Even pre-pandemic, the role of the CFO was changing. As businesses discover a new BAU, it’s clear that the CFO is juggling more than ever before: they are curators of knowledge, managers of governance and compliance, data scientists and now realtime business strategists, too. Plus they need plenty of soft skills: negotiation, management and critical thinking, too. In this podcast we’ll look at the increasing range of skills which CFOs will need in order to help rebuild their businesses – and the dramatically more important role they typically play: as our guests agree, it’s an exciting time to be a CFO.
Even pre-pandemic, the role of the CFO was changing. As businesses discover a new BAU, it’s clear that the CFO is juggling more than ever before: they are curators of knowledge, managers of governance and compliance, data scientists and now realtime business strategists, too. Plus they need plenty of soft skills: negotiation, management and critical thinking, too. In this podcast we’ll look at the increasing range of skills which CFOs will need in order to help rebuild their businesses – and the dramatically more important role they typically play: as our guests agree, it’s an exciting time to be a CFO.
Hello! This is “Agility Unleashed”, brought to you by Sage – a series of podcasts to help Britain’s businesses mobilise out of the pandemic. In each show, we look forward through the eyes of a specific business function; and today I’m excited to be looking at what was already a changing role: the CFO.
We’ve got a quartet of expert guests and first I’d like to introduce you to Graham Davies and John Miller of Addition. Graham worked as an upper-tier financial consultant for companies of all sizes across the UK and then founded Addition to give that same level of quality financial input to smaller businesses. Graham and John still serve personally as CFO to a portfolio of around 15 companies – so they know what life under Covid has been like on the ground. I asked John how companies are coping.
JOHN
During COVID or when COVID initially hit, I was actually the CFO of one start-up. So, you know, I was there full-time when it hit and it was quite crazy actually. We didn't know what was going on, we didn't know what sort of support we'd have from the government, and we didn't actually know if we could operate, and we’d just raised a lot of money and we were thinking, ‘Oh, my God, what do we do?’ I think that's what's so important for the role of a CFO now is to tell founders just to slow down. Like, we can take our time, but then when we make a decision we act decisively. So when I was there, we decided to raise a bit more money, take advantage of every single grant that was available and furlough the majority of the team, and basically mothball our operations for a whole year. It was a really strange period of my career, but it was incredibly eye-opening for what it's like to work within a small business where you are the owner-manager of that business and you've also got equity investors that are demanding returns. So, yeah, my key takeaway from that period, what, now 15 or 16 months ago was just to slow down and remember that you do have time to try and put in process something that's going to work.
NICK
That’s really, a really interesting perspective because the one thing I would think is: this is the prime example in our lifetimes and careers of when we didn't have time to slow down. How do you persuade an organisation to hold back?
JOHN
I guess when I say slow down, it's not that we didn't have crisis meetings and bring the directors together and bring the investors together quickly; I just mean that you don't have to make immediate knee-jerk reactions, so take some time. Let’s speak to people. Maybe we've got a few days or a week to make this decision but, when we make it, let's be incredibly decisive about it. And I think if you try to be reassuring to people that we will get through this, things will be fine, then people can start to act a lot more rationally and, instead of being in that flight mindset, they're much more in that fight mindset and actually trying to hunker down and work out what is possible rather than it being from a place of a knee-jerk reaction.
NICK
So let me introduce our technologists, too. Darren Heffernan is President, Mid-Market for Sage partners, Trintech. He’s also a finance man through and through – he’s an ACCA fellow and was Trintech’s CFO for more than 7 years. But first, Ken Lavoie, Chief Revenue Officer at Sage Partner, Prophix. Ken has over 20 years working with finance professionals and pioneers in finance automation software. Ken, what John has just said about slowing down but acting decisively. This is surely the rationale for data; and CFOs having the right information at their fingertips. Is that a big lesson from the pandemic?
KEN
Yeah, it's certainly highlighted it. John's advice is good life advice: slow down whenever we get into a situation like this, right? And oftentimes when I'm speaking with CFOs, the ‘slow down’ is take a deep breath and look at what you’ve got, what you’re, where you're trying to get. And then, once you have a vision of where you're trying to get, from my perspective on technology, it's what are the pieces that you need to pull together to be able to help you get to where you're looking to get. So I totally agree with put the knee-jerk reaction aside. This is not a time to react; it's a time to respond and respond with real data. You know, when I think of technology and the value that we bring to the table from an FP&A standpoint, what CFOs have needed to do is gather as much information as they can – accurate information – and then add some of their own projection into what might be happening right now and how can we pivot, given the circumstances. When this hit it was emotional for everybody. Some of the CFOs I was talking to were dramatically hit in a negative way; other ones were dramatically hit in a positive way.
JOHN
That's exactly what we tried to do as a team in order to try and bring that sense of calm, was to make decisions based on data because if we didn't do that, then we were using our gut instinct, and it’s always hard to justify your gut instinct after the fact. Whereas if you're basing it on data – and the main thing we looked at was our fixed and variable costs – how do we hunker down and what can we stop paying? And that gives people a lot of confidence that, OK, we’ve got a cash runway that's going to last 12 months now rather than just two months, so we can get through this, and we can hopefully weather this storm. We rely completely on data to make all of our decisions.
NICK
Excellent. Thank you. Let me bring Graham in on this. What are the rules now? Because, you know, as a non-finance specialist, I always remember cash is king. Is that still the case and have we moved into something slightly different now? What are the mantras by which you operate and tell your clients to operate?
GRAHAM
I think before the pandemic we always advised our clients to hold three to six months of cash in the business to weather a storm like this because you don't know how big the storm is going to be, and I think this pandemic has really highlighted that. There’s a saying, I think from Winston Churchill, which is quite nice in this situation, which is: ‘Never let a good crisis go to waste’. I was really happy to see lots of our clients during the time using that cash they had in reserves – the ones that were lucky enough to have it – using that cash to be opportunistic and thinking about things differently and saying, ‘Do you know what? The world's changed but let's think about how we can use this cash we’ve got in reserve and change the business and pivot and try this new product – now's a great opportunity to do so.’ Because when the world's going along at a hundred miles an hour, you don't really always have the opportunity to try these new products and new services or this element of innovation. When the world stops, you've got all the time in the world. Our advice is always keep that cash buffer. And I know sometimes it might feel like, ‘Oh, God, that's too much cash to hold in the bank account’, but trust me that in times like this you'll be very thankful for it.
NICK
I applaud the calm on this panel so far, it's fabulous. We haven't spoken to Darren yet. Darren, your business deals particularly in financial processes and shortening and optimizing those processes. What happens when process goes out of the window when CFOs are busy dealing with a crisis? And I'm not even just talking about the pandemic now – that’s just been a highlight of all of us experiencing the same thing at the same time – but there are times in any business when tomorrow feels like a very long way away.
DARREN
I think it's been an interesting discussion so far. I've been fortunate to look at it from two sides because I've been the CFO of Trintech for, like, about eight years before I took on my current role as President of our mid-market business. So looking at it from two sides, I've seen the role of the CFO change dramatically over the last five to ten years. Even in advance of this, it's become more strategic, more operational, more as a really strong number two to the CEO of the business. What was interesting to me when this crisis hit was everybody defaulted to ‘Let's go to the CFO, let's check our cash balance, let's check our costs’ – all the things that Graham talked about there. You were looking for the leadership for the CFO as opposed to even the CEO, right? So we’ve seen people gravitate towards technology more than ever before. It’s always been, ‘Hey, let's look at our processes, let's look at our time to close our books’, et cetera, but it has always been, I would say, number four on the list. Like, you’ve always had ERP at number one, FP&A is up there, expense management, things like that, but what’s gravitated is people adopting automation as standard course now and adopting technology and accepting that technology is actually the way to avert a crisis. We've done a lot of surveys and the surveys will tell you that people who have adopted technology have been able to go through this crisis a lot easier than people who have not. So this has definitely shone a massive light on processes and procedures in the office of the CFO that can easily be fixed.
KEN
It was almost a situation when the pandemic hit in the office of finance that you could say be careful what you wish for because the finance has been in their own digital transformation and wanting a seat at the table as well – they've had to fight for it over the last number of years and to demonstrate the value. Well, all of a sudden the spotlight was put on finance: ‘What are we going to do?’ and ‘Give me the information I need to be able to make the decisions that I need to make’ and…and it put a spotlight on glaring deficiencies that many finance operations had. They provided what they could but the questions kept coming that went beyond, you know, what the CFO was able to answer.
JOHN
Technology has really enabled that whole finance function to become more useful. Accountants have a certain way of thinking – they're much more critical and analytical than most other people within an organisation – so by freeing them up, by taking away the constraints that they're having to do a really long month-end close process or they're having to use Excel rather than maybe a better tool, you're enabling them to actually get involved in the business and really add value to the success of that business. As a portfolio CFO now, that's the only way I can do my job – if we use technology and leverage the team to be able to do things much quicker and much more accurately than they were doing previously. Otherwise, Graham and I wouldn't be able to offer our services the way we currently do.
DARREN
What it also shone a light on is how much data the office of the CFO actually has. They're literally the heartbeat of the organisation. And if you spend all your time – which is the scarcest commodity of the office of CFO – you need to free up more time, so that the people who are really intelligent, smart people, highly educated, can use that time more wisely to take that data and turn it into intelligence. That's what's going to make the business perform better, focus on what's important, be more strategic. The office of the CFO has never had more visibility on it than it has right now. I hope we don't lose this opportunity of taking advantage of the importance of the function.
NICK
I am going to come back to the role of the CFO momentarily but I'm kind of interested in what I think is a sort of strange magical unexpected confluence, which is that, for the first time in 25 years or more, I’m seeing CFOs taking responsibility for technology, I'm seeing IT managers reporting into a CFO, and that never used to happen. You know, maybe I’m wrong, tell me if I am wrong, but I'm sensing that because IT is now affordable and technology can be switched on and off it's closer to the business and it's dropped into the CFO’s lap.
GRAHAM
Before I started working with start-ups as Portfolio CFO, I did work in large enterprise organisations, and I definitely saw that starting to happen. While actually the finance team has the skill set to manage data, to cleanse data, to work on data governance, naturally it makes sense for the CFO to have at least a line into an IT team or a business intelligence team to manage that data. And we're not talking just financial data; we're talking data for the whole organisation. I've seen that changing over the last, sort of, five years of my career, where CFOs are picking up a lot more responsibility for data. I mean, the technical elements of IT will still need to sit within IT departments but anything related to data, I think, now is the role of the CFO. CFOs are almost now the chief data officer rather than the chief financial officer.
DARREN
I think the big differentiator being over the last ten years or so is SaaS, software as a service. So that's made a massive difference of the complexity and the skill sets, that the CFO has leaned themselves towards it. The other thing I would say is that the CFOs that are coming to bear now, like, the age of the CFOs, they've grown up with technology. So the comfort level, I think, has made it a reason why it's more accessible – we use an app for everything we do. So the bottom line is, I think, it's easier for the CFO to assume control of the IT function because it's become simpler in essence, that's all.
KEN
When you think about IT today and you think about solutions, it's also more about business outcomes today when you're bringing in systems, as opposed to what's the capital expense to go out and buy all this equipment and implement this system and what's the development cost? You know, it's almost like business outcomes were secondary. Initially, you're bringing in the system to satisfy a need to run your business. Today you're bringing in agile business solutions to help business outcomes. So because of the critical thinking nature of the office of finance – they're the ones that have access to all of the pieces of the data – if you think about finance, they're kind of Switzerland. They have no skin in the game as it relates to ownership of the data; they just need the data to run the business.
GRAHAM
We're seeing more CFOs and finance departments owning that element of data. And I think it's more accessible now it’s way easier but I think also CFOs, there is going to be a much stronger need for them to do this because over the next who knows how many years – I'm guessing three to five years – AI is going to develop to such an extent that CFOs are going to be having to manage this AI to make sure that they're not made redundant, so actually I think it makes sense for CFOs to be at the forefront of managing this whatever you call it, technology revolution, because at some point this software is going to be doing the job of the CFO to at least some extent.
JOHN
Graham, the thing I would add to that as well is that at the moment as well the CFO – at least when we were in the corporate world – was doing the job of trying to knit together these different data points. One of the real issues we had was one version of the truth. You'd have one department that said sales was X, the marketing department would say they were Y, the finance team would say they were Z. The reason why we ended up putting everything into the CFO was just because it was too much confusion being caused. Having one version of the truth is at least better than having three versions. You can at least align the troops. But until that actually happens in large organisations, I don't know how the CFO can actually make some really considered and insightful decisions if they can't trust the data. That has to happen is the number one thing for me.
DARREN
One thing we're noticing is the amount of engineering talent that's going into the office of CFO. Data scientist is what they’re going in as, but they’re using their logical technology-building mindset to go into the office of CFO and take, as John said there, all the component parts of the data and put it together while using technology to do that because they're so used to it. It’s fascinating to look at and it's not just large companies; it’s mid-sized companies doing the same thing.
JOHN
The other scary thing that is potentially going to be happening over the next five, ten, 15 years is that need for the qualification of the CFO is going to change, maybe. Because you can teach AI all of the rules of accounting and you can get it to propose the options to you, so you just have to have a real good awareness; you don't necessarily need to have in depth granular knowledge. Whereas now, as you said, Darren, it’s moving more into engineering: What can I actually engineer with this system to get the output that I want? It's maybe a change in either the background or the sort of qualifications that a CFO might have in 15, 20 years.
NICK
Let’s dig into that a little bit more, I'm really interested in this. I think we can all agree we're kissing goodbye to the backwards-looking, box-ticking type of CFO, and now we have the data savvy CFO. But you’re saying also – I mean, just to sort of super-summarize – you can't use AI unless you're asking the right questions. So what does that look like, what's the modern future CFO going to be and what are they going to be doing and spending their time on?
JOHN
One of the things that I learnt early on in my career is you don't know what you don't know – and that's the incredibly powerful statement that can open your eyes a lot. And there’s so many things that are happening at such a fast pace, there's no way any one individual could keep on top of those things. You need to have a great team around you that is constantly looking for the newest technology and the newest integration to make sure that your finance function is supporting the business, which is what its core responsibility is. A CFO now – the same way, Darren, I think you mentioned that the CFO is usually the right-hand person to the CEO – maybe they need a data scientist, chief engineer that has got a line into them because over the next five, ten years they're not going to be able to acquire that knowledge like someone who's been doing it for 20 or 25 years.
KEN
So much of what the CFO used to be responsible for and counted on for in his understanding of accounting rules and GAAP rules and all these things – that's not what they're going to need to know anymore. For instance, once a year when I have my income tax returns done, I use a tax attorney and everything's in the system – he just wants my data and I give him my data and he plugs it into the system. Every year, the new tax accounting rules are in the system already, so he doesn't have to study them. Today, AI is doing that automatically across all your transactions and serving up to you things that look like they're out of place, so you can just review the ones that it's serving to you. We’re working towards automated forecasting with AI, which is really complex when you get down to what are all of the variabilities that go into forecasting a business, so that your talent and your expertise is business expertise, not accounting expertise in the future.
DARREN
I think, for me, Nick, the future CFO is a person that's just adding more value, that's the key to it. And then it’s – depending on the company, depending on the industry, depending on the vertical – what is the best way of doing that? For example, I think it's going to be more operational, going to be swimming in every lane, going to be in everybody's business. But it's all centred around that data and using the data and AI is going to fundamentally change the way we do everything, not just in the office of finance, the way we do things personally, the way we conduct our lives. Like, think about things we do with AI today. You speak or something these days and suddenly you're getting adverts on your feeds on social media, so –
NICK
Allegedly.
DARREN
The world is going to change, and the CFO is just in the prime position, as I've said before, to be able to take advantage of that, especially as the older generation of CFOs move out and the younger ones move in.
NICK
I love this idea of the CFO being somebody who swims in every lane, I think that's a lovely analogy to use. Let's duck back into where we are today. For anyone listening, we're actually recording in the middle of June – I say that because the world is just changing around us so, so fast. Right now, what are CFOs thinking about? They've gone from reactive panic mode to lifting their eyes further towards the horizon. What are they spending their time on, what are they thinking about and what does BAU look like for a CFO professional today? Let's go to Graham first.
GRAHAM
Sure. The clients that I'm working with and advising and the things that I'm thinking about with them are around scenario planning because although it appears that we're coming through this pandemic and the vaccination rollout’s working and everything's opening back up, who knows what the winter’s going to be like? So I think what CFOs are thinking right now is what are the likely – or even, to some extent, unlikely – scenarios over the next 12 to 18 months and where's the business going? There might be some businesses that had such a traditional business model that changed so much – OK, well, so the CFO in that situation is thinking about, ‘Where are we going over the next two years? Everything's been thrown up in the air. We need a new business plan.’ So I think business planning and scenario planning is high on everyone's agenda at the moment and the scenario planning bit is very difficult because there's a million possible scenarios. And so what we're doing with our clients is saying, ‘Hey, let's think about three, let's think about a doomsday scenario, let's think about everything opening up and going back to the new normal and everything flying again and let's think about something in the middle, and then let's make sure we've got enough cash in the bank’. There's a lot of government support flying around – huge amounts of free money – let's make use of that free money and make sure we're in the best possible place to go through whichever scenario happens next.
JOHN
I guess to add onto the scenario planning…it’s great to create a budget, but we work with founders that aren't normally finance savvy, so once they've created the budget or the business plan for the next two or three years they think that that's done. The key thing that we implement into their businesses is the weekly, fortnightly, monthly tracking of that information, so you can see how you're doing against that plan.
KEN
When I hear the “business as usual”, the “new norm”, I’m not sure that, you know, as much as things have changed how much have things changed. There are certain things that are table stakes for a CFO today, right? Like, if they don’t have their data organised so that they’ve got proper reporting and haven’t used technology to optimise financial processes that are just time consuming, a waste of time of really valuable resources, they’re missing that boat, and that’s table stakes. And then, once you have that, you have the ability to pivot and do the scenario planning that Graham and John were talking about that you have to do, right? The other CFOs that I work with – that are the most fun to work with, by the way – are the ones that take it even to the next step and they’re saying, ‘Strategically speaking, what are the opportunities that this has brought to the table for me? How has this changed my business? What has it done to the supply chain?’ You know? ‘How has it impacted my production?’ And it’s fun to see them operate because you can see where the office of finance is going with those forward-looking CFOs.
DARREN
One recurring theme that we've heard over and over again about what's on the mind of CFOs is actually talent. The attraction and the retention of that talent. We all know, like, the Y Generation, the Z Generation – they’re not 20-year veterans going to stay in any company. You know, there’s always been that one person in your finance team that’s been there for ten years, 15 years, knows where all the bodies are buried, et cetera, knows when everything should be done – those days are gone and the CFOs that we speak to are very conscious of that. The job of a CFO, the number one job, is to make sure that they produce an accurate and timely P&L account, balance sheet and reporting to their stakeholders. That will never change. So, you’ve got to make sure all the inputs to that equation are in top shape for nothing to go wrong, while at the same time you’ve now got all these new responsibilities of adding value to the business. And who’s going to do that for you? It’s the talent. So you’ve got to make sure you make the job as exciting as possible for them to want to stay with you, so, um –.
KEN
Interesting, Darren. A real life I'm living right now is my son just graduated from university with an accounting degree. I can tell you what he doesn't want to do, he doesn't want to be in a basement doing data entry. He isn’t even out of school and already wants to be at the table helping the CFO make business decisions – that’s where their heads are at. Even accountants have a sense today of excitement in what they want to do as opposed to being the quiet guys in the back that are just crunching numbers and dishing spreadsheets out.
DARREN
That's a great point. I was just going to say when I qualified as a chartered accountant, like, 25 years ago, I knew coming into the industry that, ‘Hey, I'm going to have to work late nights, I know I'm going to be working weekends, I know I'm going to be working over holidays’. Your son, I would imagine, Ken, if you told him today that that was what his career was going to be if he worked in finance, he would tell you, ‘No chance, there is zero chance of me doing that.’ And they've got a far better attitude to work-life balance than we ever had and that again is a massive thing that I think is in the mind of a CFO, that their people are not going to work to nine or ten o'clock as a matter of course. They'll do it as exceptions, but they won't do it just as normality. That's the way life works.
JOHN
Graham and I must have…we’re maybe a decade ahead of you there, Darren. We qualified about 15 years ago.
DARREN
Thanks, John, thanks! Thanks for, you know, just throwing that out there…
JOHN
Sorry! But we’ve gone through this trend where when we qualified we did exactly the same as you – you were expected to work late, be in the office, almost a ‘be seen’ culture. Whereas as we've gone through, like, the way that the tech has evolved and helped the job, and also just trying to distil information – this concept now of big data and trying to distil that down – instead of a 30-page report that gets sent, why don’t we just send three insights that the management team can actually make a decision on? And that’s where I think your son is now, Ken, where they're thinking about things like, ‘OK, I can only do three things, what three things can I do?’ And it's really focused in terms of actually strategic value-add to a business or whatever they're doing in life.
NICK
We are very low on time. It's been an extraordinary discussion and I want to throw one more thing in which I'd like your advice to a CFO listening today. Given the experience we've had in the past 18 months, what should they be doing – and obviously every company is different – but what's our magical nugget of advice to them?
GRAHAM
Yeah, sure, I think…well, I mentioned it before: think about scenario planning. But also I think now is a really great opportunity to transform your finance department. Lots of companies have had finance transformation on the radar probably as long as I can remember, for ten years, and now is a great opportunity to make that financial transformation happen very quickly and happen now. Adopt software. Really think about the importance of data and technology today and put that at the forefront of everything you're doing. Try to automate as far as possible and use that very rich data to give really powerful insight to your business leaders. Forget about the other stuff, just focus on driving the business forward and using the data to the maximum.
JOHN
I echo exactly what Graham said. I guess my tagline would be: don't just do it because it was done that way last year or last month or last week. Things are evolving really quickly. Make sure you keep abreast of the latest tech developments, so that you can implement them in your business.
NICK
Lovely. It's the CFO as the architect of change rather than just following it, isn't it? Lovely stuff. Darren?
DARREN
Obviously, a bit biased here being a technology company but technology is at the hub of everything, like. We are in the middle of a fourth industrial revolution here as regards technology. You've got to have that mindset in that role of adopting it – not only adopting it but embracing it and being a leader of it. For too long, I think the Office of the CFO has always made judgments and evaluated business cases for other departments to do things. Now is the time for them to seize this opportunity of being at the forefront of everything, being in the middle, being the heartbeat and just take it to the top and be a leader. Be the strong person, trust the data, seize the opportunity and look after your talent.
NICK
Fabulous. Frankly, far too optimistic! Thank you for that. Ken?
KEN
Yeah, I think I would say to the CFO ‘Is your house in order?’ Number one. Because it's table stakes, you know? Are you producing the income statement, balance sheet, cash flow accurately? Do you have a single version of the truth? Do you have the systems and the technology in place to be able to operate effectively? And if it is in place, then ask yourself, ‘How can I be a change agent for this business?’ You are sitting in a unique position and you've got all of the information at your fingertips, so nobody’s in a better place. So take that hat off, congratulate yourself and then say, ‘How can I be a change agent to this business to take it to the next level?’
A fine place to leave it today – the modern CFO is a change agent in a fast-moving business world. This has been ‘Agility Unleashed’, brought to you by Sage; and thank you for listening. Thank you also to my guests – you just heard Ken Lavoie of Prophix, Darren Heffernan from Trintech and Graham Davies and John Miller of Addition.
Check out the feed on your podcast app of choice for previous episodes focusing on the CEO, COO and CHRO – and subscribe for upcoming episodes too. See you again soon.