Fire “Loser” Clients or Keep Wasting Your Cash

Sales growth at all costs? Most of the clients I work with have great sales, are growing revenue, or could grow revenue if they had additional cash to fund the growth. At the same time, every one of my clients is struggling to manage their cash.

After doing the basics of getting their cash management systems in place I almost always recommend that they fire some of their clients.

Yes, fire clients.

Why? Not all revenue is good revenue and not all clients are good clients. These clients are killing the company’s cash flow and slowing or eliminating the company’s ability to grow.

Which Clients Are Hurting Your Company?

There are two types of clients that hurt your company:

1. Client’s that hurt your profits and cashflow

  • Non-payers
  • Late-payers
  • Unprofitable or break-even margins

2. Clients that hurt your productivity and moral

  • Complainers that are not constructive and just make life miserable for you and your employees
  • “Special” clients with constant special orders, instructions, one-off requests, and unique demands

I’ll focus this article on clients that hurt your profits and cashflow. They are relatively easy to identify and deal with. At the same time, clients that hurt your productivity and moral can be even more destructive because of hidden costs. I’ll take the time in a separate article to teach you how to identify and deal with these “special” clients.

Identify & Work with Clients that Don’t Pay or Pay Late

If you have good bookkeeping it should be easy to run a report each week to show:

  • Who owes you money?
  • How long have they owed you money?
  • How much do they owe you?

If you’ve never tried to collect money from your delinquent customers, the people on the list may surprise you. I’ve worked with clients whose lists of non-payers and late payers included their “best” customers (best only because they were the biggest customers), close friends, people they go to church with, and clients who nobody really knows or remembers.

Clients who don’t pay their bills come in all shapes and sizes.

Here is a 5-step process you can follow when you start to work with them to collect the money they owe you:

1. Make a very friendly phone call. Confirm they received the invoice and ask if they have any questions about it. Fix any problems with the invoice that the client identifies and re-send it immediately. The corrected invoice will still be due on the original due date.

2. Ask them to pay their bill. Ask nicely. Many clients won’t realize that the bill is past due and remember, you want to turn this non-paying or slow paying client into a client who pays on time.

In my experience, taking these two steps will resolve at least 50% of your problems. One client I worked with had never tried to collect money, but then received about 80% of his past due invoices within two weeks of starting to make calls.

If needed, here are a couple of additional steps you can take:

3. Arrangements for payments. If your client cannot pay the entire bill immediately, ask them how much they can pay now, and how much can they pay each week (not each month.) You will usually get a good response out of this. While you don’t want to become a collection agency, this is a good strategy if you think that the relationship with this client can be salvaged.

4. Escalate. If you are not doing it already, ask to speak to the highest person at the company. Talk to that person. Sometimes this will get action. If not…

5. Let them know you can’t afford to do business with them. Let the key person know, again nicely, that you just cannot afford to continue working with them as a client. If you are a key supplier, this may get them to start paying, but if it doesn’t…
Fire the customers who won’t pay you.

What I tell clients that don’t pay is “Thank you for your business. I’ve really enjoyed working with you. Unfortunately, I cannot afford to keep you as a client, and we will need to part ways.”

Stop taking orders immediately. Tell your sales staff and anyone else who works with that client. Then decide if you want to send the account to a collection agency and try to salvage what you can.

The bigger challenge is what do you do with the clients who always pay late? I’m not talking about two or three days, but two or three weeks, or even months, late. These are never easy decisions, but here are a few ideas:

  • Identify how profitable the client is. If the client is very profitable, you can count this as a cost of doing business. If they are not, you should fire them. (See more on non-profitable clients below.)
  • How badly do you need the business? If you have excess labor capacity and/or inventory, then it may make sense to continue selling to the client, just as long as they keep paying regularly, even though they are always late.

If you are tight on inventory or labor, then it would make more sense to shift the business to a better client that will pay you. Ship to and service profitable, paying clients first.

  • If this is not a client that you enjoy working with, then the decision to fire them becomes easier.
  • If you like this client, maybe taking them to lunch and explaining the situation could help. Look for a win/win solution to improve when they pay.

Identify & Work with Clients that Are Unprofitable or Break Even

Sometimes a business has clients that cost the business money. They consume more resources than they pay for. Some reasons this is possible are

  • Special discounts
  • Product mix
  • Extra unpaid time spent on projects
  • Excessive returns
  • Employee dishonesty

Regardless of the reason, most of the time you should fire unprofitable clients. Just like the clients who don’t pay or chronically pay late, work with them first to try to move them to at least some level of profitability.

Identifying how profitable each client is may be difficult. It requires tracking that many businesses do not already practice. Here are two ways to ways to identify clients that are unprofitable:

1. Best Solution: Run a report that shows your profit or loss for each client.

You will need outstanding bookkeeping to do this, including knowing all the revenue, which products each client purchased, and the cost of the goods and services delivered.

Generally, this will only give you the gross profit of each client.

Gross Profit is measure as the Net Sales – Cost of Goods Sold.

If the gross profit is negative, it means you lose money each time you sell to the client. Even if the amount is slightly positive, it may not cover the cost of your overhead to do business with the client.

2. Second Solution: Run a report on what the clients are buying, and then analyze the profitability of those products

This is a multi-step process. First, get a list of the products the client buys.

Next, analyze the profitability of the products they are buying. It is very possible that not all your products make money.

Finally, add up the profits for the products the client purchased.

Either method will identify unprofitable clients. If you are lucky enough to have all profitable clients, then look at the least profitable clients. If you can find new clients that are more profitable, and have limited resources to grow, then replacing less profitable clients for profitable clients will help you grow the earnings of your business.

Remember, always try to work with clients first. A client is always a precious relationship, even if they are not profitable. You still have your relationship to think about and your reputation in the marketplace.

If you need further convincing of what you should deal carefully with clients you need to fire, read on…

Don’t Give Up Hope

I had to part ways with one of my consulting clients. They were profitable, but each new client consumed a lot of cash and they couldn’t get a credit line. As a result, they were chronically late paying me, they were several months behind on my payments, and we mutually agreed that it would be beneficial to part ways.

I helped them transition my work to someone else and we stayed in touch.

To my surprise, 1 year 3 months and 27 days after my last payment, an unannounced payment arrived in my bank account. 1 year and 18 days later, another unannounced payment came in. Three more payments came in over the next five months until I was paid in full!

I am sure that if I had parted ways on bad terms, I would have never seen the back-payments.

Lose a Client and Gain an Advantage in the Marketplace

Refer the clients who you lose money on to your biggest competitor!

Just a thought….

Cautions and Caveats

Firing a client should never be taken lightly.

Do everything you can to fix a relationship.

If you are not sure about if a client is profitable or not, get some expert help.

So, Who Are You going to Fire?

Did you decide to fire a client? Or have you already fired a client? I’d love to hear the story and the details. I learn a lot about business by understanding the challenges others have dealt with.

This complementary article, What every CFO needs to know about the tech revolution in Accounts Receivable,includes further receivable management techniques to improve your cash flow.

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Keep Digging. The Problem With Your Cash Flow Isn’t What You Think It Is

When you are looking to fix your cash management issues, don’t just look at the symptom. If you don’t dig past the symptoms you are seeing at the surface of a problem, you probably don’t know what your real problem is.

Most of the time when I am asked to come in and resolve issues, I am asked to fix the symptoms of a business’s troubles.

  • “I need good job descriptions, so the business runs smoother.”
  • “Help me get a loan so I have more capital.”
  • “I have a lot of profits. Help me find more cash.”
  • “Would you be my part-time CFO, so I can get my finances organized and we can grow again?”

People don’t realize that the symptoms they see and keep them awake at night, are not the real issues that need to be fixed. They try to get rid of the immediate pain and often try short-cuts that do more harm than good.

When I was Leaking Water instead of Cash

Let me tell you a quick story that will give you a better idea of what I am talking about.

My wife, Lisa, called me one day and said, “David, there is a leak in the basement. I just noticed it when I was running the dishwasher. Can you look at it and see if you can figure out how to keep the water from getting all over the floor?”

When I came home that night I changed into my work-around-the-house clothes, turned on the dishwasher, went downstairs, and saw the leak. I told Lisa, “The answer is simple. Stop running the dishwasher.”

Let’s pretend that she agreed because she prefers to do the dishes by hand and use more time and water, than have a leak on the floor. Less convenient, more resources used, but the problem goes away.

Except the problem didn’t go away.

It turned out that if you ran the kitchen sink for a while, the leak in the basement came back. Time to call Larry the Plumber, the guy who really knows what he’s doing.

Larry comes over and turns on the water in the sink to see the leak for himself. “Yes,” he confirms, “You have a leak coming from the kitchen. We’ll have to open up the wall to find the source of the leak, and then figure out how to fix it.”

We went downstairs, where I showed him the leak and the damage. He asked questions, poked around, then said, “Let’s see if we can’t make the leak start again.” Once we did, he made an educated “guess” based on his years of experience, opened the wall near the ceiling, and within 15 minutes had identified the problem.

The leak was inside the basement wall. It took about 30 minutes to cut out 12 inches of broken pipe and put in a new pipe. We were fortunate. It was a quick fix with only minor damage to the wall.

Cleaning up the damage from the leak was much harder and more expensive than fixing the leak itself.

“I don’t have enough cash and here’s what needs to be fixed.”

At least half of the time during my first meeting with a client, I am told “Here’s my problem and I just want you to come in and fix it.” Most of the time they believe they know the problem but have only identified a symptom and cannot even begin to see the root problems.

When I worked with the plumber, I was able to show him the water leaking on the floor. I described what was happening and when; I showed him the hardware I knew was involved. Then I depended on him to find the cause and give the best solution.

Larry (my plumber) used a pattern that other professionals, such as doctors, attorneys, and good consultants, use. He:

  1. Listened to the problem
  2. Asked probing questions
  3. Tested and observed
  4. Suggested a course of action
  5. Implemented the fix

Get Below the Surface with Cash Management Issues

The reason that Larry the Plumber was able to diagnose and fix my problem so quickly was his years of experience. He’d seen the problem before. He knew that the cause could have been one of 3 or 4 different issues. He had the right tools and supplies to quickly and easily open the wall, make the repair, and not make a mess. It was an impressive experience to see a true professional at work.

The challenge most business owners have is they are not cash management experts, haven’t seen the problem before, and don’t know how to fix it. They do know their products, how to deliver them, how to price and sell them, and how to make their customers happy.

How do you start to dig below the surface and start seeing the cause of the problem in your own business without becoming an expert? Here are some ideas to get started:

1. Look for the causes of the problem, not just the symptoms

Ask “Why is this happening?” If you can answer this question, you may have found the root of the problem. Or maybe you figure out why something is happening, but don’t understand the next issue. A self-help expert told me once that it takes asking “why” up to seven times to get to the root of a person’s motivation. Don’t be afraid to ask why again… and again…and again, until you finally say, “That’s why we are having this problem!”

2. Assets are not profits

Remember: The cash you have in inventory, and other assets that have a higher value if you sell them, are not worth that much until they are actually sold!

Let’s take an example:

  • I buy some gold for $200.
  • The price of gold doubles in a year so my coin is now worth $400. What is my profit?
  • If you said $0, you are correct. I haven’t sold the coin so there is no profit. Profits from assets is only the additional cash in your pocket once you sell the asset.

The same goes for any other business assets. Don’t hold on to inventory or insist on full-price for underused services. Sell the inventory or unused capacity for less than you originally wanted, get your cash back and buy new inventory. Make a little profit now or reduce your losses.

3. Turnover

Turnover relates to the concept of selling your inventory and reinvesting quickly. Imagine these two scenarios:

A; You can sell 5 gizmos a week for $100 and make a total of $220 profit.

B: You can sell 15 gizmos a week for $75 each and make a total of $300 profit.

Which gives your more cash in your pocket? Not a trick question. The answer is B. You are selling more, faster. That’s called turnover, or velocity. Can you increase your velocity and make more cash?

The concept of velocity is captured in the Cash Velocity Calculator, a tool to help you understand and better manage the cash invested in your working capital; accounts receivable, inventory and accounts payable.

4. Impact on the business

Some cash management problems have large impacts on the business and some have a small impact. If you are having serious cash management issues you won’t fix it by only changing something small like cutting back on office supplies or cancelling your subscription to National Geographic. Working on the little ones might make you feel good but won’t fix your problem.

Try to identify the big impact items. Big impact items include: Past due receivables, excess capacity and inventory, high customer acquisition cost, and a long time from sale-to-cash or cash-out to cash-in.

5. Relationship driven transactions

Many of your cash management problems will be fixed at least in part based on the relationships that you have.

Customers may need to pay faster, put down a deposit, work with you to simplify their ordering or shipping process, etc. Your best customers will want you to succeed and will offer their assistance, especially if you can show it is in their best interest to work with you.

Vendors will be happy to work with you. Your current ones should be happy to help you fix your challenges. It will make their business better in the long-run and they keep you as a happy customer. If your current vendor won’t work with you, a new one will! No matter what a vendor is supplying, unless they are providing an exclusive or patented product, there will be a dozen other vendors ready to step in and help you solve your problems.

6. Systems

Cash management is an everyday exercise, so put systems into place that make sure cash management is happening. The best systems are automatic with no time or effort in maintaining them once they’ve been implemented. An example is automatic bill pay, or even better, clients automatically paying you each month.

Other processes need to be done manually so you will want systems to make sure that they happen when and how you want. An example is reconciling your checking account to know how much money you have and projecting the amount of money you will have. Decide how often to do this – daily, weekly, monthly. Create a checklist of what the reconciliation entails and then a follow-up to make sure it gets done.

7. Tools

There are many tools that can help you find and fix cash management problems.

Your bookkeeping or account software is a key tool. It needs to be setup properly to provide reports that will tell you where the business’ strengths and weaknesses are. Add-ons to your bookkeeping software can help you focus on profitability, billing, and getting paid, and other details of your business.

A dedicated cash management tool will have the biggest impact on your ability to understand when you are getting paid and deciding when to pay your bills.

The key is deciding the right tool for the right job, so figure out what your challenges are first, and then go find the right tool to fix your problem. A good place to start is developing a cash forecasting model. Why Every Business Should Build Weekly Cash Flow Forecasts explains how and includes a template you to get you cash forecast up and running quickly.

8. Continuous improvement

Don’t try to do everything at once. Instead decide on a limited number of things to work on. Finish one and add a new one to the list. You can work on one big issue while completing multiple issues.

I’ve never seen a company that fixes itself in a one massive step. That usually results in a bigger mess than when they started.

The Problem Was Fixed, Now for the Real Damage

Back to my plumbing problem.

After the plumber was there, we started looking at the additional damage that was done by the water leak. It was a lot more than we had originally seen. When we looked a little deeper, we found:

  • Dry wall that was soaked and had dried, and was now brittle
  • Base boards that were rotten
  • Mold on the floor and on a cabinet

It ends up that fixing the problem was easy, but the damage was going to be a lot harder and more expensive to fix. Still, our small problem could have been a lot worse. The plumber said that the pipe would have eventually burst if we hadn’t fixed the small leak.

So, fix your problems now before that get any worse! Remember, if you are having problem finding your cash leaks, or if you have a cash flood leaving your business, don’t be afraid to call a “plumber” to find and stop the problem.

How Deep Do You Have to Dig?

I’d love to hear any ideas you have about digging through your issues to find the roots of your challenges. What’s the strangest “root cause” you’ve ever found, but you never expected? Find me here: David Safeer.

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Cash Flow Management: Being Unconventional

Getting good advice on how to implement cash flow management practices can be complicated. Improvements to cash flow management are available for all aspects of your business. The tricky part is figuring out what to start with and what practices aren’t worth the time and effort for your business.

The biggest challenge is that some cash management ideas can actually put you in a worse cash position than when you started.

Conventional Wisdom Isn’t Always Wise

You could start today by implementing some easy things that would give your business quick additional cash. But which easy ideas should you implement? More important, are they right for your business?

I’ve found articles written on each of these ideas. The authors would have you believe that each idea should be implemented by every business. Some examples I have seen,

  • Start charging everything you can to a credit card. It will give you on average about 30 days to send your cash to the credit card company and not be charged any interest.
  • Pay all of your bills 29 days after they are due and before the next billing cycle.
  • Sell more of anything and everything that you can.
  • Make sure all invoices are sent out to your clients the minute you can. Don’t wait a second.
  • Fire someone that isn’t meeting expectations, so you can save money.

Each “fix” recommended above has potential downfalls.

  • If you charge goods on a credit card, do you have the discipline to pay off the balance in full every month? If you don’t, it will have a negative impact on your personal and/or business credit rating. It will also cost you additional cash paying off the interest charges.
  • Some of your bills may carry late fees and interest if they are not paid by a certain date. That will cost your business more in the long run. Possibly even worse than this additional cost is paying late may damage an important relationship with a key supplier.
  • Depending on your business model, selling more can make your cash position worse. This depends on when you receive cash for the sale vs. when the sale is recorded and when you need to pay any expenses related to the sale.
  • Sending invoices only gives you the illusion of doing something to get paid faster. It doesn’t help you today. Most businesses receive the cash 30 days or more after the invoice date. This is true even if the bill is sent days, or weeks, after the invoice date.
  • Firing someone may cost you money, and a lot of it. Recruiting Costs to fill the position. Severance pay. Vacation pay. Unemployment. In some states you need to find cause and have the documentation to prove a problem in case there is a lawsuit. Firing should be a last resort.

Why Good Cash Management Advice is Hard to Find

There are literally thousands of articles written about cash management, cash flow, increasing the cash in your business, raising money, lowing your taxes, and of course, the ever infamous “how to hide your cash in an offshore account.”

There are a few reasons that you need to be cautious about reading a cash management advice column and following the advice blindly:

Hidden Motives: When I look at articles about cash management it becomes obvious the author has an agenda. The articles are generally “thin” – they talk about 4-6 aspects of cash management and have a specific emphasis on one particular way to improve your cash position. Then I read the bio of the person who wrote the article. It becomes obvious they, or their company, have a particular area of expertise they would like to sell to the reader.

Narrow Focus: Other articles focus on improving the effectiveness of a specific aspect of your business, such as inventory management, product development, or sales. What they don’t mention is the impact of cash on your business. The articles are written to indicate that if you implement what they are “selling,” then your business will be better off. Period. No questions asked. The problem is that narrow-focused improvements in your business often either require a permanent capital infusion or a temporary outlay of cash. Either option may be difficult for your business to absorb.

Business Silos: Cash management solutions that address a single aspect of a business are common. An expert looks at one piece of your business to optimize only that one area. If you focus on optimizing that one piece, it may not optimize your cash flow for the entire business.

Why It’s Tough Figuring Out Where to Start Implementing Cash Management in Your Business

People who read my articles and talk to me about cash management sometimes want to move too quickly. Generally, their problem isn’t what they think it is (see my article “Keep Digging. The Problem with Your Cash Flow Isn’t What You Think It Is.”) (add to your library on CFO.University)

I always advise people to take a systematic approach. This way, the cause of the problems often become visible and you can create a list of issues to address. You may also discover that you don’t have the information you need to identify, or fix your challenges, and simply having information is the place you need to start.

Here is the basic structure I use to implement a solid cash management program in any company:

  1. Put your bookkeeping in order.
  2. Analyze your financial reports.
  3. Do quick fixes.
  4. Implement bigger projects.
  5. Create a cash flow forecast.
  6. Use cash management tools.
  7. Monitor a cash management dashboard.

Implementing solid cash management can take a few days of focused effort or can be implemented over a period of months. It depends on the urgency of getting more cash into the business and the size and complexity of the company.

Here are a couple resources that will help you understand and forecast your cash flow more effectively:

CFO.University’s Cash Velocity Calculator is simple tool that highlights where your working capital is being invested.

To create your cash forecast this article and tool included in it can be a big help. Why Every Business Should Build Weekly Cash Flow Forecasts.

If you have any questions regarding these 7 steps or the tools included above, contact me.

Where do you start and how can you do this?

My next article will go into detail for each of the seven steps to implementing a sound cash management program. If you want to get started, start with identifying improvements that should be made in your bookkeeping and financial records. Many companies are not ready for the other steps, so make sure that your business is.

If you’re not sure about your bookkeeping, find a great firm that specializes in accurate bookkeeping and ask them to take a look. They will probably spend 30-60 minutes with you at no charge, which is more than enough for them to understand your situation. Then you can decide how much trouble you’re in and if you need help, or not, with bookkeeping and financial records.

Bonus Suggestion: Your bookkeeper or accountant should be able to explain everything to you in plain English. You should basically understand everything, even if you don’t know the details. Knowing how to do bookkeeping and finances is required. Being able to communicate with you clearly is the real value of a good bookkeeping/accounting firm.

Unconventional Wisdom: Spend Your Cash Quickly

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Why Dashboards are a Powerful Tool in FP&A

If you ask finance professionals about strategic management tools, they will eagerly name SWOT, PESTL, “what if” analysis, vision and mission statements, Porter’s five forces… but hardly ever you would find a dashboard, or dashboard design on the list.

This short article explains the strategic role of dashboard design and helps you set the right KPIs and benchmarks for your business.

What we measure we become: the importance of choosing the right KPIs

“Dashboards are for performance monitoring,” – one would argue. “What does it have to do with strategic management?”

Srinivas Venkatram, founder and CEO of an ideas-in-action lab, called one of his books: “What we measure, we become.” These wise words aptly describe the impact dashboards have on our business.

Have you heard of the cobra effect? The term was invented by the economist Horst Siebert. During British rule in India, the British government worried about the number of cobras in Delhi and offered a reward for every dead cobra. It was originally a successful strategy - a large number of snakes were killed for the reward. However, over time, inventive people began to breed cobras for the sake of earning money.

If you start paying glass makers for a kilogram of glass they produce, they will end up with very thick glass (so thick that you can hardly see through it). If you pay them per square meter, they will produce very thin (and therefore fragile) glass.

The KPIs you choose to measure the performance of your business, the KPIs you use in traffic lights reports, and the gauges in your dashboards drive the efforts of your teams and shape your business. Think twice before including anything in your dashboard.

There are several reasons why you should ditch the old FP&A reports

However, in my practice, Controlling and FP&A teams don’t think twice about the structure of their reports. We are not in the habit of constantly reviewing and improving them. We just keep releasing the same reports every month, every week, every day.

Unfortunately, I hear quite often: “We’ll start by copying our old reports into our new business intelligence tools,” from companies undergoing digital transformation. Thus, they immediately reject all the benefits that technology has to offer.

High quality, complete real-time data readily available from a variety of sources requires a paradigm shift. If we are to reap the fruits of the new technology, we must start thinking differently, and our management reports must look different.

The “oldest” part of our old reports are plans and budgets. We carry this legacy of the 1950s and 1970s into the twenty-first century. Management by Objectives (MBO) is obsolete. We started to challenge it in the 1990s, when the Beyond Budgeting movement emerged. But just know, with the fast spread of business intelligence tools and a powerful push by the COVID-19 pandemic, we see a viable alternative available to virtually every business.

Rather than comparing your company’s performance against a fixed target, say 5% sales growth, set a relative target of + 1% growth over the industry average or most important competitor. More objective performance metrics than plans and budgets are becoming available. Why stick with old ones?

At this point, we have established that not only the KPIs themselves, but the benchmarks against which we compare them, are strategically important. But we don’t stop there.

Drilling down is not a panacea: look for the meaning behind numbers

I’m pretty sure each of you has heard a similar dialogue between company management and your fellow financial controller or financial business partner.

  • Our sales are declining this month.
  • Why?
  • Because our fresh food sales are underperforming
  • And why is that?
  • It is driven primarily by dairy products.
  • Why is this happening?
  • As butter and yogurts are significantly down.
  • Why???
  • That I do not know…

It might be frustrating, to hear “I do not know”, but are controllers really to blame? In most of the companies, I’ve worked for, reports and dashboards are nothing more than systems of breakdowns and drilldowns. Financial analysts are very good in drilling down to the smallest detail, but do they really understand performance drivers?

One of the tremendous benefits of modern business intelligence technology and tools is the ability to integrate data from multiple sources. You can have operational and financial data from different internal systems and external sources in one report. Why don’t you?

Instead of just slicing sales data across all possible dimensions, you can collect in one place data on product availability, data on queue lengths, data on prices, data on advertising activity of competitors. With this at their disposal, your controllers will answer you not only with a description of the problem (which categories are declining), but also with a plausible explanation (50% discount on competitor’s butter and delays in yogurt delivery from a major supplier to our warehouse).

To summarize:

  • Take dashboard design seriously. Gain the skills you need or bring in experts.
  • Use transition to Business Intelligence tools as an opportunity to completely reset your FP&A and Operational reporting.
  • Choose carefully the KPIs for your dashboards, they have more strategic value than it seems.
  • Choose objective relative benchmarks (e.g., industry averages) rather than fixed subjective benchmarks (e.g., budget).
  • Move towards integrated operational and financial reporting. Bring important operational drivers into financial reports.
  • Help your financial analysts go beyond your department’s KPIs to overall business understanding.

I believe that by following these steps, you will create dashboards that not only detect problems, but also help fix them. A dashboard is not just a monitoring tool. Unless you make it one.

The article was first published at FP&A Trends portal

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Why FP&A shouldn’t push digitalization too fast

“If you want to go fast, go alone. If you want to go far, go together.” - African Proverb

If you are about to embark on a digitalization journey, do not forget to take your employees with you. This short article explains how FP&A can help organizations avoid the three-to-five-year gap between the technology adoption level and the mindset of employees.

Technology is not the only success factor

Many companies look at digital transformation through technology lens – we focus on:

  • mapping all possible data sources and dependencies between them,
  • building a conceptual data model,
  • and establishing a robust data warehouse.

They set up a modern tool for real-time reporting and in-depth data analysis only to find out in a couple of weeks, that nothing has changed in their decision-making process. As a business analyst in corporations and later on as an external consultant I have repeatedly witnessed top or middle management ignoring data insights in their decision making. Even when those insights were made readily available to them. Intuition, opinions, isolated observations, lack of critical thinking cloud our vision.

Even though understanding technology is important, no shiny real-time reporting tool can help us until we change the way we make decisions. The biggest obstacles on the way to data-driven organization are not technological but psychological. Cultivating an insights-driven culture is the most difficult and time-consuming step.

How FP&A can change the collective mindset of the organization to embrace data?

1. Begin to shape the culture before technology is in place. Done right, technology will give your employees the data they seek, not ignore.

2. Go beyond Business Intelligence (BI) tool training – focus on the skills relevant for data-driven decision making:

  • Data analysis. Help your FP&A team go further than investigating business issues. Give them a skillset necessary for understanding business drivers, evaluating options and determining solutions to business problems.
  • Data visualization and Data storytelling. Train your business analysts to present information so that the eyes can perceive it quickly and the brains can extract the most important insights from it.
  • Critical thinking. Let your team gain the habit of constantly challenging their own knowledge, judgement and quality of the information available.
  • Decision making. Introduce your team to the decision-making steps and frameworks for a conscious and formalized approach.

3. Decision-making is a process, so manage it as a process: with design, execution and monitoring quality at every stage. Establish formal processes for making important decisions in your organization and personally follow them down to the letter.

Consider incorporating managerial techniques, that dramatically improve decision-making quality and encourage reliance on data:

  • Premortem. A technique in which a decision-making team imagines that a project or organization has failed as a result of their decision, and then works backward to determine what potentially could lead to the failure of the project or organization. Premortem legitimizes doubt and points out areas where more data should be obtained and analyzed.
  • Decorrelation of error. A decision-making technique in which all the participants are asked to write a very brief summary of their position, before an issue is discussed. Thus, the sequence in which we receive information doesn’t affect our judgement. This procedure makes good use of the diversity of knowledge and data available in the room.

4. Incorporate external data in your everyday decisions. Do not rely solely on what your internal systems tell you. Stop asking your team about gap to the budget. Use competitor data, market and industry data as a source of relevant context and objective benchmarks.

5. Be a change agent in your organization. The FP&A team has always been the closest to data sources and most skilled in extracting relevant insights and meaning from it. Help the rest of the business acquire these skills as they are no longer a competitive advantage, but basis for survival.

Here is an example of being a change agent in the supply chain department, Change Agent to the Supply Chain. Apply these same principles to other key departments to help the rest of the business acquire these skills.

As an FP&A leader in your organization be a gentle guide and rigid challenger. Question decisions made with you or just in your presence. Encourage reliance on financial data, not an exchange of opinions. Otherwise, your team will end up as in the famous quote from James Barksdale “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.”

The article was first published at FP&A Trends portal

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CFO Talk: The Future of Finance:  Failing Successfully

Andy and Steve talk about the FInEx Summit 2021 coming up on September 8th and 9th and discuss how to overcome not achieving a goal by;

1. having a growth mindset
2. sharing our humanity openly
3 ...“learning the lesson we needed”
4. shooting, even when we don’t have the perfect shot
5. success comes only from trying

Set meaningful goals. Learn from them and enjoy the journey!

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CFO Talk: The Future of Finance: Controller to CFO/Finance, Not Just a Cost Centre

In this CFO Talk Andy and Steve discuss:

1) How finance can move the perception it has as a cost center to one of value creator

2) How Controllers can create a path to the CFO Suite

Here is a link to the interview with Dave Bookbinder Andy kindly references near the end of this CFO Talk.

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CFO Talk: The CFO as a Key Player in Pricing

In this CFO Talk, Mark Stiving helps CFOs understand how to play a key and value added role in the pricing of products and services for their companies. For more on The Role of the CFO in Pricing read this piece.

Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.

Enjoy the lessons Mark shares in this CFO Talk while learning how to help your business expand its margins.

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CFO Talk: The Future of Finance: The Keys to Influence

Andy Burrows and Steve Rosvold discuss how being intentional growing our influence is a high ROI activity for our careers.

Andy lists 5 ste[s you can take to grow your influence with color commentating by Steve.
1. Build Credibility
2. Value and Focus on Others
3. Be Intentional About Building Trust
4. Reverse Engineer Your Teammates Priorities & Help Them
5. Patience – Trust is a Long Haul Activity

If you are a Covey fan you’ll have double the fun learning from this CFO Talk.

Take the Supercharged Finance Credibility Assessment here:

Benchmark your CFO Readiness by taking this assessment from CFO.University.

Until next time,

Enjoy. Learn. Grow.

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Research Report: The Impact of Data and Analytics on Business and Finance

Steve and Prasanth answer the following questions on their research report from Suresh Chakravarthi:

2: 40 Given that we have so many definitions of Data Analytics, what is your definition of Data Analytics

4:05 Is Finance 5-10 years behind in using data and analytics as some experts suggest?

6:50 Is there a Data Life cycle, and if so what are its implications?

10:38 Your research covered common Key Performance Indicators used by businesses. What are the key KPIs relevant to Finance leaders?

15:23 To be a success in data and analytics it is mandatory to have Data quality. What advice would you give to ensure that one starts this journey with good data?

18:46 Once data and analytics leads to insights how successful are companies at using that insight to improve their business.

22:05 How are companies doing at integrating Predictive and Prescriptive analytics?

25:00 With the investments growing in Environmental and Social areas how will data analytics contribute to corporate ESG initiatives?

29:15 Experience is demonstrating that Data and Analytics initiatives have a shelf life. What approach should companies take to instill a decision making culture based on data?

32:15 Overall, what are the opportunities in Data Analytics?

36:28 Where does data analytics fit in the future of the CFO and finance?

40:25 While deriving good insights is a big challenge, adopting those insights is a bigger challenge. In this backdrop, what strategies can companies adopt to derive business results from insights?

58:40 Course Description: Finance Data Analytics for Business Results

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With a Faltering Economy, What Area of The Balance Sheet Is Top of Mind For You?

With uncertainty and change looming in the economy we polled finance leaders on this question, “Which area of the balance sheet is top of mind for you?”

We gave these four choices. Each is followed by an example of what that choice could look like.

1. Working Capital: We are preparing for continued supply chain disruptions, higher inflation, rising interest rates. Generally preparing for some short-term business volatility.

2. Long Term Investments: We believe strategic investments are plentiful and want to take advantage of them. Conversely, a key part of our 2022 plan includes harvesting some of our long term investments.

3. Long Term Debt Financing: We want to recapitalize to improve shareholders returns, fund strategic investments or create strength to withstand a prolonged economic retraction.

4. Strengthen/Right Size Equity: We believe its time to strengthen our balance sheet to weather a long term economic storm or return capital to shareholders after a strong run.

Overwhelmingly - nearly 3 out of every 4 - finance leaders targeted working capital as being top of mind.

We set out to study why.

Deloitte polled¹ executives earlier in the year and attributed the high priority given to working capital as companies being in ‘growth mode’, after nearly two years of managing through the pandemic they are ready to break bunker and make a charge for growth. Deloitte’s report also provides a tip from its survey.

  • Companies that proactively analyze customers’ payment behaviors and use that analysis to make process improvements can significantly improve collection time, reducing their DSO.

A recent PWC report² summarizes three key findings in working capital improvement, providing further support why it’s a top priority for finance leaders in 2022.

  1. Digitalization and analytics - ‘Easy’ cash wins are possible through a top-down approach allowing immediate remedies which can realize up to ~40% of cash potential.
  2. Supply chain resilience and agility - A resilient and agile supply chain is made possible with the use of digital working capital levers
  3. ESG and sustainable Supply Chain Finance - Integrating sustainability into Supply Chain Finance (SCF) can improve both the financial health of the supply chain and ESG performance

In a McKinsey report last fall, Unlocking Cash from Your Balance Sheet³, the consultants point their finger directly at the CFO,

“Many companies treat working capital simply as the cost of doing business. In our experience, few consider the negative impact of extended customer terms, tight payment cycles, and high inventory levels on true economic value.”

If true, this makes working capital an easy target for improvement and a great place to focus your balance sheet attention.

Minimally, we suggest you discuss this topic with your executive teammates. You may be doing all the right things regarding working capital, but if those efforts aren’t well understood or communicated, they could be unwittingly taking the same position McKinsey states in their paper. Our jobs are tough enough without that kind of misguided publicity.

This tool, the Cash Velocity Calculator, is a great way to kick off your discussion. The tool quickly and simply highlights where and why you are consuming working capital. It presents the information in a way that makes it easy to have a thoughtful, productive discussion.

Fortunately, the McKinsey team takes this conversation a step further, suggesting other aspects of the balance sheet, besides working capital, to harvest cash from. We especially enjoy the descriptions they use for each heading:

  • Reimagine or divest underperforming long-term assets
  • Recover ‘trapped’ cash and accelerate returns from partnerships
  • Manage credit support strategically
  • Reduce long-term operating liabilities
  • Identify alternatives for funding of pension obligations

With severe supply chain disruptions, rapid inflation growth and rising interest rates we find ourselves playing a game with rules we haven’t had to play by for 25 years or more. It’s time to dust off the old playbook and manage working capital like it’s a precious commodity again.

Stronger Balance Sheets, Make Stronger Companies.

Read part II in our series, What Area of the Income Statement is Top of Mind for You in 2022?

Other reference material related to this topic,

¹ Working Capital Management A Top Priority for Many Executives in Year Ahead

² Working capital management: Emerging topics and trends

³ Unlocking Cash From Your Balance Sheet

CFO Talk: Demystifying Internet Marketing with Roy Nakamura

Roy Nakamura, President at Horizon Web Marketing, draws from his experience to help CFOs better understand internet marketing; its ROI…how to get found in a Google Search… your human interface…coding friendly for people to find you…your website as a hub for marketing…SEO and a whole lot more.

Enjoy Roy and his CFO Talk to Demystify Internet Marketing

Roy will make his internet marketing audit checklist available to you. Email him at to request your checklist.

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CFO Talk: Blockchain and Crypto for CFOs with Dr.  Sean Stein Smith

Dr Sean Stein Smith tackles these question on this episode of CFO Talk:

What is blockchain?
What is its most common use is in finance today?
What should finance leaders be leveraging blockchain?
Where will blockchain having the biggest impact on the CFO suite in the next 5 years?
He also provides some great advice on taking the next steps to make blockchain technology an enabler for you.

Then its on to crypto….
What is cryptocurrency?
How do we account for crypto?
What are the big headwinds and tailwinds for crypto and blockchain adoption?

Sean closes with arguments for and against CFO’s accepting crypto payments.

Listen on

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Limiting Factors/KPIs/Variance Analysis

In this series of potpourri topics, Aliyyah shares her experience to teach important concepts around production planning, KPIs and managing foreign currency risk.

Limiting Factors – Production Planning within Financial Operations

When it comes to a SINGLE limiting factor in relation to performance management, I was taught to follow the method below for determining the optimal production plan. Using this method, we:

1. Identify the scarce resource

2. Establish the units of the scarce resource used by each product

3. Calculate the contribution and contribution per limiting factor for each product

4. Establish the production priority based on contribution per limiting factor

5. Allocate the scarce resource according to the ranking.

Unfortunately, we all wish it was this easy to determine the production plan. In reality, there is uncertainty to consider and MULTIPLE limiting factors surrounding the decisions over what and how much we can produce.

These multiple limiting factors can include how much our existing machinery can make, shipping delays, labour constraints, and shortages in critical raw materials. In addition, organizations make decisions based on both qualitative and quantitative data.

So, how do we decide what to produce when we have multiple limiting factors?

We have to consider the following:

1. Inventory levels and inventory cover, as well as pre-existing customer orders/contracts, as this essentially drives how much we need to produce regardless.

2. Where our customers reside, our business plan, and how our market is segmented, especially if we have export markets

3. Forecasting methods and availability of raw materials.

4. Contribution per product/SKU as we’d like to maximize those with the highest contributions

5. Linear programming. Largely evolved due to data science.

What is your top tip regarding limiting factor analysis in performance measurement?

Supplement your operations development with this article from Rick Pay, 3 Lean Lessons for CFOs

Key Performance Indicators (KPIs)

Regarding KPIs, in addition to a long list of poorly designed ones, I have learned:

1. KPIs should be linked to a firm’s purpose, and at times there are trade-offs between KPIs such as ESG goals and short-term earnings.

2. KPIs require accountability however this is not a license to blame another department.

3. KPIs are future-oriented and are required for strategic planning. At the same time, KPIs require follow-ups and the goal should not be to simply measure what matters. We need follow-ups and active monitoring.

What have you learned about KPIs in finance?

For more information on KPIs visit Bernie Smith’s library here, Bernie’s Library.

Foreign Currency Risk

If you are an exporter or an importer or work with clients in other countries, chances are, you have faced the challenge of managing foreign currency risk.

From my experience here is a list of options to consider when it comes to managing foreign currency exposure.

1. Developing a company policy where the other party is responsible for accepting transaction costs might be beneficial as it would provide defense for your organization. If there is no policy in place, negotiations should occur early in a relationship to confirm who is responsible for transaction costs.

2. Engage in leading or lagging. This entails collating payments to one particular supplier, taking a ‘calculated risk,’ and remitting payment when the rate decreases. However, there is a chance that the client relationship might suffer due to collation, so discretion is required.

3. Netting. Once you have regular sales and purchases between your firm and another, then this method works well. This method involves striking off debts owed in one company against the debts to be received by that same company. This also works well in group settings when intercompany transactions are the norm.

4. Matching. Instead of buying currency every time you need to settle a payment, why not have a foreign currency bank account? This works well once you regularly work with clients in one particular country.

5. And finally, there are exchange contracts which are agreements to buy or sell currency at an agreed rate in the future. Works well when there are shortages or simply too much volatility in a currency.

In closing, there are 3 types of foreign currency risk

Transaction, translation, and then long-term translation risk exposure.

How else do you manage foreign currency risk? Where do you see finance business partners playing a role in improving foreign currency risk management?

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To SME or not to SME – The Pros and Cons

I’ve spent on average 80% of my career at Small and Medium-Sized Entities (SMEs). The definition of an SME varies by country as it is based on certain requirements such as turnover, asset size, and number of employees.

Where I come from, an SME is generally accepted to mean no more than 200/250 employees.

When my career began, I heard the many stories about working at Big 4 companies and large firms. These stories were incredibly attractive because they had a certain amount of prestige and at the time, I believed that bigger was better.

While I’m sure the years of experience and benefits are well worth it at these entities, this article sheds some light into the benefits and also disadvantages you might encounter should you choose to develop a career at SMEs like I did.

Here are some benefits:

  1. Accept that the roles in SMEs go beyond the job description. Because of this, you develop many skills when compared to similar job descriptions at larger entities. Since smaller entities do not have the budget for training, you get hands-on experience in the role itself. For example, in my first role at an SME, there was no separate typist or executive assistant available to the finance department. I found myself in charge of correspondence with both internal and external stakeholders. Over time, this built much-needed communication skills. We often discount how important communication skills are, but they are necessary when moving up the corporate ladder. It also takes time, thought, precision, and knowing your customers to get it right. It took me years to have the confidence necessary to communicate well.
  2. On a private note, I’m the type who travel, and in pre-covid times, traveling to large cities felt as if there were these smaller communities within them. To me, they’d have the appearance of similarity. The reality is that according to Abraham Maslow, we need to have a sense of belonging, even in a large space. After 15 years, I can say that once you find the SME with the right fit and culture, it literally feels like a home away from home for those of you who support that notion. To me, this is very important because we spend a significant chunk of our lives working. Working at a professional SME firm of accountants/auditors in my first role was perhaps one of the happiest times of my career. Aside from constantly being challenged, the cohesiveness and team-centric culture provided opportunities for growth and collaboration. A small finance team made it easier for staff to generate ideas because they were more comfortable contributing. In terms of problem-solving, a small team meant that we were better equipped to work quickly through options to find the best solution e.g., supply chain mismatches or the implications for changes in accounting standards.
  3. All of the SMEs I worked for had the founder alive and well at its helm. Because I was working closely with senior management, I could quickly see the impact I had. This big-picture view comes from this relationship, and you quickly see how this is drilled down into the simplest transaction. A flatter organizational structure may mean getting close to the founders. The exposure to founders and entrepreneurs is what is referenced as the ‘entrepreneurial personality’ by Leigh Buchanan. This entrepreneurial personality’ spans 6 areas; the need to achieve and a unique approach to problem-solving (innovate), high energy, sacrifice, autonomy, managing under uncertainty, and confidence. Being closer to founders, therefore, encourages you to think and be more like them and indirectly these traits of theirs eventually become your traits too.

There are also some downfalls to working at SMEs:

  1. The culture of an SME is primarily shaped by its founder. If they rate low on leadership skills or aren’t advocates for digital or any sort of change for that matter, then the atmosphere can easily become a challenging and uncreative one for a finance professional.
  2. Financial data quality and the corresponding control environment can be a significant issue within finance/administration because senior management may choose to focus on marketing or the spokespersons who promote the small business brand. Small businesses care about growth and survival and after all these years I’m still not entirely certain if building a world-class finance function was an objective for the founders even when the finance department added value.
  3. Referring to the first advantage can also be construed as a disadvantage; more autonomy may mean longer hours as there are more demands. Depending on your priorities within your life, this can be tricky to navigate. For me this is where I struggled the most because working long hours can cost you, whether it’s through burnout or a breakdown in relationships. Setting boundaries and building a strong case for more staff is always advised as a more sustainable option. At a senior level regular prioritization is also advisable to remain focused on tasks.

In closing, there are considerable growth opportunities to be had at SMEs, providing the company is the right fit for you. I’ve surely come a long way since my career began in Finance 15 years ago.

Feel free to share your thoughts and experience on what you have learned at SMEs.

CFO.University footnote: This article, No Blind Spots: Assessment Tools that Lead to Success, includes two assessment tools that are great fits for SME finance leaders. First, an individual assessment to help you grow professionally. Second, a team assessment to help you grow your team.

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Which Do You Choose - Wisdom or Answers?

If you had to pick, which would you choose - wisdom or answers?

Let’s start with some initial observations and consider some differences between the two.

Wisdom is not some secret key available to only an elite few - it is the exact opposite. Think of wisdom as a free gift that is there for the taking - but you must have the desire to take it. It is not flipping to a topical index or exploring the Internet to see what actions to take or decisions to make. Wisdom should be thought of as lifelong learning process.

Answers are provided by a set of business rules or guidelines yet may not provide exactly what you need. Rulebook answers deliver finality, while wisdom embraces mysteries to be solved. These answers can be distant, but wisdom is intimate and learned through experience. Rulebook answers keep us small, while wisdom gives us the space to grow. Rulebook answers are limited to specific time periods; wisdom is timeless.

What rulebook answers do provide is:

  • Comfort and stability. But wisdom asks us to risk letting go of what we know or think and dig deeper.
  • A quick end to a journey. But wisdom shapes us so we journey with open eyes to see what might lay ahead.
  • An immediate answer. But wisdom takes trial and error over time

Wisdom is not an easy way, but neither is it a burden. Wisdom enables us the freedom to think. It provides the ability to answer important questions that can make a difference.

What kinds of questions should you be seeking answers to in your search for business wisdom? They should be what I refer to as “pain questions”. When they are asked executives and managers they create fear, uncertainty, and doubt – often referred to as FUD. Their intent to create discomfort. Discomfort is a prerequisite for executives to then seek relief and overcome their natural resistance to change. And providing the relief is where solutions from the various enterprise and corporate performance management (EPM/CPM) methods can be applied.

Some key questions, that should be asked of executives and managers and revisited again periodically, are:


  • Are we measuring the right metrics?
  • If we are measuring key performance indicators (KPIs), are they “balanced” between financial outcomes and the non-financial measures related to customer loyalty, process improvement, employee learning & growth, and innovation?
  • Are we measuring too many strategic KPIs where many are arguably operational performance indicators (PIs)?
  • Do we measure non-product channel and customer expenses (e.g., distribution channels, selling, marketing, customer service) to report profit or loss by each customer?


  • Are our product and service-line costs accurate?
  • Do we properly “allocate” our indirect expenses (i.e., overhead) to calculate reasonably accurate product and service-line costs based on “causal” relationships? Or do we “butter spread” expenses with cost allocation factors that simultaneously over- and under-cost products and service-lines?
  • Do we know which customers are more attractive to retain, grow, win-back and acquire?
  • For the more attractive customers, do we know the ROI from our different actions to achieve profit lift from them (e.g., price discounts, deals, offers, coupons)?


  • How effective is our annual budgeting process? Does its benefit exceed the administrative effort and costs to produce it?
  • Is the budget out of date within a few months after it is published?
  • Do experienced managers “pad” their department’s budgets?
  • Is consolidating cost center budget spreadsheets bottom-up within our organization cumbersome?
  • Do we understand incremental / marginal expense analysis classifying the behaviour of our resource capacity expenses as sunk, fixed, step-fixed, or variable based on the planning time horizon?


  • How well do our managers and employees understand our executive team’s strategy?
  • Are many of our decisions based on intuition or experience rather than on fact-based data?
  • How much competency does our organization have with analytics?
  • How much resistance to change does our organization have that is slowing our adoption rate of progressive managerial methods?

By understanding the answers to these questions today, and how they change over time, you will gain valuable wisdom about your company and their practices. This wisdom will enable you to design and redesign strategies to move forward profitably.

This article was originally published in PACE Forum by the nonprofit Profitability Center of Excellence at Profitability Analytics Center of Excellence (

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The Four “I …..  You” statements that can change your life

What are the most rewarding aspects of your life?

I bet this is near the top of your list: Personal relationships.

It is hard to imagine a very rich life without people to:

  • share in our triumphs,
  • console us in defeat,
  • collaborate with us on projects,
  • enjoy our adventures with or
  • just muddle along beside us during our daily grind.

Like many of the most worthwhile parts of life, personal relationships are hard work. An important part of that work is communication. Communication, especially when emotions are involved, can be messy.

The following four “I ….. You” statements can help add words to feelings that can be difficult to express. They are some of the most powerful and frequently the most difficult to verbalize.

The first is a common courtesy often overlooked, maybe even taken for granted, with those we are closest to.

The second is hard to say because it means we are admitting to a flaw.

The third can be difficult because it’s in our nature to fight back when we have been hurt.

The last is tough because it is often only reserved for the most precious of personal relationships.

Here are the four “I ….. You” statements that can change your life.

I Thank you.

Sometimes these words can be trivialized. Expressing sincere gratitude for the act of another is an affirmation that shows appreciation and respect for their actions and deeds.

These simple words have a myriad of applications in everyday life. Being thankful for the acts, presence, kindness, gifts, big and small joys others give us is a major two-way thoroughfare. Those words inspire the giver of the “I thank you!” as much as they encourage the recipient. Try it on something you have been taking for granted and see how it works out for you.

I Am Sorry I Hurt You.

What feels worse than hurting someone? I am sure nearly all of us would agree that we would rather hurt ourselves than hurt someone else. Then why do we do it so often? I could use help here, but, maybe it’s because we only know our own experience and when we communicate to others from our experience we are bound to “get things wrong”. Those things we get wrong are what can hurt others. I would argue we almost never intend to hurt anyone – it just happens because we are human and as much as we try, we aren’t able to completely see through someone else’s eyes.

Recognizing you hurt someone, even when you didn’t intend to or even when you don’t understand why, is an important step in accepting others and affirming they are individuals with feelings and thoughts different from yours.

I Am Sorry I Hurt You is subtly, but importantly, different than I Am Sorry. The former takes responsibility for causing the hurt. The latter simply expresses remorse that they were hurt. If someone feels hurt by you, acknowledging you were the source and apologizing is a big step toward healing the hurt and mending the relationship.

I Forgive You

How difficult is it to say “I Forgive You” after somebody has hurt you? In my experience it can be pretty difficult. It just seems easier to place blame and try to figure out why they “wanted” to hurt me. And, shamefully, maybe I even thought of ways to get back at them for “wanting” to hurt me. But when I step back and apply my belief that hurting others is rarely somebody’s objective, I can begin a journey to unravel the misunderstanding that created the hurt.

Is this your experience too? What tips do you have to help unravel the misunderstanding and begin your “I Forgive You” Journey?

I Love You.

Last but, obviously, not least.

Love is a powerful word which is why it should not be used sparingly. I enjoy the way Stephen Covey (The 7 Habits of Highly Effective People®) expressed this. In his teaching he reminded us love is a verb that needs to be actioned but is frequently viewed first as a feeling. “Love the verb is what proceeds love the emotion” he proclaimed. Without love the verb, there cannot be love the emotion. In whatever role you are playing, expressing love the verb to those around you is the highest form of honoring them as individuals. Heck, who doesn’t want to be loved?

For those of you who may be uncomfortable with the term love in your work setting maybe Covey’s teaching can help us. Love the emotion can be reserved for your closest relationships while love the verb fits for everyone we interact with. Love in this way, is the act of putting others first.

Please, don’t hesitate to add your thoughts or even disagree with my Four “I … You”s. I’ll thank you ahead of time… forgive you for pointing out my foibles… apologize if I don’t respond appropriately and… love you for making this discussion a dialogue rather than a monologue.

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The CFO Playbook:  11 Metrics Leaders Should Use to Measure the Effectiveness of Their People Strategy

More than ever, leaders are looking to gain bigger advantages from their HR strategy. This is where data comes in. There’s no shortage of data to measure in HR, from turnover rate to benefits participation. But what data will give you the insights your organization needs to grow and succeed?

CFO.University worked with Brandon Laws, Alishia L. Young and their team at Xenium HR to identify the KPIs related to talent. We divided 11 key metrics in to the 5 categories.

  1. Financial Measures
  2. Professional Development Measures
  3. Hiring Retention Measures
  4. Measures of Work
  5. Employee Engagement Measures

The 11 KPIs included these categories are the ones Chief Financial Officers should prioritize when assessing the effectiveness of their people strategy.

Gain insight into what CFOs are doing to measure talent and what the 11 key metrics by signing up to receive our free e-book, The CFO Playbook: 11 Metrics Leaders Should Use to Measure the Effectiveness of Their People Strategy

For a related benefit, calculate the financial cost of employee turnover at your business using CFO.University’s Cost of Employee Turnover Calculator . Once you are armed with information from the calculator you will be well positioned to lead the changes that will significantly improve the bottom line while creating a highly effective and loyal employee base.

Hire Right. Develop Well. Retain Best. Sleep Peacefully.

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Ways to Jump-Start Improvement in Your Accounting and Finance Team

There are various ways companies implement performance improvement measures. Here are a number you can use to improve the performance of your accounting and finance teams.

5s (Sort, Set in Order, Shine, Standardize, Sustain)

Many companies start Performance Improvement initiatives with 5S, a Lean tool that involves workplace organization. 5S reduces clutter in offices, warehouses and manufacturing floors and creates quick, visible improvements to jump start employee engagement in the process.

The best initial workplace organization projects are designed to:

1. Be highly visible – people need to see what is going on. This builds curiosity and a desire to become involved, so the effort can easily spread throughout the organization.

2. Assure success and build support – if you want support for the process, people need to see that it works! Be sure to pick a work location where success is ensured.

3. Make work life easier – the best projects really make a difference to the people at the point of work by making the process easier and more successful.

5S improves productivity, reduces defects and failure work, improves speed, and makes the workplace safer.


Another way to jump-start the performance improvement effort is simplification. Occam’s razor reminds us that when two options are available, the simpler one is better. In process improvement, first determine that the process is necessary (if not, eliminate it), and then simplify it.

With many of my clients, when I start an inventory reduction project, we begin with simplification by reducing the number of SKUs (stock keeping units, or part numbers), which frees up space, improves cash flow, boosts productivity, reduces the cost of holding inventory, cuts down on the number of purchase orders and other related transactions, and often dramatically reduces materials costs. Quality and speed often increase, as well.

This same principle can be applied to the number of reports prepared, systems used and processes implemented by the CFO’s team. Sometimes less is better. It may reduce the noise to provide focus, improve quality for better decision making and be faster to make quicker decisions. The trifecta of decision support – Focus, Quality and Speed! Read more on this topic here: The CFOs Dilemma: Speed Or Accuracy?

Auto replenishment systems such as Vendor Managed Inventory or Kanban can also simplify materials management processes. When the system does the buying, the purchasing staff is freed up to develop supplier relationships and introduce new products, which increases speed and reduces costs.

One way to use a Kanban philosophy in the CFO suite is though the automation of activities. What areas consume your staff’s time and where are most of the mistakes in your department made? Are there opportunities to reduce effort or prevent some errors through automation?

Eliminate Unnecessary Processes

Of course, before you go head long into an automation project read the following closely.

Some companies make the mistake of automating before they simplify, which can lead to huge investments to “improve” things that shouldn’t be done at all. Automation can become an inflexible monument that can’t adapt to future improvements. One small company spent hundreds of thousands of dollars buying an industrial robot to automate a process that wasn’t mature and probably could have been eliminated. Because of the debt undertaken to buy the machinery, the company eventually declared bankruptcy. Learn more about improving process from A Guide to Financial Process Redesign.

Streamlining Paperwork

Even reducing authorizations helps improve productivity, cut costs and increase speed. When I started as VP, Operations at a rapidly growing manufacturer, I had to approve all purchase orders for materials over a certain dollar amount. One day as I sat there signing a pile of POs, I asked myself, am I not going to sign any of these? Is there a better way to control the flow of materials than inserting myself as a roadblock? I never signed another PO again. If the PO was within the plan, it was issued. We made sure there were processes, reports and measures in place so we didn’t build inventory or buy parts we didn’t need, but otherwise, we let it flow.

Frequently the CFO takes the lead corporate governance. You have significant influence on this area. Read this to help you establish an effective but not overbearing control environment: Balancing Act: Do You Have Too Many Controls, or Too Few?

Take It Easy

Most business leaders are familiar with Lean, but have you read of “Do Easy?” Sometimes attributed to Buddhism, it came to the forefront in the 1960s, and suggests that whatever you do, do it in the easiest, most relaxed way possible, which is also the quickest and most efficient way. As you become more familiar with Do Easy, you’ll find it eliminates many of the wastes of Lean – motion, transportation, defects, etc.

Best of all, Do Easy makes work easier, and workers see the benefits the performance improvement offers them. In one large client project, Do Easy got the local union on board with the process changes. They loved the idea of making work easier and safer.

The Take-Away

To jump-start performance improvement, eliminate unnecessary steps (authorizations, inventory, and processes), then simplify what’s left. That way you can begin to accelerate profit and growth.

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CFO Talk: The CEO/CFO Relationship with Tom Burke - Transcript

Steve Rosvold 00:04

Welcome to CFO talk. I’m your host Steve Rosvold Chief Learning Officer at CFO.University. Joining us today from the Twin Cities and Land of 10,000 Lakes is Tom Burke, a serial CEO in the pharmaceutical space. Currently, Tom runs two companies specializing in early stage drug development, and is the founder of Vail scientific LLC. He performed his undergraduate work at the University of Minnesota and earned his MBA from the University of St. Thomas in St. Paul. Tom is an avid cyclist and keeps in shape during the chilly Minnesota winters by lacing up his skates and playing ice hockey. Welcome, Tom, it is a big treat for me to have you on our show.

Tom Burke 00:45

Well, thank you, I’m excited to be a part of the show and talk a little bit about the CFO relationships I’ve had in the past.

Here is a link the CFO Talk Video CFO Talk: The CEO/CFO Relationship with Tom Burke

Steve Rosvold 00:55

That’s what I’m excited about too, Tom. You’re a serial CEO. You been working with finance teams and finance leaders your whole career. You can spread a special light on CEO/CFO relationship. What works, what doesn’t and what’s been successful for you in the relationship. Let’s start off with the changes you have noticed in the CFO role over your career.

Tom Burke 01:23

Well, yes there’s an important footnote on this. My career is a long one. So, for some this may not so relevant. But over the years what I have seen is that acquisitions and mergers or becoming more the norm than exception today. Early on in my career, that wasn’t true. Companies typically grew organically. That has changed over the past 20 years. Today it seems just as common for companies to grow via either acquisitions, mergers or some other combination. And because of that, the CFO role is critical. You could have a great idea about the merger of two organizations or the acquisition of an organization, but you really need someone in the CFO role that will understand if it is truly accretive to the business? You need to know what needs to be adjusted when merging companies together or acquiring a company. Much of this fall on the shoulders of the CFO. Identify the issues and run them to ground. The technical folks will probably do a decent job of finding those things. But when it comes right down to the numbers, you really need the CFO to put it into dollars and figure out what’s going to be important, what’s it going to cost us to, to make these adjustments. So, that’s something I have seen change over the years. It’s just critical in order for an acquisition to work that the CFO be a big part of it.

Steve Rosvold 03:44

Interesting, Tom. The focus of finance has shifted from a backward looking, historical perspective to one that is future focused. When you consider creating growth opportunities and especially growth through M&A being future focused certainly fits into these new requirements. And I think the finance part of the chief financial officer is becoming more important. It used to be the chief accounting officer was kind of the role that was being played most often by CFOs.

Today, what are some bullet points you would include in your ideal job description for a chief financial officer?

Tom Burke 04:39

Yes, well, future looking. As you said, if all the CFOs delivering the historical or most recent financials, that’s the chief accounting officer, that’s not a CFO and CFO has to be very forward looking. If I were to describe the job description in one sentence, it would be that CFOs role is to do anything that the CEO doesn’t want to do relative to finance. It’s that simple. (smiling)

Steve Rosvold 05:15

That is an interesting answer. (smiling) I’m not sure our whole audience will buy into that role, but I think it’s important to understand that perspective. Something we can learn from even if some of us might take exception with.

Tom Burke 05:35

So, given that, one of the things I just want to add, I have been in companies where the CFO is referred to as the brakes, the brakes on the organization. And I know, I’ve actually seen some CFOs, live up to that moniker. I don’t think that’s in their best interest, number one, and two, that’s not really their role. Their role is to determine how best to work in a given situation and noting that not every idea that a CEO has is good, probably less than half are good. So it’s, it’s important as the partner that the CFO, inform the leadership group, including the CEO, about what some of the challenges could be. But I think its way more important that the CFO consider ways we could make it work. And yeah, those ways may be way too expensive or they may be outside the organizational scope. But that said, I think that that’s part of the role.

Steve Rosvold 06:57

Yeah, that that’s a really good point, the Chief No Officer is a common reference people give to CFOs.

I think it comes from the accounting/control background that CFOs have historical had. But the strategic growth and forward looking roles you were talking about earlier demand creativity and innovative thought. We’re not going to break the rules, but finding new ways to develop and share new concepts with the leadership group is important.

I think you made a really important point for CFOs who want to be successful in the future. If they play the brake officer role, they’re going find it difficult to hold a CFO job.

Describe the relationship you want to have with your CFO.

Tom Burke 07:55

So, the relationship I want to have is a true partnership. My style is such that I don’t want this to be a didactic relationship. In other words, what I’m saying is I don’t want tell my CFO, do this, do that. I don’t want a CFO who simply responds to my requests. I want them alongside me. I want to feel comfortable bouncing ideas off them. I want them in front of issues and opportunities. We need to be close. Which doesn’t mean friendly, but a very close business relationship, where they view themselves as a true partner. And, frankly, I think it’s important that the CEO, view them as a partner and make sure that’s very clear and understood by the CFO. Not a subordinate. And yeah, at the end of the day, the CEO gets to make the call, that’s the job. But I think the CFO, the relationship in the partnership is critical in order for the team to make the best possible decision at the end of the day.

Steve Rosvold 09:17

That’s a good way to look at it. I know from experience as a practicing CFO, where had the most success was when that partnership occurred. Where I felt like I was a valued partner, I brought skills the CEO didn’t have any. Where the CEO recognized that and we made a great team. Which brings me to the next question. If the relationship doesn’t click, can the partnership be successful? Can the company get a good team if the two don’t get along?

Tom Burke 09:51

Yeah, and it depends on what you mean by click. So, let me explain the importance of that, in my mind. I’m not a psychologist, but typically speaking a CFO and a CEO might have a very different personality style. And that’s probably good. So, given that, they may not be, you know, golf partners, they may not find themselves enjoying one on one another’s company, not outside the work day anyway. Although that would be great if they did. But they’re two different cats at the end of the day, and maybe that can work out or maybe not, but that alone isn’t a showstopper. If on the other hand, what you mean by clicked is their ability to work together, building the team together, if they can’t do that, it isn’t going to work. And as much as you know, you all try to make these things work as best you can, particularly when you have a highly skilled CFO, if you can’t click on a business relationship, then I don’t think that’s going to work long term.

Steve Rosvold 11:30

I know exactly where you’re coming from. If we have different goals and objectives, if we’re fighting about the company’s strategy, and not able to work through those kinds of things, it creates a distractive relationship, that is very hard to make work. In my experience, some healthy tension can be good for growth and being able to have the tough discussions that you need to have. But in the end, both need to see the same path forward in the same way or the company is going to lose along with one or both of these leaders.

Tom Burke 12:12

Well, that’s a very important point that I think goes beyond the CFO role. But, you know, within the leadership team if you can’t have authentic discussions around business issues, strategy, whatever it might be. If everyone can’t or isn’t willing to lay their cards on the table about what their concerns are, what the issues are, that’s not going to work either. So, yes, you have to be able to have those difficult and authentic discussions. And those should be okay. As matter of fact, the best companies are okay with those kinds of interactions. If whatever the CEO says, goes, that’s a different relationship and unless the CEO walks on water, it’s not going to be good for the long term.

Steve Rosvold 13:23

Interesting. Well, that brings me to another question that fits in right now. Name two or three traits that you’ve really appreciated from CFOs that have worked for you?

Tom Burke 13:39

Yes. So we’ve mentioned about future thinking or being able to think strategically out in the future. That’s important. Not all great ideas have to come from the CEO. Great ideas can come from anyone on the leadership team, including the CFO. And, so, to that end, at times the CFO can be ahead of me. Thinking about things that I haven’t thought about, bringing those thoughts forward or identifying issues or opportunities that I haven’t considered, or the rest of the leadership team hasn’t considered. That’s what I would be looking for in a CFO. So, a forward-thinking proactive CFO is really again, I think that critical to the nature and critical to the role of the CFO. And I think if you if that’s something that just isn’t in your blood, then it’s going to be tough to be an effective CFO.

Steve Rosvold 14:51

Thanks for that. It’s a great response.

What happens if the CEO and the CFO disagree on a pretty significant topic for the company? Let’s say it’s a big enough issue that the board would get involved. And I’m trying to think, you know, the relationship between the two how do you work something like that out?

Tom Burke 15:30

Well, I know you qualified the question with ‘ it’s a big issue’ , but I think it’s important to make a clear distinction about issues that need to be brought to the board, because oftentimes, I have seen issues come to the board that are really management issues. They may well be of a significant nature. But the board’s domain is not management, the board’s domain is strategy and the future. And if it doesn’t fit into those buckets, and it’s really a management issue, then I don’t think this should be brought to the board. I don’t think it’s right or proper for either party to debate this in front of the board. It’s something that the two have to solve. Depending on what your leadership team looks like, that is something that could be solved at that level.

That said, if it is something of a strategic nature, something about the future direction of the company, then they should be brought to the board. If the CFO has one position, the CEO has a separate position put out what is the rationale for your decision, what’s behind that, and what are the one or two key points. Keep it to one or two key points. If you give the board a laundry list of 15, things their eyeballs are going to start spinning. What you need to bring forward is one or two things that are really critical to make this thing work one way or the other. But really understanding the rationale of each individual, or, for that matter, the strategy, could be an important thing to bring to the board. And you might find out at the board that the rationale of the CFO is a better direction to go. But I really am not a big fan of bringing things to the board that the management team should be able to solve.

Steve Rosvold 18:16

I think you really hit on a few things out there. One, it’s a tough question to answer. Two, going to the board not being linked at the hip is a dangerous proposition for the CEO/CFO relationship. If you haven’t been able to work it out the issues between you it’s not right to dump them on the board. So, maybe the question wasn’t a fair question. But I think your whole point is, hey, you need to work these things out as a team, figure it out, and get comfortable with each other and go to the board as a team. And if you can’t do that, then you need to think about the relationship? I think that question set you up for an answer that really wasn’t there. There’s no answer. It’s like, don’t get to that point!

Tom Burke 19:04

Well, I think that’s true. Don’t get to that point. The two individuals have to figure out how to work it out. For the most part if it’s strategy, the strategy should be fairly clearly laid out. And if it isn’t, then that might be the CEOs problem. And so, clarity around what the strategy is, is, is super important.

Steve Rosvold 19:45

That’s a great answer insightful because it just he talks about the importance of that cohesiveness between the two and how that partnership needs to work. And if, if they can’t agree on critical issues, then it might not be the best fit.

What could CFOs or the finance function in general?

Tom Burke 20:21

Well, again, It’s being a partner. It’s, it’s thinking forward, it’s, it’s understanding the strategy, it’s being proactive. I think all those things are very important. Just as the CEO has to be decisive, I think the CFO has to be equally decisive about one, their strategy and two, their team. For instance, I think there is a real tendency in many organizations to try and work with the individuals you have. Maybe some really aren’t cutting the mustard, for whatever reason. Many years ago, when I was in grad school, we brought in outside speakers every week. These were business people who faced a variety of different issues. They were all C level folks. Could be a CEO or a CFO. One of these speakers said something that has stuck with me, it isn’t specific to CFOs, but it is specific to leadership.

He was asked the question, what’s your biggest regret you’ve ever had as a chief executive? His response was not what I expected. His response was “That I didn’t let people go earlier”. We probed into his statement further and he told us, “Look, there’s, there’s been a lot of times where I’ve had people that I’ve tried and tried and tried to get them up to speed and they just weren’t able to cut the mustard. And I knew somewhere back here in the back of my brain that this wasn’t gonna work out. But I really wanted to try hard to do it so I kept working at it. For too long.” His point wasn’t, you know, this isn’t about making a snap decision. So that’s not what I’m suggesting but it’s like, you reach a point where you say, Okay, this simply isn’t going to work. And, and to take that action, and make that change as difficult as it might be, is important. Oftentimes, people tend to rationalize keeping that person in place, because, gosh, what am I going to do without them, I need someone to be doing, counting the beans or whatever it might be. And you can find people like that, and you can find them pretty quickly. And the downside, The other downside from a leadership standpoint that I don’t think people take into account is, everyone around you probably knows this, everyone around you and around that person knows this, this person isn’t cutting it. And as a leader, you can lose respect, if you don’t take that action and allow things to linger. Chances are the others are picking up the slack. And you’re going to lose their respect about your leadership ability and your ability to identify needs in the organization. So that’s, that’s an overall leadership thing that I think is important for people, particularly at the top of the organization to really be considering.

Steve Rosvold 24:21

Well, that’s a great, great answer, because it actually answered my next question, which was a more general leadership question. So it’s perfect. You make a great point on people. There’s also a fairness to the person who you are letting Hang on. They’re realize they are not cutting it, they realize they may not be a fit, they may be more loyal or they don’t have other opportunities. But if you don’t let give them that feedback and find the right path for them, you’re really not being fair to the employee as well. So there’s a whole stream of ideas from what you just said, that are really great leadership strategies on how to deal with your people. I think tough love is, is important.

Tom Burke 25:30

To further build on that point. Because it’s a critical item as well. You don’t want to be constantly, ‘beating’ up so to speak on this person, or asking them to do things that are just not capable of doing. They’re not going to be happy. They know there’s a problem. The percentage may not be as high today but a number of years ago 90% of people that lose their job, ended up with a higher paying job. 90% I mean, that’s so you know, yet for the short term, it’s going to possibly devastate them, and you know, it’ll be hard on their family, and where’s my future income going come from? On the other hand, most of those people, the vast majority, those people go on to 1) something that is a better fit and 2) pays more.

Steve Rosvold 26:41

Is there anything else from the leadership side - we have an audience that’s more than just finance leaders and finance professionals. We get a lot of business owners, CEOs that kind of like to peek in and see what’s going on at finance world - any general other general leadership tips you want to share?

Tom Burke 27:16

We talked a lot about the business aspects of what’s expected of a CFO, how CFOs can work with the organization. But the last point that we just touched on about people is critical. When you have the right people, it’s important that you’re recognizing it and that they recognize that you recognize it. And oftentimes when you get up to the higher levels, you may not think this is all that important to relay on to the people that you work with, or you work around. But at the end of the day a business is really about people. Technology is important. As is what you know, what you’re delivering, and your strategy. But you’re not going to get there without the right people. And when you have the right people, make sure you recognize it. As you noted in your introduction, I do a lot of startups, early-stage stuff. To point out how important people are, most savvy investors will say, ’ Look, technology is important. But what I’m more interested in is the team. I invest first in the team. And then second in the technology. Meaning do I think these people can deliver? ’ That tells me teams are critical and have to be number one. As much as the dollars & cents and the strategy are important, making sure you have the best team possible is critical and making sure that the team knows you think they are the best team is important.

Steve Rosvold 29:25

Speaking of leadership and teams, I understand that you are launching a podcast on leadership for middle managers. Tell us a little more about it.

Tom Burke 29:34

Let me I’ll tell you a little bit about how I decided to start the podcast. I coach C level folks. And I find the coaching very enjoyable and very interesting. But it occurred to me that there aren’t a lot tools available to mid-level managers. Also, there are very few coaches dedicated to the middle manager. That person is working to move up into a C level role. But is still yet a middle manager. So much of what we focus on in our podcast is to help them grow in their careers. I do this alongside of a partner that I have worked with for a long time, Kat. The podcast is called the TomKat Chat. She is an HR professional and understands the HR world quite well. Anyway, what we’re trying to do is bring forward some thoughts and concepts, with guests about their road to the C level. And really, what were some of the challenges, the issues that they faced early on in their career? And how did they overcome them? The reality is, no matter where you work, no matter how great the place, you’re going to run into some issues. We want to give them some tools to figure out how do I navigate through this? And how do I navigate on to this? so that I can grow in my position and become more successful and eventually attain that goal. If that’s a goal I seek to be in the higher level, C level type of position.

Steve Rosvold 31:37

I think that sounds great. You’re filling a need. Middle managers don’t get the money thrown at them for coaches, certainly for one-on-one coaching. They’re left on their own. So I think you and Kat picked a great demographic to help. And people will know from what you shared with us in the last half hour that they can learn a lot from you. I can’t wait for the Tomcat Chat to launch. We’ll definitely be supportive and hopefully you will let CFO.University be part of it.

Tom Burke 32:08

Yeah, for sure, for sure.

Steve Rosvold 32:10

Well, that wraps up CFO talk, Tom, thanks for joining us.

Tom Burke 32:15

My pleasure. Thank you, and I really appreciate the work you’re doing. I think it’s really critical to get the education out there. So thank you for what you’re doing.

Steve Rosvold 32:25

CFO.University is a community of finance and accounting leaders, companies and trusted advisors dedicated to the professional development of Chief Financial Officers. Learn more about us at www.CFO.University. Until next time, Enjoy, Learn, Engage.

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The CFO and Sustainable Finance Part IV

Including effective sustainability concepts into the financial strategy of companies is a major challenge CFOs face today.

The implementation of sustainable business models presents several aspects to consider. Among them, new skills that must be acquired to meet the requirements, complying with reporting obligations, complications arising from using non-financial indicators and compliance with the different global and local regulations stand out. In Parts I-III of this series I addressed these aspects. In the final part I address the challenges and opportunities for CFOs in these new business models.

The CFO and sustainable finance: challenges and opportunities

The implementation of sustainable business models presents several aspects to consider. Among them, the skills that the CFO must apply in management, reporting, the difficulties of non-financial indicators and compliance with the different global and local regulations, stand out.

Most of the topics included in the ESG criteria have been initiated by the environmental component as a response to the effects of climate change. Recently Social aspects have grown in relevance and are having a bigger impact on business decisions. Issues related to corporate governance continue to be inspired due to scandals reported by control bodies.

KPMG[1] has compiled a list of the key challenges that CFOs will face in the coming years of responding to the challenges and requirements markets and investors are demanding. These challenges offer opportunities for CFOs to lead certain actions related to ESG criteria, which will be value creating for their companies.

• Climate taxonomy: new implications and upcoming challenges

• Accounting and reporting implications of risks arising from climate change

• New ESG reporting requirements

• The vision of the financial auditor in face of these new demands

• Advantage of ESG funding and investment opportunities

• Inclusion of ESG criteria in the management control models

However, McKinsey[2] presents a more critical side to the application of ESG criteria in the companies. The report raises a series of obstacles, limitations and conflicts that help the CFO to properly assess the different actions that companies implement to comply with ESG criteria.

• ESG is not desirable, because it is a distraction

• ESG is not feasible because it is intrinsically too difficult

• ESG is not measurable, at least to any practicable degree

• Even when ESG can be measured, there is no meaningful relationship with financial performance

Despite a widespread idea that CFOs are executives with a strict financial focus within their companies, CFOs have moved beyond their traditional role, building bridges across the organization. It’s now common to see CFOs acting as co-pilots to the CEO and taking an executive leadership with the CEO in the board of director’s room. There is no disagreement that CFOs are still responsible for the finances of their companies. But CFOs can also tackle new issues facing businesses today, like steering the ESG reporting and compliance of the company and ensuring the sustainability of the organization. The need for learning and adapting to new rules and requirements is a top priority for CFOs.

To read Part of Gustavo’s series go here: The CFO and Sustainable Finance Part I



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The CFO and Sustainable Finance Part III

Including effective sustainability concepts into the financial strategy of companies is a major challenge CFOs face today.

The implementation of sustainable business models presents several aspects to consider. Among them, new skills that must be acquired to meet the requirements, complying with reporting obligations, complications arising from using non-financial indicators and compliance with the different global and local regulations stand out. In this article we will address the skills that CFOs must develop to get the most out of these initiatives. Here is more on the third aspect to consider:

The CFO and sustainable finance: the regulations

The concepts of sustainability applied to their company’s financial strategy a challenge CFOs increasingly face in their role.

As noted earlier compliance with the different global and local regulations presents the CFO with a new set of challenges.

Sustainability concepts gained relevance in 2015 with the Paris Agreement to limit temperature rise to between 1.5 and 2 degrees by 2100, and with the approval of the 17 Sustainable Development Goals (SDGs) as a global agenda for the year 2030.

The trend has accelerated with the need for companies to lead and adapt to a carbon neutral economy by 2050, and with the increase in investment demand with environmental, social and governance (ESG) criteria. Sustainability management has generated in companies an increasing demand for non-financial information, which is as important as accounting information.

The Global Reporting Initiative (GRI), the main standard for preparing sustainability reports, emerged in 1997 in Boston (United States) in response to the Exxon Valdez oil tanker accident and to encourage companies to take responsibility for their economic, social, and environmental. In 2000, GRI published the first guide for the preparation of sustainability reports, after which three newer versions arrived until the G4 Guide (2013). In 2016, it launched 36 interrelated modules on economic, environmental, and social matters, which are utilized by most companies to report their actions and impacts on sustainability.

A decade ago, the International Integrated Reporting Council (IIRC) started promoting the integrated reporting with the intention of balancing financial and non-financial information with great acceptance in the United Kingdom, Europe, and South Africa.

The Value Reporting Foundation, born from the merger of the IIRC and the Sustainability Accounting Standards Board (SASB), aims to help companies manage their impacts on society and to investors to better understand how to manage their ESG risks, promoting the framework integrated reporting and SASB standards.

The World Economic Forum (WEF) also contributed to the integrated reporting of sustainability. In 2017, 140 CEOs of the world’s leading companies promoted the International Business Council (IBC). During the 2020 Davos Forum, the Stakeholder Capitalism Metrics guide was introduced with the intention of catalyzing the convergence, simplification and standardization of nonfinancial information linked to the SDGs.

Since 2018, information on sustainability has gained importance and companies are obliged to present their performance and commitments to sustainable development, especially to investors and stakeholders. In Europe, for instance, the European Parliament and the Commission have published regulations for sustainability related disclosures for banks and insurance companies.[1] This has led to sustainability departments continuing to grow, coordinating the business strategies of companies.

Coming soon, Part IV in this series from Gustavo.


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Taming Your Dragon – Solving the Challenges Faced by Today’s CFOs

** This article is adapted from Leading: The Modern Chief Financial Officer in Times of Constant Change, a FInEx Talk presentation Steve made at the Finance Innovation and Excellence Summit 2022. **

As the grandfather of a 3-year-old and a near 3-year-old I hear a lot about Dragons. When they first meet these fire breathing beasts our youngsters share a lot of skepticism. But as the stories unravel and they learn more about the Dragons they find ways to befriend them ….and almost every tail ends with the dragon flying them wherever they want to go.

Taming dragons is a lot like taming the Challenges Modern CFOs are facing in These Times of Constant Change.

Lets explore that some more.

Here are some of the dragons CFOs are facing today. Rampant inflation, supply chain woes, rising interest rates and labor shortages are all breathing fire at our businesses. And those are just some of the macroeconomic headwinds. ESG topics present a great opportunity to display leadership, but the plethora of compliance and reporting responsibilities are adding to the workload. On top of this, our discipline is going digital at an accelerating pace. While this is creating efficiencies and bridging our historical reporting role to an additional role of creating prescriptive insights – the learning curve is massive and the workload immense.

This revolution is impacting people & our technology in ways that are hard to predict. So, a wrong move or taking too much time to move is perilous. Similar to facing a fire breathing dragon.

Let’s take inflation as our first example. This summer inflation in the United States1 rose to 40-year highs while wages grew at their fastest pace in 25 years. Wage and price increases are putting pressure on both SG&A costs and gross margins. Solutions to these negative forces include the tough choice to raise prices or make further investments in technology to automate manual processes.

What about a shortage of Labor? A recent study by Manpower of over 40,000 companies showed that 75% of them report they have a talent shortage, the highest % in the 16 years the survey has been taken.

A CNN report in mid August highlighted the dilemma small and medium sized businesses are facing. The labor shortage is reducing their capacity while inflation is driving up costs. Companies are being forced to shut their doors.

Various reports cite this shortage to be costing our economy a minimum of $ 1 trillion US dollars annually.

Environmental, Social and Governance, or ESG, topics require great corporate leadership but they are also creating a new set of compliance and reporting standards that must be adhered to. Last November the International Sustainable Standards Board2 was created. At least 3 other ESG standard setting bodies include the Global Reporting Initiative, the Task Force on Climate-related Financial Disclosures , and the Sustainable Accounting Standards Board, a mouthful of new acronyms, a library full of new rules and a department full of new reporting requirements.

How can the CFO be successful tackling these challenges at a time when the expectation for finance is faster, better and cheaper while many trends in the economy are working against us?

Now I want to offer 4 solutions to help us tame our finance dragons

First, Build your finance infrastructure on a strong foundation

Before launching your transformation initiative in the face of pressure to be Faster, Better and Cheaper it is critical your foundation is sturdy enough to handle the weight of the dragon.

For most CFO s the foundation is held up by the four pillars of Accounting, Finance, Treasury and Leadership.

Here are four short questions to help you test how solid your foundation is:

For the Accounting Pillar: Are leaders outside your Accounting Department using or, better yet, depending on, the management reports your team prepares ?

For the Finance Pillar: Are big decisions made within the company supported by analysis from your finance team?

For the Treasury Pillar: Is your team consulted before customer or vendor payment terms are changed?

For the Leadership Pillar: Are you or your senior finance officer a key influencer on corporate Strategy?

If “Yes” doesn’t easily come to mind as a response to each of these questions, you have some foundational work to do. Sign up here to receive your free copy of CFO.University’s The Four Pillars of CFO Success!

Build your foundation to bear the Weight of the Dragon

Second, We must adjust our mindset from being a Chief Cost Officer to being a Chief Value Officer.

As the Chief Cost Officer we are comfortable with our teams analysis of SG&A costs and their expertise in understanding and explaining our cost of sales. But in today’s environment a singular focus on cost management will only lead to disgruntled suppliers and a disenfranchised employee group.

The primary focus of the Chief Value Officer lies in pricing and revenue growth. By being included in the pricing conversation finance chiefs close the loop on any mystery in our gross margin structure. Tackling the revenue growth question draws on our core competency of capital allocation. Where is our next dollar of capital best invested – in growing our current product portfolio, developing new products, investing in new geographies or to creating greater efficiencies.

By moving your mindset from Chief Cost Officer to the Chief Value Officer you’ll grow from a Dragon slayer to a Dragon tamer.

Third, Train and hire talent for Design - we are used to hiring for skills. But financial skills are just the ante. Today we need to be hiring for attributes. Attributes like curiosity, empathy, a craving to improve, interdependence, follow through, flexibility, teamwork, and sharing - are qualities our teams must possess for success.

We need the talent that can tame a dragon.

Over the past few months I have had the pleasure of coaching 15 very talented finance leaders. These professionals display a hunger for new ideas. Ideas on a large scale that cover, Strategy, Creating Influence, Building Teams and Innovation. They came into the course with the accounting and finance skills they need… now they are searching for the attributes that will help them become effective leaders.

It’s unlikely your current team has all the attributes you need the tame your dragon. The standards of performance and attributes you set for the team today are what you will be building on, or putting up with, in the future. As a leader of people, you are responsible for their growth and development – as an executive it’s your obligation to create the resource plan, including the skills required of your talent, that will advance the company’s strategic objectives. Not addressing any shortcomings today will ensure the dragon is your enemy tomorrow.

Tame you dragon by understanding, and then addressing today’s training and hiring needs.

And fourth, we need to invest in technology as an enabler to our designs. Using technology we can harness the dragon and use its energy to not only become Faster, Better and Cheaper but to answer important questions that previously went unasked, find opportunities we didn’t know existed and make choices with data driven decision making.

In the Design of Business, author Roger Martin outlines a 3-step journey in the learning process. Martin claims in phase 1 we are in the mysterious or the unknowing stage…as we learn we move into phase 2 the heuristic phase – where seat of the pants or experiential decision-making rules, where knowledge is hard to transfer and silos easy to erect – causing one of the world’s oldest problems - miscommunication. The final phase in the journey is the algorithmic phase. In this phase information flows freely and seamlessly between individuals and departments to create knowledge. This is the ultimate goal of digital transformation.

It seems ironic that we are going to use our most modern technology to tame one of the world’s oldest beasts

So don’t despair or shudder when you consider all that is front you. Your challenge is formidable but the rewards for great performance will be plenty.


ONE. Build a strong foundation,

TWO. Become the Chief Value Officer,

THREE. Develop and hire talent with your design for the future in mind, and

FOUR. Embrace technology as an enabler to your design

Tame your Finance dragon.

The Finance Innovation and Excellence Summit 2022 platform is open through mid-November. Grab your Premium Access Pass here and enter the VIP Boardroom, a virtual ‘Candyland’ for finance leaders focused on professional growth.


1 U.S. Bureau of Labor Statistics

2 IFRS Foundation

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CFO Talk: The CEO/CFO Relationship with Tom Burke

CFO Talk: The CEO/CFO Relationship with Tom Burke

Tom Burke, a serial CEO in the pharmaceutical space, shares his experience with senior financial leaders and how their role and their relationship with the CEO has changed during his career.

Speaking from experience, here is one of Tom’s messages to CFOs,

“I have been in companies where the CFO is referred to as the brakes, the brakes on the organization. I don’t think that’s in their best interest, number one, and two, that’s not really their
role. Their role is to determine how best to work in a given situation.

So, as the CEO’s partner, it’s important the CFO inform the CEO and leadership group about potential challenges. But I think it’s much more important the CFO is consider how ways we can make it work.”

Learn more from Tom on how CFOs can create value by partnering with their CEOs in this CFO Talk: The CEO/CFO Relationship.

Enjoy, Learn. Engage. Grow.

Listen on

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The CFO and Sustainable Finance Part II

Including effective sustainability concepts into the financial strategy of companies is a major challenge CFOs face today.

The implementation of sustainable business models presents several aspects to consider. Among them, new skills that must be acquired to meet the requirements, complying with reporting obligations, complications arising from using non-financial indicators and compliance with the different global and local regulations stand out. In this article we will address the skills that CFOs must develop to get the most out of these initiatives. Here is more on the second aspect to consider:

The CFO and sustainable finance: reporting

Managing the concepts of sustainability within the financial strategy of companies, is the challenge that CFOs increasingly face in companies.

Among those challenges is reporting. Using non-financial indicators to measure progress and to comply with different global and local regulations makes sustainable finance reporting more cumbersome than straightforward financial reporting. The following addresses the reporting needs that sustainability demands and that CFOs should master to meet the expectations of stakeholders.

Proactive and effective communication of a company’s impact strategies, sustainability commitments and investments, are the main aspects of integrating the Sustainable Development Goals (SDGs) into corporate finance. Financial markets take them into account when allocating capital to the most effective sustainability solutions. Sustainability reporting, especially for investors, focuses on environmental, social and governance (ESG) risks that can affect a company’s risk-adjusted returns. Its mere enumeration is not enough. It must also be supported by proactive and systematic investments in sustainability solutions.

To ensure the proper functioning of capital markets and a more sustainable allocation of resources, companies compete for capital through proactive communication of relevant actions, including goals, detailed plans, and investments to achieve sustainable goals. The CFOs should explain how these initiatives will help create long-term value for the company and its investors.

The disclosure of periodic reporting should include financial Key Performance Indicators (KPIs) complemented with information and data of a non-financial nature.

Examples of non-financial KPIs

Equality of salaries paid, board of directors composition, reduction and elimination of accidents at work, staff training on sensitive issues, improvement of the health and well-being of employees, contracting suppliers that offer decent conditions to their employees, elimination of single-use plastics, incorporation of biodegradable materials, reductions in CO2 emissions from own activities and from suppliers, increase of the green income, reduction of the impact of operations on biodiversity, reduction in waste generation, green certification of buildings and facilities.

Examples of financial KPIs

Maintain a healthy stability of the balance sheet, discipline when investing capital aimed at achieving the SDG, focus on value creation, strengthen the relationship with the market based on ESG criteria, investment in innovation and digitalization projects, issuance of corporate debt bonds and equity aligned with the SDG.

For help preparing KPIs visit Bernie Smith’s library at CFO.University, Bernie Smith’s Library

Coming soon, Part III in this series from Gustavo.

Here is Part I of Gustavo’s four part series, The CFO and Sustainable Finance Part I

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For Finance Professionals:  Impact = Acumen

To make a real impact, finance professionals require business acumen.

In recent times, business acumen has emerged as a vehicle for improving financial performance and a source of leadership (Wikipedia)

Business and industry skills develop over time when a finance professional makes the time to watch how a process is carried out. It may also come from getting other persons involved in discussions, trial and error, reading and knowing about your company’s products, and then learning more about the strategic direction and/or annual report.

An example – the food and beverage industry

Food is considered to be an intimate product because it is consumed. Globally it is the 3rd largest industry in the world (Ibis World) and in 2021, the global food and beverage market was forecast to grow to half a trillion U.S. dollars by 2028 (Statista)

When I began my journey in the food and beverage industry, there was considerable talk about sustainability and at the time, this focused on packaging. Consumers became more aware of labels and product ingredients and how and where their food was grown.

Eight years on, and this trend has not changed.

What has changed is growth in food tech alternatives and, more importantly, an emphasis on analytics to create greater insight to finance leaders. This requires getting the right people to drive the business’ future using the right tools (correlations, regressions, predictions) (AI-Enabled Analytics for Business by L Maisel, R Zwerling and J Sorensen).

The role of the finance professional

According to the CGMA Competency Framework (2019), 8 business skill areas are of particular concern to finance professionals. We have tapped into CFO University’s library for resources to help you improve each of these business skill areas.

1. Strategy or a general sense of why the organization exists - Financial goals come from the strategy so finance professionals need to be aware of these goals and support them through forecasting, ongoing performance measurement, and engaging in hedging when there are food commodity shortages.

How to Increase Cross-Departmental Engagement in Your Planning Process

2. Business models or an understanding of how we make money - When there is a disruption to existing business models, managers look to finance and one way I see this happening in the industry is through transforming procurement by treating it as a core part of value creation, in light of supply chain disruptions.

A Process for Disrupting Your Own Business Model

3. Market and regulatory environment or an understanding of the wider environment - When it comes to food, there are cyclical and seasonal considerations that are required to forecast more effectively. Regulatory requirements and compliance is a big area for food manufacturers because food forms part of public health so it is tantamount to ensure your company is up to date with external and consumer audits such as ISO certifications.

Governance I: Introduction to Governance

4. Process management or structured activities based on the life cycle of a product - Where there is food there can be waste so benchmarks and KPIs help and even alternative ways to treat waste. Finance professionals can also support process management by correctly explaining the reasons for variances. Furthermore, in one of my previous roles, provisions, contingent liabilities and inventory obsolescence also formed part of the monthly review.

For process redesign ideas and building out KPIs read these pieces, A Guide to Financial Process Redesign and CFO Talk: The CFOs Guide to Great KPIs with Bernie Smith

5. Business relations or internal and external relationships - This is simply collaboration or facilitating long term relationships with internal and external customers

The Key to Collaboration is….

6. Business ecosystems or understanding networks - For anyone in finance, taking time to understand your firm’s value chain can be a crucial source for you to gain insight into what goes into each of its transactions. This can be a source of value generation and helps make sense of the basics should your company suffer from business complexity.

3 Way Thinking For The Finance Professional And Its Role In Creating Value

7. Project management or proper availability of resources to achieve the desired outcome - Supporting efforts through raising finance for inventory and investment. Food is a very capital-intensive industry so investment analysis for capital expenditure is part of the job. Support can also be sought when it comes to making, buying, leasing or partnering decisions when it comes to assets.

Capital Investment Analysis and Request Form

8. And finally, macroeconomic analysis or an understanding of external factors - Finance can support by being a part of new revenue streams, analyzing trends and of course scenario planning (base, best and worst scenarios).

CFO Talk: Data Analytics for Finance Leaders with Prashanth Southekal

The list above is certainly not exhaustive, but to add value in their roles requires finance professionals to be competent with business acumen.

Join this conversation and share advice on how you have developed business acumen for your industry.

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CFO Talk: Designing Better Higher Education with Elliot Felix

CFO Talk: Designing Better Higher Education with Elliot Felix

Elliot Felix, founder of brightspot strategy, A Buro Happold Company and global innovator in higher education recently joined us for a CFO Talk.

His thoughtful approach to higher education - also hits the center of the plate in regards to professional development - and includes great advice like this,

” If you see yourself as the creator of your own experience (profession) and the learner in charge of your own education (development) you can have a much better experience (career). You can make it work for you.”

Enjoy this CFO Talk with Elliot.

Learn. Engage. Grow


Listen on

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The CFO and Sustainable Finance Part I

This article kicks off a four part series from Gustavo.

Including effective sustainability concepts into the financial strategy of companies is a major challenge CFOs face today.

The implementation of sustainable business models presents several aspects to consider. Among them, new skills that must be acquired to meet the requirements, complying with reporting obligations, complications arising from using non-financial indicators and compliance with the different global and local regulations stand out. In this article we will address the skills that CFOs must develop to get the most out of these initiatives. Here is the first aspect to consider:

The CFO and sustainable finance: the skills

The transformation requires leaders and guidelines to direct them. CFOs are a key element in the corporate evolution towards sustainability. Example of sustainability responsibilities that fit the CFO include reporting, compliance with specific regulations, incorporating technological tools and reconciling the interests of investors.

Communication with the market and stakeholders is a key aspect in the implementation of changes towards sustainable finances. Managers must engage in proactive communication actions with investors about their ESG (environmental, social and governance) objectives and strategies. This is another opportunity for the CFOs to lead these actions, along with the disclosure of the financial reports that must integrate the financial and sustainability aspects of the businesses.

Investor’s point of view is changing radically. If companies fail to show commitment to sustainability principles, they may find it difficult to raise funds.

When a company defines and designs the key aspects of its SDG (sustainable development goals), there is often a lack of agreement and consensus among managers. There is an opportunity for the CFO, and independence that comes with it to lead the process by coordinating the financial aspects, and systematizing the non-financial data that will serve as support. The CFO should take the leading role in setting sustainability goals and aligning them with the companies’ financial goals. The CFO should also oversee the quality of the data managed, ensuring it is complete and sufficient to assess the progress of the ESG goals the company has set.

The United Nations Global Compact has launched a coalition of CFOs[1] for Sustainable Development Goals (SDGs[2]). Its objective is to shape the agenda these leading CFOs will use to implement sustainable finance at their companies, accelerating the adoption of the SDGs. The CFO Coalition for the SDGs promotes the development of ideas and recommendations to unlock private capital and create a market for large investments with SDG criteria. CFOs can take inspiration from the suggested ideas to create the necessary link between sustainability and financing strategies.

Find Part II of Gustavo’s four part series here: The CFO and Sustainable Finance Part II



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One of the Defining Attributes of a Successful CFO: Leadership

Leadership seems to be one of those traits defined by “You know it, when you see it.” I have met a CFO who was the brightest lightbulb in the room but could not lead their business to the light switch. I have also met a CFO who didn’t seem to work that hard and wasn’t a rocket scientist but was able to move mountains in their job. Why could one get things done while the other struggled? Leadership.

The fourth Pillar in CFO.University’s course structure is Leadership. The ability to lead leverages the other CFO Pillars of Success, allowing the CFO to bring tremendous value to their company while creating a broader pool of options for their career.

We approach Leadership in 3 progressive stages:

1. Internal - Self-Awareness

2. External - Using your leadership style to build teams

3. Strategic - Leadership that motivates people to follow you

Some of you may recognize the internal and external focus as the way Stephen Covey divided habits 1-3 from habits 4-6 in his book, The Seven Habits of Highly Effective People. Learning about ourselves and how others perceive us is an important first step in learning how to lead. Once we overcome that hurdle, we can apply that learning to building teams within our organizations. The last step is creating or sustaining a sense of common purpose for the stakeholders of our organization.

1. Internal - Self-Awareness:

How often have you been surprised by the way somebody described you? While walking with a friend I’d known quite a while, he stopped me, looked me in the eye and asked if I’d ever been a preacher. I inquired why he asked. He responded by telling me he thought “I had a gentle, caring way of dealing with people”. I wasn’t sure I liked that description of me and certainly wasn’t immediately buying it. Now in those days, I thought of myself as a hard-nosed financial professional, delivering the facts and respecting my staff but not being of unusual kindness. I was never hired as the “hatchet man”, but I was often in positions where the business required significant overhauls.

How I perceived myself and how my friend viewed me, were very different. Over time I have come to hope he was more right about me than I was. And for some odd reason, since then I have tried to prove him right. (Maybe that was his intent all along).

The point of my reflection is to underscore the way we see ourselves is going to be different than the way others view us. Narrowing that gap is a huge step to improving relationships and expanding your influence. Think about all the time that could be saved resolving issues if we could perfectly describe them, have all parties perfectly understand them and resolve them in perfect harmony. How often have you written an email and after seeing a response you reply, “Oh, that isn’t what I meant, here is what I meant to say.” We are individuals seeing the world and ourselves through our lens. If we aren’t capable of seeing part of it through the lens of others, we are going to live in a pretty small space.

The brilliant inventor, with great ideas, learns quickly that if their vision is going to succeed it needs to be described or explained in a way the rest of us can understand.

The first step in developing your leadership skills is to bridge the gap between how you see yourself and how others see you. In Covey’s language this is self-mastery or independence.

2. External - Using your leadership style to build teams:

Learning who we are, especially to other people, can be an empowering and frightening experience at the same time. Early in my career a colleague told me a story that has stuck with me. He was the manager at a facility in Portland, Oregon. A new employee working in the office had a significant personal hygiene issue that was making it difficult for other employees to work with her. She was finding it difficult to complete her work due to the lack of cooperation she was getting from other employees. The easy path would have been to mostly ignore her and let her go after her 30-day probationary period expired. Instead, my friend, took her for a walk and delicately mentioned the issue others were having with her. She was aghast and terribly embarrassed. But she cleaned up the problem and eventually grew into the role of a facility manager herself.

She learned a tough self-awareness lesson for sure but think of the courage her manager displayed in addressing this directly with her. It would have been easy to punt the issue to the human resource manager or let her go at the end of the probationary period. Instead, he displayed compassion for her situation. Before he spoke with her he considered the possibility she would quit, leaving him with a staffing problem. He cared more for her as a person than as an employee and had the conversation with her before he was prepared for the potential consequences. He chose preventing her from further embarrassment over extra work that would be required of him if she left abruptly. Instead of quitting she thanked him. He also gained a trusted colleague/friend for the rest of his career/life.

This same concept applies to team building. Building trust and creating a safe space for members of a group to practice and refine their discipline is foundational to developing a well-functioning team. That doesn’t mean all is harmonious. In fact, contention is a requirement for real learning and growth. An effective leader helps the team debate and learn in a respectful, benign atmosphere. The only way to do this is to know your team members; what inspires them about work and, more importantly, why they chose to work at your company. Covey refers to this as interdependence, where our success is dependent on others and their success is dependent on us.

Having members of an organization recognize common goals while emphasizing their individual contributions are important components in building well-functioning teams.

3. Strategic – Leadership that motivates people to follow you:

Many times the position we hold in a company gives us certain authority. That authority often gives us certain power over others. It can be easy to confuse authority and power with leadership.

A CEO at a local company recently went out of her way to explain why the company’s annual bonus was the same dollar amount for all employees. She said, “People are already paid different salaries based on if they are an engineer or a technician, a CEO or an office assistant.…every role in a company is important to meeting the goals, or it shouldn’t be there in the first place.” The bonus plan is simple, 10% of net profit is put in the bonus pool and divided equally between each full-time employee, prorated if they were hired during the year.

That is a serious company team building exercise. I have been involved in many different types of compensation schemes, but never have I seen one that is so commonly shared throughout the organization. Imagine the potential for creating a singular focus from its employee base if the company’s leadership can express its vision and work plan effectively. The sky might be the limit.

However, this isn’t a story about compensation as a leadership tactic, it’s a story about how employees in a company feel they fit in, how important are they. This CEO said, “I view the annual bonus as an extra benefit for helping to contribute to the success of the team.” And in doing so she made everyone feel they were a contributor.

Simon Synek, in his book Start with Why, identifies the ability to inspire people with a sense of purpose or belonging is the key to great leadership. Corporate executives have many ways to motivate their workforce. To truly inspire an organization requires a vision and communication that rallies folks behind a common cause. We may not be called on to be the leader of creating the Why at the companies and organization we serve but to reach the Strategic level of leadership, we must understand our purpose and champion it. Know your company’s Why. The reason it exists. And use it to lead.

Catch up on the other 3 articles in the series - The Defining Attributes of a Successful CFO:

Missed Attribute #1: Accounting? Catch up here.

Missed Attribute #2: Finance? Catch up here.

Missed Attribute #3: Treasury? Catch up here.

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A Framework to Manage Business Risks with Data and Analytics

Almost anything worth doing is inherently risky. But many businesses and individuals try to avoid risks and play safe. But this safety often leads to mediocrity, complacency, and ultimate downfall as seen in the case of Blockbuster, Kodak, Xerox, Yahoo, Borders Bookstore, and many more. In today’s VUCA (volatility, uncertainty, complexity, and ambiguity) world, apart from forecasting the low-probability, high-impact “Black Swan” events with predictive analytics, business leaders can protect their business with good risk management practices and further hedge their business. In addition, in business, there is no innovation and growth without risks. Innovation and growth are intrinsically tied to risk; if you want bigger returns and rewards, you have to take on more risks. So how can business enterprises effectively manage risks? Below are the 5 key enterprise risk management (ERM) steps.

Step 1: Identify Risk

The initial step in the risk management process is to define and identify the risks in the operating environment. Fundamentally, the risk is the event or condition that may or may not happen. Hence the risk should be clearly defined so that the concern is made real and can be responded to. These risks could be legal/compliance risks, environmental risks, political risks, market/economic risks, product risks, reputational risks, cyber security risks, regulatory risks, and more. So, one can a business enterprise identify risks? Diversity of perspectives is risk management best friend. Hence involve stakeholders from different lines of business to effectively identify risks.

Step 2: Analyze Risk

Once a risk has been identified, the scope of the risk needs to be thoroughly analyzed from both positive and negative perspective. Risk management is about assessing the business strategy and objectives given that often risk is the effect of uncertainty of business objectives. Basically, risk analysis involves examining how the business objectives and outcomes might change due to the impact of the risk event. Effective assessment of risk involves applying techniques such as Monte Carlo analysis, scenario planning, sensitivity analysis, outlier analysis, and more to understand the likelihood and consequences better. In addition, at this step appropriate ownership should be identified for each risk item for accountability.

Step 3: Evaluate Risk

The third step is evaluating the risks by ranking and prioritizing the risks because not all risks have the same consequence/impact and likelihood. Basically, each risk item should be assessed for Severity (S), Occurrence (O), and Detection (D).

  • Severity is the potential effect of the failure
  • Occurrence rates the likelihood that the failure or loss will occur
  • Detection rates the likelihood that the problem will be detected before it reaches the end-user/customer.

The combination of the three scores produces a risk priority number (RPN) which can then be used to rank and prioritize the risks i.e., RPN = S*O*D. For example, if the severity score is 6, the occurrence score is 5, and the detection score is 4, then the RPN score is 120. This can be further complemented with a risk heat map that presents the risks visually in a meaning and concise way based on consequence/impact and likelihood. At the end of this step, you can well decide on the top risks so they can be addressed sooner.

Step 4: Address Risk

This step is about execution i.e., managing risks based on impact ad likelihood of occurrence. While some risks are good and desired, some need to be eliminated or contained as much as possible. Overall, every risk can be addressed in one of four ways: avoidance, retention, transferring (or sharing), and reduction (or loss prevention).

4.1 Avoiding Risk

The surest way to prevent the potential loss arising from the risk is to completely avoid it. For example, if I want to avoid the possibility of having to pay for a stranger’s medical expenses due to an auto accident, I could stop driving my car. While this will avoid all risks, it affects my mobility, comfort, convenience, and so on. The problem is whenever we completely avoid risk, we also miss out on the benefits we could have received for participating in the associated activity. But at the same time, not all risks can be completely avoided. Unforeseeable circumstances or force majeure events like wars, epidemics, and natural disasters cannot be completely avoided.

4.2 Reducing Risk

If we are unable to avoid a risk item, we can take steps to reduce the probability and potential severity of loss associated with the risk. For example, when we choose to drive, we can reduce the risk of being involved in an accident by observing the speed limit, not texting while driving, wearing seat belts, and so on.

4.3 Transferring (or Sharing) Risk

Another way to deal with risks we are unable or unwilling to completely avoid is to transfer them to a third-party and the most common approaches are insurance, out-sourcing with indemnification clauses in contracts, and more.

4.4 Retaining Risk

If none of the above options work, we have to retain the risk by taking full responsibility for the potential loss or impact. Retention is the most suitable approach when the potential severity of a loss is low, regardless of how frequently it is expected to occur.

Basically, the goal of this step i.e. step #4, is to reduce the inherent or initial risk to the desired level of target risks.

Step 5: Monitor Risk

Not all risks can be eliminated or brought to the target risk levels. Some risks will be present as residuals and can even come back in a different shape and form. Market risks and environmental risks which are beyond one’s influence and control need to be constantly monitored by maintaining a risk register and keeping a close watch on all risk variables using data and analytics.

Risks can be good and bad. But often risks are often seen from a bad or negative perspective. As opposed to focusing on what could go right, many enterprises tend to concentrate on all the things that can go wrong and run into analysis-paralysis mode. Risk analysis is part of every decision we make. Sometimes it is even good to take a risk when it pushes your businesses to go outside of one’s comfort zone and helps become stronger and better. But you have to plan appropriately, leverage data and analytics to explore different scenarios, develop contingency plans, and so on if you have to remain relevant in the marketplace. If you don’t have the appetite to take risks, someone else will take the risk by capitalizing on the opportunity and making you irrelevant. As Mark Zuckerberg, CEO of Facebook once said, “The biggest risk is not taking any risk.”

For more on enterprise risk management read John Thackeray’s 7 Key Elements of Effective Enterprise Risk Management




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One of the Defining Attributes of a Successful CFO: Finance

Finance uses the discipline and data from a strong Accounting team as the launching pad for planning and creating their company’s future. A seamless handoff between the Accounting and Finance departments is critical in creating and executing an effective strategy. The Finance function is about creating the optimum analytical framework to make strategic decisions.

There are three core competencies that make up a highly functioning finance department.

1. Budgeting and Planning: The first building block of a finance department is to provide the financial roadmap for the company based on the direction agreed to by the Board of Directors and the Executive team. Companies frequently refer to this as the Budget or Plan. The link between what has been and what we expect will be is the critical handoff that occurs between the accounting and finance teams. For continuity and understanding, the financial reporting structure between the historical financials and budget systems should be the same. You’ll know this link is broken when the budget or plan can’t be explained in the same terms you narrate your actual results.

Companies use many techniques and tactics to develop their plan and build a budget. The important products from this process are:

  • A narrative that explains the direction the company is headed.
  • Forward looking Financial statements (Budgets) with enough detail and at the right intervals to add insight and allow for course corrections as the business environment changes. (Imagine how your GPS corrects your course when a road closes or a traffic jam lies ahead.)
  • Even the most robust planning process contain uncertainty. This is why a sensitivity analysis to help stakeholders understand the expected or potential volatility in financial performance or position is critical. Tap into your risk management competency under the Treasury pillar to complete the sensitivity analysis.
  • Key Performance Indicators (operational and financial) and other ratios of critical importance (bank covenants, bonus targets, “caution signs”, etc.)
  • Support for the major themes included in your business plan. Confirm the premise of the plan is reinforced by facts and outside expectations.

2. Forecasting: You may have heard this in the past, especially if you have been heavily involved in the planning process, “The budget is stale the day after it’s published”. Unfortunately, that is often the case. Worse, sometimes it’s stale before it’s published. The implication in the statement is that the budget process isn’t worthwhile. We don’t believe that. The process the company goes through to plan for the next year or five years is extremely important. It means we need to create the business discipline and expertise that allows us to adjust our operations to real time. This leads us to the second building block of Finance, the forecast.

To develop the forecast the finance team integrates the company’s current performance relative to budget with the real-time business environment. The budget to actual comparisons highlight where we have exceeded or not met expectations. Learning what is creating these differences is one of the most valuable insights we can give the company. The objective of the forecast is twofold:

  • first, to build an understanding of how internal and external forces are changing the company’s business opportunities and
  • second, to assist the company in taking advantage of or providing a remedy for those changes.

The cornerstone of forecasting is the forecast model. It should be robust enough to capture the major moving parts of your business but nimble enough to be updated quickly. Scenario building and sensitivity analysis are important component of the model. To do this requires inputs such as historical data, trends, opinions, known ensuing variables and projected growth rates in terms of sales, expenditures and financing.

Forecasting to ensure your company is on track for future success should be an ongoing process. One way to build this discipline into your routine is to include a review of the forecast in your monthly management meetings.

3. Investment Analysis: The third building block of Finance is creating the framework to analyze new opportunities as they present themselves. Capital projects, such as an acquisition, building a new plant or licensing technology should be evaluated under a common set of financial criteria to make capital spending decisions effective over time.

This area of Finance is where the deep analytical skills are housed. Company policy on investment criteria originate in this area. The corporate cost of capital, return hurdle rates, tools to communicate investment opportunities, cash flow models to develop returns and the financial analysis of investments/divestments are prepared here.

The resources in this part of Finance are typically focused on the asset side of the balance sheet and must work closely with Treasury to be aware of the capital limitations the company may have. This instructional article, How to Ration Capital in an Idea Rich Environment will help in your efforts to create a strong investment analytics process.

The key message in the Finance Pillar is how each piece is connected to the others. Here are a couple examples.

  • Without the Forecasting competency, the Planning building block truly becomes “stale” at its completion. With Forecasting, the Finance process becomes a dynamic, near real-time tool to make your business better.
  • Without the capability to effectively and consistently analyze new opportunities the plan as it pertains to growth is stymied and corporate investment appears arbitrary, or worse.

The Finance Pillar uses fuel from the Accounting and Treasury Pillars to guide the company’s financial future and it’s just as important as that sounds!

Catch up on the other 3 articles in the series - The Defining Attributes of a Successful CFO:

Missed Attribute #1: Accounting? Catch up here.

Missed Attribute #3: Treasury? Catch up here.

Missed Attribute #4: Leadership? Catch up here.

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

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Team INEOS – Lessons from the Tour de France –  Lessons for our Teams

Winners being supported by the previous year’s winner - Awesome!
This years winner being supported by the
previous year’s winner
That is Awesome!

Team INEOS (previously Team Sky) dominated the Tour de France from 2012-2019 by winning the general classification (racer with the fastest time over the 21 stage race) seven times over that span. Although cycling may look like an individual event, team tactics and team drafting play a huge role in the outcome of a stage race, especially so for a race 3329 kilometers long.

Here are the lessons that go hand in hand with building our teams at work:

- INEOS has a clear goal – win the Tour de France

- The support riders take pride in achieving the team goal – even when only one teammate stands on the podium

- The domestiques (support riders) are the real winners behind any team. They provide the horsepower, seat belts and defense in an unselfish manner. These teammates are the glue that hold many teams together.

- Four-time winner and the 2018 favorite, Chris Froome, relinquished his chance to win in the later stages and offered his full support to Geraint Thomas, helping him win the race. (That is not only superb teamwork – that is great leadership.)

- As if that wasn’t enough, 2018 winner Thomas relinquished his chance to win the 2019 Tour to Egan Bernal. Like Froome, Thomas gave his full support to Bernal in the later stages of the race. Bernal went on to win, making him the third INEOS rider in a row to win the Tour. (And Solidifying INEOS as the poster team for superb teamwork and great leadership.)

- They have a plan and execute it. It looks simple – stave off attacks from contenders and protect their leader, However, when its 167 opponents vs 9 teammates the coordination and communication it takes to successfully execute that plan is extraordinary.

- It helps to have money, and INEOS has that. But to their credit, it isn’t squandered. It is applied to equipment, research, training and diet that yields the best return. INEOS understands the ROI on where their capital is invested.

- They set out to improve everything they do by 1%, thoughtful about the many small improvements that add up to large gains.

- Team INEOS management has maintained team unity by keeping the cyclist’s egos in check, knowing each rider well enough to position them as an important part of the team’s success.

- Here is quote from Geraint Thomas that speaks volumes about team effectiveness, ‘We’ve just been open and honest with each other from the start.’ Thomas said. ‘I think that’s the main reason for our success so far at this Tour.’

- They leave no stone unturned. Diet, sleep, equipment, cycling position, aerodynamics, mindset are all aspects the managers take into account to put their team in the best position to win. What’s left is training, planning and execution.

- Be agile and prepared to refocus the team when it’s called for. In the 17thstage when Chris Froome cracked all of INEOS’ team support, including Froome, went behind Geraint Thomas. There was no hesitation, lost time, or disagreement – the team was prepared for the new orders.

Here are some apt quotes made by members of Team INEOS:

“The domestique’s lay the foundation for their leader’s and the team’s success”

“The domestique’s must have faith in the leader they are working for”

“The domestique personal satisfaction comes from doing their job well and meeting the team’s goals”

“The leader must appreciate the support the domestique has afforded them”

“Celebrate successes together” (even though only one rider wins a stage its clear from the team celebration after a stage win that all teammates feel they contributed.)

“Prepare for moments when you have to overcome what seems like insurmountable hurdles” (our training must accommodate a mental state that will overcome these barriers)

“Doing your homework and hard work prepares you mentally for victory”

“Don’t forgot about the Grupettos – the last group of riders who rode as support early in the race and must still finish the stage to stay in the race”

There is so much to learn on collaboration and teamwork from the above. We are excited to apply these concepts to the CFO.University team and our collaboration partners. Use this list wisely and make your team a champion.

Learn more about high performing teams from this piece by Contributor Andrew Jenkins, “High Performance Teams - fact or fantasy?

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One of the Defining Attributes of a Successful CFO: Accounting

Do your Governance, Recording and Reporting systems lend solid controls and transparency to your business? Is your corporate structure and governance process in line with your size, goals and culture? Is your business effective at recording transactions that impact key aspects of your business? Are the reports prepared by your department forward looking or historical in nature? This first segment in our Series: The Defining Attributes of a Successful CFO, explains the importance of Accounting, as a key pillar in the house of the Chief Financial Officer. The Accounting pillar is supported by the core competencies of Governance, Recording and Reporting.

1. Governance: Governance includes the initial and ongoing legal documents that give structure and rules to an entity as well as internal controls to protect corporate assets and reduce the risk of incurring unanticipated liabilities. Businesses that don’t address these areas early on are more likely to fail¹.

Unless we happen to form the business, we inherit the governance rules and governance culture for the company’s we go to work for. This may lead us to overlook the value in understanding the framework the company was built on, including the current rules of governance. I encourage any senior financial officer to read the documents that formed the company and the current rules of governance. It’s possible you’ll find outdated rules, expired schedules and conflicting items that have arisen over time. Better yet, you’ll have a good understanding of the rules of engagement. Internal controls are the policies and related principles that a company uses to strengthen its internal guidance system. A comprehensive framework for internal controls has been developed by The Committee of Sponsoring Organizations (COSO) of the Treadway Commission. It is a very good tool to benchmark your internal control framework against.

Like many of the Defining Attributes, Governance is tightly linked to another attribute, Risk Management - which is a core competency under our Treasury pillar. To read about Risk Management see the 3rd article in our series on the Treasury pillar.

2. Recording: Transaction recording and closing the books are the foundation for creating useful internal information about your business. The architecture behind excellent recording systems and processes prevents errors, minimizes inputs and is time sensitive. Over the years I have learned when employees in the recording process have a sense of urgency, other CFO responsibility areas can thrive. This is because CFO operations start with effective record keeping.

In the recent past this competency has been cast in a dark light. The term “transaction processing” and the misconception that this admin work is not value added has been interpreted by many to mean this area isn’t important or doesn’t deserve our attention. That thinking could not be further from the truth. (For those of you outside Canada and the United States, I apologize for the following American Football analogy.) The employees responsible for recording at your company are like linemen in the Canadian or National Football Leagues. Without them, we’d never get a snap off. To be a successful CFO you need highly effective people, processes and systems in this core competency.

3. Reporting: Financial and managerial reporting should result in information you can trust. It should create transparency and insight into business operations. It should also help you make great choices. Efficient, timely and accurate reporting systems lead to better and quicker decisions. This clarity is crucial for each of your stakeholders - shareholders, creditors, customers and employees. Timely, accurate business information is more important for decision making today than ever. Globalization and big strides in technology continue to put pressure on companies to make faster and better decisions. Here are some tips on how to improve your recording and reporting process:

  • Record transactions when the activity occurs
  • Simplify entry
  • Eliminate systems
  • Enter only what you need and what you will use
  • Monitor and correct entries immediately after input, not during the month end close
  • Reconcile accounts when you can, not just during the close
  • Innovate your closing process - ask “Is there a better way to do this?” often
  • Ask what information your team needs to make the best decisions… and act on the answers
  • Include key non-financial information in your management reports to give context to the financial statements and vice versa.
  • Historical (think last month) financial information is a decaying asset with a very short half-life. Challenge to CFOs and Controllers: Have your reports ready for management review within one week of the end of the business period.
  • When it comes to managerial reporting it’s better to be almost right quickly than to be perfectly right slowly. (if you are a practicing Chartered Accountant or Certified Public Accountant, I expect your heart rate just went off the charts). Remember - these reports have a short half-life.

We have some “quick to take” Assessments that will help frame your discussions around the Accounting pillar’s core competencies. Please use them to get your discussions started.

Governance and Controls Assessment

Transaction Processing and Recording Assessment

Reporting Assessment

¹Key Reasons Why Small Businesses Fail p.5 - The Institute for Independent Business by Silas Titus

Catch up on the other 3 articles in the series - The Defining Attributes of a Successful CFO:

Missed Attribute #2: Finance? Catch up here.

Missed Attribute #3: Treasury? Catch up here.

Missed Attribute #4: Leadership? Catch up here.

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

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Balancing Act: Do You Have Too Many Controls, or Too Few?

Can you imagine working for a company where employees frequently had to make exceptions to get things done? Or where deadlines were constantly being missed?

It takes great skill to run a business effectively. Too much or too little control can result in failure. However, finding the right balance is achievable if you know what to look for.

Understanding Controls

Controls are the guides and related principles that a company uses to strengthen its internal guidance system. A company’s policies around risk management set the tone for how its control environment is developed.

Non-existent, poorly conceived or policies that aren’t followed create substantial risk for a business. For example, not only is the money invested in written procedures wasted when procedures are not adhered to but the risk the procedure is meant to mitigate may still exist. A leadership team with a common concept of your control environment will reduce unwelcome friction between top executives and prevent unwarranted risk taking. Clarity is very important in communicating the key elements of your internal control system.

Let’s take a look at some examples of environments that are askew in their controls.

Over-controlled vs. Under-controlled

A workplace that is over-controlled may see employees habitually bending the rules or requiring multiple signatures to approve an invoice. Poor attitudes and excuses may also reflect a lack of framework for the decision-making process. On another level, you might have an internal audit department that’s twice the size of the finance department—too large for a non-value added activity.

Signs of an under-controlled financial group include inadequate processes, disjointed systems and poorly trained employees. These deficiencies lead to untimely and inaccurate reporting, difficulty closing the books and high employee turnover. Indicators of an under-controlled operations group are regularly missed deadlines; being late for meetings and submitting proposals, and complicating simple tasks—all resulting in lost money and opportunity.

Achieving Middle Ground

Good controls aren’t meant to suffocate a business. The Committee of Sponsoring Organizations (COSO) of the Treadway Commission has developed an international framework that will help you evaluate your control environment, determine deficiencies and make any necessary enhancements to your control environment.

  1. Control Environment
    • Demonstrates commitment to integrity and ethical values
    • Exercises oversight responsibility
    • Establishes structure, authority and responsibility
    • Demonstrates commitment to competence
    • Enforces accountability
  2. Risk Assessment
    • Specifies suitable objectives
    • Identifies and analyzes risk
    • Assesses fraud risk
    • Identifies and analyzes significant change
  3. Control Activities
    • Selects and develops control activities
    • Selects and develops general controls over technology
    • Deploys through policies and procedures
  4. Information and Communication
    • Uses relevant information
    • Communicates internally
    • Communicates externally
  5. Monitoring Activities
    • Conducts ongoing and/or separate evaluations
    • Evaluates and communicates deficiencies

For your company to be controlled effectively, all five components and their principles must exist and operate as a cohesive package within your internal control system. The process must also incorporate monitoring and ongoing evaluations as your company makes changes.

A little control goes a long way. Establishing a healthy balance in all of these areas will give your company the necessary structure and space to reach its full potential.

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Turning Strategy into Action: The Logical Framework

Authored by Terry Schmidt, MBA, PMP, SMP

Does your organization have a great strategy on paper but have trouble making it work in the real world? If so, you’re not alone. In fact, Fortune Magazine has reported that 75% of all strategies fail, largely because of the inability to execute. The fact is that many projects never have a chance. Even the best strategy is worthless unless it’s converted into implementable projects in the hands of capable and committed teams. Most organizations lack a systematic yet flexible way of turning strategic intent into actionable projects, relying instead on ad hoc means or using project management software prematurely.

How you initially plan and start projects will determine how well you can deliver outstanding results. If you design and launch the project wisely at the outset, using the right tools with the right people, you build a strong foundation for success.

An important tool for this is the practical, hands-on Logical Framework. Also known as the LogFrame, it consists of a 4x4 matrix based on a set of interlocking concepts that organize project information in a specific way using standard management terminology. Each cell in the matrix follows the principles of smart management and common sense. The cells interact with each other, and changes in one can affect the others, reflecting the dynamics of our mental models and thinking process. The completed matrix communicates a complicated project clearly and understandably on a single sheet of paper.

The LogFrame helps you answer four critical questions. These four questions provide an intuitive, jargon-free way to develop sound projects.

  1. What are we trying to accomplish and why?
  2. How will we measure success?
  3. What other conditions must exist?
  4. How do we get there?

The LogFrame elegantly incorporates answers to the standard “interrogative questions.” Goal is the big-picture program why, the rationale for this and related projects. Purpose is the project-specific why, the reason for this effort. Outcomes are the what that we must produce. Inputs capture the how, who, and when.

True synergy occurs when teams use this tool to collaborate. The LogFrame builds shared understanding, promotes communication, and increases trust. Its common logic and standard vocabulary help teams start faster and execute projects that deliver results. These tools aren’t magic; their power comes from forcing you to ask the right questions. Getting the right answers, however, works real strategic magic! Here are some additional ideas for applying this method.

Develop or Update the Strategic Plan.

This method supports a broader strategic planning process. Regardless of the context in which you operate, at least annually, you should review and refine your strategic portfolio. Prioritize your strategies and create LogFrame plans for the top ones.

Strengthen Teams across Work Functions.

The LogFrame tool helps bring together new teams and taskforces. The questions and matrix provide a common vocabulary to integrate cross-functional players around common objectives, and enables them to work smoothly across organizational boundaries.

Reinvent Your Department.

From time to time, take a fresh look at where you are and where you need to go, and then develop LogFrame strategies to get there. When performance levels lag, or your mission changes, this becomes more vital than ever.

Develop Information Technology Solutions and Algorithms.

The LogFrame serves as a general-purpose analytic tool that helps to define algorithms of every sort, and integrates technology solutions within core processes.

Develop Recommendations and Make Decisions.

Use this tool to be systematic and transparent about how to set decision criteria, identify alternatives, collect information, conduct the analysis, and make recommendations.

Unstick Stuck Stuff.

Take a fresh look at stalled projects, programs, and strategies; identify and evaluate alternatives; and redirect your effort along promising directions. Break loose by brainstorming fresh purpose statements and see what new patterns emerge.

By using the LogFrame approach, you’ll build a strong strategic foundation that leads to predictable success.

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

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Victor’s 10 Reflections on Leadership - Bonus: What does tough leadership mean

Steve Rosvold 00:05

Welcome to CFO talk. I’m your host, Steve Rosvold, Chief Learning Officer at CFO.University. Joining us from Wichita, Kansas today is Victor Ojeleye.

We’ve had a couple of conversations and I have learned how you approach people. So when you speak of toughness I know you are not talking about being mean spirited, rude or disrespectful. How does toughness fall into your 10 leadership observations?

Victor Ojeleye 00:41

I think it’s just in taking the direct approach. I recently took a survey, and they talked about your communication style, is it direct or indirect? And it’s just simply eye contact and speaking slowly; addressing the person that owns or is accountable for the for the task or the initiative and saying, Hey, what you’re working is not meeting or goals or what you’re doing is not working. We’re not meeting expectations, what do we need to do differently? Or ‘ We committed to’ . using the phrases that help us understand. What is the thing that we agreed to? What is the timeline, we agreed to get it done? And what are the roadblocks? And then also, how can I help? Like, what are the roadblocks? What else do we not know? So I try to blend those things together. And again, it’s not perfect, but I’ve tried to use that style.

And then there’s times where, yes, I’m smiling now. But there’s times when I am pretty frustrated that we’re behind schedule on something. So the emotion you have to be authentic. That, hey, we’re not doing what we said we would do so what needs to change. I think there’s a balance again, we’re all human, you can make mistakes, but I definitely always try to make sure I’m cautious of, hey, I gave that person feedback, or I said this that way. And I try to ask for feedback on “Hey, how did I come across in that discussion?” So it’s, it’s an evolving process, but definitely, as I said, I’ve tried to continue to learn because I’ve gotten the feedback that if you are a nice guy and you have good intentions it still may be hard for you to get things done, especially when you’re influencing people without authority. So, it’s a journey again.

Steve Rosvold 02:23

You are learning a lot. I can see that by the way you strive to deal with people. Stephen Covey uses this term, “with people slow is fast and fast is slow”. The point he’s trying to make is, relationships are really important. You have to be careful and be thoughtful, and it sounds like you’re really taking the time to know how to deal with people - how to how to work with them, how to appreciate them and how to make sure they know you’re working for them, even if you have to give tough love or whatever the words are that we use to help them keep accountable.

That wraps up this video short taken from our longer interview with Victor, Reflections on Leadership. CFO.University is a community of member scholars, companies and trusted advisors committed to the professional development of chief financial officers. Learn more about us at CFO.University.

Until next time, Enjoy. Learn. Engage

Find Victor’s other Reflections on Leadership HERE

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What Every Buyer and Seller Should Know

Two of the most critical financial transactions any business owner negotiates occur on opposite sides of the table. The day they buy their business and the day they sell it. Although the objectives are different the analytical building blocks to successfully buying or selling a business are the same.

Whether you’re buying or selling, here are some key areas to help ensure a positive outcome:

  • Future VisionKnow where the company is headed. Be sure the goals and long-term plans are solid and clearly defined. Occasionally, a buyer may have new ideas about the company’s direction; however, one that is already poised for continued success is a significant selling factor. Being a seller with a clear vision can help the buyer see there is more value in the business than they may have originally considered.
  • Growth PlanGood sales performance maximizes value. A stable or increasing top line will be more encouraging to a would-be buyer than if numbers are on a downward slide. Helping the buyer draw their road map to growth will boost business value. Conversely, a buyer with a unique growth opportunity may find a great deal in a platform company that can help launch their exclusive concept. Also, understanding how the business will complement the current business or buyer’s skill set to achieve profitable growth is critical for success. Read When Searching for Merger Candidates - Substitutes and Complements Make All the Difference for some great tips on analyzing this topic for your deal.
  • EarningsShowing a cadence of earnings growth, as well as the potential for future income and ways to keep it growing, will definitely attract buyers. In fact, some will be willing to pay based on just how bright the future looks.
  • Record KeepingA company that is performing well, but doesn’t have transparent financial reports, won’t realize its full value when it is sold. Activities should be supported by impeccable financial records and reporting; tools that also make securing financing for a buyer much easier. The seller will be significantly discounted if the buyer doesn’t have faith in the seller’s records. While well-operating companies exhibit good record keeping and are premium priced, it’s risky to pursue a company with poor record keeping; a red flag the company may not be as solid as they appear on the surface.
  • Steady WorkforceLow employee turnover is frequently a sign of a healthy and profitable business; while high employee turnover signals the opposite. A healthy workplace culture, with a committed team, is the best foundation on which to build success. A wise buyer will dig deep into the talents of the sellers human resources and target critical employees during the buying process.
  • TransparencyEvery business and industry has its issues and risks. Honesty about what those are, and a specific plan to mitigate them, communicates a position of strength for the company and assures potential buyers that hidden risks won’t jeopardize the future of the company. Alternatively, poor risk management and lack of transparency will result in buyers discounting the business value to compensate for the higher probability of negative events surfacing in the future.
  • Timing A company should be able to provide at least three years of financial statements that reflect its best performance and go to market when operations are at their peak. Both will result in a more favorable selling price.
  • Business ValuationThere are many factors to consider when determining a company’s fair market value. Selling it short can be just as detrimental as overestimating its worth. Don’t be afraid to ask for a second assessment and compare the results to similar companies in the industry.
  • Transaction PartnerFinding the right buyer or seller not only creates more value for you but can also reduce the “deal stress” created from negotiating a transaction. In a recent engagement I was involved in one of the buyers couldn’t understand why their slightly higher bid didn’t win. They didn’t realize the way they positioned themselves during the process alienated the seller. It would have taken a substantially higher bid from them to compensate the seller for the burden of negotiating with them over the other party.

Negotiating in the business world is best done after careful calculations. Gather as much information as you can and be sure to seek a trusted advisor who can help bring it all together for you. With these tips to follow and some hard work your next deal will be a success.

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

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Victor’s 10 Reflections on Leadership - 10 Your team needs you to be their champion

Steve Rosvold 00:05

Welcome to CFO talk. I’m your host, Steve Rosvold, Chief Learning Officer at CFO.University. Joining us from Wichita, Kansas today is Victor Ojeleye. In your tenth observation about leadership you mention the leaders need to champion your team. What happens when they don’t have a champion?

Victor Ojeleye 00:26

Yeah, it’s a, it’s a great question, I think, champion to me is, you know, an advocate, whether you’re helping to prioritize their time, defend their capabilities, and really, create boundaries almost around your team. This is what we do, this is our skill set, and really championing them for who they are. But when you don’t have that, I think that’s where the work that you’ve done to help your team know how to be their own advocate, has to has to turn on. It has to be there.

Whether it’s breaking down boundaries, hey, I’m stuck, you know, I need someone to help elevate, you know, this work, or you need someone to partner with on those types of things. The way that you’ve rubbed off on your team becomes an active part of how they operate when you’re not there. My mentors have been champions for me, whether in work or other spaces, and the things that they told me have come to mind when I’ve run out of ideas. And it’s tough when you don’t have someone to champion for you, whether you’re looking for a new job, or whether you’re working on a project or you need you need resources, or someone to help you on something. Or you just need someone to say can we get a little bit of that individual’s time and then you get that buy in? So, it’s a little bit of, you know, those tactics you’re using to influence and you just hope that the work you’ve done helps people know how to do it best themselves.

You’ve got to champion when you are given the opportunity. So I’m working on that. And again, I’ll go back to the sports. When I’m championing my team and I’m cheering them on, it’s a lot different than a coach that maybe takes a different approach and might be negative or calling out mistakes. Positive energy oftentimes supersede the negative energy and allows you to look past small mistakes and keep moving forward.

Steve Rosvold 02:46

That’s a great, great response, Victor. Thank you.

That wraps up today’s CFO talk CFO dot University is a community of member scholars, companies and trusted advisors committed to the professional development of chief financial officers. Learn more about us at WWE dot CFO dot University. Until next time, enjoy, learn, engage.

That wraps up this video short taken from our longer interview with Victor, Reflections on Leadership. CFO.University is a community of member scholars, companies and trusted advisors committed to the professional development of chief financial officers. Learn more about us at CFO.University.

Until next time, Enjoy. Learn. Engage

Find Victor’s other Reflections on Leadership HERE

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CFO Talk: Finance and the Supply Chain with Bram Desmet

In this CFO Talk Bram Desmet, author of Supply Chain Strategy and Financial Metrics, describes the Supply Chain Triangle; service, cost and cash. In today’s market, balancing the triangle is a key challenge for supply chain and finance managers.

He identifies a serious roadblock to optimizing the supply chain. Even though different functions may look at different corners of the triangle, companies often lack an integrated view. The remedy is to better coordinate each departments activities that impact the supply chain. A role finance is perfectly positioned to play.

Bram also explains more ways CFOs and other finance leaders can engage in the supply chain to improve corporate results and advance their careers.

Enjoy our CFO Talk with Bram.

More on Bram.

As CEO of Solventure and Co-Founder of The Strategy-Driven Supply Chain Institute he and Co-Founder Dan Kogan are on a mission to help companies create sustainable change and value through S&OP. Bram is a professor at Vlerick Business School, Ghent University and Peking University and keynote speaker connection supply chain, strategy and finance through financial metrics.

Listen on

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Victor’s 10 Reflections on Leadership - 9 Know your boundaries and honor them fully

Steve Rosvold 00:05

Welcome to CFO talk. I’m your host, Steve Rosvold, Chief Learning Officer at CFO.University.

Joining us from Wichita, Kansas today is Victor Ojeleye. Your ninth observation is about your boundaries and how to honor them fully. I’d like to understand what you mean by that and how you use it?

Victor Ojeleye 00:29

This is a focus on myself. It is a self-care topic. And this one is about sharing energy between work and community. As committed as I am to work, it absorbs a lot of my energy. But my community is important too and also absorbs a lot of my energy.

What are the boundaries of connectivity? Where am I connected to work. We all have the work cell phone, we have our computer, we’ve got email. And so one of the things that I’ve actually done is, I have left work email off of my personal iPad. That’s the one place at home where I can do family, I can do leisure, I can do personal business. And I won’t get an email from work to distract me. This has helped me reshape and construct my own boundary, in a sense, my right to have that wall up, that, hey, this is a safe space, it’s not going to set off an alarm that says, in my mind, I’ve got to get something done.

So, when you see an email, or the badge on your phone, you’ve got 10 unread emails, you feel a need to do something. So turning that off and creating that quiet space is part of my self care.

The second kind of mechanism I’ve done is with my weekends. We all get 52 or so weekends a year. A friend helped me position my view on weekends as 52 vacations a year, use them wisely. And so, it’s interesting, what I’ve tried to do is shift the way I work to a pace that allows my weekends to be vacations. I go really hard on Monday through Friday, and that might mean six to six or six to eight o’clock. And it’s going to ebb and flow depending on the projects. But that way I can protect the weekend and honor that time, that’s for myself, or my family, or whatever hobbies I’m doing. And then also honoring my commitments.

There have been times when I’ve had community service events or dinners with large companies in town, and I’ve said, ‘ Sorry, I made a commitment on coaching basketball tonight, I can’t go’ . And there was one such event where we had a conflict, I hadn’t looked at the calendar, and I said, Hey, it’s more important for me to invest in these youth, than go to the event. And then same thing, you know, it’s just honoring the commitments around. If you have to leave for work to pick up your kids. If you have, you know, childcare if you’ve got a mom or dad you’re taking care of, we all have different things. It’s just that reminder that we’ve got to set the boundaries. Work will always be there, something I’m really still struggling to figure out how to set these ground rules.

Actually, the iPad thing was a challenge from a friend who knows, I like tech, but they said, Hey, try it, try this for a month, don’t don’t install outlook on your iPad and see how it goes. And I’ve been doing it for six months. So it’s been awesome to have that. And then if I know, I’m going to work, I also found that the work I would do is much better, because I know that I will use my work computer, it’ll be a targeted effort, high quality effort, and then there’s not a mix between me trying to be connected right on, you know, on my personal iPad, and it’s a work email. So creating those boundaries. I have targeting very focused work within discrete timelines and it seems to be working.

Steve Rosvold 03:56

That whole topic between work life balance or work life integration, or whatever people want to call it is whole CFO Talk in itself. You have an excellent method to consciously establish your boundaries. Some of us get in the habit of doing and not reflecting on all the impact around us. That can mushroom into something you never thought you would be a part of. So, having those boundaries and consciously thinking about them is really helpful.

That wraps up this video short taken from our longer interview with Victor, Reflections on Leadership. CFO.University is a community of member scholars, companies and trusted advisors committed to the professional development of chief financial officers. Learn more about us at CFO.University.

Until next time, Enjoy. Learn. Engage

Find Victor’s other Reflections on Leadership HERE

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Conventional Absorption Cost Accounting

Having it roots in the 1800’s where factories made a single product and total operating costs were divided by total production volume to arrive at fully-burdened unit costs, conventional costing techniques assign indirect and/or overhead costs through the application of overhead rates. These rates are “allocated” to the outputs of the organization. The manner in which overhead costs are spread across the various Lines of Business (LOB) is to attach such costs to an operational metric associated with LOBs, such as direct labor cost, machine hours, number of employees, floor space, revenues, etc. Such costs are pooled, then the pools are then allocated to cost objects based on the amount of those metrics associated with each product and service.

However, as the number of LOBs expand, indirect and/or overhead costs grew and were “pooled” then allocated to the various LOBs based on those elaborate allocation methods. The fallacy of this approach is that non-direct costs are allocated to products and services irrespective if the various cost objects actually consume or utilize those costs. In essence, some cost objects, or LOBs, are subsidizing other LOBs simply because of the magnitude of the metric used.

The conventional cost-accounting systems developed in the late nineteenth century are still used today by at least 75% of businesses and it’s not unusual, especially in high-tech organizations, to see overhead and indirect costs represent more than 50% of total spending. Therefore, significant errors will be encountered if using conventional cost-accounting systems.

Limitations/shortcomings of conventional accounting systems.

The following represents the most significant issues related to absorption-type cost accounting:

  • Based on faulty assumptions. It is highly dependent on accurate understanding of the consumption of overhead resources by individual lines of business. Conventional approaches assume that there is a linear relationship between the use of direct resources and overhead expenditures – the more direct labor or machine hours used, the greater the indirect costs. This assumption is the root cause of distortions as there is no cause-and-effect relationship between the consumption of direct resources and indirect spending.
  • Inaccurate product/service costs. When overhead spending represents a significant portion of total expenditures, conventional systems unfairly “burden” products and services by allocating such costs on the basis of direct resource consumption. Also, service industries are most negatively impacted by such practices as the distinction between direct and indirect spending is often a blurred. Inaccurate cost of outputs will lead to poor, or uninformed, management decisions, pricing, product mix, profit projections and literally all management decisions that rely on an accurate understanding of costs.
  • Under- and over-costing. Pooling, aggregation, then allocating average costs distorts product and service outcomes. By definition, the use of averages will over- and under-cost outputs. LOBs are assigned an average cost regardless of the actual overhead expenses required by each line of business. Under-costing may lead to lower pricing that reduces profitability while over-costing may contribute to higher pricing that sacrifice revenues.
  • Lack of stakeholder input and engagement. The foundation for success is derived from the organization’s value proposition. Conventional cost accounting systems are numerically based and typically void of information necessary to determine value as perceived by customers and employees.
  • Little help to service organizations. Unlike manufacturing, service organizations typically have not identified the factors necessary to assign overhead costs to their service offerings. Since services are “manufactured” at the time of delivery they often require different levels of resource investment depending on the needs of the customer. Kaplan and Cooper (Kaplan, R.S. & Cooper, R. (1998). Cost and Effect – Using Integrated Cost Systems to Drive Profitability and Performance. Harvard Business School Press. Boston, Massachusetts.) stated:

Service companies, lacking tangible products, have no financial reporting requirements at all for allocating indirect and support expenses to the services they produce or the customers they serve. Consequently, most service companies do not suffer from distorted cost numbers; they have no cost numbers at all since they do not measure the costs of producing their individual products, delivering their individual services, and serving their individual customers…nor do they know anything about the costs of the activities and processes they perform.

  • ·Limited measurement of resource consumption. Traditional cost accounting systems are numerically based and results are expressed in terms of dollars. Such systems offer little information regarding other forms of resource consumption such as work hours and/or Full-Time-Equivalents (FTE). Such non-financial measures are useful for measuring and projecting staff requirements or computing the cost per FTE necessary to assess whether personnel resource compensation fits the requirements of the job.

In conclusion, conventional cost accounting systems are void of credible information necessary for informed management decisions regarding financial and operational performance.

Read about a solution Brian has developed to overcome the conventional cost accounting shortcomings noted above, Activity Value Management (AVM) – A New Perspective on Costs and Performance Management

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Assessing The Health Of Your Business: The Art And Science Of Accounting

It pays to do things twice in accounting. Italian friar Luca Pacioli established that when he published the first book on double-entry bookkeeping in 1494. The practice is still being used today. Like Pacioli, who was well versed in a wide range of subjects, the art and science of accounting is all about timing and balance.

Double-entry bookkeeping, which requires two-sides to every journal entry, gave birth to the income statement and balance sheet. Together with the cash-flow statement, they create a financial reporting system that keeps your books in equilibrium.

Before we explore just how this triad works, let’s review the 500 year-old profession.

It Takes Two

Debits equal credits and everything must balance. Therefore, everything that happens in the books must have two entries, a debit and a credit. Where you are in the process and what’s taking place will determine whether the entries are reflected on the balance sheet, income statement or both.

Generally Accepted Accounting Principles (GAAP) in the United States stipulate when and how entries should occur between the balance sheet and the income statement. International Financial Reporting Standards (IFRS) govern the accounting rules adopted by most other countries.

Taking Stock

The Balance Sheet is a measurement of your financial position at a specific point in time. Based on Pacioli’s principle of Assets Always = Liabilities + Equity, what you have is the difference between what you own and what you owe.

Because accounting is still formulated on historical cost, assets will essentially have two values. What you assign today on paper, which includes depreciation, is the book value. The book value of long-lived assets is a prescribed calculation using historical cost less some devaluation due to the aging process. It is rarely equal to the market value of the asset. This is considered a fundamental flaw in modern accounting (is anything over 500 years old modern?)

Team Activity

The income statement is a measurement of your business performance over a period of time. Revenue – Expenses = Earnings sums up your day-to-day operations of sales, purchases and expenses resulting in profit.

When to recognize revenue during the sales process is tightly prescribed by GAAP. Companies run into trouble when they aren’t familiar with the revenue recognition rules (or ignore them) and record sales before or after the appropriate time.

Setting Goals

The cash flow statement is where it all comes together. Beginning Cash + Inflow – Outflow = Ending Cash is a reconciliation of how your cash was used and sourced over a period of time. This is a significant tool for newer businesses with limited revenue during startup. It shows how much was generated from operations and financing, and how much was put into investments and long-term assets. A healthy business will maintain a good ratio in these areas. For instance, having your entire cash inflow from bank loans is not a sustainable way of doing business. Likewise, investing all your cash in long-term assets will leave you short of working capital.

Preparing a financial statement is a combination of art and science. If you’re doing it right, doing it on time and following the rules, you will always have a beautiful piece of work that tells a story about your company—and that’s something you can close the books on.

Use this instructional video, Accounting and Finance for Non Accounting and Finance Managers, to teach your colleagues who aren’t accountants, finance or treasury professionals the basics of accounting and financial statements. Your colleagues will appreciate the professional growth opportunity while the financial acumen at your business grows. We call that a double bonus.

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Victor’s 10 Reflections on Leadership - 8 Be a better listener

Steve Rosvold 00:05

Welcome to CFO talk. I’m your host, Steve Rosevold, Chief Learning Officer at CFO.University. Joining us from Wichita, Kansas today is Victor Ojeleye.

I love observation 8, Be a better listener. I suspect you were probably a pretty good listener before. But how have you improved that? And what’s it done for you?

Victor Ojeleye 00:31

Thank you, Steve. Actually, there’s a sticky note right here that says, “Be a better listener.”, to start. It’s a reminder, we often have solutions even as we just begin to listen. I found this was one of my biggest weaknesses. I listened maybe intently or too intently to where I start to formulate an answer or a response.

Here is a specific example. We were in a team meeting. A new teammate started to share an idea. I chimed in with some information to support the idea when they got finished. And it led to the rest of the team going down another path. I acknowledged it, recognizing that I should have held that information until towards the end, just to confirm that I was listening to them, and not derailed their thought. I acknowledged it and apologized - I didn’t intend to do that. And then after the meeting, I talked with the individual. I said, ‘ Hey, I’ve got to be a better listener. I didn’t intend to derail your discussion there. We have a really engaged team, we’re all a bunch of high achievers. At times we might speak over, but it’s well intentioned, know that I come from a good place.’

And so that was just a reminder for myself, that it’s something I’m working on, I was able to acknowledge it with the individual and we were squared away. I also learned that sometimes just listening to absorb versus listening to solution are two different things. There are other intentions for listening too. For example where you’re listening to learn to write. This whole listening thing is something I’m working on, just trying to be a better listener in life and work and personally.

Steve Rosvold 02:25

Andrew Codd, a friend how runs a data analytics team for a large multinational remined me that we God made us with two ears and one mouth for a reason. I still struggle with trying to be too quick to solve a problem rather than absorbing the full story and intent of the speaker or group. It’s something I am still working on. I really appreciate your thoughts on this leadership observation.

That wraps up this video short taken from our longer interview with Victor, Reflections on Leadership. CFO.University is a community of member scholars, companies and trusted advisors committed to the professional development of chief financial officers. Learn more about us at CFO.University.

Until next time, Enjoy. Learn. Engage

Find Victor’s other Reflections on Leadership HERE

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

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What Area of the Cash Flow Statement is Top of Mind for You in 2022?

To help CFOs and other finance leaders navigate the uncertainty and change looming in the economy we started our series, What is Top of Mind for You?

Part I dealt with the balance sheet, What Area of The Balance Sheet Is Top of Mind For You?

Part II dealt with the Income Statement What Area of the Income Statement is Top of Mind for You in 2022?

In Part III, we tackle the Cash Flow Statement.

We polled finance leaders with this question “What area of the Cash Flow Statement is top of mind for you in 2022?”

We gave these four choices. Each is followed by an example of what that choice could look like.

1. Operations – Net Income: Increasing cash by growing operating income is driving our business today.

2. Operations – Working Capital: Supply chain woes and inflation have stressed our working capital – it is top of mind for us right now.

3. Investing: We have significant growth opportunities in front of us that require long term investment. This long-range thinking is on the top of our list.

4. Financing: New Opportunities and/or cash pressure created by the economy are making funding a top priority for our team.

Cash flow from operations dominated what is top of mind in 2022 for finance leaders garnering 84% of the votes. 2/3 of those ballots were cast for generating cash from working capital rather than earnings.

This suggests supply chain issues and inflation are dominating discussions taking place in the CFO suite.

While operations took the front seat in the cash flow cab, investment opportunities and financing took the back seat, neither garnering double digit support. Combined they make up only 16% of the ballots cast.

As we did in Parts I and II, we then set out to study and better understand this result by researching some recent reports on the topic.

1. Positive Vision: Where Manufacturing CFOs Are Focusing in 20221

“…managing working capital (vs. investments), cash flow, and rising inventory costs rank as the second-highest CFO priority for 2022 [following Increased Investing in eCommerce and Digital Transformation Initiatives]. With logistical pressures currently placed upon supply chains, companies have noted that the costs of inventory management have the potential to rise to unforeseeable levels. Managing cash flow and margins remains a key objective for US finance leaders, based on our survey in 2020, 2021, and now into 2022.”

2. IR Magazine: Inflation and pandemic batter CFO confidence for 20222

“ (of) the three biggest challenges facing their business, ‘supply chain’ jumped 16 percentage points from 24 percent to 40 percent, taking over from cyber-security risks as CFOs’ top concern. Asked which business issue was most likely to have a negative impact on their business, CFOs cite ‘supply chain’ and ‘workforce shortages’, both at 53 percent.

Asked what actions they plan to manage disruption, the majority (52 percent) of CFOs say they intend to step up their focus on cash flow and liquidity to bolster cash reserves.”

3. Cashflow Keeping Business Leaders Awake at Night As SMEs ‘Extremely Concerned’ For 2022 3 (United Kingdom specific)

In a poll of Small and Medium Size Enterprises “The majority (52%) said they were worried about their company’s cashflow over the next 12 months, with 23% saying it is keeping them awake at night.

Over a third (37%) of UK SMEs responding to the survey also reported that they currently have less than £50,000 in the bank.”

On the bright side, part of these cash flow concerns appear to be the result of expected growth as “SMEs answering the survey struck a positive tone about turnover and profit.

“Over half (56%) grew their turnover over the past 12 months – 27% of which was by 10% or more, while 46% increased their profits.

Additionally, 60% of businesses expect to grow their turnover in 2022 – with 15% aiming for growth of 20% or more”

4. McKinsey & Company: In conversation: The New CFO Mandate4

“ Jørn Jensen: I imagine that inventory management will be critically important in the next eight to 12 months given all the supply chain disruptions we see globally. Volume and demand forecasting, scenario management, inventory management, and risk management are all very important in the shorter term.”

Our conclusions at CFO.University include:

1. Many companies are still fighting through supply chain issues that are putting stress on cash flow, either by stretching out the whole cash conversion cycle or simply delaying sales.

The solution CFOs are implementing to fight through this situation is to apply resources to the improve their cash conversion cycle and meet their sales targets.

2. The rapid rise in prices has created a working capital crunch as requirements from higher input prices and wages are increasing working capital needs by 10-25% even before the supply chain issues are factored in.

The solution CFOs are implementing is ditto above. However, this dynamic is also creating margin compression that must be addressed. Never in this millennium has product pricing and communicating our products value proposition to our customers been more important. Many customers understand the short term need for price increases in today’s environment.

Eventually, however, they will expect value from these increases.
Finance leaders should not get complacent when they see customers accepting price increases. As customers work to protect their margin, they will be searching for alternatives to the solutions current suppliers are providing.

3. Interest rate increases and the expected future rate increases will not only create higher working capital carrying costs, but they will also stress the borrowing capacity and coverage ratios frequently found in revolving debt agreements.

Borrowing capacity on a per unit basis will shrink while the costs to carry per unit will rise.

Fighting the triple threat of inflation, higher interest rates and supply chain issue requires rethinking all aspects of our cash conversion cycles, working capital financing concurrent with rethinking pricing and staying on top of margins.

At no time since the mid-1980s has it been more important for finance, supply chain, marketing and pricing professionals to be linked at the hip. For profitable growth to occur in this environment companies will need:

  • The capability to fund their working capital needs for both unit volume increases and to cover inflationary pressure.
  • Understand how margins are being impacted by changes in supply costs and wage pressure in nearly real time. (If you are selling one-year fixed price contracts, are you also procuring your inputs with one-year fixed contracts?)

We are keenly interested in learning how you are dealing with these challenges. If you can, please share your solutions with us and we’ll give you credit for helping us all get better.

Operations dominate focus on Cash Flow

Here are some specific articles and tools from our Contributors on this topic that will help you manage:

  • For Operations – Net Income

Simple Price, Gross Margin and Unit Variance Analysis, an article from CFO.University to help you analyze the impact of Pricing, Gross Margin and Units Sold. It includes a tool to help you manage these components.

  • For Operations – Working Capital

Cash Velocity Calculator, a cash conversion cycle analysis tool. Simple, yet powerful

Where’s the cash? Check your Balance Sheet, an article by John Lafferty to help explain ‘where is the cash?” that also includes a helpful tool.

  • Investment

Capital Investment Analysis and Request Form, an article with a tool to help you evaluate different options to invest in.

  • Financing

CFO Success Series: Treasury Part 1- Capital Planning, this material focuses on creating an optimum funding plan for your business.

To catch up on what is top of mind on all three financial statements read our reports on the:

1. Positive Vision: Where Manufacturing CFOs Are Focusing in 2022

2. IR Magazine: Inflation and pandemic batter CFO confidence for 2022

3. Financial IT Cashflow Keeping Business Leaders Awake at Night As SMEs ‘Extremely Concerned’ For 2022

4. McKinsey & Company: In conversation: The New CFO Mandate

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How Technology has Affected Financial Reporting

In the last decade, the corporate world has witnessed many changes and technology has permeated every aspect of business, including financial and managerial reporting.

Below are three areas where the impact on reporting has been the most significant. If your company isn’t realizing the benefits from these changes, it’s missing a golden opportunity.


QuickBooks, Xero and similar products have set a new baseline standard for ease of entry and reporting. They are helping owners and non-financial managers see financial reports and supporting information more transparently and more often than ever. Much of the manual work done in the past is now automated, creating efficiency. Technology has produced an array of business metrics that go well behind the traditional financial statement; quickly summarizing key measures that lead to better and faster decision making.

This means big changes for the CFO and financial consultants. Both clients and employers are looking for revenue generation ideas, cost-saving ideas, an asset base producing better returns and more flexible capital ideas. It’s all about providing insight that impacts the bottom line.

Financial statements no longer hold value in and of themselves. It’s how the data is framed and used to create information that matters. For CFO’s specifically, this technologically enabled shift has moved the finance and accounting role from one of primarily historical record keeping to forward looking business planning and long term forecasting.

Anywhere, Anytime

Real time is wiping out the concept of the traditional accounting close. Historically, general ledger entries weren’t made until the end of the month. With technology and the pace of business, the process is now instantaneous, ongoing and all entries related to any one activity are being made simultaneously.

For companies that can’t keep up with the changing practice, the use of the general ledger system will fall by the wayside, opening the door for the development of other subsystems that drive decision making. This creates a risk of the financial group becoming less relevant, possibly to the point of being redundant.

On-site presence is also less relevant. The virtual office is allowing people to work from anywhere, expanding capabilities and the talent pool, and enabling consultants to take on multiple clients at once. Anywhere anytime is the new norm.

Analytics, Analytics, Analytics

Decision support is available at lower cost than ever before. First-tier financial information—financial statements—is immediately available and has now become a commodity. For example, the process of calculating how quickly you collect your receivables through Day Sales Outstanding is now generated with a click on QuickBooks.

This places greater value on second and third tier information. In this example, that means being able to understand the quality of your accounts receivable and predict non performing accounts. Deriving additional data beyond ratios through assessments and predictions is where the technology is heading. It’s the ability to build on what’s already there that will give a competitive edge.

Essentially, CFOs and consultants have been pushed to focus more on analytics and forecasting by clients who expect it now more than ever.

In some industries, technology can bring a plethora of unwelcome change. In terms of financial reporting, technology is changing how things are done and enabling them to be done at a much faster pace. It is also bringing more value. Those are two things any company would welcome.

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Victor’s 10 Reflections on Leadership - 7. Celebrate the Victories

Steve Rosvold 00:05

Welcome to CFO talk. I’m your host, Steve Rosvold, Chief Learning Officer at CFO.University. Joining us from Wichita, Kansas today is Victor Ojeleye.

In your seventh observation about leadership you highlight celebrating victories. You note celebrating is important even when things still need to be fixed. I’d like to explore that twist some. Normally we celebrate when we cross the finish line. What does celebrating before the finish line look like?

Victor Ojeleye 00:25

One example for me is, you know, in finance we’ve got an ERP system for reporting. That’s a big part of our toolkit. We’ve got to have great reporting, our financials in order to then do your forecasting. So, if you’re working on things that are very complex, whether it’s in the data space, or in the analytic space, there’s times when the mountain looks very, very significant. It’s easy to get into the mode of making excuses. We don’t have the reporting that we need, we’re trying to crack this particular riddle as far as the data and the inputs that we need. But there’s different small steps you need to take in order to get there. I think it’s easy for teams to want to throw in the towel, say this is too complex or the deployment teams is working too hard.

One of the things I’ve realized is sometimes you have a win with talent, sometimes you have a win with particular report or requirements, sometimes your win is just a small thing from the standpoint of a of a teammate, getting something solved or learning something. So those things can’t be overlooked. You have to use those to build morale, show that you’re making progress on the actual scorecard, but also to keep yourself motivated holistically in these really tough challenges.

Again, I’ll borrow from the Kansas Leadership Center, where they talk about really complex problems versus really simple problems. Simple problems can be done on a certain timeline, you know, they’re very straightforward, but complex problems, it’s about progress. And so, you know, one of the things that I’ve taken from this is that celebrating those small wins at the end of your week, 100 things to do, just make sure you’re making progress. That’s really the essence of this - celebrating your small wins. Hey, I was able to get my coffee, get my workday started on a good foot. And, you know, that made my day go that much better. We often overlook these small victories, because as a fixer, or someone who’s really aspirational to get many things done, we have to take a step back and see some of the small things too. So that’s just a reminder on many fronts to celebrate that set of small wins and hopefully in the end, those small wins build up to be that end goal or, or something like it.

Steve Rosvold 03:32

That’s a great way to put it, because no great triumph just happened. It happened because of all the little things before that. There was a training for the pro cycling team, Ineos. They team did very well in the Grand Tours. The trainer was given a lot of the credit. He said all we’re trying to do is improve 1% every day. Many small victories lead to big wins. H focused on incremental improvements to many different aspects of cycling. His philosophy was a lot like what you just shared.

That wraps up this video short taken from our longer interview with Victor, Reflections on Leadership. CFO.University is a community of member scholars, companies and trusted advisors committed to the professional development of chief financial officers. Learn more about us at CFO.University.

Until next time, Enjoy. Learn. Engage

Find Victor’s other Reflections on Leadership HERE

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Are Your Monthly Reports Leading The Business Astray?

I remember hearing the old sayings about performance measurement early on in my career, and thinking they were pretty astute – catchy and encapsulating a profound truth. Things like:

“If you don’t measure it, you don’t manage it!”

“What gets measured gets done!”

And I’ve always taken them to mean something positive – if you really value your objective, then measure your progress towards it. If you’re not measuring it, it shows you don’t really care. So, if you really do care, and you want it to get done, then measure it, report it, etc.

But recently that last one – “what gets measured gets done” – has been making me think. There’s a negative side to it as well.
The truth of that saying – “what gets measured gets done” – struck me when I drove my son’s Merc once.

The way you drive

The dashboard has a mode to show how economically you are driving. It lights up green in different segments if you’re driving in ways that maximise fuel efficiency – braking, accelerating, steering.

The funny thing was that once I saw that dashboard, I changed the way I drove. I was determined to make the dashboard go as green as possible. And I had a bit of fun trying to make the journey average ‘miles per gallon’ figure go as high as possible.

(If you drive a BMW or Audi, you probably haven’t got a clue what I’m talking about – you only have one measure… “am I in front of everyone else?”!)

The point is that measuring and reporting the fuel efficiency, and the KPIs for the “efficiency drivers”, made me drive differently.
The key thing to understand is that, generally speaking, measuring and reporting something affects behaviour. And I think that’s true even if you don’t position it as a performance indicator, and even if you don’t set a target.

Measurement and reporting affects behaviour

So, hence the saying, “if you don’t measure it, you don’t manage it”. If you want to influence behaviour so that something gets done in your business, then measure it. “What gets measured gets done!”

And that’s normally put positively, in terms of working out what the critical success factors, the value drivers, are, within the business. And then if they truly are critical and important, then measuring them somehow helps to manage them. Even if you start off being uncertain how to influence them one way or the other, when you can measure them you can start to experiment and see the results.

And further, you don’t even have to give incentives or set targets for most things. People seem to have an inbuilt desire to influence things and improve them.
But the negative is also true. And this is what I’ve come to realise. If you measure the wrong things, you can do real damage to your business.

Don’t measure what you don’t want to manage

That’s because measuring the wrong things drives the wrong behaviour. It means people in the business think they’re improving things when they’re actually doing the opposite.

And this is slightly complicated, because this applies to:
So, we need to be careful what we measure. Because, “what gets measured gets done”.

  • Measuring an outcome that can be influenced/driven in several different ways, some of which cause other undesirable outcomes;
  • Measuring something that isn’t important;
  • Measures that can be manipulated or misinterpreted;
  • Confusing the meaning of a measure – thinking it’s a leading indicator of something it’s not.

If we measure the wrong things, we may do the wrong things. At best the actions may just waste time, because they’re pointless and don’t matter. At worst the actions can be detrimental to the business.
So, what’s an example? One thing I struggle with is understanding why it’s seen as so important to report ‘headcount’.

Why do we report ‘Headcount’?

It’s probably the first non-financial measure to be added onto a monthly P&L to make it a ‘management report’.

But why?

And then we go and compare it to what we had in the plan. Worse, we automatically assume that higher numbers are bad. What’s wrong with having more people? What’s wrong with having more people than we planned?

Someone may say, “but it’s a driver of cost”.

And the reply to that is, “what’s the point putting the headcount figure on the P&L then?” The staffing costs are visible in the P&L anyway. All the costs are in the P&L report. And we know that the activities of people drive cost. So, what additional insight does ‘headcount’ give us?

The number of people working in the business is not as important as what they do in the business, and the critical success factors that they influence.

‘Headcount’ takes no account of mix or relative cost. It also doesn’t take into account business volumes or demand.

And when demand is high, reporting headcount in a way that suggests we ought to be limiting recruitment can put severe constraints on the business. You can just hear the manager saying, “I know all my people are burnt out, 20% of them are off sick with stress and 20% have left in the last year… but increased headcount would have looked bad on the management report.”
As a second example, ask yourself what behaviour is driven when you include cost allocations on a business performance report?

Allocated costs

I can tell you exactly, because I saw it in the first business I worked in after leaving public practice. And I’ve seen it many times since.

The behaviour you get is management focusing more on the relative share of cost that is attributed to the different business lines than the absolute amount of the cost. The discussion centres on “fairness” and whether there is a better basis of allocation – could it be revenue? Headcount? Floorspace? Direct cost?

This wastes so much time. My advice is: don’t show allocated costs on business line/unit P&L reports! I wrote about this in another article about Finance items that waste time in management meetings.

Seriously, just take the unit/product/customer P&Ls down to “Contribution” after direct costs, and treat overhead costs separately.

If you have to allocate costs for regulatory or tax purposes, you don’t need to show that to your management colleagues. Why should it matter to them what the regulator or tax office wants to see?

And if you want to do some approximate allocations for pricing analysis and product/customer costings, then fine – kind of. Even there it’s a bit spurious, and can lead to incorrect decisions. The only reason you’d do it is for some kind of cross-check.

Just as an aside, the starkest example of the questionable wisdom of allocating overheads to products, customers or business units, is where a product looks like it makes a loss, because it has an allocation of overheads to it. So, the decision is made to cut the product in order to cut the losses. Lo and behold, the overheads don’t change, and just get allocated to other surviving products, and those become less profitable. And in fact, the overall business is less profitable afterwards, because there is less revenue to cover the overheads.

Or maybe the action in response to a loss-making product could be to increase prices. But that drives demand and volume down, which then makes the product loss-making again.

Show direct costs as direct costs, and overheads as overheads. No allocations!
Finally, one of the things we, as experienced Finance people, should know is that absolute numbers don’t tell the full story. You need to understand the relationships between the numbers to really understand whether good things or bad things are happening.

Absolutes rather than ratios

So, show the ratios instead of the absolute numbers. If the full P&L is misleading, why not be radical and not show it in full. Just show the key numbers and ratios.

For instance, if debtors goes up, that could mean that customers are delaying payment and we need to make more effort chasing them. On the other hand, it could mean that we are just generally selling more. It could mean that we got a big sale right at the end of the month. Or it could mean that we changed some or our payment terms.

Days Sales Outstanding (DSO) is a much better measure.
So, be careful what you measure and report. Because, “what gets measured gets done!”

Be careful what you measure and report

Think about all the figures that you include in all your reports. Think about all the other sources of information that your managers have.

Put yourself in their shoes, and ask yourself how all that information can be interpreted.

Ask yourself what actions can be taken to affect the numbers being reported. Can manipulative, non-value-adding actions have an effect as well?

What behaviours and actions are you expecting or wanting to drive and influence by reporting the measures you report?

Are your KPIs focused on value drivers? And will those KPIs drive the right behaviour, or wasteful or value-destroying behaviour?

“Measure what matters. But be careful what you report!”

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What Area of the Income Statement is Top of Mind for You in 2022?

To help CFOs and other finance leaders navigate the uncertainty and change looming in the economy we started our series, What is Top of Mind for You. Part I dealt with the balance sheet, What Area of The Balance Sheet Is Top of Mind For You?

In Part II, we tackle the income statement.

We polled finance leaders with this question “What area of the Income Statement is top of mind for you in 2022?”

We gave these four choices. Each is followed by an example of what that choice could look like.

1. Revenue – Pricing : Trying to recover increased material costs…. or earn value for extra features we are adding to our products.

2. Revenue - Volume: As volumes grow, economies of scale really improves our bottom line….. or new markets are blue oceans for our products.

3. Cost of Sales: Supply chain and raw material costs have been out of control – we need to find a way to tame ours.

4. Selling General and Administrative Expenses: Our margin environment is stable so SG&A Expenses are the best area to work on to improve the P&L… or our growth engine is running so fast we need to add resources faster than a speeding bullet.

Clearly the above the margin activities won out with only 15% of finance leaders indicating SG&A expenses are top of mind in 2022.

Pricing stood out with just over 1/3 of respondents indicating that is top of mind for them. Sales volume improvements and cost of goods sold were basically tied, each garnering about 1 of every 4 votes.

We set out to study why using our network and tapping into the work of other firms who closely serve the Chief Financial Officer.

1. PWC: CFO and finance leaders: Latest findings from PwC’s Pulse Survey1

Although hiring and retention were first on the list of CFO’s keys to growth, Reevaluating pricing strategies (e.g., exploring price increases to make up for rising input costs) was next on the list. The survey reports,

Pricing to protect profitability: Accelerated by a triple threat of Omicron, rising inflation and changing customer demand, (59% of the CFOs PWC surveyed indicate) finding ways to quickly address the converging economics of these challenges has become more urgent for CFOs looking to maintain or increase margin.
To keep …costs low, 48% of CFOs plan to double down on digital transformation efforts to deliver both near-term operating efficiencies and long-term top-line growth. Forty-three percent plan to invest in automation as a strategic solution to offset increased labor costs and supply chain constraints,”

2. Strategic Finance Magazine: What’s Keeping CFOs Up At Night In 2022?2

The first CFO concern on the Strategic Finance’s list is supply disruptions. This implies a focus on controlling cost of goods and managing pricing carefully in an environment where volume could drop due to supply constraints. This triple financial whammy of the disruption – higher costs, lower volume with no extra value for price increases - we are seeing in the supply chain is a significant challenge to overcome.
An interesting observation on supply chain issues is how important it is to stay in front of the wave. Top tier FP&A professionals working with the business units can make the future less murky. Employee retention and talent development were the 2nd and 3rd listed CFO concerns in SF’s article. CFOs need more of them and pay more to retain the ones they have, which from our CFO.University poll’s perspective would check the SG&A box.

3. CFO: 2022 Outlook: CFOs’ 4 realms of risk3

“The inflation rate may ultimately ease in 2022, but higher materials and transportation costs will linger as companies’ product prices catch up with operating expenses.
Some manufacturers have faced enormous inflation in costs of goods sold and other areas. Conagra Brands suffered gross inflation as high as 16%. The good news is companies including Conagra and 3M are increasing prices without much pushback. Others are lowering or eliminating discounts or introducing smaller product sizes.”
One way to fight higher cost of goods is to charge higher prices. This may not be sustainable over time, but never in my business career have I seen customers more willing to accept a price increase without receiving substantial value in return. If your product is good and your service admirable – join the 34% group in CFO.University’s poll and raise your prices.

4. Gartner: These Are the Top CFO Priorities for 20224

Gartner, granted a firm that makes it bread and butter testing and opining on technology, puts a digital spin on our question about the top concerns of the income statement. They have long term view, which gives them more clout related to the balance sheet than the 2022 income statement. But we thought their ideas worthy to help us remember we are in a long game that doesn’t end in 7 months.

Gartner’s advice is a reminder to continue investing in our future, not simply the here and now. Their focus is on digital autonomous finance operations and they highlight three initiatives:

  1. Budget/forecast for speed and relevance
  2. Build digital competencies
  3. Drive enterprise digital growth

5. FEI - Planning For 2022: Three Things Every CFO Should Prioritize Now5

The Financial Executives International ‘Three Things…” are heavily focused on below the margin activities and investment rather than generating current year returns.

  1. Top Talent Is Hard to Come By - And Harder to Keep!
  2. Continued C-Suite Collaboration
  3. Investing in Digital Transformation Strategies

So where does that leave us?

It wasn’t a big surprise to us to find limited content on how finance and the CFO can influence pricing or volume or, even the cost of sales. The purview of the traditional CFO has been on cost control and asset protection. What we find fascinating is that finance leaders working in the field are indicating their influence is shifting. SG&A costs are no longer the only section on the income statement where they are having an impact.

Price * Volume - COGS – SG&A – where is your strongest lever today? – increasing the plusses or reducing the minuses?

Read part III in our series, What Area of the Cash Flow Statement is Top of Mind for You in 2022?

Specific articles from our Contributors on this topic include:

1 CFO and finance leaders: Latest findings from PwC’s Pulse Survey

2 What’s Keeping CFOs Up At Night In 2022?

3 2022 Outlook: CFOs’ 4 realms of risk

4 These Are the Top CFO Priorities for 2022

5 Planning For 2022: Three Things Every CFO Should Prioritize Now

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

Follow us on Linkedin!

Victor’s 10 Reflections on Leadership - 6. Give your team opportunities to rise to the occasion

Steve Rosvold 00:05

Welcome to CFO talk. I’m your host, Steve Rosvold, Chief Learning Officer at CFO.University. Joining us from Wichita, Kansas today is Victor Ojeleye to discuss another of his 10 Reflections on Leadership.

Your sixth reflection, Give your team opportunities to rise to the occasion – has multiple benefits. Tell us about them.

Victor Ojeleye 00:29

Yeah, I’ll give a couple examples. Again, starting with work.

A very simple concept we all see everyday is email. I might get copied on email, my manager, my teammate, all of us get copied on emails. And one of the things for me is I’ve transitioned into this great new privilege to lead is that I feel as if I need to answer the email, respond or take some type of action. One thing I’ve noticed is that, if I’m first, it might take away an opportunity for someone who’s much smarter than myself, or someone who should really own it to step up. So, whether it’s a project or a quick answer, one of the things I am mindful of is my step forward diminishing someone else’s opportunity. So conceptually, it means give others an opportunity to step up and, and take it their own route, take their own approach and answer. This also limits the amount of time you might have to spend thinking about the issue – a teammate is already doing that. This is something I’m working on to help give others options and opportunities.

And, then there are other intentional ways of just letting teammates lead. Not giving so much guidance and letting them lead, be creative, give little feedback, intentionally, so they can grow.

When I think about it from a basketball or coaching standpoint, I might not do a teaching point at all. I’ll let the players come up with it. right? Over a process of five to six months, I’ve realized that they are now starting to teach each other. What is really rewarding for me to see that the repetitions work, right. Sports aren’t just about winning and losing they’re about life lessons and learning and repetitions. Do it again, do it again and we all build on that.

Those are some of the ways I’ve observed how letting them rise to the occasion produces great results. Ultimately, in the basketball game we’re doing some of those things we worked on but, I think that’s a similar analogy that to work in life, you give people an opportunity, because there’s so many people around me that know more than I do. And it also takes some things off my own plate because we can’t take all if it on ourselves.

Steve Rosvold 03:14

Yeah, the concept that leaders create leaders. This is how you’re approaching it. Don’t try to be the smartest guy in the room. Let the other people share in and grow from that. Wise beyond your years, Victor. Fantastic.

That wraps up this video short taken from our longer interview with Victor, Reflections on Leadership. CFO.University is a community of member scholars, companies and trusted advisors committed to the professional development of chief financial officers. Learn more about us at CFO.University.

Until next time, Enjoy. Learn. Engage.

Find Victor’s other Reflections on Leadership HERE

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

Follow us on Linkedin!