A CFO in the Spotlight

The below interview was conducted between Jonathan Englert, Founder of Andiron Group, and Nick Crawford – Regional Director at The CFO Centre.

THE EVOLVING ROLE OF THE CFO

Jonathan: Thanks a lot, Nick, for joining me to do a deep dive into what it is to be a CFO, what the life and the work entail.

So what’s a CFO?

Nick. The role of the CFO covers a number of aspects. We’re there to work on the strategy with the business, to see where the business wants to go over the next two, three, four, five, 10 years. But also, there’s a big operational role to make sure that the parts of the business are functioning in a way that you’d expect them to and to suggest and help with corrective action, if it’s so needed.

So, in terms of the way my life works, when you’re a part-time CFO and you’re tending to work with SMEs, a lot of it is sharing the stress, sharing the strain, with these people who own the business.  Very quickly, they run into issues around finance and not understanding. You might have a tax accountant and you might have your own bookkeeper, but that’s all linked to history. It has nothing to do with where we’re going to go in the future.

A lot of the role of the CFO is anticipating the pothole in the road before you hit it and [ensuring] your wheel doesn’t fall off your car. So it’s really managing the whole of the financial function, but also interrelated with the operations of the business.

The CFO in the industry isn’t just a finance person. They’re more an operational person. They’re always tending to move more to COO. So in a lot of the roles I’ve done, I managed back of house, with the exception of marketing. You look after HR, you look after IT, you look after property estates. You look after a lot of the operational issues that aren’t the actual function.

 

CFO AS LEADER BEYOND CRUNCHING NUMBERS

Jonathan: As a non-CFO, I’ve been in businesses where the CFOs have had varying degrees of influence, from numbers crunchers to actual people who are on leadership teams, rolling up their sleeves and injecting creative ideas into the business. And I just wondered if with CFOs, there’s a bias about “just stick to the numbers.”

Nick: I think that’s a perception, but if you look at a lot of large organizations globally, you’d find a big number of the CEOs now are actually accountants, CFOs or finance directors by profession. Because what’s interesting and enjoyable in the job is just some of those things that you’ve said, where you’re part of a leadership group and you’re steering the business.

An example this week: we had a potential resignation at one of my clients, and immediately, the sales director was on the phone to me, saying, “Oh Nick, Nick, what can I do, what can I do?” I only work with them one day a week. I’m not full-time CFO, but they will turn to me for that sort of guidance.

Jonathan. I think what you just said is really interesting. It’s a real testament to the fact that it’s not about just being on site or quote-unquote “part of the team” anymore. The whole nature or definition for how we work is that it’s really based on the value that you deliver in the rapport.

Nick. Correct.  Just as a little aside, people say to me, “What’s the judge of when you’ve been accepted by a client?” And I say, “If they invite me to the Christmas party, then I know I’m part of the team.”

It’s important that you’re not just there as an external advisor.  And a way that they value you as a member of the team is they invite you along when they go out for a function, and they’ll have a beer with you. It’s not just purely a work relationship.

 

HOW TO KNOW IF YOU NEED A CFO

Jonathan. What are the signs that your company needs a CFO, or a CFO function or influence?

Nick. Some of the signs are often people struggling with the cashflow. Historically, you’ve relied on a bookkeeper and a tax accountant to do your accounts, but you’re never really looking at where the business is going. So you’re starting to struggle to understand, “Can I afford to do this, can I afford to do that?”

Or you don’t understand your business. One of the things that I find quite astounding is, people really don’t understand how to price their business. A business will engage me… and maybe not in the first couple of weeks, but after a little while you sit down with them and go, “Well, just explain to me how you actually work out what you’re going to charge the clients.” And you sit down with them and you go, “Well, yeah, but you’ve not thought about this, and you’ve not thought about that, you’ve not thought about the others.”

And often, we end up working with them and the information they’re working with is terrible. It’s not been put together very well. There’s big issues with it. So they’re making decisions on false information.

Size is often a decider as well. A business will get to a certain size, and then they start to realize the founder is now out of his depth, the person that they’ve engaged as a bookkeeper or tax accountant is out of their depth. To take the business to the next level, they need to engage somebody with a more senior strategic financial brain.

 

THE IMPORTANCE OF DATA

Jonathan. One of the things that you said that was quite interesting is the notion of walking into a situation where the data isn’t there.

Nick. I’ll give you an example. One of the guys I played golf with this morning, he does a client for me and he’s been working with them for six months. When they started doing the work, it was just appalling.

What they’ve done is, they moved from MYOB to QuickBooks.  And when they moved from MYOB to QuickBooks, nobody checked that the data that came through was correct. So they were actually operating with a set of numbers that was actually incorrect and didn’t balance.

I know that might not mean a great deal to you, but the fundamental thing in a set of accounts is they always balance. You know, for every debit, there’s got to be a credit. And they just had a false number in their accounts, and that’s what their internal accountants have been using.

There were far more important things that needed to be looked at from a performance perspective, but we’re saying, “Look, even the foundation of your whole financial function is broken. We have to fix this before we go forward, because you cannot move forward.”

 

INSIDER ACCESS AND STAYING ON THE TEAM

Jonathan. The moment you’re given insider access, you, as a third party, instantly see these huge gaps.  There have been very few businesses I’ve gone into where I haven’t encountered that.

Nick. And then, where you’ve got to be clever is that you’ve got not to put people offside. I’ve got one of the guys [who] has just started for a client this week, and he started to tell me some of the issues that are cropping up.

I said to him, “Mate, you’ve just got to be careful. You don’t want to put everybody in the team offside from the outset. Yes, I accept what you’re saying, and these things will need to be resolved over time, but you’ve got to work with them, you can’t work against them.”

There’s no point going in and firing from the hip, going “That’s wrong, that’s wrong.”  You can’t just go in and go start firing off at everyone, because nobody will work with you. So yes, there’s a subtlety of identifying the problem, but making sure you can work with the team to get the solution. Or, if there’s people in there who need to go, you’ve got to work that out and look at how you can do it, but you don’t want to lose the team, because you’ll not get the outcome if you lose the team.

 

ACCOUNTS RECEIVABLE, BUSINESS’ LIFEBLOOD

Jonathan. From a CFO’s perspective, is accounts receivable something that you want to be out of sight, out of mind? How does [AR] work for you?

Nick. It can’t be out of sight, because it’s got to be something that you keep an eye on. Ultimately, if your day-to-days run out, that means you’re short of cash.

I work on typically a 13 week period, and I can see some of the big costs that come along. Obviously, you’ve got payroll, but you’ve mostly got TST, you’ve got superannuation. And what contributes into funding all of that is converting sales into debtors into cash. Therefore, there’s an important part in making sure the people are on top of their collections.

And yes, using your word, you’d almost have to be a psychopath to enjoy giving people a hard time. You phone up and they give you a sob story and you go, “Yeah, yeah, don’t worry,” “Yeah, we’ll give you another week.”

But at the end of the day, if you keep doing that, ultimately, you can’t even pay your bills. And then we won’t be able to do what we need to do. So, it’s imperative, it’s the lifeblood of the business. Cash is king, and where do we get our cash from? Our customers.

You’ve got to be on top of it all the time. It’s a vital role within the business. Vital.