Do you ever wonder the real reason you have an accounting department (and a Controller or CFO to run it)?
Most entrepreneurs hate the fact that they have to spend money on a function/department they consider to be a pure “cost center”.
One thing I learned early in my career as a CFO was that when I showed a really smart entrepreneur or CEO what the role of accounting really is their eyes would light up. I helped them see the wisdom of thinking more strategically about how the accounting and financial side of their business is being managed.
Your accounting and financial function only has two purposes.
- Help you create a company that is strong financially
- Create and foster confidence and credibility in the minds of lenders and investors
That’s why your CFO, and the accounting department, exists. Everything you demand of your accounting function, and everything that happens in that function, should be aligned under those two objectives.
Let’s look at each one in more detail.
1. Help you create a company that is strong financially
The only way to survive in business is to constantly focus on driving your profitability and cash flow higher.
The competition is always after you (and your customers). Payroll is always going up. The cost of products and supplies is constantly increasing. Margins are always under pressure.
You want your management team to have the information and insight they need to answer the key questions they should be asking like "Did the strategies and goals we are focused on produce the specific financial results we expected?" And "What do I need to do different going forward to get the financial results we have targeted?"
The CFO to the rescue
To accomplish that, you need a relationship with your CFO where he or she is excited about providing the information in a way, and on a timetable, that speeds and improves decision making in your company. This is one of the most important roles they can play.
When the accounting function is proactively providing insightful information designed to help make decisions, everything changes. They are no longer just providing financial statements or tax returns because someone told them they had to.
Now they are thinking about the business. They are thinking about the goals and objectives of the company. And they are creating reports and analysis designed to help you and your management team assess performance and make better business decisions.
That's how the accounting and finance function can add tremendous value to you and the company in your ongoing effort to improve profitability and increase cash flow.
2. Create confidence and credibility in the minds of investors and lenders
This is where your CFO can lead the way in ensuring you always have access to the capital, the cash, you will need to grow your business over time and win financially in business.
And where will much of your growth capital come from? It will come from investors and lenders.
You will need the support and backing of banks, lenders, and investors to ensure you have access to capital when opportunities arise.
It’s all about confidence and credibility
To get their support and backing they have to have confidence in you and your company. They have to trust you. You have to demonstrate credibility in their eyes.
And remember, lenders and investors are financially oriented people. It's impossible to create confidence in their minds without a strong accounting and financial function providing them insightful and relevant financial information every month.
It’s also important to remember that investors and lenders are not usually involved in the day-to-day activities of the business. They need to understand the essence of your business, and the essence of your financial results, without getting bogged down in too much detail. They need a different view of the business than management.
You want to help them understand the key drivers of profitability and cash flow. You want them to quickly and easily understand how your financial results compare to your plan and prior periods. They want to understand trends and trajectory.
This means they need targeted and insightful financial information delivered every month. That’s what helps them become comfortable and knowledgeable without having to do a bunch of work to figure things out.
Fast and accurate is the path
When you provide accurate information quickly, and you do it consistently month to month, you set yourself out as a company that has its act together. Lenders and investors love it and you will forge a strong relationship with them that will last a long, long time.
The more confidence they have in the financial information they receive from you, the more support and backing they will provide you and your company over time.
This is an opportunity for your CFO, and the department they manage, to take charge and play a vital role in the success of your company.
I talk more about the roadmap for creating confidence and credibility in my article How to win friends and influence investors (and lenders).
I also set out some of the most common pitfalls I have seen entrepreneurs and CFOs make with lenders and investors in my article How to build credibility with the financial community.
Your next step
Sit down with your CFO and talk about how to better align that function with the two real purposes of accounting – helping you improve results and helping create confidence and credibility in the minds of lenders and investors.
You have a beautiful opportunity here to turn your accounting and financial function into a valuable strategic asset in your company.
Now is the time to make sure that your accounting and financial function is an important part of your strategy to win in business.
Philip Campbell’s Blog is dedicated to helping you get the accounting and financial side of your business under control.