When your business is in a growth phase, it becomes essential to look at your business from a financial lens. A financial perspective gives you insight into where your business is headed and how to plan monetarily for business obstacles and opportunities that might come your way.
That’s where a financial advisor comes in. An advisor, such as a virtual CFO or a fractional CFO, provides you a “map” that shows where your business is and potential paths forward to your goals. However, you may not know what questions you should ask your advisor to help them create this map.
We’ve broken down the questions we think you should ask your Chief Financial Officer into topic areas below.
Operational Questions to Ask Your CFO
You might be thinking “what does operations have to do with a financial strategy?” Well, everything. Every department in a business has something to do with your company’s finances, and operations is no exception. In fact, you could argue that operations is the department with the most impact on finances. Our virtual CFOs often guide our clients through a deep dive into their operations to identify areas for cost cutting and optimization.
If you aren’t sure how to get the ball rolling with your CFO, we have recommended questions to begin asking them about your operations strategy.
- What is the ideal pipeline size needed for our business goals?
It’s important to calculate the ideal pipeline size your business will need to meet specific business goals. If you don’t have the right number of prospects, you won’t close the right number of deals. If you can’t close enough deals, you won’t have enough money coming in the door to meet business goals. If you need more help to calculate your ideal pipeline size, we have a blog post with a specific formula and method to do just that.
While I won’t go as far to say that your team is a cost center (without your team, business wouldn’t be possible!), it is important to check whether your team is being fully utilized. Could your team take on additional tasks or clients? Are you maximizing their workload? It’s also important to ask if there are ways to cut down time they spend on non-revenue generating tasks to make room for more profitable tasks.
We refer to cutting overhead costs as “cutting fat”. Do you have software that is unused and taking money away from growth initiatives? Do you have unused office space that is unnecessary since half your team is remote or hybrid? Are you using an inefficient technology that could be replaced by a quicker, cheaper alternative? It’s important to audit every nook and cranny of your operations strategy and see where inefficiencies lie.
Is your onboarding strategy leading to friction deterring clients from continuing the process? Do your clients feel as if a promise made by your sales team isn’t being fulfilled leading to cancellation of contracts? Is there a service you could add to your packages to influence more closed deals? Reviewing your onboarding and client service processes is essential to customer satisfaction (which we know directly influences cash flow).
Having one or two clients making up the majority of your accounts receivables can be risky. If one or both of those clients leave, your cash flow takes a major hit negatively impacting business growth plans.
This is where client diversification comes into play. Gaining a few more clients with an equal contract size ensures that if the worst comes to pass, your cash flow remains steady.
Cash Flow Management Questions to Ask Your CFO
This next section is dedicated to questions you should be asking your CFO about cash flow. Cash flow management is a fundamental piece of financial planning for business growth. Without it, increasing profitability becomes difficult as you scale.
This step comes down to identifying whether your business is measuring business performance accurately and effectively and using those metrics to create a cash flow forecast. Our CFOs help clients identify non-financial and financial metrics to measure business growth and see if their strategies are moving the business along towards goals. When they aren’t, our CFOs help clients scenario plan and adjust tactics to put them back on the right track. Make sure to ask your CFO if there are steps you should be taking to identify the right metrics to build a solid forecast.
There are many areas of weakness and strength that a business could have within its cash position. For the sake of this blog post, we highlight a few of the most common your CFO should be monitoring.
o Cash Reserve – Your business should have 10-30% of annual revenue in a cash reserve. The reason? A cash reserve sets you up to take advantage of business opportunities or keep your doors open in the case of an economic downturn. Cash reserves give you a fallback plan. Often, business decisions are made emotionally and with panic when a cash cushion isn’t available. With that cushion, you make calculated choices knowing that there is cash backing your business.
o Overhead – Your CFO should have metrics available to measure the effectiveness of overhead costs. When there are overhead costs that are inefficient and not growing the business (such as unused software or office space), your CFO should be working with your team to eliminate that excessive cost. On the other hand, your CFO should also show the costs that are increasing the profitability of your business. For example, software that cuts time spent on repetitive tasks previously performed by employees.
o Team Capacity – Business key performance indicators (KPIs) can help your CFO identify whether your team is at capacity or if they have room to take on work. Unfortunately, sometimes the amount of work we take on as an organization is not enough to justify the size of our departments. On the other hand, our team members can be overextended and work just continues to pour in. In this case, we need to hire staff to continue growing!
o Accounts Receivable Turn – Collecting payments on time and as quickly as possible is necessary for maintaining consistent cash flow. When your accounts receivable turn is long (30+ days), you may be on the line for paying expenses related to services performed without the cash flow to pay for it.
Your CFO can identify if accounts receivable turn is too long for consistent cash flow. If clients are consistently not paying on time, it’s time to enable contracts to enforce timely payment. Your finance team can also aid in establishing relationships with your clients’ accounts payable team so they can “put a name to the face”. Clients are more likely to pay when a solid relationship is established.
- Do we have the cash reserves we need for business growth initiatives?
You might begin to see a pattern with our mention of cash reserves, but cash is truly king. A strong cash reserve provides you the assurance that come an amazing growth opportunity, you have the funds to act when you need to.
KPI and Business Metric Questions to Ask Your CFO
KPIs and metrics are the measurements in place to see if the strategies your company is using meets growth initiatives. These are two questions we suggest you ask your CFO to determine if you are on the path to success.
Your CFO should have an idea of what KPI benchmarks exist within your industry. These benchmarks are important to understand how your performance stands up against competitors. Overall, these KPIs help you uncover your company’s financial health, understand if your position is competitive compared to similar businesses, if changes should be made to operations, and determine areas where strategies can be refined for improved business growth.
Your CFO can help you determine the right KPIs and metrics for your business goals and industry. There are a few common KPIs we recommend businesses track such as: net income, pipeline, gross profit, utilization rate, etc. Ask your CFO to provide analysis on each of the KPIs and if they are headed in the right direction.
Risk Management Questions to Ask Your CFO
While there are always risks in business, using risk management strategies help mitigate negative effects that come from running a successful business. Getting your CFO involved in risk management helps future-proof your business.
- What are the areas of risk that might prevent or slow business growth?
It is helpful for your CFO to have connections within your industry that provide insights into the trends in your space. Why? It improves your CFO’s ability to identify risks that might stop business growth in its tracks.
Your CFO should have a pulse on changes in the industry like market saturation and changes in demand. It is also useful for your CFO to be aware of supply chain disruptions.
Lastly, your CFO can help identify non-compliance issues that may disrupt business.
I hope this blog post helps you create a list of questions to ask your CFO to identify strengths and weaknesses in your financial strategy. If you have any other questions you’d like to ask one of our virtual CFOs, feel free to reach out for a free consultation. You can also learn more about our virtual CFO services and how we help our clients grow their businesses through strategic planning.
