Financial Controllers tell you what happened -- CFO's can tell you what may happen
Whether your business is operating through a crisis or not, every owner and CEO, no matter the size of business, should always be thinking in terms of how to strike the right balance between looking in the company rear view mirror and looking out the front windshield. One without the other would indicate you aren't doing all that can be done to protect and build the value, or worth, of your company.
Too often, small to mid size businesses have financial managers or controllers that are very good at maintaining company books. They are qualified and ready to deliver monthly financial statements and answer questions that arise about prior performance of the business. But where there is often a gap is the experience to take the company performance, and not just coach the leadership team about where to focus in finding opportunities to improve the P&L, balance sheet or cash flow, but to be able to build models that project the impact of how past performance will play out for the future performance of the business. Doing so will enable ownership and the leadership to see specifically where inaction based on addressing an issue from prior performance will play out negatively going forward.
A good financial partner (whether he/she be on your staff, at your CPA firm or as an advisor to your company) can take your historical company performance and build models to project out in to a future period what actions or inactions might look like in your financial performance. If your company has been experiencing increasing material or labor costs as a percentage of your revenue, you will want to see what this continued trend might mean over the next 6 months in terms of monthly performance. Your inventory may be growing more rapidly than revenue would normally dictate or your accounts receivable may be changing in its aging, both putting new strains on the working capital requirements of your business. You may be weathering this fine today but as it continues or even worsens, what will the impact be? A good financial partner should be able to project these types of issues for you in a way that you see what's coming as you look out your front windshield.
As you think about how to protect your company value or worth today and look for ways to build it to one day receive a euphoric exit valuation, ask yourself if you're getting the right blend of looking backwards with your business performance and looking forward. If yes, you're already taking great steps with your company but if not, now is the time to rethink this part of your business. Doing so can pay great dividends for your business and you personally in the years ahead.
