One of the most critical and strategic figures of a growing small and medium-sized company or SME is the chief financial officer (CFO). The job of the CFO is crucial for the business’s healthy economic growth and development since they are in charge of fulfilling four essential functional roles.
These roles include managing the company’s assets, directing the company’s financial operations, implementing a way of doing things that contributes economic value, and providing a financial perspective on strategic growth issues. Is your company aware of the importance of the financial director in SMEs?
The chief financial officer in an organization has gained more weight in the current economic environment. This prominence is especially true for small and medium-sized companies just beginning to organize and develop expansion strategies.
This finance pro, which is sometimes underestimated, goes far beyond accounting for resources and communicating with banks. Every day, the growing challenges of different industries require greater skills for CFOs to deal with the complicated financial situations that most companies experience.
Control of financial information has become crucial to gaining a competitive position in the market, which is something that CFOs know how to do very well. Here are four reasons your SME needs a chief financial officer.
Cash Flow Control
Monitoring and controlling the financial flow within the company is one of the chief financial officer’s chief activities since most of a company’s financial problems arise due to a lack of cash. Maintaining control of financial information allows companies to have a positive cash flow and respond effectively to all requirements, such as accounts payable to suppliers, payrolls, inventory replenishments, etc.
Having a CFO allows the company always to have a healthy cash flow and avoid unpleasant surprises or situations that put the growth of the business at risk.
Analyze New Investments
A CFO has the skills and knowledge necessary to analyze new investment opportunities. They use complex financial models to determine if a company can take on an investment, analyze different financing strategies, calculate the return on investment (ROI), and what will happen if the investment does not go as planned, i.e., risk analysis.
Risk analysis is one of the functions of the chief financial officer that brings the most value to a new company in the long term. Many CEOs who still do not understand the importance of the chief financial officer in SMEs make mistakes, such as taking on debts that cannot be paid and producing catastrophic economic scenarios in companies.
Economic Financial Analysis
A CFO is in charge of carrying out a systematic analysis of the company’s financial status. This analysis includes income statements, balance sheets, detailed account balances, etc., that allow knowing the company’s financial details. These details include the economic and financial performance of the business, the availability of working capital, liquidity constraints, financial liabilities, ability to pay, the company’s position vis-à-vis competitors, etc.
Managing the Business Budget
The CFO is also in charge of preparing its annual budget plans and their control and monitoring strategies. A company must work based on budgets to work at an organized economic and financial level. Many SMEs tend to make errors associated with the budget during their first years precisely because they do not have a CFO capable of preparing a budget with their respective monthly monitoring.
Other functions of the chief financial officer within an SME include:
- Coordinate all accounting, administrative, financial activities, etc.
- Coordinate with the tax management office, presentation of annual accounts, books, etc.
- Manage financial reports
- Achieve financing and agreements with banks, suppliers, or clients
- Control costs, expenses, and purchases
Conclusion
All the activities executed by a CFO are crucial for a new business to grow and catch up with its competitors. As a business leader or CEO, you must recognize the importance of a CFO in your SME and start looking for one if you do not yet have one within your company.
In addition to fulfilling these basic functions, they possess skills such as negotiation, the ability to analyze information, flexibility, strategic perspective, capacity for synthesis, etc. Likewise, the chief financial officer must have the appropriate technologies to facilitate administrative work. Thus, he can focus on activities that are much more strategic and important for the business, such as ERP software.
ERP software can help SME CFOs enhance their effectiveness and make better decisions. Its different modules for sales and CRM, planning and production, inventories, purchases, accounts payable, accounts receivable, banks, finance, and business intelligence allow the CFO greater control over the business’s financial information to be much more efficient and make the best decisions.
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