Is Your CFO Any Good? This 4-Point Checklist Will Tell

Poor financial management is like low sperm count. You don’t know you’ve got it until you really check.

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BY Walter Simson - 09 Aug 2017

PHOTO CREDIT: Getty Images

I have met my share of lousy chief financial officers. Like the sportswear executive who didn't know the various products' margins--and then invested heavily in the losers. Or the manufacturing lady who spent a lot of time complaining about the bank's interest rate, but couldn't close the books on time. Or the guy who resists doing budgets.

Why had their managers not thrown them the hell out?

Maybe because the managers just didn't know what makes a good CFO. Having a bad CFO is a silent disease, like low sperm count. You don't know you've got it until you finally decide to check for real.

What if we had a simple CFO checklist? Like the famous Rockefeller habits, a list of ideal management practices compiled by author Verne Harnish?

To his list--which emphasize such matters as team alignment, goal setting and meeting management--let's add some meaty financial measures that define a well-run company.

Here goes:

1. Basic operations

You have financial information (profit and loss statement, balance sheet, cash flow and schedules) by the tenth calendar day following the end of a month. I know, people, I know--ten days is hard. But, so is not having complete financial information. Let's set a standard. Oh, and by the way, this includes having a monthly budget-versus-actual schedule for all the documents in the package. That is so we can review any items that are out of whack and ask the a simple question: what the hell are we going to do about it?

2. Strategy

You can identify the company's core products and core customers and elucidate plans for their continued growth. Core products and customers, by definition, provide handsome margins, and to understand handsome margins you must know your costs. This, strangely, is an area that some financial managers think needs to be checked as often as a lunar eclipse. (To be clear, you need to know your costs on a current basis.) The other aspect of core products and core customers is that sometimes, to engage in growth, you gotta be a deal maker. As in a buyer of core business and a seller of non-core. Let's put that in our list, too.

3. Capital

You can forecast the capital needs of the business and you have absolutely, positively secured capital availability over the next three years. How do you forecast capital needs, by the way? By having a hands-on understanding of your cash flow, that's how. Any questions on this, please see point number one, above,

4. Systems

You have procedures and routines that protect the assets, reduce risks and permit key functions to grow. Here I don't necessarily mean your CFO has to be a computer jock, although it probably couldn't hurt. It's more that he or she needs a mindset of protecting the downside. (Receivables--collected. Assets--insured. Contracts-vetted.) You do that by thinking through the risks and making sure that procedures, and not personalities, have everything in control.

There you go. That's my wish for you--that you have a CFO who can cheerfully and competently orchestrate these deliverables for your growth company. (Oh,and that's a good point. I say "orchestrate" because the CFO doesn't produce financial statements alone--the staff does that. If you have a CFO who works alone and who cannot do everything on the checklist, you don't really have a CFO. You have a controller who takes a lot of abuse from management. The point being that a true CFO needs a competent organization in order to be successful.)

I think of this as a minimum. For example, if you have complicated costing, a sophisticated capital structure or a demanding board of advisors, your requirements for financial management will grow.

But if your CFO is not making the minimum, put a performance plan in place, because the organization needs these skills. And if the CFO won't achieve this vision in a reasonable time?

Well, then put this list on the company refrigerator. Then, the next time you clean the fridge, make a note to also clean your financial house.