I recently coached a CFO in a small company to urge the CEO to stop working upon the![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2018\/01\/bean-counter1.jpg\")
operational issues and focus upon the future, even if that meant a pivot to protect the business as the world was changing in that industry at an accelerated rate. \u00a0That challenge would require vision from the CEO supported by data and what-if analysis by the CFO. \u00a0How much more valuable would the role be if not to think and work strategically?<\/p>\n
Defining the expected and common role of a true CFO<\/strong><\/p>\n There is a simple way to define the common responsibilities of the chief financial officer.\u00a0 And it extends beyond the usual interpretation of the CFO position in many companies.\u00a0 If it can be counted, the CFO owns the responsibility for controlling it.<\/em>\u00a0 The CFO should question and control the number of anything<\/em>, including the number of chairs to be ordered. \u00a0That may seem extreme to many a founder or CEO, but it serves a purpose.\u00a0 \u00a0It is the ultimate control over rampant spending or uncoordinated purchasing.<\/p>\n Where else would there be a knight-protector in a company?<\/strong><\/p>\n Looking at it in that light, there is a check and balance for all departments and individuals ordering materials of any size that affect the cash position and profitability of the company.\u00a0 Further, the CFO should speak up in executive meetings and when invited into board meetings, making sure that any major issues are vetted by the group.<\/p>\n Another of my stories, this time about a CFO in name only<\/strong><\/p>\n [Email readers, continue here…]\u00a0<\/em><\/span> I was an early board member of a company that subsequently raised over $30 million in venture money following the angel rounds which I led, which themselves amounted to $6 million.\u00a0 I remained on the board through the life of the corporation, a witness to some surprises along the way that were, at the least, instructional.<\/p>\n Board member orders a ramp in spending that kills the company.<\/strong><\/p>\n How the CFO could have saved the company.<\/strong><\/p>\n But the CFO let the spending rate continue to increase out of balance with the board-approved budget which projected revenues to ramp, reducing the monthly cash burn.\u00a0 In one four- hour board meeting with all board members in attendance, the board spent almost an hour with the CFO analyzing the financial performance of the company.\u00a0 No talk of strategy. \u00a0No input from the CFO except to answer questions.<\/p>\n \u2026 and how the CFO missed the chance to be responsible.<\/strong><\/p>\n We members of the board never saw, (never asked) and the CFO never mentioned the balance sheet and cash position.\u00a0 It was eight months after the latest $11 million round and no-one thought it worth focusing on cash, since the position should have been over $5 million in cash and starting to grow – if on plan.<\/p>\n Then the bomb dropped\u2026<\/strong><\/p>\n A week after the board meeting, the CFO emailed the board that the company was only The moral is simple.\u00a0 <\/strong><\/p>\n A CFO is responsible for all phases of cash deployment and preservation.\u00a0 Failure to manage to plan, and failure to inform the board of dangerous excursions, caused this company to fail as the VC\u2019s decided ultimately not to continue to pour money into the investment.<\/p>\n Maybe the CFO could not have saved this company; but he surely could have slowed the flow of cash, informing the board, and giving the board and CEO the opportunity to pivot the plan, to reduce inventory, to reduce spending, or to consider looking for a strategic partner or buyer.<\/p>\n Especially in companies where the CEO or founder is not a financial expert, the CFO is expected to be knowledgeable, willing to confront as well as inform, and to find early warning metrics that help in the process of effective cash management. \u00a0That person is not a bookkeeper, counting the past, but an expert at forecasting and control. \u00a0And how about that role we touched upon \u2013 as co-strategist?<\/p>\n","protected":false},"excerpt":{"rendered":" Here\u2019s one that most small company founders and CEO\u2019s miss until it may be too late. \u00a0What is the role of a chief financial officer in growing and protecting the company? How about co-strategist? I recently coached a CFO in … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2016\/12\/Bus-survival-300x168.jpg\")
First, the VC\u2019s ordered that the company ramp its burn rate (monthly losses in cash) to over $800,000 a month, which I could not fathom.\u00a0 But even though I objected, it was their money, and they must know what they were doing, I thought, as I watched what I thought to be all-or-nothing spending.\u00a0 For me this was nuts. \u00a0But the CFO dutifully followed the VC command to spend and managed the spending process well \u2013 even if it exceeded reasonable standards of control over the ever-increasing inventory, headcount, and fixed expenses as the infrastructure grew.<\/p>\n![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2018\/04\/underperformance-2-300x168.jpg\")
weeks from having no cash in the bank.\u00a0 Can you guess the board\u2019s reaction?\u00a0 The CFO was immediately fired.\u00a0 I performed a forensic audit on behalf of the board to determine if there had been any fraud or theft; but there had been none. Spending had continued out of control, much of it for inventory and assets – neither of which appear on the income statement<\/em>. So those expenditures were not reviewed by the board which had not been given a balance sheet to examine.<\/p>\n