The CFO Advantage: Why Strategic Finance Matters More Than Just Accounting
While most companies maintain reconciliation of their records and use them to be compliant with any statutory reporting requirements, the uncertainty experienced by many companies still exists when it comes to financial planning and decision-making. Because accounting reflects historical performance, it can be a tool for understanding how the company is currently performing, but it does not provide insight into where the company is headed or where it can grow. In order to achieve higher levels of success, companies require strategic finance; this is traditionally a function of the Chief Financial Officer (CFO). This is where strategic finance for small businesses becomes essential in providing forward-looking financial clarity.
While many people think of a CFO (chief financial officer) as only someone who records transactions for a company, they actually have a much larger role in understanding the overall financial health of the business. In fact, the primary functions of the CFO are to provide insight for small business owners related to:
1. How is your business doing today
2. What risks/opportunities does your business have in the future
3. How to get comfortable managing cash flow
4. When to make changes to pricing/spending
5. How to build a plan for the months and years ahead
Simply put, while accounting looks at where your business has been, CFO insights look at where your business is going. This aligns directly with the purpose of strategic finance for small businesses.
Why Small Business Owners Need Strategic Financial Insight
Small businesses are faced with a fast-paced, competitive environment. As such, they may find themselves needing to make quick decisions based on limited information. With a CFO-style approach to the business, small business owners can look at the business and make informed decisions regarding:
1. The drivers of profitability
2. The rising cost of goods and services
3. The potential pressure points that will exist financially
4. The month-to-month shifting of trends
5. The seasons ahead that need planning
By having this level of visibility, small businesses can remain proactive rather than reactive to their environment. This level of insight is a core benefit of strategic finance for small businesses.
Cash Flow Isn’t a Stress for Small and Medium-sized Businesses
Many small and medium-sized enterprises (SMEs) experience cash flow as one of their greatest stressors. Despite having achieved profitability, an SME can also be under constant pressure when it is unable to secure or generate cash at the appropriate time.
- When an SME engages in strategic cash flow planning, it can:
- Smooth out their payment cycles
- Accelerate the time they receive cash from customers
- Maximize their efficiency in managing outgoing expenses
- More adequately plan for future cash shortages due to gaps in business operations
By having a stronger structure around cash flow, SMEs are able to operate with reduced stress and higher levels of control. These cash flow benefits are a major part of strategic finance for small businesses.
Better Pricing and Cost Control for Small and Medium-sized Businesses
Many SME companies determine their pricing based on the pricing set by the competitive market or by instinct. Through the application of strategic finance practices, business owners have the opportunity to analyze the actual cost of product/service delivery and thus can better understand how to improve their profit margins from there.
As a result, SMEs can more easily:
Confidently modify their pricing structures
Reduce expenditures that do not support revenue generation
Increase the amount of profits they earn on each product/service
Better understand their true costs of doing business
Through the use of these insights, SMEs can create the opportunity to earn greater profits without major changes to their existing business operations. This is another advantage of applying strategic finance for small businesses.
A Plant For Sustainable Development
While businesses want to develop, there must be a roadmap for development. Planning at the CFO level establishes a framework through Annual budgets, Monthly and Quarterly Reporting/Forecasting, Scenario modelling of alternate success levels, Assistance with Investments and Expansion, and Well-defined Financial Expectations. Knowing what is achievable and how to get there allows business owners to develop their own business. Such planning reflects how strategic finance for small businesses supports long-term growth.
Accessing CFO Insight & Analytic Capabilities In A Financial Partners Place
For small and mid-sized businesses, hiring a full-time CFO is an expensive investment; however, outsourcing finance/accounting to a Financial Partner has similar benefits. An External Financial Partner provides a range of services, including: Monthly Financial Reviews, Cash Flow / Forecasting, Performance Dashboard, Compliance & Reporting Support, & Real Data-Driven Practical Guidance. Having access to a CFO provides the financial guidance to assist businesses in the development.
This allows SMEs to access the advantages of strategic finance for small businesses without employing a full-time CFO.
Basic accounting keeps the financial aspects of a business organized, whereas strategic finance equips the business to develop and grow. Accurate bookkeeping combined with CFO-level insight and guidance provides a business with the clarity of its results and the foundation to build for long-term success. Using an External Financial Partner who offers Strategic Advice will help businesses develop confidently and build toward long-term success without needing to employ a CFO or other executive finance personnel.
This demonstrates why strategic finance for small businesses is becoming increasingly vital.
