Aligning your CFO strategy with your CEO strategy is essential for building a solid company.
CFO and CEO strategies can sometimes deviate in certain phases and cause tension. However, to operate optimally and create a stable environment for success, both strategies must move the company in the same direction.
While there are differences between the two roles, they must work together for the company to achieve its goals.
KPI and Data Management
The company’s key performance indicators (KPIs) provide necessary info for CEOs to make decisions. The CFO is responsible for using these to ensure that the CEO’s plans will work.
The CFO’s strategy includes defining KPIs and other internal metrics to track performance over time and measure operational efficiency. These metrics need to flow from the CEO’s strategy down through the organization into the CFO’s strategy.
Metrics aren’t the same as data. Metrics represent a synthesis and often give a relation, while data is raw numbers. CEOs have ideas of where they want to take their company, and CFOs have an idea of what numbers they need. They use metrics to determine how to meet those goals.
One of the essential duties of a CFO is to be an effective communicator. The CFO can’t only know how to read financial reports; she also needs to explain the data in a way that isn’t confusing or intimidating to the audience, often the CEO.
Together, the CEO and CFO work to determine KPIs and other metrics used to measure the company’s health. These metrics serve as a report card for the company, looking at short-term and long-term goals and determining what needs to be done.
Financial Planning and Budgeting
Financial planning and budgeting allow for the creation of a workable plan. A plan is essential for structuring the business’s development and steering clear of trouble in the future.
These plans provide the company with financial decision-making tools, especially in financial matters. It also assists management in staying on top of their finances.
The CFO is the company’s head of financial planning and budgeting. They use analytical strategies to determine what sort of financing can best fill the company’s needs.
Strategically applied risk analysis techniques, like discounted cash flows, help the CFO determine the value of investments and other opportunities for the company.
The CEO and CFO must work together closely to determine the best way to deploy the company’s limited financial resources.
The CEO will typically develop general strategic plans outlining all she wants the business to accomplish. A CEO might even have a rough understanding of how much money it will cost to implement these plans. The CFO then works with the CEO to determine the best capital allocation for achieving the best outcome on those goals.
Short Term Strategizing
Short-term strategizing is what you do when trying to get the company’s financial status in order. You track your expenses, balance your budget, and make sure you have enough cash on hand to operate comfortably. In short, you work to grow the business while ensuring it can sustain itself in the present.
The CEO needs the CFO’s help in short-term strategizing by defining what’s working and what’s not and ways to cut costs or increase revenue. That way, the business can remain competitive and profitable while growing into its long-term strategy.
Once you’ve established a financially stable company with a strong foundation for growth, you can start implementing your long-term strategies without worrying about falling off a financial cliff if things don’t go as planned.
Long Term Strategizing
When it comes to the long-term vision for the company, it’s sometimes easier for CFOs and CEOs to be aligned.
Because CEOs are not deeply involved in a company’s day-to-day financial operations, CFOs can provide valuable insights into what will happen, whether a few months away or a few years.
Using long-term financial forecasts, CFOs can help CEOs understand the available strategic options and the potential impact of these strategies on the business.
For example, suppose a competitor is about to launch a similar product as one of your low-sellers where you have minimal market share. The CEO may consider cutting losses and discontinuing production.
However, suppose the CFO then shows another customer segment interested in buying this product and can demonstrate production costs decreasing with scale. In this case, the CEO may decide to continue production and invest in more targeted marketing.
Are You Ready to Merge CFO Strategy with Your CEO Strategy?
Whether your company is a small startup or an established business with decades of history, a clear and achievable strategic vision is essential to your success.
As CEO, you are responsible for that vision, but your CFO and finance team play a crucial role in helping you to achieve it. Merging your CFO strategy with your CEO strategy allows your team to make better data-driven decisions.