Estimated reading time 8:00 minutes (but worth it!)
As a supplier of FD Services, we often meet potential clients who are not entirely sure what a modern finance director does, or why they need one.
“I have a financial controller who is more than capable of producing a good, timely set of management accounts, what would a finance director add?”
- The modern finance director has changed, no longer are they just expected to ‘count beans’ or be a ‘safe pair of hands’.
- Finance directors have evolved into a commercial business leader and a strategic advisor to the CEO.
- Finance leaders have well-developed ‘soft skills’, so they can manage behaviours and relationships with stakeholders and shareholders and be a ‘public face’ of the business. The most successful companies have active lines of communication with all board directors, not just the chairperson and the CEO.
- They can communicate effectively from the ‘shop-floor’ to the largest investor, from your biggest customer to your smallest supplier and from HMRC to your Audit Committee.
- The finance director is much closer to the customer than their equivalent of 10 years ago. They understand where the money is made, how to drive growth and create value.
- They can articulate risk through a commercial and financial lens, and know how to manage risk effectively.
- Above all, the modern finance director has transitioned from an explainer of the past to a foreseer of the future.
COVID-19 has changed the economic landscape and highlighted one other essential quality intrinsic to the modern finance director; the ability to pivot and adapt. Quickly! Pivoting the business plan where historical assumptions are no longer valid requires the robust skillset of a finance director.
However, to be an outstanding finance director and ensure effective financial management and growth of the business, they must first implement the basics, including:
- Best practice systems, processes and controls.
- A fit for purpose accounting team.
- High-quality management information and performance monitoring.
‘Best practice’ systems, processes and controls
The finance director’s top priority is to put in place ‘best practice’ systems, processes and controls that are proportionate to the needs of the business and deliver the information the leadership team needs to make informed decisions.
Coronavirus and the advent of the ‘new normal’ have precipitated the need for the modern finance director to embrace new technology and introduce flexible working and accessible data. The emergence of cloud computing, big data, automation and AI has made this task easier, as it has revolutionised this core function and irrevocably augmented how finance professionals are now analysing every aspect of business performance.
The systems, controls and level of information, however, needs to be appropriate for the size of the company. It needs to be suitable for the audience (leadership team, shareholders, stakeholders or staff) and relevant to the budget of the company and its future trajectory.
There are some CEOs who do not fully understand their accounts but are comforted by many artistically crafted graphs, but too much information is nearly as bad as not enough!
A ‘fit for purpose’ accounting team
An outstanding finance director will need to create, motivate and lead an exceptional finance team. They will need to ensure the team is effective (by setting goals, targets and priorities), transactions are accurately processed, routine tasks are performed competently, and reporting is timely, accurate and supports decision-making.
Accountants haven’t always been the best at building effective teams, especially when the budget will only run to X number of full-time heads, but the skills necessary require more than X people. The breadth of the skills required has widened in recent years due to increasing levels of international trade, a multitude of planning and analytics tools and new ways of generating revenues which need to be considered.
It’s for these reasons that made iFD has been so successful. Our part-time FDs and CFOs are backed by an experienced team of accounting and finance professionals, all tempered by challenging situations. We work with our clients to identify and fill their skills gaps as and when the need arises.
High-quality management information and performance reporting
A finance director must be able to forecast the future based on rational expectations accurately. They need to know what tomorrow will bring and pre-emptively prepare for any issues.
Not only does the finance director have the roller-coaster of Coronavirus to contend with right now, but they have Brexit too. Despite the many unanswered questions, businesses must plan against this changing landscape and deliver and execute on contingency plans. To plot their path, they need to be armed with accurate financial information and have access to analytical tools that will help them measure performance against current KPIs and identify risks and mitigate them.
In the current climate, our modern finance director should be using ‘what if?’ modelling to assess the response of the business to hypothetical scenarios. For example, “what if new sales drop significantly?”, “what if some customers can only pay 50% of the invoices?”, “what if cash reserves begin to run dry?”, “what if 50% of staff are on sick leave?”, “what if the founder needs to fundraise at a time like this?”.
Finally, the ability to take all this financial information and communicate it effectively to all audiences is essential. The finance director needs to know their audience and the information that they present must resonate with everyone from the ‘shop-floor’ to the largest investor, from your biggest customer to your smallest supplier and from HMRC to your Audit Committee.
Entrepreneurs often have limited time, so they require bitesise information quickly. They don’t want to wade through pages of analysis, nor do they necessarily want to have the numbers pitched with spin. The ability to answer a blunt question with a straight answer is often the most important.
Finance is the glue that holds the other functions of the company together
A finance director should be able to take the information about the business and use it to drive change within the organisation and question conventional wisdom. The finance director needs to be the ‘critical friend’ of all areas of the business, asking every manager to look at the cost-benefit equation of every area of expenditure or investment. The skill for an excellent finance director is working out how to do this without interrupting business and without affecting the ability of the company to execute on strategy. Again, communication is a crucial factor; the finance director needs to be able to frame why they are questioning the expenditure or investment in the bigger picture of the budget or plan.
The role of the finance director is to bring the various elements of the business back to the central plan, but also have the ability to see when the assumptions underlying the plan have changed and be able to model the new scenarios and to change the financial priorities.
In the most successful businesses, there is a healthy tension between the key business functions.
Sales and marketing need to be pushing the boundaries, service or product delivery need to be pushing the boundaries. Finance needs to be the flexible glue that holds these functions together and prevents them from fracturing.
This is often the most controversial role of the finance director. It is easy to get this part of the role wrong, to stray outside of their remit for situations to become political.
The finance director must earn the right to challenge every aspect of business performance by delivering excellence in their role.
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