As a supplier of part time FD and interim FD services I am often faced with clients who are not entirely sure what an FD does, or why they should need one “I have a financial controller who is more than capable of knocking out a good, timely set of management accounts why do I need an FD, what do they add?”
Without doubt the role of the modern FD has changed, no longer are they expected to simply just ‘count beans’ or be a ‘safe pair of hands’.
So what exactly DOES an FD do? Firstly an FD can do nothing without management information. They must put in place the personnel, systems, controls and processes required to deliver the appropriate level of accounting information. The level of information needs to be appropriate for the size of the company, appropriate for the audience (management team, investors and staff). Appropriate to the budget of the company and where it is moving to in the future.
It is too easy for an accountant to hide behind a multi-tabbed spreadsheet or a thick management pack. Too often accountants bring the management pack they picked up from their previous employer and try to squeeze it into their current company with little regard as to whether this is appropriate.
I have a friend who is the FD of a FTSE100 company – until recently he didn’t have a computer on his desk. I was both horrified and amazed, but on reflection I was also rather jealous. With a beautifully designed and modelled spreadsheet the temptation to go straight into detail is high. I think I would be better served sometimes if I sat back and reflected on what I really needed to know for the business.
There are some CEO’s who do not fully understand their accounts but are comforted by a number of artistically crafted graphs and if there is a really thick management pack as well, then „someone must be delving into it and analysing stuff“, mustn’t they?
It is worth noting that often the FD’s best decisions (and sometimes worst!) is the selection of the accounting team. Team recruitment and development is often the area that the average accountant has the lowest level of skill and experience in. This is partly why our own Isosceles’ service has been so successful. Our FD’s are backed by an experienced team of accounts assistants, accountants and controllers, all tried and tested in difficult situations – battle hardened. We make it easy for the FD to look good.
There is nothing worse for an FD than an under-skilled, de-motivated team supporting them. The finance department needs to be built on solid foundations – standard controls and procedures performed regularly, reconciled, reviewed for variance and non-compliance. On top of this can be layered good standard reporting and on top of this can be layered advanced analysis and KPI identification. The FD must fashion and produce this department. They must be able to lead and motivate.
Painting the Picture
(I could go on about controls, but to be honest any good financial controller ought to be able to put these in place.)
A balance sheet is a static picture at a point in time, it says neither that a company is doing well nor badly. It simply says at the moment we could potentially liquidate all our assets and liabilities at book value for X.
Even a profit and loss account for a single period does not provide enough information, about the performance of a company.
Each piece of analysis is a paint colour and the job of the Finance Director (FD/ CFO) is to take the colours and paint a picture of the overall performance of the company. It does seem surprising that I am equating what is a mathematical output into terms that are artistic, but this is what the best FDs do. This is especially true of smaller organisations where the company may be operating using incomplete data as to the state of the market and competition.
The painting of the picture through the presentation of numbers and the commentary are the primary communication methods used by the FD. The ability to communicate is essential.
Once again the degree of communication required can vary from industry to industry. In creative industries the nature of the communication is vital – the executives of a company are often dealing with intangibles, they are in the business of communicating messages and ideas and this is how they would like to be communicated with.
Entrepreneurs often have very short attention spans they require the bare bones quickly and efficiently. They don’t want to wade through pages of analysis nor do they necessarily want to have the numbers pitched with spin. The ability to be able to answer a straight blunt question with a straight blunt answer is often the most important.
In a manufacturing environment the executives are used to wading through quite large amounts of analysis and variance. These are generally highly analytical people.
An FD needs to understand what the information and communication needs of his management team are and adapt his/her message accordingly.
An FD should be able to take the information about the business and use it to affect change within the organisation, questioning the conventional wisdom. The FD needs to be the ‘critical friend’ of all areas of the business. Asking every manager to look at the cost benefit equation of every area of expenditure or investment. The trick for an excellent FD is how to do this without interrupting business and without affecting the ability of the company to execute. Again communication is a key factor, the FD needs to be able to frame why he/she is questioning the expenditure or investment in the bigger picture of the budget or plan.
The role of the FD is to bring the various elements of the business back to the central plan, but also have the ability to see when the assumptions underlying the plan have changed and be able to model the new scenarios and to change the financial priorities.
In the most successful businesses that I have worked with there has been a healthy tension between the key business functions. Sales and marketing need to be pushing the boundaries, service or product delivery need to be pushing the boundaries. Finance needs to be the flexible glue that holds these functions together and prevents them from fracturing.
This is often the most controversial role of the FD. It is easy to get this part of the role wrong, to stray outside of the FD’s remit for situations to become political. I believe that this is the last piece of the puzzle. Dependent upon the situation of the company, the FD must earn the right to challenge the other areas of the business by delivering excellence in the first two parts of the FD role.
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Source by Mike O’Connell