• Gary Dolman, Previously, co-founder and CFO of Monzo. Non Executive Director at ELEMENTARYb


• 23.06.2021 01:30 pm
#financial #management

The role of CFO has never been more demanding.  As well as providing invaluable counsel to the CEO and managing the company’s financial resources, CFOs must wrestle with cost pressures and external economic shocks, and handle the transition to a more automated management function - all whilst satisfying an ever-expanding set of reporting regulations.

MMEs - the ‘squeezed middle’ of UK companies

Efforts have been made to differentiate reporting and auditing requirements between different-sized companies, but many feel this has not gone far enough.  Medium-sized enterprises (or Mid Market Enterprises, MMEs) can find themselves ‘between stools’ in reporting responsibilities, as they often lack the reduced reporting obligations of smaller enterprises and perhaps do not have the financial and human resources that larger companies can dedicate to the challenge.

Representing around one-third of UK GDP and employing 30% of the UK’s total workforce, MMEs have an increasingly crucial role to play in our economic future, as the UK enters a new world of international trade outside of the EU and tries to manage the ongoing impacts of a global pandemic.  Now more than ever, UK medium-sized businesses need all the help they can get.

Banking relationship managers, as well as providing advice and counsel on business matters, also previously introduced CFOs to helpful banking products. New IT tools are emerging to fill the gap left by the departure of these banking relationship managers from the SME and MME spaces. To be an effective MME CFO today, various business processes must be tracked in fine detail, across a dizzying array of technology platforms, keeping a close eye on many different, but interconnected situations, at once - and it is an expensive requirement, representing as much as 5% of a typical MMEs cost base.

So, what can the modern CFO of a medium-sized company do practically to help manage this?

1. Invest in a non-Excel based forecasting and scenario tool

The Covid pandemic has left many businesses asking questions such as “when will we run out of cash?” and “what levers can we pull to lengthen that?” Answering these urgent questions will have fallen to the Financial Planning and Analysis team (or equivalent), almost certainly relying on Excel spreadsheets.  They will have attempted to cobble together information from HR, Sales, Product and Operations and often across multiple legal entities, to give them the most informed view of their situation and how it might change in the future.

The MME CFO is crying out for an IT platform that can: be robust, with controls to identify errors and anomalies; be easily deployed at granular and high levels; have strong version control; and, provide easily digestible analysis. It would also be extremely helpful to easily and promptly share information with company advisers, helping them to help businesses more effectively.

2. Use IT to create a bedrock for compliance and routine reporting

The CFO needs to instill a culture of asking “how can we solve this using IT?”   

A modern CFO, or members of their team, would ideally have some sort of IT experience.  Someone needs to be constantly working on evolving the Finance IT stack and looking at solutions to improve existing infrastructure.  For technology to be most effective, it should also be embedded at the very heart of the finance function, not assembled around the various data outputs.

3. Manage ‘finance department debt’ like a CTO manages ‘technical debt’

As a business rapidly changes and evolves, CTOs can write code, often knowing that it will only be rewritten for future challenges. This is known as the building up of ‘technical debt’ and the CTO will monitor this to ensure that it is ‘paid down’ in calmer waters. To support the rapid growth of a business, an MME CFO may be forced to implement stop-gap, suboptimal processes. This is to be expected – but they need to be aware of the shortcomings and have a plan to update the approach for longer-term stability.

4. Hire great people and reward them accordingly

The best CFOs recognise the mix of skills needed in their departments and hire quality people in key areas. It is vital to have good analytical skills in the Finance team but equally important to have first-class operational skills. These are people who understand the existing systems. They know how to fix them and to spot problems before they occur. These are people to hold on to even if they do not have the skills to progress to higher office.

Answering the killer questions - How is our business likely to perform in the future and what could we do to maximise success?

Imagine you are a CFO today and you have to make decisions about the future, but you can only use last month’s, or even last years’ numbers to guide you.  Furthermore, you must hunt for information, juggling multiple different sources and platforms, manually updating each system, making your own judgement as to what you think will impact what.

Now imagine if you could easily see something as crucial as how a decision will impact your cash flow position, accurately, in real time, today.  How much better will you be able to advise your CEO?  How much quicker can you make the right decision and adjust your strategy?

How much better would you sleep tonight?