The Small Business Administration is giving small businesses some grace.
Some good news for any business that took out a Covid Economic Injury Disaster Loan (EIDL): The Small Business Administration is extending deferment periods for disaster loans once again.
With no further Covid-related relief funds from Congress in sight, the SBA is allowing those who sought disaster loans from the Covid-relief program to extend the deferment period for 30 months from when the loan was first approved. Those seeking this deferment will still need to pay interest--around 3 percent--on the loans, which is generally considered inexpensive.
The extension applies to all EIDL loans approved since 2020. Some disaster loans previously had deferment periods for either 18 months or 24 months.
SBA Administrator Isabel Guzman said in a Tuesday statement that the extended deferment for the loans will help millions of small-business owners.
The announcement arrives just days after a group of 16 senators asked the SBA to extend the deferment period. In their letter, the senators emphasized the challenges that small businesses faced amid the surge of the Omicron variant, which included staffing crunches and drops in revenue. Those same challenges continue to linger for many businesses today.
Senator Ben Cardin (D-Md.), who chairs the Small Business and Entrepreneurship Committee in the Senate, praised the SBA's decision to extend the deferment period. "Washington cannot mistake our signs of recovery for proof that small businesses have recovered from the pandemic," Cardin said in a statement. "Millions of small businesses, especially restaurants, bars, and other hard-hit sectors, are being sandwiched between past-due bills and increasing supply and labor costs."
The EIDL program has dispensed more than $351 billion worth of relief to nearly four million borrowers, according to the SBA. The SBA did not immediately respond to Inc.'s request for comment.
Thursday, March 17, 2022
Friday, March 4, 2022
Why There's Never Been a Better Time to Encourage Female Founders
Source: https://tinyurl.com/erjmk4yk
Whether operating as solopreneurs or leading enterprise companies, the business world is seeing more female founders than ever before. Many female founders are even finding themselves on lists for the best-led companies.
Despite this, women continue to face many obstacles as they try to get their business ideas off the ground. While VC funding has increased in 2021, total VC allocations to women-led companies continue to be in the single digits, percentage-wise. And female-led firms continue to be the minority.
However, there is no denying the obvious: this is the best time to empower and encourage female founders.
Outperforming the average.
Women-owned businesses have continually demonstrated their potential for success. According to the National Association of Women Business Owners, there are over 11.6 million firms in the United States that are owned by women, generating roughly $1.7 trillion in yearly sales. Of all companies in the United States with revenue exceeding $1 million, one in five are owned by a woman.
Research has consistently backed the importance of having women in leadership positions -- even in companies that aren't woman-owned.An analysis from McKinsey & Company shows that companies with the most gender-diverse executive teams are 25 percent more likely to achieve above-average profits than their less gender-diverse peers. Interestingly, these odds for above-average success have increased each time this analysis has been performed.
Women have repeatedly shown that they have the talent, ingenuity and grit to turn an idea into a thriving, successful business. Quite often, the only thing standing in their way is a lack of funding. However, as the results have shown, any funding that goes into a woman-owned business will deliver significant returns.
Finding underserved niches.
Part of what makes female founders such a smart investment is that they often serve overlooked market niches. It isn't that these niches aren't popular or profitable -- rather, they just have a tendency to get overlooked by the mainstream business world. Women are also often able to draw from their own unique experiences to find (and fill) gaps in otherwise crowded niches.
This became especially apparent during a recent conversation with Alyssa Maccarthy, co-founder of Sunnie Hunnies. The founder of a business that focuses on swimwear for newborns to five-year-olds, Maccarthy and her sister wanted to design children's swimwear in part due to a lack of soft swimwear that was gentle on the delicate skin of babies and toddlers. This was a problem that they had identified firsthand through their own experiences -- it wasn't thought up in a board meeting or pitch session.
The most successful business ideas tend to come from a founder trying to solve their own problem, and it was no different for Maccarthy. However, there is no denying that focusing on how swimwear affects the skin of young children is something that probably would not have been a top of mind priority for male founders.
This is just one example of how women will so often use their own unique experiences and insights to generate new business ideas. From introducing original services to providing a noteworthy improvement to existing products, such ideas also form an immediate connection with customers who feel underserved by what is currently offered by major brands.
While female founders remain the minority, the numbers show that more and more investors are paying attention. Data from 2020 and 2021 reveals that startups with female founders are exiting one year faster than the market average while seeing the value of these exits skyrocket 144 percent -- over 40 percentage points higher than the rest of the market.
When female founders are given the right opportunities, they quickly turn the business into a worthwhile investment. As in so many other areas, early adopters (or in this case, early investors) are poised to see the biggest returns.
Female founders have proven time and time again that they have what it takes to launch and lead successful businesses -- even with the systemic challenges that the corporate world often stacks against them.
However, for every success story we find, there are many other women who don't have the encouragement they need to make a winning business idea a reality. These women need meaningful support. From providing access to financial resources to mentorship, we can create more success stories in the future.
FEB 22, 2022
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
Friday, February 25, 2022
STC Consulting certified to do business with the Port of Houston
"Among the many partnerships formed in 2021, one community leader was able to make a significant connection that thrust her business to a new level. Founder and CEO of STC Consulting, Soledad Tanner joined forces with the Port of Houston as she became certified to do business with one of the world’s largest ports on the Gulf Coast. “The process of getting certified as a Minority Business Enterprise (MBE) and Women Business Enterprise (WBE) was step by step, easy to follow. I was already certified by the City of Houston, which is one of the accepted certifications,” Tanner said".
The partnership was not only a strategic move, but it created a whole
new world of opportunities for her thriving company whose firm
helps improve the profit and productivity of businesses. “The Port of
Houston is a massive and strategic engine of our local economy. The
potential of working with them on future procurement opportunities
is a life-changing event, not only for my business but for so many local
businesses,” Tanner shared.
As the community continues to navigate through unchartered waters
in the coming year, one thing is certain, the Houston East End Chamber
of Commerce will continue to be a changemaker leading the way for
more members to form partnerships highlighting the camaraderie and
determination of neighbors coming together to help one another. We
invite you to become a member and allow us to help you connect with
other businesses and grow in 2022".
(pag 12 & 13 on pdf file)
Tuesday, February 15, 2022
Wednesday, February 9, 2022
Introduction to the income statement
Source: https://tinyurl.com/2p8r3m2w
The income statement, also known as the profit and loss statement, includes all income and expense accounts over a period of time. This financial statement shows how much money the business will make after all expenses are accounted for. An income statement does not reveal hidden problems, like insufficient cash flow. Income statements are read from top to bottom and represent earnings and expenses over a period of time.
The resulting difference between your income and your expenses is called your net profit—what is often referred to as the “bottom line.” This statement tells you if your business is profitable or not.
The format of the income statement is as follows:
Income – cost of sales = gross margin
Gross margin – fixed operating expenses = net profit
INCOME
An income statement begins with money that you have earned from selling something. There are several different names given to the money you make selling products or services. Some companies call it “revenue,” “sales,” or “income.” The important thing to remember is that it does not always represent cash in hand. Sales are monies you have earned but not necessarily collected if you offer any kind of credit to your customer.
COST OF SALES
After the sales for your business are presented, the income statement details the cost of those sales. These costs are called “variable expenses.” Variable expenses represent the costs of doing business and might include direct labor, materials, and shipping. They usually increase with sales since they are the direct costs of delivering your products and services.
GROSS MARGIN
The next number your income statement produces is the gross margin, sometimes called gross profit. This is the number you get when you take your sales for a given period and subtract your cost of sales. The gross margin is important for any business because it is the money you have left over to pay for any expenses of being in business and for making a profit. Many accountants look at this number as a percent of sales.
EXPENSES
After the gross margin is presented, your income statement shows your business expenses, sometimes called fixed expenses. Fixed expenses are the costs of being in business. These might include salaries, insurance, rent, advertising, utilities, and interest payments. They usually do not vary with the sales level of your business. This is why they are called fixed expenses.
NET PROFIT
Once you total all of your fixed business expenses, these are then subtracted on your income statement to produce your net profit. Net profit is the money left over after all expenses are accounted for and subtracted from the sales of your business. By aligning the sales of a business with its relative expenses, it shows the profitability of a business and the amount of earnings made over a period of time.
INVESTMENT COSTS
The entire goal of your income statement is to align your sales with your respective costs to determine if you are making any money or not—your net profit. But sometimes you may make an investment in a large asset, such as a building or piece of equipment that costs a lot of money. If you would subtract the cost of this asset all at once, it would be impossible to tell if you are profitable or not. The reason for this is simple: These large assets produce value across a long period of time. This period of time is known as the “useful life” of the asset.
DEPRECIATION
Taking a large cost, such a piece of expensive equipment and expensing it across its useful life is called “depreciation.” Depreciation is known as the reduction in the cost of your equipment due to wear and tear over the passage of time. Once you expense depreciation on your income statement and you remove the amount from your earnings over time, you will then need to reduce the value of this asset.
PROFITABILITY OVER TIME
It is important to remember that your income statement presents sales and expense activities over a period of time as opposed to your balance sheet, which shows your financial condition at a point in time.
The resulting difference between your income and your expenses is called your net profit—what is often referred to as the “bottom line.” This statement tells you if your business is profitable or not.
The format of the income statement is as follows:
Income – cost of sales = gross margin
Gross margin – fixed operating expenses = net profit
INCOME
An income statement begins with money that you have earned from selling something. There are several different names given to the money you make selling products or services. Some companies call it “revenue,” “sales,” or “income.” The important thing to remember is that it does not always represent cash in hand. Sales are monies you have earned but not necessarily collected if you offer any kind of credit to your customer.
COST OF SALES
After the sales for your business are presented, the income statement details the cost of those sales. These costs are called “variable expenses.” Variable expenses represent the costs of doing business and might include direct labor, materials, and shipping. They usually increase with sales since they are the direct costs of delivering your products and services.
GROSS MARGIN
The next number your income statement produces is the gross margin, sometimes called gross profit. This is the number you get when you take your sales for a given period and subtract your cost of sales. The gross margin is important for any business because it is the money you have left over to pay for any expenses of being in business and for making a profit. Many accountants look at this number as a percent of sales.
EXPENSES
After the gross margin is presented, your income statement shows your business expenses, sometimes called fixed expenses. Fixed expenses are the costs of being in business. These might include salaries, insurance, rent, advertising, utilities, and interest payments. They usually do not vary with the sales level of your business. This is why they are called fixed expenses.
NET PROFIT
Once you total all of your fixed business expenses, these are then subtracted on your income statement to produce your net profit. Net profit is the money left over after all expenses are accounted for and subtracted from the sales of your business. By aligning the sales of a business with its relative expenses, it shows the profitability of a business and the amount of earnings made over a period of time.
INVESTMENT COSTS
The entire goal of your income statement is to align your sales with your respective costs to determine if you are making any money or not—your net profit. But sometimes you may make an investment in a large asset, such as a building or piece of equipment that costs a lot of money. If you would subtract the cost of this asset all at once, it would be impossible to tell if you are profitable or not. The reason for this is simple: These large assets produce value across a long period of time. This period of time is known as the “useful life” of the asset.
DEPRECIATION
Taking a large cost, such a piece of expensive equipment and expensing it across its useful life is called “depreciation.” Depreciation is known as the reduction in the cost of your equipment due to wear and tear over the passage of time. Once you expense depreciation on your income statement and you remove the amount from your earnings over time, you will then need to reduce the value of this asset.
PROFITABILITY OVER TIME
It is important to remember that your income statement presents sales and expense activities over a period of time as opposed to your balance sheet, which shows your financial condition at a point in time.
Tuesday, February 8, 2022
Thursday, February 3, 2022
Starting up as CFO
There are a few critical tasks that all finance chiefs must tackle in their first hundred days.
In recent years, CFOs have assumed increasingly complex, strategic roles focused on driving the creation of value across the entire business. Growing shareholder expectations and activism, more intense M&A, mounting regulatory scrutiny over corporate conduct and compliance, and evolving expectations for the finance function have put CFOs in the middle of many corporate decisions—and made them more directly accountable for the performance of companies.
Not only is the job more complicated, but a lot of CFOs are new at it—turnover in 2006 for Fortune 500 companies was estimated at 13 percent.1 Compounding the pressures, companies are also more likely to reach outside the organization to recruit new CFOs, who may therefore have to learn a new industry as well as a new role.
To show how it is changing—and how to work through the evolving expectations—we surveyed 164 CFOs of many different tenures2 and interviewed 20 of them. From these sources, as well as our years of experience working with experienced CFOs, we have distilled lessons that shed light on what it takes to succeed. We emphasize the initial transition period: the first three to six months.
In recent years, CFOs have assumed increasingly complex, strategic roles focused on driving the creation of value across the entire business. Growing shareholder expectations and activism, more intense M&A, mounting regulatory scrutiny over corporate conduct and compliance, and evolving expectations for the finance function have put CFOs in the middle of many corporate decisions—and made them more directly accountable for the performance of companies.
Not only is the job more complicated, but a lot of CFOs are new at it—turnover in 2006 for Fortune 500 companies was estimated at 13 percent.1 Compounding the pressures, companies are also more likely to reach outside the organization to recruit new CFOs, who may therefore have to learn a new industry as well as a new role.
To show how it is changing—and how to work through the evolving expectations—we surveyed 164 CFOs of many different tenures2 and interviewed 20 of them. From these sources, as well as our years of experience working with experienced CFOs, we have distilled lessons that shed light on what it takes to succeed. We emphasize the initial transition period: the first three to six months.
Early priorities
Newly appointed CFOs are invariably interested, often anxiously, in making their mark. Where they should focus varies from company to company. In some, enterprise-wide strategic and transformational initiatives (such as value-based management, corporate-center strategy, or portfolio optimization) require considerable CFO involvement. In others, day-to-day business needs can be more demanding and time sensitive—especially in the Sarbanes–Oxley environment—creating significant distractions unless they are carefully managed. When CFOs inherit an organization under stress, they may have no choice but to lead a turnaround, which requires large amounts of time to cut costs and reassure investors.
Yet some activities should make almost every CFO’s short list of priorities. Getting them defined in a company-specific way is a critical step in balancing efforts to achieve technical excellence in the finance function with strategic initiatives to create value.
Conduct a value creation audit
The most critical activity during a CFO’s first hundred days, according to more than 55 percent of our survey respondents, is understanding what drives their company’s business. These drivers include the way a company makes money, its margin advantage, its returns on invested capital (ROIC), and the reasons for them. At the same time, the CFO must also consider potential ways to improve these drivers, such as sources of growth, operational improvements, and changes in the business model, as well as and how much the company might gain from all of them. To develop that understanding, several CFOs we interviewed conducted a strategy and value audit soon after assuming the position. They evaluated their companies from an investor’s perspective to understand how the capital markets would value the relative impact of revenue versus higher margins or capital efficiency and assessed whether efforts to adjust prices, cut costs, and the like would create value, and if so how much.
Although this kind of effort would clearly be a priority for external hires, it can also be useful for internal ones. As a CFO promoted internally at one high-tech company explained, “When I was the CFO of a business unit, I never worried about corporate taxation. I never thought about portfolio-level risk exposure in terms of products and geographies. When I became corporate CFO, I had to learn about business drivers that are less important to individual business unit performance.”
The choice of information sources for getting up to speed on business drivers can vary. As CFOs conducted their value audit, they typically started by mastering existing information, usually by meeting with business unit heads, who not only shared the specifics of product lines or markets but are also important because they use the finance function’s services. Indeed, a majority of CFOs in our survey, and particularly those in private companies, wished that they had spent even more time with this group (Exhibit 1). Such meetings allow CFOs to start building relationships with these key stakeholders of the finance function and to understand their needs. Other CFOs look for external perspectives on their companies and on the marketplace by talking to customers, investors, or professional service providers. The CFO at one pharma company reported spending his first month on the job “riding around with a sales rep and meeting up with our key customers. It’s amazing how much I actually learned from these discussions. This was information that no one inside the company could have told me.”
Exhibit 1
Lead the leaders
Experienced CFOs not only understand and try to drive the CEO’s agenda, but also know they must help to shape it. CFOs often begin aligning themselves with the CEO and board members well before taking office. During the recruiting process, most CFOs we interviewed received very explicit guidance from them about the issues they considered important, as well as where the CFO would have to assume a leadership role. Similarly, nearly four-fifths of the CFOs in our survey reported that the CEO explained what was expected from them—particularly that they serve as active members of the senior-management team, contribute to the company’s performance, and make the finance organization efficient (Exhibit 2). When one new CFO asked the CEO what he expected at the one-year mark, the response was, “When you’re able to finish my sentences, you’ll know you’re on the right track.”
Exhibit 2
Building that kind of alignment is a challenge for CFOs, who must have a certain ultimate independence as the voice of the shareholder. That means they must immediately begin to shape the CEO’s agenda around their own focus on value creation. Among the CFOs we interviewed, those who had conducted a value audit could immediately pitch their insights to the CEO and the board—thus gaining credibility and starting to shape the dialogue. In some cases, facts that surfaced during the process enabled CFOs to challenge business unit orthodoxies. What’s more, the CFO is in a unique position to put numbers against a company’s strategic options in a way that lends a sharp edge to decision making. The CFO at a high-tech company, for example, created a plan that identified several key issues for the long-term health of the business, including how large enterprises could use its product more efficiently. This CFO then prodded sales and service to develop a new strategy and team to drive the product’s adoption.
To play these roles, a CFO must establish trust with the board and the CEO, avoiding any appearance of conflict with them while challenging their decisions and the company’s direction if necessary. Maintaining the right balance is an art, not a science. As the CFO at a leading software company told us, “It’s important to be always aligned with the CEO and also to be able to factually call the balls and strikes as you see them. When you cannot balance the two, you need to find a new role.”
Strengthen the core
To gain the time for agenda-shaping priorities, CFOs must have a well-functioning finance function behind them; otherwise, they won’t have the credibility and hard data to make the difficult arguments. Many new CFOs find that disparate IT systems, highly manual processes, an unskilled finance staff, or unwieldy organizational structures hamper their ability to do anything beyond closing the quarter on time. In order to strengthen the core team, during the first hundred days about three-quarters of the new CFOs we surveyed initiated (or developed a plan to initiate) fundamental changes in the function’s core activities (Exhibit 3).
Several of our CFOs launched a rigorous look at the finance organization and operations they had just taken over, and many experienced CFOs said they wished they had done so. In these reviews, the CFOs assessed the reporting structure, evaluated the fit and capabilities of the finance executives they had inherited, validated the finance organization’s cost benchmarks, and identified any gaps in the effectiveness or efficiency of key systems, processes, and reports. The results of such a review can help CFOs gauge how much energy they will need to invest in the finance organization during their initial 6 to 12 months in office—and to fix any problems they find.
Transitions offer a rare opportunity: the organization is usually open to change. More than half of our respondents made at least moderate alterations in the core finance team early in their tenure. As one CFO of a global software company put it, “If there is a burning platform, then you need to find it and tackle it. If you know you will need to make people changes, make them as fast as you can. Waiting only gets you into more trouble.”
Manage performance actively
CFOs can play a critical role in enhancing the performance dialogue of the corporate center, the business units, and corporate functions. They have a number of tools at their disposal, including dashboards, performance targets, enhanced planning processes, the corporate review calendar, and even their own relationships with the leaders of business units and functions.
Among the CFOs we interviewed, some use these tools, as well as facts and insights derived from the CFO’s unique access to information about the business, to challenge other executives. A number of interviewees take a different approach, however, exploiting what they call the “rhythm of the business” by using the corporate-planning calendar to shape the performance dialogue through discussions, their own agendas, and metrics. Still other CFOs, we have observed, exert influence through their personal credibility at performance reviews.
While no consensus emerged from our discussions, the more experienced CFOs stressed the importance of learning about a company’s current performance dialogues early on, understanding where its performance must be improved, and developing a long-term strategy to influence efforts to do so. Such a strategy might use the CFO’s ability to engage with other senior executives, as well as changed systems and processes that could spur performance and create accountability.
First steps
Given the magnitude of what CFOs may be required to do, it is no surprise that the first 100 to 200 days can be taxing. Yet those who have passed through this transition suggest several useful tactics. Some would be applicable to any major corporate leadership role but are nevertheless highly relevant for new CFOs—in particular, those who come from functional roles.
Get a mentor
Although a majority of the CFOs we interviewed said that their early days on the job were satisfactory, the transition wasn’t without specific challenges. A common complaint we hear is about the lack of mentors—an issue that also came up in our recent survey results, which showed that 32 percent of the responding CFOs didn’t have one. Forty-six percent of the respondents said that the CEO had mentored them, but the relationship appeared to be quite different from the traditional mentorship model, because many CFOs felt uncomfortable telling the boss everything about the challenges they faced. As one CFO put it during an interview, “being a CFO is probably one of the loneliest jobs out there.” Many of the CFOs we spoke with mentioned the value of having one or two mentors outside the company to serve as a sounding board. We also know CFOs who have joined high-value roundtables and other such forums to build networks and share ideas.
Listen first . . . then act
Given the declining average tenure in office of corporate leaders, and the high turnover among CFOs in particular, finance executives often feel pressure to make their mark sooner rather than later. This pressure creates a potentially unhealthy bias toward acting with incomplete—or, worse, inaccurate—information. While we believe strongly that CFOs should be aggressive and action oriented, they must use their energy and enthusiasm effectively. As one CFO reflected in hindsight, “I would have spent even more time listening and less time doing. People do anticipate change from a new CFO, but they also respect you more if you take the time to listen and learn and get it right when you act.”
Make a few themes your priority—consistently
Supplement your day-to-day activities with no more than three to four major change initiatives and focus on them consistently. To make change happen, you will have to repeat your message over and over—internally, to the finance staff, and externally, to other stakeholders. Communicate your changes by stressing broad themes that, over time, could encompass newly identified issues and actions. One element of your agenda, for example, might be the broad theme of improving the efficiency of financial operations rather than just the narrow one of offshoring.
Invest time up front to gain credibility
Gaining credibility early on is a common challenge—particularly, according to our survey, for a CFO hired from outside a company. In some cases, it’s sufficient to invest enough time to know the numbers cold, as well as the company’s products, markets, and plans. In other cases, gaining credibility may force you to adjust your mind-set fundamentally.
The CFOs we interviewed told us that it’s hard to win support and respect from other corporate officers without making a conscious effort to think like a CFO. Clearly, one with the mentality of a lead controller, focused on compliance and control, isn’t likely to make the kind of risky but thoughtful decisions needed to help a company grow. Challenging a business plan and a strategy isn’t always about reducing investments and squeezing incremental margins. The CFO has an opportunity to apply a finance lens to management’s approach and to ensure that a company thoroughly examines all possible ways of accelerating and maximizing the capture of value.
As an increasing number of executives become new CFOs, their ability to gain an understanding of where value is created and to develop a strategy for influencing both executives and ongoing performance management will shape their future legacies. While day-to-day operations can quickly absorb the time of any new CFO, continued focus on these issues and the underlying quality of the finance operation defines world class CFOs.
Experienced CFOs not only understand and try to drive the CEO’s agenda, but also know they must help to shape it. CFOs often begin aligning themselves with the CEO and board members well before taking office. During the recruiting process, most CFOs we interviewed received very explicit guidance from them about the issues they considered important, as well as where the CFO would have to assume a leadership role. Similarly, nearly four-fifths of the CFOs in our survey reported that the CEO explained what was expected from them—particularly that they serve as active members of the senior-management team, contribute to the company’s performance, and make the finance organization efficient (Exhibit 2). When one new CFO asked the CEO what he expected at the one-year mark, the response was, “When you’re able to finish my sentences, you’ll know you’re on the right track.”
Exhibit 2
Building that kind of alignment is a challenge for CFOs, who must have a certain ultimate independence as the voice of the shareholder. That means they must immediately begin to shape the CEO’s agenda around their own focus on value creation. Among the CFOs we interviewed, those who had conducted a value audit could immediately pitch their insights to the CEO and the board—thus gaining credibility and starting to shape the dialogue. In some cases, facts that surfaced during the process enabled CFOs to challenge business unit orthodoxies. What’s more, the CFO is in a unique position to put numbers against a company’s strategic options in a way that lends a sharp edge to decision making. The CFO at a high-tech company, for example, created a plan that identified several key issues for the long-term health of the business, including how large enterprises could use its product more efficiently. This CFO then prodded sales and service to develop a new strategy and team to drive the product’s adoption.
To play these roles, a CFO must establish trust with the board and the CEO, avoiding any appearance of conflict with them while challenging their decisions and the company’s direction if necessary. Maintaining the right balance is an art, not a science. As the CFO at a leading software company told us, “It’s important to be always aligned with the CEO and also to be able to factually call the balls and strikes as you see them. When you cannot balance the two, you need to find a new role.”
Strengthen the core
To gain the time for agenda-shaping priorities, CFOs must have a well-functioning finance function behind them; otherwise, they won’t have the credibility and hard data to make the difficult arguments. Many new CFOs find that disparate IT systems, highly manual processes, an unskilled finance staff, or unwieldy organizational structures hamper their ability to do anything beyond closing the quarter on time. In order to strengthen the core team, during the first hundred days about three-quarters of the new CFOs we surveyed initiated (or developed a plan to initiate) fundamental changes in the function’s core activities (Exhibit 3).
Several of our CFOs launched a rigorous look at the finance organization and operations they had just taken over, and many experienced CFOs said they wished they had done so. In these reviews, the CFOs assessed the reporting structure, evaluated the fit and capabilities of the finance executives they had inherited, validated the finance organization’s cost benchmarks, and identified any gaps in the effectiveness or efficiency of key systems, processes, and reports. The results of such a review can help CFOs gauge how much energy they will need to invest in the finance organization during their initial 6 to 12 months in office—and to fix any problems they find.
Transitions offer a rare opportunity: the organization is usually open to change. More than half of our respondents made at least moderate alterations in the core finance team early in their tenure. As one CFO of a global software company put it, “If there is a burning platform, then you need to find it and tackle it. If you know you will need to make people changes, make them as fast as you can. Waiting only gets you into more trouble.”
Manage performance actively
CFOs can play a critical role in enhancing the performance dialogue of the corporate center, the business units, and corporate functions. They have a number of tools at their disposal, including dashboards, performance targets, enhanced planning processes, the corporate review calendar, and even their own relationships with the leaders of business units and functions.
Among the CFOs we interviewed, some use these tools, as well as facts and insights derived from the CFO’s unique access to information about the business, to challenge other executives. A number of interviewees take a different approach, however, exploiting what they call the “rhythm of the business” by using the corporate-planning calendar to shape the performance dialogue through discussions, their own agendas, and metrics. Still other CFOs, we have observed, exert influence through their personal credibility at performance reviews.
While no consensus emerged from our discussions, the more experienced CFOs stressed the importance of learning about a company’s current performance dialogues early on, understanding where its performance must be improved, and developing a long-term strategy to influence efforts to do so. Such a strategy might use the CFO’s ability to engage with other senior executives, as well as changed systems and processes that could spur performance and create accountability.
First steps
Given the magnitude of what CFOs may be required to do, it is no surprise that the first 100 to 200 days can be taxing. Yet those who have passed through this transition suggest several useful tactics. Some would be applicable to any major corporate leadership role but are nevertheless highly relevant for new CFOs—in particular, those who come from functional roles.
Get a mentor
Although a majority of the CFOs we interviewed said that their early days on the job were satisfactory, the transition wasn’t without specific challenges. A common complaint we hear is about the lack of mentors—an issue that also came up in our recent survey results, which showed that 32 percent of the responding CFOs didn’t have one. Forty-six percent of the respondents said that the CEO had mentored them, but the relationship appeared to be quite different from the traditional mentorship model, because many CFOs felt uncomfortable telling the boss everything about the challenges they faced. As one CFO put it during an interview, “being a CFO is probably one of the loneliest jobs out there.” Many of the CFOs we spoke with mentioned the value of having one or two mentors outside the company to serve as a sounding board. We also know CFOs who have joined high-value roundtables and other such forums to build networks and share ideas.
Listen first . . . then act
Given the declining average tenure in office of corporate leaders, and the high turnover among CFOs in particular, finance executives often feel pressure to make their mark sooner rather than later. This pressure creates a potentially unhealthy bias toward acting with incomplete—or, worse, inaccurate—information. While we believe strongly that CFOs should be aggressive and action oriented, they must use their energy and enthusiasm effectively. As one CFO reflected in hindsight, “I would have spent even more time listening and less time doing. People do anticipate change from a new CFO, but they also respect you more if you take the time to listen and learn and get it right when you act.”
Make a few themes your priority—consistently
Supplement your day-to-day activities with no more than three to four major change initiatives and focus on them consistently. To make change happen, you will have to repeat your message over and over—internally, to the finance staff, and externally, to other stakeholders. Communicate your changes by stressing broad themes that, over time, could encompass newly identified issues and actions. One element of your agenda, for example, might be the broad theme of improving the efficiency of financial operations rather than just the narrow one of offshoring.
Invest time up front to gain credibility
Gaining credibility early on is a common challenge—particularly, according to our survey, for a CFO hired from outside a company. In some cases, it’s sufficient to invest enough time to know the numbers cold, as well as the company’s products, markets, and plans. In other cases, gaining credibility may force you to adjust your mind-set fundamentally.
The CFOs we interviewed told us that it’s hard to win support and respect from other corporate officers without making a conscious effort to think like a CFO. Clearly, one with the mentality of a lead controller, focused on compliance and control, isn’t likely to make the kind of risky but thoughtful decisions needed to help a company grow. Challenging a business plan and a strategy isn’t always about reducing investments and squeezing incremental margins. The CFO has an opportunity to apply a finance lens to management’s approach and to ensure that a company thoroughly examines all possible ways of accelerating and maximizing the capture of value.
As an increasing number of executives become new CFOs, their ability to gain an understanding of where value is created and to develop a strategy for influencing both executives and ongoing performance management will shape their future legacies. While day-to-day operations can quickly absorb the time of any new CFO, continued focus on these issues and the underlying quality of the finance operation defines world class CFOs.
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