There’s no denying that the role of Chief Financial Officer comes with a lot of responsibility. You must keep one eye on the minutiae of the accounts, and one on managing your team—whilst having another eye in the back of your head on outside forces that might affect the business.
In a sense, as long as you’re keeping the lights on, you’re meeting the essential requirement to be a good CFO. But here are ten performance metrics that indicate a great CFO.
10 CFO performance metrics: is your finance lead good at…
Whether you’re a CFO yourself, or a CEO looking to conduct a performance review of your second in command, here’s what you should look at to make your judgment.
1. Managing the business’ finances?
Clearly, the business’ success or failure is not a CFO’s responsibility to carry alone. However, a good Finance Lead steers a business to fiscal health—or puts together a solid game plan if that doesn’t seem possible.
With the caveat that some factors may be out of their control, you should assess your ability as a CFO partly on the business’ financial metrics, such as…
- Profitability: the company's ability to generate profits over time.
- Revenue growth: the company’s top-line growth—and whether revenue has increased during a CFO’s tenure.
- Cash flow management: a competent CFO will ensure that you’re always as liquid as you need to be by managing cash flow and working capital.
- Cost management: control of your expenses and operational costs.
2. Managing their team?
As well as sitting alongside senior leadership, CFOs usually manage their own teams. Great finance leaders must also be great people managers, delegating important tasks to junior colleagues, and mentoring them to become proficient at business-critical tasks.
A CFO can be extremely competent, but if their management skills fall short, a company won’t have the weight of a full, high-performing team behind its financial goals.
Qualitative performance metrics of a good team manager include:
- A low team turnover, and perhaps even a high rate of internal promotions.
- The whole team understanding their responsibilities for aspects of the company's financial operations—and colleagues on other teams also having visibility over which finance team member owns which duties.
- Taking ownership when things go wrong, and not passing blame to junior colleagues.
3. Managing stakeholders?
It’s essential for a CFO to be confident talking to anyone and everyone involved with the company’s financial activities. As the CEO’s right-hand person, you should have a warm professional relationship with the business’ bank, investors and board of directors.
You should walk the line between being an active listener, and a persuasive leader: able to argue for your strategic vision without making important stakeholders feel unheard.
Performance goals for stakeholder management include:
- Sending regular, concise budget updates to the CEO, investors and the board of directors—on time and without being prompted.
- Proactively going to your CEO with news that they should know about, between reports.
- Flagging financial trends and strategy ideas in plenty of time.
- Anticipating questions that stakeholders might have, and preemptively pulling the data to answer them.
- Being a confident and convincing reporter, whether to investors or potential buyers of the business.
4. Data analysis?
Strong data analysis skills are essential for a great CFO. Whether or not data really is “the new oil”, it is essential to stay across your financial statistics on a micro and macro level to make informed decisions.
Whilst it was once enough to be a spreadsheet whizz, successful CFOs now almost always implement a suite of tools to help them spot patterns in the numbers. This is especially the case for finance leaders at SaaS companies, who manage the complexities of subscription-based customer relationships. On that note, here’s a rundown of 10 must-have software tools for CFOs.
When CFOs are good at data analysis, they typically:
- Don’t rely on manual processes.
- Organize their business’ financial KPIs on a dashboard which they can navigate with total fluency.
- Select relevant KPIs to track and do not suffer from analysis paralysis: overwhelm from staying across too many data points.
- Know how to find the answer to almost every financial question the CEO asks—or can convincingly explain why that question isn’t relevant to the bottom line.
5. Forecasting the business’ financial performance?
A good CEO should be able to predict the future—to the extent that this is possible, at least. With good data analysis skills, finance managers should be able to say with some degree of accuracy where things are likely to go next, so they can help the CEO plan accordingly.
Metrics to appraise whether you are good at this include:
- Do you use scenario modeling tools to predict the state of a companies’ finances, whether events unfold favorably or not?
- Do you present your CEO information about changes to the market which may affect the business’ operations?
- Do you accurately forecast budgets month-to-month, and plan the company resources accordingly?
Did you know?: For most companies, software is the second biggest budget expense after payroll. Yet, tech spend is often very difficult to include in budget forecasts. That’s because licenses are usually managed by a range of stakeholders in different teams, and each tool has its own subscription cycle, with no central oversight.
A software management tool like Cledara can give you total visibility over your software subscriptions, so that you can forecast their costs accurately and easily.
6. Reporting on the business’ financial performance?
CFOs must keep their stakeholders informed with clear and concise reports on the business’ financial health. They deliver these reports at regular intervals, and may even choose to send out two tiers of analysis: a high-level summary of important figures for board members, and a more granular one for the CEO and leadership team.
CFOs who are great at reporting…
- Use data visualizations to clearly illustrate patterns in the company’s financial data
- Make the most of analysis tools and dashboards to make reporting more efficient.
- Connect up the dots for their stakeholders: they flag trends and anomalies in the executive summary, bringing in outside information such as market observations where necessary.
- Keep an organized backlog of reports on where the company’s finances have been, so they can predict where they’re going.
7. Streamlining finance processes?
All CFOs are busy people, but the best ones pick their battles and automate as much as possible. A great finance manager will ensure that there are systems in place for every repetitive task, and invest in technology to tackle admin, from things like creating invoices to chasing unpaid debts.
Here’s some metrics that indicate you’re good at streamlining processes.
- Closing the books takes you closer to 5 days than 15. Your team knows what their roles are in this operation, and the process rarely feels like a mess.
- Introducing new tools to put your admin on autopilot.
- Being willing to listen when a team member suggests a more efficient way to complete a duty you’ve delegated to them.
- Having a team atmosphere of collaboration, rather than frustration and burnout.
8. Having a strategic vision for the company’s future?
A great CFO is an active business partner to their CEO, and always has an informed perspective on what the next move should be. With their finger on the pulse, they will be the first to spot disruptions such as supply chain issues or economic downturns, and to suggest a course of action.
Whilst a CFO might favor particular tactics, they’re generally adaptable and good at change management.
Qualitative performance metrics include:
- Being able to point to core strategic decisions for the business that you have influenced.
- Offering suggestions to drive the company forwards that go against the ‘business-as-usual’ approach.
- Balancing your role as a visionary leader, and a member of a team that’s answerable to a board of directors—some of whom may offer different perspectives.
- Being comfortable disagreeing with your CEO when necessary, and diplomatically making a case for tactics you believe will be financial astute.
9. Budgeting the company’s resources?
Budgeting skills are essential for any CFO. This includes the prioritization exercise of deciding where to allocate resources, the accounting exercise of balancing so many fixed and variable costs, and the policing exercise of ensuring teams stay within their budgets.
Relevant performance metrics include:
- Success at keeping teams on budget, as recorded in profit-loss statements and balance sheets.
- Positive (or at least, low negative) budget variance.
- Making judicious decisions on where to cut the budget, and where to allocate a little more.
Pro tip: For most companies, software is the second biggest expenditure after payroll. Therefore, speaking both logically and compassionately, when times get tough, the first budget a CFO should look to cut is the software budget.
However, this is often an area that escapes scrutiny, since it’s hard to trace exactly how much you’re spending on software licenses. Many companies have no central log of what they’re spending on apps—let alone assessments on whether those apps are delivering ROI.
A SaaS management tool like Cledara can reverse this trend. It’ll help you keep track of all your tools, give you insights into how much you’re spending on them, and even tell you whether your colleagues are using them or not. This means it’s easy to make software budget cuts.
10. Managing risk?
From shadow IT to supply chain chaos, a great CFO should also be well-versed in risk management—even where this does not directly connect to financial matters. After all, every threat to the business is a threat to the business’ finances.
Relevant performance metrics include:
- Being able to spot risks associated with changes in market conditions, such as fluctuations in interest rates and commodity prices—and clearly communicating these to stakeholders in good time.
- Contingency planning for potential risk scenarios, having a plan to carry the company through unfavorable events.
- Ensuring compliance with financial regulations and reporting requirements.
- Diversifying the company’s investment portfolio.
- Managing insurance policies to cover specific risks that have a reasonable chance of coming to pass.
A CFO’s work is never done
Leading a business to financial success requires a notably long and wide list of skills. It makes perfect sense that the average age of Fortune 500 CFOs, as of 2019, was about 56.
This demanding role is typically for finance professionals nearing the end of their careers—people who have seen it all from decades in the workforce, and watched the success or failure of a handful of companies at close range. Perhaps the best performance indicator of a great CFO is the ability to learn from years of hands-on experience.