by Cristina Muise, MBA, Ph.D. — President and CEO  

In this hypercompetitive environment, quality and speed of information is critical to keep you on plan and to adjust when the plan needs to change. As such, your CFO plays a significant role in your strategic and operational decision making, and visibility for the Company. Ensuring that you have good cadence, communication and visibility in these 8 areas will be essential from the CEO’s vantage point.

1. Timely Reporting of Monthly Financials

2. Monthly Re-forecasting of Financial Projections

3. Cash Flow Forecasting 

4. Key Metrics Dashboard

5. Comparative Analytics 

6. Client Collections and Vendor Payment Metrics

7. Compensation Plan Structure and Analysis

8. Long Term Plan for use of Debt/Equity

Timely reporting of monthly financial data is essential for evaluating operational performance. Failure to receive this information from your Finance Organization within a reasonable timeline is always indicative of a more systematic problem with your team, internal process or technology. A reasonable standard to set for your team is no more than a 10-15 day turnaround on a standardized monthly reporting package.

 

A CFO should have a real-time set of Financial Projections that was set out at the beginning of any year. Over the year, it is important that the forecast and key assumptions are reevaluated so that conversations with banks, investors and stakeholders can be open and transparent in setting expectations as they may fluctuate throughout the year. A partnership between the CEO and CFO should have clear expectations of alignment of the forecasted results the company is on track for month, quarter and/or year.

 

Cash Flow Forecasting is much different reporting from a standard monthly package. The timing of cash flow reporting is highly dependent upon the cash position and needs of the company. Some companies may need to monitor daily, others weekly or monthly. However, a CEO needs to understand the cash flow forecast and whether the operations are creating, or burning cash within the forecasted expectations.

 

A CEO is generally challenged with either too little data, or too much data. One of the most helpful tools to understand how to best steer the company is to put a Key Metrics Dashboard in place. This Dashboard has only a handful of metrics, but each metric, or KPI (Key Performance Indicator) is selected as the one of the most impactful metrics that drive the company’s results. Generally, the KPIs selected for a Dashboard are a mix of actual results, as well as leading indicators that are essential to achieving the intended outcomes. The Dashboard can be daily, weekly, or monthly and each of those dashboards would have purposeful KPIs for that period.

As the monthly financial results are presented, a summary of comparative analytics is an important trend that should be highlighted in your monthly package. Comparative analytics should be presented on a number of levels:

· Budget to Actual comparison

· Current Period vs Prior Year comparison

· Current Period vs Prior Period comparison

· Actual Results vs. Industry/Competitor Results (as available)

Each comparison should highlight variances, positive or negative, above a certain tolerance percentage with a documented explanation of variance.

 

Client and Vendor activity is one of the most impactful ways to affect short term cash. Understanding the trends of how quickly and successfully Accounts Receivable is being collected, and how Vendor Payment terms have been set could significantly impact your cash position. For example, speeding up the collectability of AR, and slowing the payments on your AP, could create a much more efficient cash burn for companies that need to manage through tighter cash periods. Managing relationships transparently and with open communication on either side can create more efficient opportunities without putting the company at risk. 

A Company’s compensation plan structure is one of the most powerful drivers of performance that can align and motivate employees towards specific activities and results. When a compensation plan is structured, it is modeled and expected to pay on certain outcomes. A compensation plan structure should be reevaluated every year to ensure that the intended outcomes and percentage payouts have remained in line with outcomes, employee compensation levels and industry standards. It is standard practice to reevaluate and reset the plan if objectives or desired outcomes need to change to align with the company’s strategic plan.

Although debt and equity matters are longer term elements of the balance sheet by nature, the plan for use of debt, or equity, as a source of funds for a company should be part of a longer-term discussion during the planning process of each year. Because both debt and equity can take many forms, and can also play a part in compensation planning, it is important to understand how decisions affect the balance sheet on both fronts. A CFO can help a CEO evaluate the use of debt and equity with some financial modeling exercises that can make the decisions much more substantive in evaluating the long-term impact on shareholder equity as the company grows.

As you review the quality and cadence of reporting you currently have access to, consider the above to identify areas where the reporting can be more succinct in providing relevance and timeliness. Ensure that your expectations from your Finance team are clear and understand that sometimes getting to the right level of communication is a process that requires fine tuning and input from your leadership team. 

Precision Life Sciences is a consultative and strategic staffing firm located in southern New Hampshire. Our service offering extends from Organizational Consulting, Strategic and Consultative Support for the Fundraising Process, as well as Executive Search and Staffing Solutions. Feel free to contact us at 603-413-4440 or reach out for more information at INFO@PRECISION-LIFESCIENCES.COM.