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5 Habits of Highly Effective CFOs

5 Habits of Highly Effective CFOs

What could go wrong if your Chief Financial Officer (CFO) is not effective in their job?

  • They could steer your company towards poor financial decisions, like risky investments, inaccurate budgeting, or insufficient cost control.

  • Their absence of a clear financial strategy might also jeopardize the business, hindering the attainment of long-term growth and profitability objectives.

  • This could lead to a decline in investor confidence, potentially resulting in a stock price drop or challenges in raising capital.

  • Worse still, it could tarnish your business's reputation if it also fails to comply with financial regulations.

What are CFOs Capable of Doing?

Being a CFO is a top-tier position where you team up with the CEO and other leaders to steer a company toward success. CFOs rely on robust finance and accounting expertise, backed by years of experience, to boost the organization's financial health.

In their capacity, CFOs usually:

  • Engage with departments such as accounting, customer service, and finance.

  • Address accounting and finance issues.

  • Communicate with clients, investors, senior management, and stakeholders.

  • Oversee cash flow and strategize for financial requirements.

  • Supervise and provide recommendations for the finance department.

  • Facilitate risk management, audits, and research.

  • Spot investment and financial planning prospects.

  • Collaborate with executives and department heads on budget development and oversight.

  • Compile quarterly and annual tax returns.

  • Participate in board meetings and furnish comprehensive financial reports and suggestions to company leadership.

Collaborating with the finance and accounting team, CFOs anticipate the impacts of various operational choices.

Look at the exemplary achievements of Luca Maestri, Apple's CFO - he made sure the company's financial position was rock solid, helping Apple become the 2nd most valuable company globally in 2024. Luca talked about a significant increase in operating cash flow and how they're rewarding shareholders. Apple even declared a cash dividend of $0.24 per common stock share, showing their confidence in the future.

In the last quarter of 2023, Apple smashed it with impressive financials. They brought in a whopping $119.6 billion in quarterly revenue, a cool 2% rise from the previous year. Earnings per diluted share also shot up by 16% to $2.18.

The 5 Habits of Highly Effective CFOs

So what makes some CFOs so much more successful than others?

Everyone has heard of the book "The 7 habits of highly effective people" by Stephen Covey.

The book goes through 7 timeless principles and habits that make people more effective at whatever they do. It is famous because unlike many other self help books, this one is not based on trends or a certain psychology, rather they are timeless principles that will always hold true.

Here too, we try to provide habits that pertain to any type of CFO. Instead of trendy slogans or how to move up the ladder quickly, these are 5 ways to be the best in your field no matter what the size, revenue, or current trend.

1. They Enjoy Providing Solutions to Problems

Does the CFO constantly negate the CEO’s ideas, focusing on why things wouldn't work rather than finding solutions?

A valuable CFO is not just a problem spotter but a solution-oriented thinker. While many accountants can pinpoint issues, a CEO requires a partner who refines concepts and aids in taking calculated risks. A proficient CFO excels in this role, offering strategies to tackle the challenges inherent in today's dynamic business landscape.

Instead of shooting down people’s ideas, highly effective CFOs strive to enhance them for feasibility. When faced with risky proposals, assess and mitigate the risks, preserving the essence of the idea. Entrepreneurs innovate and embrace risks, and a competent CFO understands their role as a collaborative asset in the company, not a barrier to progress.

2. They Forge and Nurture Connections Within and Beyond the Company

Can you tell how many budget requests the CFO rejects versus the ones approved? Or does it seem like he shoots down almost every request that comes his way?

If the latter is the usual scenario, then your CFO might no longer be a Chief Financial Officer but a CNoO (Chief “No” Officer).

Kidding aside, a CFO's success really comes down to building solid relationships, starting with a strong bond with the CEO. While connecting with other execs and team members is crucial, it's not just about that for CFOs to shine. The top CFOs go the extra mile, building bridges across all levels and departments in the organization. They get that a robust internal network offers insights way beyond the numbers.

Great CFOs create open lines of communication with each board member, nurturing trust-based connections crucial for meeting the board's expectations. This approach is key to gaining and maintaining the credibility needed in board interactions. They also understand that no company can thrive alone, so they work on relationships within the larger ecosystem to drive business success.

3. They Collaborate Harmoniously with the CEO

CEOs are always on the lookout for a CFO who gets their business goals and is like a supportive "wingman." The CFO helps navigate challenges, find solutions, and adapt to change to boost goal achievement and manage risks better. A CFO "wingman" shares the leader's vision and works together to make it happen.

CEOs bring innovation, while CFOs tackle hurdles. CEOs count on CFOs to suggest fixes, not just list issues. A CFO "wingman" figures out how to make new ideas work financially. CEOs aim for growth with profits. CFOs pitch in by trimming costs, ramping up efficiency, and shaping pricing strategies. 

Some CFOs prefer stability amidst change, which might clash with a CEO's change drive but they can bridge this by backing new concepts. When the CFO is part of idea reviews, their support deepens, and they achieve company goals better.

4. Their Moral Compass Guides Every Decision They Make

CFOs play a key role in managing expectations, similar to the CEO or even more so. Building trust comes down to being transparent. Good CFOs know that success means having honest talks about financial performance with board members, investors, and other stakeholders. They avoid the temptation to inflate results, steering clear of exaggerating the positives or downplaying the negatives.

They also understand the importance of maintaining high ethical standards throughout the organization. Working closely with controllers, they make sure to fully comply with government regulations and accounting principles.

The focus on ethical behavior is important especially now that CFOs are handling more than just finances – they're involved in areas like human resources and information technology. They help shape and carry out corporate strategy, sales efforts, and product development. The best CFOs see the value in taking the long view and resist sacrificing long-term growth strategies for short-term financial wins.

5. They Manage to Simplify Reporting Process

Do we really have to do detailed accruals every month like we're doing a year-end audit? In finance, hours are spent on making financial reports, followed by more hours as directors want more details.

It's important to question every aspect of your financial reports - every row, column, label, or commentary. Does the information in these elements actually contribute to understanding performance? Why report it if it doesn't add value? If you skipped including or calculating certain details, would it impact how performance is viewed? Would it affect financial control?

Many CFOs aren't big fans of simplifying things. They tend to think if some info is good, then drowning in a sea of data must be better. But most entrepreneurs see things differently. Bombarding them with endless pages of data seems easier than boiling it all down to the essentials. The key is figuring out which key drivers really make a difference for your business and honing in on those.

Successful CFOs cut down on the reports needed to drive the financial results effectively. They rely on Key Performance Indicators (KPIs) and dashboards to steer the whole company's focus towards what truly matters. By looking into this angle, finance operations can be streamlined, freeing up more time to concentrate on activities that bring value to the business.

Final Thoughts

Amid the volatile global economy, businesses face relentless pressure to slash expenses and enhance efficiency. During these demanding periods, CFOs must demonstrate agility in devising innovative financial solutions by thinking beyond conventional boundaries.

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