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No rookie mistake! 5 Hints for new CFOs


08/26/2016

The vast majority of respondents in a commercial environment look upon CFO as one of the most influential people in the directorship of any enterprise. Often, he is even seen as the second most influential person. At first glance, it seems that such a position is a tidbit.



Stop jumping to conclusions! There are some pitfalls, which can catch foot of a newcomer. Here are five hints for new CFOs that will help to get your sea legs.

1/ Any person, regardless of their professional knowledge and skills, is susceptible to the first-day stress. 

For most of people, it is very difficult to control oneself and focus on the task under pressure. Oftentimes in such situations, young executives start to solve problems through canned approaches and techniques that are not always discerning. It happens that problems seem insoluble and there is no way out. This is the very point when one may want to drop everything and go away. What is important to bear in mind is that the most difficult move is to resist and find the right way out. CFO must learn to control their thoughts and emotions to reach the end of purpose.

Lynn Taylor, a national workplace expert and author of "Tame Your Terrible Office Tyrant; How to Manage Childish Boss Behavior and Thrive in Your Job", gives a tip: “Most of us remember our first days at every job because of the heightened pressure to impress. But you can reduce your anxiety by being as meticulous in planning your first day as you were in securing your new position.

2/ It is clear that experienced staff have specialized knowledge that cannot always be learned from books, so show humility.

For a young CFO, it is extremely important to establish a relationship of trust with the team - remember that their knowledge was obtained precisely in this company, which means that their experience should definitely be taken into account when making decisions. And you all know how easy it is for a new CFO to feel overwhelmed with the workload, or to feel loneliness when the time has come to make important decisions. Do never forget that you will ever take responsibility for the strategic moves you prescribe.

From this point of view, external savvy advisors and especially corporate consulting firms may help you exercise more discretion in evaluating the relevance of your decisions. Some of them, such as Duff & Phelps, even historically specialize in corporate finance advisory. “We’re not auditors. We are an alternative to some of non-audit services offered by the Big Four” explains Duff & Phelps’ Managing Director Yann Magnan. “Duff & Phelps’ core business is best described by “powering sound decisions”, i.e. giving peace of mind to decision makers who come across engaging decisions on a daily basis." The company mainly advises C-level executives and board members. Its primary service areas are valuation services, dispute consulting, M&A advisory, restructuringalternative assetstax, transaction opinions and legal management consulting.  “Across the globe, for each asset, each service, and each industry we now have highly specialized experts, thanks to whom we’re able to provide a sophisticated expertise on almost every specific issue”, claims Duff & Phelps’ MD.

3/ Unfortunately, finance is not relevant to a field where you can start immediately.  

It is necessary to probe deep into the matter of any ongoing process, even if you have a good education and a lot of experience under your belt. Ironically, you cannot immediately apply all your previous experience to the new company. Similarly, not all the knowledge from textbooks is suitable for each particular enterprise, since every company has its own specific constraints. For starters, it is necessary to differentiate between what is important and what is beside the point, as well as not to try doing everything at once. As the principal, we can identify three main questions that any new CFO should ask himself:
  • Where I am (meaning initial assessment of the company)?
  • What objectives and deadlines are in front of me?
  • How do I solve this problem?
Then, to grow in confidence, try to do some homework. Map out a course of action, or read a relevant book – for example, “The Personal MBA: Master the Art of Business” by Josh Kaufman. He is an outstanding manager, who opens up the very structure of business. His book makes things as clear as a bell – and certainly, it will give you a broad overlook for a better understanding of your company’s gears.   

4/ Carrying out express analysis, there is no harm in paying attention to the areas with possible leakage or inefficient financial resources (e.g., inventories, fixed assets and so on). 

It is important to estimate the debt’s amount, its durability and actuality, as well as to check what the company does to get it back. For a more in-depth analysis of balance sheet, you will calculate various financial ratios, such as ratios of current and quick liquidity. Inventory turnover ratio, which are relevant in the case of a substantial amount on inventory items, can be helpful too. All the indicators, used for the study, should be considered over a long period. You may need to hire an independent financial adviser - in this case, you would be able to absolve yourself of additional stress.

Also, risks arising for the company (banks, debt, fixed assets, etc.), must be given special priority. Each company, depending on the specifics of the work, may have their threats. Analyze whether the company is engaged in hedging the risks - perhaps you are the first to take this challenge. Well, not every company can afford a financial adviser. In this case, you can go for something simpler - special software for instance. There’s many programs for any taste and budget. Among them, one can highlight Financial Analysis CS or iLumen.

Financial Analysis CS for example reviews and compares a client’s financial position with business peers or industry standards. It also can compare multiple locations of a single business to determine which are most profitable. Users who subscribe to the RMA option can integrate with Financial Analysis CS, which then lets them provide aggregated financial indicators of peers or industry standards, showing clients how their businesses compare.

iLumen regularly collects a client’s financial information to provide ongoing analysis. It also provides benchmarking information, comparing the client’s financial performance with industry peers. The system is Web-based and can monitor a client’s performance on a monthly, quarterly and annual basis. Analysis tools are viewed through customized dashboards.

5/ Observing the overall picture of the company, you can delve into the details. It should begin with a study of the work organization in the financial service.

Ask yourself the following questions: what is the morning routine? How is information received? How is information processed and where is stored (software and other IT-tools)? How are sites and human resources distributed? Then, try to assess the level of employees (if possible, carry out an easy game-form test, with main purpose to assess the ability and willingness to perform tasks). Finally, evaluate the existing control procedure and the likelihood of unwanted leakage of information and funds.

It may look like a job for HR – but then again, there’s many helpers for you – starting from special dedicated journals (such as HRMagazine or Society for Human Resources Management), and finishing with hired consultants. However, first try to pop in the good old HR department – they surely know best approach.

In conclusion, once again concentrate on goal setting, focusing on the global aspects. Only then, you will succeed. Be persistent - Winston Churchill once said: "Success consists of going from failure to failure without loss of enthusiasm". It is also important to use a non-standard approach when solving problems. You cannot always clearly adhere to the textbooks rules, since it does not always work. The truth is that each company has its own structure, methods and, finally, corporate culture, which also plays an important role. Besides, if you always play by written rules, you will surely lose, as everyone already knows them. Well then, good luck!