These days being a CEO is more demanding than ever. In order to be effective, we need to draw from a wide variety of disciplines and demonstrate an array of skills, from strategic thinking and execution to team and relationship-building skills.
One skill that is critical however is financial literacy, since senior executives routinely review financial data with their direct reports – from operations to marketing. Business owners and CEOs may not need to be CPAs or MBAs but they do need to be able to tell the difference between an income statement and a balance sheet. They need to have access to accurate and meaningful reports that they can intelligently use in their decision-making process. What kind of information should those reports contain? It depends on the complexity and size of the organization, but here are a few ideas:
- For each product or service that I provide, what is the true cost?
- What is my gross margin for each?
- What is my break-even volume of sales?
- What is my overhead and how much of it should be allocated to each product/service?
- What is my break-even volume, my profit or loss on a cash basis, my overall liquidity?
- Do I have an accurate process to track cash position and cash reserves, factoring in receivables, payables etc.?
The above are just the beginning – there are many more questions that require answers in order for a CEO to be in a position to make an informed decision.
That’s why it’s important to have a CFO that they can trust to be a strategic business partner, someone who can move beyond the role of compliance cop or financial gatekeeper into providing insights that can help a CEO strike a balance between what makes sense from a business perspective and a financial one.
At TEC Canada, we believe that, with any type of leadership, we should always be striving to add to our competencies, no matter where we are in an organization. If you are a senior manager who happens to be a CFO, your skillsets for reducing overhead and managing cash flow are valuable in today’s marketplace, where controlling costs is an important part of increasing profitability. Financial leadership may mean growing beyond the transactional nature of your role into something more broad and strategic. Cultivating broader interests and taking a holistic view will be critical if you wish to reach the top of the leadership ladder.
The bottom line? We are all a work-in-progress and there is no time like the present to take the steps toward developing our own leadership – financial or otherwise.