Is your business ready for a Chief Financial Officer? Have you started your new financial journey with a professional? If so, check out episode 138 and learn some strategic questions for your CFO when meeting with them for the first time. Hiring a financial advisor is a big step for your company. It can also be costly, so it’s important to make the most of your money and ask the right questions.
What we cover in this episode:
- 02:00 – Capital Allocation
- 05:20 – Financial Forecasting
- 10:40 – Cost Optimization
- 15:14 – Market Analysis
- 20:50 – Compliance and Regulation
Capital Allocation
How should you prioritize Capital Allocation to ensure the highest return on investment?
Capital allocation means putting your money in the right places to make sure you get a return on your investment. This goal can be anywhere on your timeline. You can invest money in different areas like hiring, technology, marketing, and assets for your company.
Your CFO will start by using this as a diagnostic test to determine what your company needs to invest in first. If you have extra capital at the end of your goal, you can allocate funds to different areas of the business to help it grow. You can also bring in outside investors to help you gain capital and grow your business if that is the best strategic move.
Financial Forecasting
What are your financial projections for the next quarter/year, and what factors contribute to these forecasts?
Forecasting is a critical part of financial planning. Businesses must understand how decisions like hiring, location, products, expenses, etc., impact revenue. Seeing the big picture is essential for success. This information lets you set your expectations and make sound financial decisions.
Knowing where you stand in your business and where it can go with the right tools gives you the confidence to keep moving forward. You may notice that you have the money right now to launch a new product, or you may find out after the forecasting that it will take three months to begin the launch, but you now have that knowledge about what is most beneficial to you and your business. With a CFO, you can walk through the best decisions and talk about how each decision affects your business and financial stability.
For instance, if you need to add more people to help reduce the workload for you or your partners, you can ask your CFO if this is doable. They will be able to look at the financial information and see if it is manageable. Or they could look at moving pieces of the business around to make room for money to go towards new employees. Having a CFO to discuss scenarios with can lower stress and help you increase revenue while maintaining a sustainable business.
You or your business partners will also likely have some great ideas. Use financial forecasting to discuss ideas with your CFO and see if they fit your budget. You can also ask when it’s best to put the ideas into action. Financial forecasting ultimately helps steer your business in the right direction and is a foundational tool in financial advisory.
Cost Optimization
In what areas can you optimize cost without compromising productivity or quality?
This question is fundamental and very specific for each business. After asking your CFO about optimizing cost, they will look at industry comparatives.
This data means your CFO is looking for anything that stands out as a high cost compared to industry standards. Once they notice an area where you may be paying more than the standard price, they can look into alternative quotes or vendors, or any cost saving opportunities etc.
Keeping costs low but not sacrificing quality is crucial for the reputation of a business. Having a CFO to monitor this regularly is a huge benefit for a company. It could save you thousands of dollars. On the flip side, costs may have risen naturally, and to get the high quality expected, you have to pay a higher amount. However, that is also where your CFO comes into play. They assessed your financial situation and can determine the necessary steps for your business or how to manage increasing prices. They can provide guidance on how to address your business needs or navigate through price hikes.
This is a meticulous process. Your CFO will carefully review each expense to see if there are ways to reduce costs. The budget will be precise, which is the key to cost optimization.
Market Analysis
How is our business positioned in the current market, and what competitive trends should we know?
This is a great question to ask your CFO because it allows you to understand where your company stands within industry trends. Where is your business both nationwide and regional? You can sign up for several industry reports to receive updates and news about businesses that fall within the same category as yours.
This information helps inform you of financial, customer, vendor, and supply changes, etc. Staying ahead of the game on new trends is crucial to your business. Many of these reports include a quarterly or even monthly update about what is happening within the industry and where it is headed for the next quarter so that you can be as prepared as possible.
Your CFO can also review your competitors. This information can change over time as new businesses open and economic changes take place, so it is important to have someone monitor it to keep you updated.
Looking at this information ensures that you are differentiating yourself from your competitors and staying marketable. Everything evolves: consumers, prices, offerings, etc. So, paying attention to changes and what your consumers want out of your business is essential. Communicating to your clients that you have made changes for the better will go a long way toward improving your reputation and keeping you at the top of your industry.
Compliance and Regulation
Are there any upcoming regulatory changes impacting our financial strategy or operations?
As we all know, some regulations are greatly needed, and some can be extremely frustrating. Regardless, we have to stay in compliance as a business to continue operating. As always, it is important to have someone check on these regulations regularly and make sure that your company is abiding by all standards and rules.
Industry trends and reports can be another great source of information about regulations. Your CFO or tax advisor will also be aware of any regulatory or compliance changes that could potentially affect your business. All parties involved need to actively discuss changes monthly or quarterly, and don’t be afraid to approach your advisors about changes or ask questions about rules that you may not be familiar with.
Conclusion
Meeting a CFO can feel overwhelming if you don’t know the ins and outs of what they offer or how they can help. Preparing for a meeting with a few questions is a great way to get the best results. These five questions will let your CFO know that you are ready to take the next step in long term financial planning and also what your goals are for your business.