Financial discipline is not just for finance leaders. Everyone in the organization must meet the company's financial goals and live within its constraints.
In an interview with StrategicCFO360, Angelo Gray, CFO of Seattle-based 98point6 Technologies, discusses how to create a financially disciplined culture, what it can do for your organization, and the biggest challenges for today's CFOs. and talked about change.
Why is it important to establish a company-wide understanding and commitment to financial discipline?
Financial discipline is the foundation of effective business management, so it's important that all employees understand the importance of prudent financial decision-making. When everyone understands what money is coming in, what money is going out, and what that means for the stability and success of the business, businesses can optimize their resources and eliminate waste. You'll be able to reduce spending and allocate funds more effectively where they're needed most.
Promoting a shared commitment to financial discipline fosters trust and accountability across the organization. When employees are aware of their financial goals and constraints, they can adjust their daily efforts accordingly. This provides visibility and clearly expressed information. why Foster an environment where everyone feels responsible for the overall performance of the organization.
Additionally, by understanding the impact of their actions, employees can identify potential risks and recommend ways to mitigate them before it's too late. Just as a skilled crew steers a ship through dangerous waters, our organization thrives when each member of our team is informed, engaged, and willing to collaborate.
From an external perspective, investors have great confidence in organizations that consistently demonstrate a commitment to financial responsibility through good times and bad, and demonstrating this as a company-wide value sets them apart from other companies. You can differentiate yourself. Companies that manage their finances wisely are more likely to be in a good position to weather economic downturns, adapt to market fluctuations, and deploy capital opportunistically.
What lessons does it offer organizations for establishing financial reporting and performance metrics when launching new lines of business?
This is a very timely question. We just went through this process last year at 98point6 Technologies, where we transitioned from operating as a standalone virtual care clinic to now licensing our virtual care technology platform solely to health systems and other provider organizations. He summarizes my advice into three buckets.
Establish clear expectations for when and how you will communicate with your board and investors. By joining this group early on, you can build trust and gain support. This is essential to securing funding when you need it and maintaining long-term relationships. Clearly articulate the strategic vision for the new business area, the key performance indicators you have established as a management team, and the expected financial trajectory. Then follow up with regular communication and transparent reporting.
Redistribute workload across finance and accounting teams as needed. When starting a new business, it's important to assess the tasks and responsibilities involved and allocate resources accordingly. The way you and your team have worked in the past may not be the best way to work in the future. Make sure your finance and accounting team is properly staffed and that members have the skills needed to meet the specific needs of your new business. Consider cross-training team members to close skill gaps and create a more seamless transition.
Maintain clean books for new business areas. It cannot be overstated that accurate and clear financial reporting is critical to success. Implement clear accounting policies and procedures to maintain clean and reliable financial records, set up new bank accounts for new lines of business, and clearly separate finances from existing operations. Having strong internal controls in place can help prevent mix-ups of funds and errors in financial reporting.
The most important thing here is to be honest with yourself. Not everything will be perfect with the changes, so be sure to review and adjust your account regularly to identify and quickly resolve any discrepancies. All these efforts to keep your books clean not only help you make decisions by providing accurate information whenever you need it, but also prepare you for successful audits and compliance requirements.
Establishing this solid financial infrastructure is essential to providing financial clarity for all stakeholders.
What are the biggest challenges CFOs face when managing a company's finances through acquisitions and divestitures?
Reaching the point of acquisition or sale is typically a milestone achievement for any business. But depending on the circumstances in which this milestone is reached, it can be bittersweet and certainly come with challenges.
One of the biggest is financial integration and/or financial decoupling. This means integrating the financial systems and data of the acquired and acquiring companies, or conversely, separating the sold company's finances from its parent company through a sale. These are incredibly detailed and difficult processes. Thorough planning and careful execution will ensure a smooth transition. And of course, this attention to detail also helps you navigate the complexities of regulatory requirements and compliance issues that may arise.
Other challenges inherent in the early stages of the process include accurately valuing the target company, assessing its financial health, identifying risks, and identifying potential liabilities or hidden issues that could affect the success of the transaction. discoveries etc.
I also want to note that CFOs aren't just looking at numbers on a spreadsheet. Employee and culture sensitivities are also taken into account, especially when dealing with a sale or managing the transfer of affected employees. Ongoing communication with internal and external stakeholders such as employees, investors, lenders, and regulators is non-negotiable. Being transparent and managing expectations throughout the process will help maintain trust and credibility.
Even with the most thorough planning, delays and unforeseen problems often occur and can lead to increased costs, loss of value, and even failed transactions. CFOs must be able to closely monitor progress and adapt as circumstances change.
How do you think the CFO role will evolve over the next few years? What's different now than it was 10 years ago?
The role of the CFO today is very different than it was 10 years ago, and we expect it to be even more evolved in another 10 years. Perhaps the biggest change today is the diminishing of the traditional emphasis on accounting background. Instead, his CFOs with strong strategic and financial acumen are increasingly in demand. This change recognizes the importance of his CFO as a strategic leader who can navigate a complex financial environment and drive business growth.
They are no longer limited to the role of “bean counter”. They now serve as trusted thought partners to the CEO and actively participate in shaping key strategic initiatives. Their insights go beyond financial issues to encompass broader business strategy and decision-making. Again, these budget numbers represent real people, real products, and real business potential.
CFOs are also taking on more diverse responsibilities, including oversight of administrative functions, IT, legal, and human resources. Some companies have adopted dual CFO/COO roles to reflect their broader operational influence and role in driving efficiency and performance across the company.
I believe that over the next few years, the CFO role will continue to evolve in this direction, becoming increasingly focused on strategic leadership, cross-functional collaboration, and a holistic understanding of organizational operations. This transformation highlights his CFO's pivotal role in driving financial success and overall business growth. In my biased opinion, these are incredibly exciting and dynamic times to be at any level in the field.
What takeaways or career advice would you give to other CFOs on how to approach and navigate their jobs today?
I would tell CFOs and aspiring CFOs to shift their focus from growth at all costs to ensuring long-term sustainability. For many companies, chasing high valuations instead of profitability and becoming profitable as quickly as possible is a deadly slope. But rigorously measuring and analyzing each growth opportunity can help chart the fastest path to profitability, and is even more important during times of economic turmoil.
I would also caution CFOs against waiting too long for their next funding round. This can be dangerous, especially when market conditions are uncertain. CFOs need to explore creative and diverse financing options, considering options such as debt financing, strategic partnerships, and even non-traditional sources. Keeping an open mind and being opportunistic when it comes to fundraising will help you secure resources when you need them.
I've said it before, but I'll say it again. Clear and consistent communication always wins. Keeping everyone informed and aligned with the company's financial strategy and challenges fosters trust and ensures a unified approach to overcoming obstacles.
CFOs have the difficult job of keeping the financial ship steady while continuing to track growth. But it's not impossible. To shine in our roles, we need to steer the ship, stand out, think outside the box, remain open and honest, and collaborate closely with others. By doing so, we can become first-rate leaders who can navigate the difficult waters of today's business world.