Why every business needs a Finance Director and what a good one does
April 20, 2014
It’s all about teamwork isn’t it? Any organisation with any degree of complexity and growth needs a team to manage the process and maximise the results, one person cannot do everything – even in Yorkshire.
In a business context this means that as an entity grows, it will need to delegate key tasks to experienced and qualified team members. The focus and needs of the business will determine which area the business owner seeks help in first, whether sales, operations, admin or finance. It is, however, fundamentally true that every business must at some point seek help if it is to break through any barriers to growth.
Looking at finance in particular, it is traditional to break down finance roles into the following broad headings:
- Finance direction
- Finance control
- Book-keeping/basic accounting
- Data entry
The nature of the input required means that a pyramid structure is often evident, with a number of assistants at the base and a Finance Director at the peak. The actual numbers of team members required is often driven by the volume of transactions and the complexity of the business. By their very nature many of the roles in the structure below the FD are more transactional in nature and focus on the accuracy of accounting records, essential in itself, but not enough to really manage and develop a business.
As we are focussing on the FD role specifically then, what then are the key tasks of this role and what does the role bring that the other finance roles do not? Speaking generally, we suggest the following three main areas of expertise and input:
- Coordinating and developing long term plans
- Defining the implementation timetables
- Assessing risks
- Evaluating the funding required to deliver the plans developed
- Developing internal controls
- Managing and developing the reports needed to manage the business
- Improving profit levels
- Managing cash flows
- Tax planning and legal issues
- Compliance issues
- Managing external relationships
- Outsourcing relationships
The modern FD needs to be all this and more. There are many other considerations that go beyond the pure “job description” above. Here are some of the main ones:
- Financial or Management accounting speciality? – To me, there is no debate. Management accounting looks forward and financial accounting looks backwards; it’s where you are going that matters as you have already passed where you have been.
- Experience – It’s incredibly important that an FD has a wide range of commercial experience and I mean commercial, not just financial. Good FD’s do not learn things from textbooks, they learn by doing, and yes, sometimes by making mistakes. In terms of experience, commercial experience means leaving the ivory tower and talking to customers and engaging with the production and operations teams. A modern FD realises that finance is a service provider (internal and external), not just a function.
- Qualifications – Based on the comments above, you will not be surprised by my views that although a good, accountancy institute, qualification is important, they only represent a ticket to the wider world and frankly for a good FD is decades old.
- Personality– There is no shortage of jokes about the personality (or lack of it) in accountants and some of them are deserved. The personality essentials for an FD include:
- An ability to communicate on every job spec in the world. A good FD needs firstly to communicate with all levels and be chameleon-like, and secondly the communication with peers needs to be collegiate rather than directly black and white.
- In a similar vein to earlier comments, an effective FD grows beans and gets team members to count them! A delegating personality is therefore essential.
- Full or part time? – Although I have to declare my interest, I think the answer is pure common sense. If you review the typical FD tasks highlighted above, it is clear that in an SME environment, there is not enough to keep our experienced FD busy. All that happens is a yield to the temptation to dig into the financial controller’s role and of course this is not value for money. As a business grows, it needs an FD’s input at certain times, with consistency and regularity.
There are an increasing number of set ups that provide a flexible FD services. The best providers provide a flexible service that grows with the business. This flexible service also helps manage costs effectively, although a good FD will easily provide a greater benefit than his costs.
Finally, a personal example of a good FD in operation.
Several years ago, I worked in a business that was growing rapidly. The key relationship was between the entrepreneurial MD and the commercial FD. The MD hurled exciting new projects at the business every day. The FD reviewed them all with the MD. Some were fine as they were, some were fine with more planning and some tweaking, whereas some others went straight into the bin after being created a little too late at night. When the FD left to do other things, some of the ideas in the latter group got through and the business tailed off dramatically.
So, every business needs the appropriate input of a good FD and the role is really one of being the key, trusted, right hand advisor.
5 main things to consider:
- Do you need a full or part time FD?
- Make sure the FD has a commercial mind-set backed up by real life, not textbook experience
- Some experience in general management can be useful
- In a business, management accounting experience is more relevant than financial accounting experience
- The FD should be involved in all major decisions and strategy considerations, many good businesses fail not through a lack of ideas, but a lack of finance
Written and contributed by Andy Collier, Regional Director – North of England