How modern finance directors think - A new mindset for growth

How modern finance directors think - A new mindset for growth

 

Today, modern finance directors must think strategically and seek out new sources of funding as they plan for growth

Modern finance directors do far more than keep a close eye on the company’s balance sheet and profit and loss account. Increasingly they are working closely with the chief executive to develop the business’s strategy for future growth, and ensuring the company has firm financial foundations on which it can build such plans.

Take Bruce Besanko, the finance director of OfficeMax. “As CFO, I’m in a unique position within the organisation, at the absolute centre of the universe,” he says. “The only other executive besides me that has that same presence at the centre is the CEO."

The recent Changing Role of the Financial Controller research report from Ernst Young (EY) underlines Besanko’s point. It reveals that 82% of finance directors believe their jobs have become more challenging over the past three years, as their roles have expanded and broadened. A separate study of financial directors conducted by the professional services firm,The CFO’s Contribution to Strategy, suggests many now feel a responsibility to take a leading role in their organisation’s corporate strategy. 57% of respondents to EY’s study said their role was to provide insight and analysis to support the CEO’s strategic planning; 49% believe they should be leading key initiatives to support the business’s strategic goals; 49% also said they should be ensuring business decisions are grounded in sound financial criteria.

Is the responsibility of making both business and financial decisions keeping you awake at night?

As finance directors consider how to capitalise on the opportunities being created by the UK’s economic recovery, they must confront the question of how to finance their strategic ambitions in a climate where funding is not always easily accessible.

One problem is the perception that traditional sources of finance are now limited for many small businesses. Data from BDRC Continental shows that 48% of small and medium-sized enterprises now consider themselves to be “permanent non-borrowers” - people who have not borrowed any money at all over the past five years and have no plans or wishes to apply for finance in the next three months - while almost one in four (24%) applications made for new or renewed loans and overdrafts over the past 18 months have proved unsuccessful.

One problem is the perception that traditional sources of finance are now limited for many small businesses. Data from BDRC Continental shows that 48% of small and medium-sized enterprises now consider themselves to be “permanent non-borrowers” - people who have not borrowed any money at all over the past five years and have no plans or wishes to apply for finance in the next three months - while almost one in four (24%) applications made for new or renewed loans and overdrafts over the past 18 months have proved unsuccessful.

This situation is made worse with late payments continuing to cause problems for many businesses

The latest Close Brothers Business Barometer reveals that a record 51% of small businesses now see cash flow, working capital and late payments as their main business concern.

Almost a fifth of these firms say the situation had deteriorated over the past 12 months. Invoice finance may be one way to unlock some of the value tied up in those unpaid invoices. Where finance directors are able to work with invoice finance providers to head off their late payments problems, there is an opportunity to improve cash flow – and to free up working capital for investment in the future of the business.

Many finance directors are now beginning to think in broader terms as they seek funding for strategic growth

John Bevan, a former banker with Royal Bank of Scotland and Barclays, says, “Traditional debt finance remains difficult to obtain for many businesses, and may not be the right fit. Companies are more aware of alternative forms of finance than they were several years ago.”

To recap Bruce Besanko’s comment, many finance directors today are at “the absolute centre of the universe” within their organisation. The job of exploring alternative funding options is just one part of their more strategic role to set the future direction of travel for their business.

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