Small business owner, I congratulate you. Your business has grown to a point where you need to beef up your accounting firepower in the form of a finance manager. Maybe your enterprise is now a middle-market company, big enough to justify giving your "numbers person" the grander title of chief financial officer.
Either way, I commend you for wisely trying to hire someone who isn't just a bean-counter, but who has strategic vision and at least some depth in several key areas of your business, including marketing, human resources, and technology.
But how will you ensure that you're getting the most out of this key hire? Below I've compiled five thematic questions to guide you in working with your finance manager. These questions are designed to get at both granular and broad themes in your business; collectively, they can help create a constructive working relationship to push your business forward.
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1. What's our cash position?
It doesn't matter how large your enterprise grows, or what kind of margin of safety your bank balances provide. Knowing your company's daily cash position (adjusted for deposits and outstanding checks) is one of the best exercises you can engage in as an owner or CEO. Asking this question frequently, and signaling its importance to you, creates a teamwork mentality with your finance manager regarding the most critical resource in your business: cash.
Getting a daily read of the enterprise's cash position builds an intuitive sense of the seasonal ebbs and flows of your business. When balances linger for too long at a marginal level, you'll know in your gut that inquiries need to be made. And growing cash levels will also stand out -- they'll need to be distributed to stakeholders, placed in investments that can stay ahead of inflation, or plowed back into business operations.
From my past experience as a CFO in manufacturing, I can personally vouch for the value of mutually building that cash flow awareness, to support a host of larger business decisions. So avoid letting your finance manager worry over cash alone. Keep it top of mind for both of you!
2. What from the dashboard (or other reporting framework) leaps out at you?
Your finance manager will keep an ongoing summary of important metrics that address financial health, as well as a range of others that address sales, asset utilization, and even marketing effectiveness.
Increasingly, accountants build visual "dashboards" in Excel, or utilize off-the-shelf business intelligence software available from companies like Tableau or Qlik. It's easier than ever to obtain a quick read of an organization's health and pain points, in graphical formats made easy for non-finance people to grasp. Make it a point to regularly review these types of reports with your financial manager, outside of formal presentation days. Pick his or her brain on the positive and negative trend lines which are being formed out of company data in real time.
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3. What, in your opinion, is our most important key metric?
This is related to both of the first two questions, but with a much more specific focus. In most businesses, a handful of important metrics exist which, if tracked and optimized, will increase the organization's success. Key metrics tend to touch on revenue, profitability, and/or the productivity of operations.
But to take things a bit deeper on both a business and a philosophical level, a business owner should know what his or her most important key metric is. In other words, what activity, resource, or sales result is most crucial to the company's current success?
Your finance manager or CFO, having a broad overview of company operations and day-to-day oversight of the financial function, can prove a wonderful partner in this exercise. But be advised: It may take some time for your finance manager to get back to you with the answer, especially if he or she was hired recently.
4. What should IT spend its money on next year?
In small businesses, and even some middle-market companies, IT help is often spread extremely thin. Between installing and caring for computer and mobile devices, and implementing "glue" software that helps work get done (like production software, Google Docs, Microsoft Windows, Slack and similar apps), IT staff don't always possess the resources or time to fully vet strategic technology initiatives.
Thus, if there's one part of your staff your finance manager should integrate tightly with, it's IT. A finance manager can bring ROI (return on investment) discipline to IT's various suggested projects and purchases. In fact, you hired your finance manager for tasks just like this: to weigh the costs and benefits of each of the tools that help your company achieve both daily work and long-term goals.
Let's say a manager in your architectural services firm wants to order several new AutoCAD licenses. What's the payback period, and how much efficiency will the new licenses bring?
Or let's create another scenario: IT suggests that your small flexible manufacturing company replace its outdated job costing software with a completely new system, which will (of course) run into six figures. Could this purchase boost profitability significantly, or will it end up dragging on earnings due to the complexity of the installation and steep learning curve?
Your finance manager can help work through project scenarios like this to determine whether to accept or reject an investment. Consider it the finance manager's duty to merge IT's budgeted wish list with company strategy.
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5. What does our capital structure look like five years from today?
A company's capital structure reflects the way it's capitalized -- that is, how money has been supplied both to found the business and to help it grow.
In some cases, entrepreneurial start-ups get supplied with owners' equity from day one, and expand through self-funded growth.
In other cases, a company's capital structure will consist of a mix of equity and debt. You can review a current balance sheet with your finance manager to see exactly what your firm's capital structure looks like today.
If you're planning on growing, it's wise to envision the money piece of the journey ahead of time. You may not have a detailed strategic plan written in five-year increments. But as an owner, you probably have a good idea of where you'd like the company to be five years from today. Will you need to alter your capital structure to get there?
In other words, will you be required to put in additional capital of your own, take in outside investors, add debt, or mix any of these three strategies? Or could your business provide the earnings and cash flow to hit your targets itself? Debt often plays a more important role on a company's balance sheet as an organization grows. You may want to read a primer on how small business owners can approach debt with a degree of confidence.
Your finance manager can do the heavy lifting of modeling earnings, cash flows, capital expenditures, and more on a spreadsheet. If projections show that your future capital entails heavy borrowing in year three, you can get started working on those key banking relationships today. Like the cash flow teamwork we discussed at the beginning of this article, envisioning capital structure with your finance hire is an extremely fruitful exercise, and it will reward you for the time spent many times over.
