others. The CFO is very much in the spotlight of corporate responsibility when it comes to these matters.
It is extremely tempting to think of compliance in terms of the ‘Sarbanes – Oxley effect’. The Sarbanes-Oxley Act was enacted in 2002 in the United States and is designed to review audit requirements and protect investors by improving the accuracy and reliability of corporate disclosures. In a nutshell, CEOs and CFOs are criminally liable under the Act for signing off on misleading Securities and Exchange Commission filings. Many of those involved in the auditing process feel the pressure of these increased requirements. The regulations even affect how companies promote themselves to clients with financial organizations cutting back spending on high-profile corporate events, gifts and entertainment in response to the legislation.
While this does not directly affect UK companies without a US listing, of course, the point of the ‘Sarbanes – Oxley effect’ is that there are UK equivalents in corporate responsibility and any UK CFO can only empathise with their US counterparts.
In the UK context a CEO needs to be hypersensitive to the reputational risk that may be involved in structuring the affairs of the company in particular ways or in endorsing arrangements for certain participators which may have beneficial tax implications.
CFOs are usually responsible for communicating the company’s value, building rapport with analysts and investors and maintaining trust and communicating integrity – in the CFO, the company, and its numbers. Much time is spent in meetings, conference calls, talking with industry analysts, ratings agencies, investors, shareholders, and the media.
A CFO also needs to communicate the company’s value and integrity to internal stakeholders – particularly departmental heads and employees. They need to combine business ideas and finance metrics which is rarely a simple thing. A great question CFO’s continually pose themselves is, ‘How can I show employees that their particular jobs are directly related to the numbers?” It can make all the difference getting this one right.
Thirdly, corporate reporting and planning.
Budgeting and budget forecasting is challenging, with many companies still using Excel spreadsheets to generate numbers. A top priority is to improve planning processes and to provide better forecasts. However, many CFOs simply don’t have the necessary tools and technology to buttress their decision-making capabilities.
Preparing for board meetings alone can take many hours a month and is incredibly labour intensive.
The golden thread running through each of these three issues and pains is that of information and data. A CEO has an unquenchable thirst for data: finding good data in a timely fashion and dealing with incorrect or inaccurate data. Nothing is more valuable to a CFO!
CFOs need that data to run their businesses and their finance teams, have a take on how issues are affecting other companies in their industries, improve communication and risk management and stay on top of the ever present need for cash, costs and working capital. No wonder CFO’s don’t have too much time to listen to anything outside of this remit. There really isn’t enough time.
Nevertheless, it is only with effective data can a CFO achieve what he or she is driven to achieve – to make sure that the company is still there in 10 years time….and next year.
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