What does financial leadership actually mean?

Author: Rowan De Klerk – The CFO Centre

The last quarter of the calendar year is always a challenging one for businesses – particularly when it comes to keeping customers and staff engaged. This is a time when organisations with strong financial leadership come to the fore.

If you take a look at the businesses around you, how many of them are planning their December shutdowns, end of year functions and pulling back on activities such as marketing and business development?

As a CFO and business owner, I naturally gravitate toward thinking about the numbers involved.

There are 365 days in the year and of these, 104 are weekends – this leaves you with 261 working days in the year. If the last quarter of the year – 90 days – is focused on end of year shutdowns, that means that your organisation is actually only focused on work for 171 days or 46% of the year.

Obviously different sectors will have different boom times and very few organisations can afford to write off the last quarter of the year in its entirety, but this is where financial leadership and good decision-making become so key.

As my entrepreneurial and business journey has progressed, I have become increasingly aware of the importance of high-quality decision-making and having a disciplined process to work to. This has also been affirmed by some of the reading I’ve done from thought leaders including clinical psychologist Jordan Peterson and more recently Bridgewater founder Ray Dalio.

Early on in my career, I was building a business, running a separate restaurant and doing property deals – being busy was good and I thought I was making a profit, but when I stopped for a moment and asked myself: “Rowan, what evidence do you have that this is a good decision?”

When I started to unpack that question, I took a deliberate decision to exit the restaurant and property deals and rather focus on my business. I was going to go deep into a single business rather than wide into multiple activities.

Let’s bring it back to the 46% of the calendar year I mentioned earlier. Do I get a superior return with 46% of time diluted across multiple activities or do I get to out-perform through a business that can operate optimally on 46% of the calendar year?

Based on the evidence, the latter was the right decision for me on multiple levels.

Despite this, very few organisations have a sound decision-making process and I think a lot of this is because the CFO function is relegated to purely financial rather than strategic. On the whole, a CFO wants to make decisions based on data. When faced with a fancy sales presentation, they can cut through the noise and identify profitability and trends. If they are meeting to discuss the annual increase on a lease agreement, they don’t look at the new art on the walls – they look at the hard data in terms of inflation, occupancy and interest rates.

This is such a key issue as so many businesses are consumed by “chaos” or “noise” and this forces organisations to make poor short-term decisions that have long term consequences.

Jordan Peterson talks a lot about finding a balance between chaos and order which is particularly relevant at this time of the year. In his book “12 Rules for Life”, Peterson says:

“Order is not enough. You can’t just be stable, and secure, and unchanging, because there are still vital and important new things to be learned. Nonetheless, chaos can be too much. You can’t long tolerate being swamped and overwhelmed beyond your capacity to cope while you are learning what you still need to know. “

A good CFO is able to help guide a business through a mixture of chaos and order at different times of the year and ensure that the business continues to track against the strategic goals for the year.

Ray Dalio has founded one of the worlds most successful hedge-funds and he has dedicated a lot of time to the decision-making in his business. Dalio effectively divides decision-making into 2 types of decision: Either evidence / logic-based or sub-conscious / emotion-based decision-making. In many ways, this captures the unique relationship between a CEO and CFO within an organisation.

A good CFO can introduce what Dalio describes as “Radical transparency” and ultimately use data to inform how a business makes key decisions. This in turn flows through into the operations of the business. If you can make better decisions 50% more often, your operating performance is likely to improve significantly.

As we enter the last calendar quarter of 2023, utilise some of this down-time to focus on your decision-making processes inside of your business. Instead of being forced into short-term decisions, lean on your CFO, business mentor or coach to help guide and interrogate your processes.

Ultimately this investment will reap dividends and put you in a position to navigate the “chaos” that is involved in running a business.