When it comes to the financial leadership of your growing business, understanding the distinction...
As your business grows, so will demand reporting and strategy from your finance and accounting departments -- from department heads to the C-suite and board of directors. But it works both ways: as financial teams deliver more and more insights to executive leadership, the business will grow.
Financial insights are foundational to a healthy, strategic partnership with the CEO, board, and other key decision-makers. So, too, is understanding data assessments and projections in order to glean implications and fully communicate them to leadership. This is particularly tricky when answering the board of directors or outside influencers, who may not be as privy to industry or strategic details.
So what should you be prepared to address when meeting with your board? We've gathered key questions leaders will likely face at one point or another.
What can you tell me today about our financial health tomorrow?
When leadership is questioned about cash and sources of funds, they are asked to share a sense of company spending and to make projections about both near- and long-term growth. Knowing where the company’s cash is – and analyzing both best and worst-case scenarios – is essential in painting an accurate financial picture of the company.
Finance teams can help provide the visibility required to keep them abreast of historic transactions, real-time issues, and future possibilities, so they have confidence in what's ahead.
While a board is likely concerned with having sufficient funds to handle payroll or other overhead expenses, what they really want to know is if now is the right time to make an investment in resources. If you haven't established key performance indicators (KPIs) for a business, now is the time to do so. It's also time to have a clear system for measuring and monitoring. Financials are important, clearly, but KPIs can help inform decisions.
There will also inevitably be a time when the answer to the question of the financial health of a business is not a positive one. Maintaining a transparent and honest relationship with the board is critical. Moreover, this news always needs to come with a data-driven strategy to improve the situation.
How are we hitting company goals?
Developing and maintaining an organization's mission, values, and growth strategy is a key part of any executive's role, and every board of directors wants to know exactly how the team is working to achieve this.
Related reading: the value of organization alignment
Keep in mind, this conversation isn’t just asking you where the company is in relation to set goals, but instead, how the company got where they are, what comes next, and what changes need to be made. This is where accurate financial reports, up-to-date data and CFO insights come to bear.
If the CEO or CFO cannot come equipped to the meeting with this data, it’s time to upgrade your financial management resources (and that may mean looking outside the organization). Change occurs quickly in any business, and it’s up to finance and accounting to know why these changes are happening. Goal tracking is a huge part of a CFO’s job, but analysis of movement on said goals is what moves an organization forward, and what elevates the finance team's role within the leadership team.
This question on goals will likely serve as the foundation for conversation, so coming in with a full-picture, accurate answer can set a positive tone for the rest of the meeting.
What strategies are in place to manage risk?
Business is unpredictable – markets change, technologies emerge, competitors enter and exit the marketplace – and leaders need to prepare for all unknowns. Board members, executive leadership, and stakeholders know that there are strategic advantages to taking risks and that realizing growth requires some degree of risk. It is a delicate balancing act that requires accurate data, flexibility, and oversight.
This oversight has increasingly become the responsibility of the board. A good board will ask tough questions regarding policies and procedures around risks, along with the organization's strategies and risk appetite.
So, come prepared.
The scope of what is required varies by industry but may include a risk and recovery plan, competitive intelligence, merger and acquisition (M&A) targeting, remediation options in case of downturns, and value-added contribution strategies to sustain a competitive advantage or improve performance. This will allow for deeper conversations, and yes, deeper questions into the company's health. For example:
- What are the company’s top risks, what is their estimated impact and how likely are they to occur?
- Does the company truly understand the key assumptions underlying its strategy?
- How often are top risks assessed?
- Who owns the top risks and is accountable for results, and to whom do they report?
- How effective is the company in managing its top risks?
- Are there any “blind spots” within the organization that need addressing?
This dialogue should continue throughout the lifespan of a company. The board should engage in periodic discussions about the risks the company should take, those it should avoid, and the parameters it should operate within.
What does the capital structure look like in five years?
An organization’s capital structure reflects the way it’s capitalized. In other words: how money has been supplied to find the business and to help it grow. A healthy capital structure that reflects a low level of debt and a high amount of equity is a positive sign of investment quality.
A board and outside investors will want to know whether a business has enough capital structure to achieve its vision. If not, what is the plan to get there?
In other words, will it take in outside investors, additional debt or apply other strategies? Or are estimated business earnings enough to hit cash flow targets?
A savvy finance manager or CFO can do the heavy lifting by modeling earnings, cash flows, capital expenditures, and more. Projections can model different timeframes and market impacts.
See how financial modeling can fuel growth
Want more tips on a stronger business? Here's how to achieve it in 60 days
Internal customer-supplier alignment is a key factor in delivering value to customers. However, companies often fail to develop the necessary tools and processes to align internal operations. This can lead to a lack of understanding between both internal customers and suppliers which causes a lot of waste and delays in the supply chain.
At Focused Energy, we help businesses locate their shortcomings, fix those flaws, and emerge stronger. Our guide to 60 Days to a Stronger Business covers every critical aspect crucial for the explosive success of an organization, including the ideal alignment of internal customers and suppliers.
