Finance Questions CEOs Should Ask

Finance Questions CEOs Should Ask

by Gregory R. Smith

Busy CEOs have plenty to think about, no matter the size of the enterprise theyโ€™re running. Finances are always top-of-mind because revenue and expenses affect every aspect of the business. However, even when things seem to be going smoothly, you still have to dig below the surface to make proactively favorable business decisions.

If youโ€™re the CEO, are you sure youโ€™re asking all the right financial questions?

 1. Do I feel like Iโ€™m in control of my business?

You should know:

  • How much money your business has in the bank
  • Your sales forecast and how it was derived
  • Your budgetโ€”are your managers watching out for and controlling expenses as needed?
  • Your cash flowโ€”are your invoices getting out on time, and are collections timely and complete?

Do you believe in your numbers? You rely on your P&L and balance sheet. Are these numbers accurate and produced fast enough? If you donโ€™t have this timely information around month-end, itโ€™s too late to make assertive, informed decisions. In effect, decisions are being made without you.

If you donโ€™t have complete confidence in your numbers, that is a crucial problem. For that matter, are you sure youโ€™re using the most appropriate financial KPIs?

These are questions a CEO should be going over with their CFO regularly. However, if your company is not large enough to justify a full time CFO or controller a good option is bringing in outside help. Support from a fractional CFO or fractional controller can help you avoid the feeling of โ€œflying blindโ€ with your finances.

2. How does my business compare to others?

This isnโ€™t an ego question. Knowing how your management practices compare to your competitors and to overall industry standards can be very enlightening. Are there risks you are taking that you shouldnโ€™t be? Are there weak areas for improvement? Do you have strengths that distinguish you from other companies that you should build up?

For example, letโ€™s say youโ€™re a construction firm with an in-house controller. Theyโ€™re pretty good, but not great. A fractional CFO can review your situation and make recommendations to help your controller and/or finance department improve. That might involve replacing someone, but often all it takes is better training and process streamlining to boost the value of existing personnel. A short term (several month) engagement with a fractional expert in finance can have a lasting impact for your business.

3. Do I have the right partners?

Your legal, banking, audit, tax and insurance partners are vital members of your team. However, CEOs often have a tough time giving up established relationships even when the companyโ€™s needs change. You have to be willing to switch to new partners to sustain growth and company value. That said, perhaps a partner has grown complacent over time and just needs a little push to revitalize their efforts on your behalf.

Bringing in a fractional CFO can be a big help here, to assess how well existing partners match current and future needs. Scale is often an issue. For example:

  • A big business typically needs a big bank, and big banks typically prefer big business clients, so the relationship is often a sort of absentee partnership. However, if your business is smaller, you want advisors who are more personally interested and engaged. Whatever your size, your company needs a banking partner that can provide access to capital loans that are structured to assure maximum ability to use short-term credit. A CFO can help sharpen your financials to access growth-oriented banking services.
  • On the legal side, both cost and responsiveness are critical for a good fit. Small businesses may start out with a small firm or even a sole practitioner. But as you grow, they donโ€™t have the resources to keep upโ€”effectively and efficiently. Conversely, a small business can get lost in a big law firm. The best match depends on the details.

A Third-Party Arbiter, Not a Flamethrower

A fractional CFO doesnโ€™t come in to clean house, they come to advise the CEO using their extensive knowledge and experience. Working a day or two each week, they get to know your business, assess your financials and management practices, then sit down for a heart-to-heart discussion of findings. Along with internal recommendations, they will suggest:

  • Ways to strengthen still-appropriate partner relationships and results
  • Partner changes that can strengthen the companyโ€™s overall position
  • Reviews of the existing accounting staff for strengths and gaps

If change is needed, the CFO can also assume the role of โ€œbad guyโ€ more gracefully than the CEO.

Fractional CFO is a short-term assignment, but the benefits will apply long-term. For CEOs, that means making improvements to continue growing the company and learning to ask all the right financial questions. With that comes confidence in knowing the answers, even after your fractional support is gone.

Business Valuation

Gregory R. Smith

Gregory R. Smith

Greg Smith is a director and practice lead of the Accounting and Management Outsourcing (AMO) group at Redpath and Company. He provides oversight and direction to each of the accounting, payroll consulting and Fractional CFO/Controller areas within AMO as well as directly providing Fractional CFO services. Greg began his career in the entrepreneurial services group at EY in audit and has been a Controller and CFO in public and private companies for over 20 years. Over that time, he has gained experience in a wide range of industries including manufacturing, services, software/internet/high tech, med tech, and real estate. Greg joined Redpath and Company in 2021.