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How does a CFO influence strategic decisions?

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When it comes to a business, there are a lot of important players that need to work together in order for it to be successful. One of the most important positions in a company is the Chief Financial Officer, or CFO. 

This individual is responsible for all the financial transactions and records for the company, as well as providing analysis on how the company is performing financially. But what many people don’t realize is that the CFO also has a big influence on strategic decisions made by the business. 

Let’s take a closer look at how CFOs impact strategic decisions, as well as some of the things they may take into account when making these choices. 

Why is a CFO involved in strategic decisions?

The Chief Financial Officer (CFO) is responsible for the financial health of an organization. They are responsible for developing and implementing financial plans, as well as for providing leadership and direction to the finance team. As such, the CFO is intimately involved in all aspects of the organization’s finances, including strategic decision-making. Let’s break down some of the most common reasons a CFO is involved in strategic decision-making within a business.

  • Data-based decision making: Chief Financial Offers are trained to make decisions based on data and not on emotion. Many other members of an organization, even those in senior executive positions, can let their emotions enter into their decision making – especially if an initiative is one of their own recommendations.  The CFO uses data to help others understand the pros and cons of a strategic decision.
  • In-depth knowledge of organization: Other than the CEO, the CFO has the best and broadest view of all of the functions of the organization and how each impacts different line items in the income statement and balance sheet. The CFO can determine if the company has the resources to execute proposed plans. Given this, the CFO is well positioned to be intimately involved in any strategic decisions.
  • Analytical Mindset: CFOs are experts in financial analysis and being able to delineate the risks and opportunities with proposed projects such as new product or service launches, acquiring another business, investing in new buildings or equipment, etc. By outlining these risks and opportunities and discussing them with the rest of the management team, CFOs help the organization make sound strategic decisions.
  • Strategic decisions impact finances of a company: Strategic decisions always impact the finances of an organization – launching a new product or service involves investment in marketing and usually equipment, building a new plant involves raising capital, an acquisition is a major project that requires a great amount of time on behalf of the finance department. Therefore, a CFO has to be involved in these decisions to vet all forecasts and perform due diligence.  
  • CFO is the best communicator with key stakeholders: If you’ve ever listened to a quarterly corporate review call, you will have noticed that the CFO shoulders the burden of the majority of the performance discussion with shareholders, analysts, and other vested parties. The CFO also acts as the primary internal communicator and ensures that all employees understand how their actions impact the financial statements, as well as the health of the organization.

Keep Reading: What are financial projections and why do you need them?

How does a CFO influence strategic decisions?

The chief financial officer (CFO) is the executive responsible for a company’s financial planning and management. As such, the CFO plays a critical role in shaping strategic decisions. These decisions can expand to include assessing financial risks and opportunities, forecasting cash flow, analyzing market trends, and evaluating new investment opportunities – all of which impact long-term goals.

The top ways a CFO influences strategic decisions:

  • Turns data into actionable insights: Numbers tell a story and the CFO is the storyteller.  A good CFO knows how to turn accounting and financial data into insights that everyone can understand and develop strategies and tactics to continuously improve performance. 
  • Leverage their years of experience: Having a minimum of 10-15 years under their belt, seasoned CFOs draw upon their learnings from previous companies and industries to make decisions. There is never 100% of the information one would like when making a decision and this depth of experience is invaluable in helping overcome this deficit.  
  • Voice of Reason/Reality: Because a CFO performs in-depth analysis and forecasting, he/she is in the best position to educate other key stakeholders on the advisable choice of how to proceed.  
  • Analyzes alternate courses of action: Situations never have just one option for proceeding. CFOs are well versed in developing and analyzing alternate courses of action for each situation.  
  • Assesses viability of organic growth vs. merger or acquisition: Companies want to grow and there are two ways to do that: organic (or internal growth) and acquisition/merger with another organization (external growth). CFOs are heavily involved in the assessment of which course is best based on the organization’s internal capabilities and  window of opportunity and attractiveness of any merger or acquisition.

Keep Reading: 5 types of virtual CFO packages

What strategic decisions are CFOs typically involved in? 

The chief financial officer (CFO) is responsible for a company’s financial planning and management, and they are heavily involved in major strategic decisions such as investments, acquisitions, and divestments. In addition, the CFO is responsible for ensuring that the company complies with all financial regulations and reporting requirements. As such, the CFO is a vital member of any organization, and their role encompasses a wide range of responsibilities. These roles can include the following:

  • Mergers & Acquisitions/Exit Strategy: As mentioned above, the CFO takes the lead on analyzing merger and acquisition opportunities as well as exit strategies. Not only do they perform due diligence against these opportunities, but they often are involved in the research and formulation of M&A targets and specific exit strategy to pursue.
  • Innovation Investments: Innovation requires investment – oftentimes big investment.  The CFO helps evaluate the risk and opportunity of each potential innovation project (i.e. product/service line expansion, equipment to produce, marketing budget to promote the new product/service, technology to increase efficiency, additional employees, etc.).
  • Capital Investments: CFOs are the key communicators with financial stakeholders such as bankers and stockholders. Any capital investment needs to be vetted by the CFO.
  • IPOs: Another important role comes into play for CFOs when their privately-owned company is considering or launching an Initial Public Offering.  This is a heavy lift for the organization but particularly for the finance department
  • Establishing terms with vendors and customers: Vendor and customer terms can be crafted to optimize the finances of an organization, and CFOs need to be involved in these decisions. Just a few days of longer payment terms to vendors and shorter terms for customers can dramatically increase cash flow and working capital. CFOs assess the risks and opportunities with different term options.
  • Market Expansions: If your company is currently a local or regional player, market expansion can be a great growth strategy. The CFO works with the other functional areas to assess the viability of any market expansions and which markets would be the most beneficial to the organization.

Keep Reading: Everything you need to know about virtual CFO fees

Ready to get started with a strategic CFO?

A CFO is a critical part of any business, and their experience and knowledge can help your company achieve its goals. If you’re looking for fractional CFO services that will provide you with the support you need without breaking the bank, contact us today. We would be happy to discuss our services with you and answer any questions you may have. With the right CFO by your side, your business can reach new heights.

Contact New Life CFO today for a free consultation on strategic fractional CFO services.

If you need improved financial results immediately, watch our three-part series on how to create financial stability now and improve profitability for the long term.