When you start as a CFO, the first thing to do is to get your bearings - to assess your position relative to your surroundings. As quickly as you can you must grasp general ideas about typical characteristics of your environment, your own role and purpose, expectations of others, as well as primary routes for channeling your talents and efforts. But as soon as you are done with that, comes the time to get down to the level of firsthand details and study the specific aspects of the business. You need to draw a detailed map that will help you on your journey as a financial leader.
This is a mandatory activity for a recently hired head of finance, new to the company. It is a good idea for someone who has been with the company for a while in a lower position and just been promoted – new vantage point may provide you with the better vision of your company. Even if you’ve held the top post for a few years, but never got around to do this and feel that incomplete picture prevents you from excelling, maybe now is a good time to go back to the drawing board.
This is your R&D stage, necessary for proper functional design. Your research will help you to improve future performance. Every CFO and controller must acquire an exhaustive understanding of his employer’s business. There is no doubt, that compilation of, what I call, the big picture is the key element in your strategic responsibilities. However, it is just as important for day-to-day hands-on management. In the absence of thorough knowledge of all operational and organizational features, it is impossible to construct budgets, define tasks, or determine reporting requirements.
At the very least, your information-gathering activities should be focused in the following four areas:
Study of Corporate Structure
Economic complexity pushes businesses into multiple levels of diversification - wider product ranges, additional services, new geographical and demographic markets, related industries, outsourcing, foreign productions, etc, etc. As companies pave new ways, their corporate structures adapt accordingly: branches are created, subsidiaries are formed, and satellite offices are opened. Today, a $10 million service company may turned out to be a surprisingly complicated organism. This affects nearly every accounting and financial function: local taxation, inter-company transactions, principles of consolidation, financial statements disclosures, banking facilities – just to name a few.
Study of Operational Flow and Value Chain
During your orientation stage this study has immediate practical applications. It is a prerequisite to identifying accounting cycles, classifying assets and liabilities, pinpointing cost centers, determining analytical and financing needs, etc., etc. There are transactions happening at every stage of the operational flow that give rise to accounting events. Without full comprehension of the value chain you run a danger of oversights and errors.
Study of Organizational Chart and Functional Distribution
If the previous section is about processes, in this one we survey people and their positions. I don’t have to convince anybody that it is important to figure out the chain of command and designation of responsibilities within your employer’s organization – you just need to know who’s who. It goes beyond just knowing your peers with whom you discuss company-wide issues and inter-departmental relationships. You have to know people along the value chain – those, who are in charge of cost and profit centers, have relationships with suppliers, vendors and customers, maintain your facilities and receive your mail.
Study of Existing Policies and Procedures
If you became a CFO or a controller in a company that already has policies in writing and documented procedures in place, even if they are deficient, consider yourself very lucky. You can study the existing papers, outline blind spots and pinpoint weak or erroneous steps. It is easier to enforce changes, if employees are already comfortable with an idea of adhering to a recorded set of rules.
On the other hand, you must be prepared to deal with a complete lack of anything in writing. Important thing to remember is that it does not mean policies and procedures don’t exist. They are there like an oral folklore of an ancient tribe, passed from generation to generation. It would be a big mistake just to ignore the traditions and try to impose a new order. You have to uncover and learn them first.
Excerpted from my forthcoming book "CFO Techniques: A Hands-on Guide to Keeping Your Business Solvent and Successful" (Apress, December 2011)