Will the Real CFO Please Stand Up

In our current business world, the term CFO (Chief Financial Officer) is greatly misused. Many consultants and financial/accounting managers in private enterprise are deemed to be CFOs when in reality their job performance, skills and experience fall short of the true definition and function of the title.

The core function of the real Chief Financial Officer is to be the guardian of shareholder value. This perspective implies a scope of function far broader than just accounting duties, financial analysis and reporting. In fact, even the term officer is often misused. Officer implies a fiduciary duty to stakeholders of enterprises charged with their trust. Private companies that do not have shareholders outside of management have very limited fiduciary responsibility to others besides themselves.

How can the CFO affect both positively and negatively a company’s value? So, what does it take to qualify as the Chief Financial Officer of a privately held or closely held company? How can a CFO work to enhance the value of the business through their role?

Stellar Ventures has a proven process that we established that answers these questions and more for business owners. We provide guidelines for a competent CFO to follow, in concert with the CEO and other top management, to work to establish financial management and control over any enterprise, large or small and in turn, enhance the value of the business.

The key aspects include:

• Up front assessment of current business performance – which includes calculation of most probable sale price using industry standards, evaluation of current salability using the Sellability™ Score Questionnaire and Report (which measures the value and salability of the business in 8 categories and returns an numeric score on a scale of 0 to 100), observation of business practices, benchmarking operating performance and financial position and study of historical financial statements and tax returns.
  • The results from this assessment give the information needed to increase the business value and optimize return on invested capital. Some of these results include:
    • Reviewing gross profit margin
    • Improving inventory management
    • Decreasing business owner involvement in the day to day business by implementing more formal business processes and delegating of job responsibilities thus freeing up his time to work on the business value plan
    • Determining what management talent is needed to accelerate the implementation of effective business practices.
  • Develop a long term business value enhancement plan – which begins with reshaping business practices that can produce immediate sales and profits and liquidate slow moving inventory and implementing promotional programs to convert existing inventory to cash to be used to fund longer term strategies for growth and profitability.
  • Engaging industry talent and deepening of the management team as appropriate to assure that the human resources of the business can successfully implement the key value enhancement initiatives identified by the upfront assessment.
  • Creating a financial plan with identified key assumptions quantified by independent variables that support the sales forecast, gross margin enhancement, utilization of direct labor, operating expense efficiency, investment in tangible and intangible assets, accounts receivable days outstanding, inventory turns, accounts payable credit terms, proper use of debt financing and purposeful reinvestment of retained earnings. An effective financial plan is a comprehensive analysis of all the elements of use of cash and cash balance on an ongoing basis. The financial plan that is supported by a forecasting tool with sufficient scope to produce plan attainment analysis and pinpoint variances for course correction.
  • Developing key business metrics and dashboard reporting so that management can see performance results in daily, weekly and monthly reports that measure key aspects of business activity.

Stellar Ventures will leave nothing to chance as we seek to achieve above average performance. We expect our efforts to realize the business value objective of the owner and make the business more attractive to outside stakeholders such as lenders, investors and possible joint venture partners. This approach to business management allows the CFO to be the true guardian of owner or shareholder value.

The CFO for a business can take on many very important roles that both negatively and positively affect the value of the company. If you feel like your business is being negatively affected by your CFO, Stellar Ventures can help. We specialize in evaluating the strengths and weaknesses in your company that may be affecting the value of your company. We can give you hands-on help and expertise to help get you in the right direction with both the role of your CFO and the value of your company.