The financial type is stereotypically called a “bean counter” because they focus primarily on the costs or overhead. That’s the easy route to take. They can manage the costs without having to walk outside their office or cubical to talk to another person or department. But a financial leader needs to help drive revenue growth in their company to create real success. We’re looking at how CFOs can drive revenue growth in this blog. First, let’s look at why you should not just cut costs, but drive revenue. Remember, it is easy to cut costs, it is really hard to cut the right costs.
Don’t Just Cut Costs… Drive Revenue
Why Cutting Costs Doesn’t Equal Success
The sales team is responsible for revenue and the CFO is responsible for everything else… Right? That’s the common misconception among the financial leadership. But the financial function needs to be more involved in sales than they are right now. Cutting costs (aka being a bean counter) does not equal success. Focusing on only cutting costs is a very short-term strategy. If your organization is a going concern you want a long-term strategy which includes cutting the right costs as well as revenue growth, improved margins and ultimately profitability.
For example, there’s an economic downturn. You as the financial leader are cutting fixed costs, evaluating expenses, not giving out bonuses, etc. Cash is tight. And the money isn’t coming in with this downturn. At one point, you are going to be extremely lean in your overhead and you can’t cut anything else. What happens if the downturn continues another 18 months? You’re going to be out of business or in debt.
The CFO cannot just focus on overhead. They need to be looking at more cost-effective vendors, work on improving productivity and efficiency, innovating with the CEO and sales team, focusing on the more profitable customers, and forecasting the sales potential. Basically, the CFO needs to be thinking of ways to bring in more cash while keeping costs down… hence improving profitability. Many of the most successful CFOs end up as the CEO. Well guess what, the CEO worries about everything, including sales and profitability. If you are next in line as the current CFO, are you really prepared to step into that CEO role? Are you thinking like a CEO? A good CFO actually thinks like a CEO.
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How CFOs Can Drive Revenue Growth
When you look at how CFOs can drive revenue growth, you need to look at leadership. Who is the financial leader? In other words, they may be chief; but are they able to lead a group of people to accomplish a goal. Let’s look at how a CFO can align finance / marketing departments, and not be a CFnO, but have data transparency, and be a successful financial leader.
Align Finance & Marketing Departments
As an example, finance, marketing and sales should be close to one another as one is managing the money and the later wants to spend the money to make more money. These three departments should be on the same page and in sync with one another. Think about when you (the CFO) create a budget. That budget is useless unless your company follows it. You need to manage the marketing department and your sales people need to inform you with their sales projections, what they need to accomplish their goals, etc. Hopefully this was all captured when you created your annual budget.
For example, I work with my Director of Marketing to make sure we are on the same page as far as marketing goals are concerned, see what she needs to accomplish her job, and to hold her accountable. It could be easy to let her just be a detached marketer, but I would risk spending money that we don’t have, pursuing customers that aren’t profitable, and focusing on the wrong things. We talk about our budget on a weekly basis.
Don’t be a CFnO
We’ve talked about it before on our blog as well as in our coaching workshops. To be a successful financial leader, do not be a CFnO. What is a CFnO? It’s when the CFO only looks at the numbers and rejects every idea that the management team or CEO has or wants to pitch. Imagine you are trying to drive the company forward and invest in areas that you think will be profitable. Then imagine someone looking over your shoulder repeating no, there’s not enough money for that, not until you do X, Y, and Z, etc. You probably wouldn’t like that very much. They don’t either.
Instead, give them the chance to elaborate on their idea. Ask questions like:
- What would success look like to you?
- How many sales do you think this would generate monthly/annually?
- What do you need to make this successful?
- What are some of the risks or challenges you foresee?
- Where does this align with the rest of the priorities of the company?
You can also tell them this is what we need to do first before we can venture into this new idea/product/investment/etc.
Be Transparent With Data
Do you ever feel that you’re missing a figurative piece to the puzzle? If so, you’re not alone. Many financial leaders are not able to make the right strategic decision (or any decision at all) because they don’t have all the information and analytics they need to budget, forecast, anticipate disruptions, etc. In “Dun & Bradstreet’s recent 2016 Enterprise Analytics Study, [they reported that] only 38% of companies share analytical insights across departments” (Dun & Bradstreet). That is a big problem. Dun & Bradstreet also argued that “with a cross-functional foundation and analytics toolbox, CFOs can improve their organization’s position in the industry, better manage assets, budget more effectively, and predict potential organizational disruption.”
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How CFOs can drive revenue growth revolves around the data they have. They should have access to the following:
- Product line performance
- Product line profitability
- Sales and labor costs
- Sales forecasts
- Customer profitability
- Raw material costs
- Business unit performance
- Board or ownership strategy
Be a Financial Leader
In conclusion, the CFO needs to be a financial leader. We emphasize leader because it requires you to communicate, have vision, be honest, and make confident decisions. As you learn how to drive revenue as the financial leader, rebuild your sales pipeline and project accurately with our Goldilocks Sales Method whitepaper. This is one tool that will help you project just right – not too high or low.