Guest: K. Scott Crawford, Partner, New Business Development, Client Prioritization at Preferred CFO, a company that provides outsourced CFO and comptroller services to companies seeking to elevate financial strategy, overcome challenges, maximize profits, and accelerate growth.
Overview: Leveraging your company’s financial data isn’t just a numbers game. Without top talent and clearly defined roles for collecting, analyzing, and interpreting financial data, CEOs won’t have the insight they need to track, measure, and manage KPIs to BIG.
On today’s show, Scott Crawford discusses the CEO’s role in the financial side of the business, the key players to assemble on your financial team, and the six essential financial tools every company needs.
Scott Crawford on when and how to build a financial team:
“We believe that every company needs the services of a bookkeeper, a controller, and a CPA or tax advisor. They’re almost always outsourced. A controller and a CFO might be in-house positions. There might be a senior accounting manager. There might be a VP of finance. But the primary positions are your daily transactionist, which is your bookkeeper or your accountant. Your controller, who’s your historian. And your CFO, who’s your forecaster. The controller’s the person standing at the back of the boat, radioing up to the bridge that everything behind the boat looks great. The CFO is standing on the bridge next to the captain helping him or her navigate around obstacles and choose the best path into the future. So if you accept that reference of differences of viewpoint, which we absolutely do, every company needs that from the beginning to be able to see where they’re going.”
Scott Crawford’s 6 essential financial tools:
1. Accrual accounting “Imagine you started a company on January 1st, 2020, and in the month of January, you earned $250,000 in revenue through the products or services you delivered. And February 1st, COVID-19 hits and you’re completely shut down. But in the month of February, you collect the $250,000 in revenue you earned in January. Cash basis accounting says that February was a great month. Not true. January was a great month and February was a terrible month. Accrual basis accounting tells that story.”
2. Annual budget “One of the defining characteristics of the annual budget is putting a stake in the ground: once it’s set for the next 12-month period, whether that’s fiscal or calendar, it does not change. The purpose of the budget is to allocate company resources for the next 12-month period and also set the expectations about the return on investment or the performance.”
3. Budget-to-actual report “This goes hand-in-hand with the annual budget. It’s a monthly document. Generally, the controller would supply this because it’s historical in nature, but it reports, compared to the budget, how that individual department and the company overall performed in the prior month against the budget, and then year-to-date against the budget. And it’s as granular as the budget is.”
4. 13-week cash flow “The lifeblood flowing through the body of the company.”
5. Rolling 12-month forecast “Updated continuously with the latest information from the company. And it gives the management team and the CEO a 12-month window, month by month by month, to be able to see how today’s decisions are going to impact the company. If the financial team, in particular the CFO, maintains a rolling 12-month forecast so that the CEO has that reference point for all decisions, budgeting becomes very easy because they always have a report to show how they’ve performed and what their expectations are for the next 12 months.”
6. 5-year forecast “An extension of the rolling 12, just going out 2, 3, 4, 5 years. Looking at the 4th and the 5th years by month doesn’t make much difference. There’s not much benefit in that. Annual is probably the good reference. But they still should be forecasted on a monthly basis because those dates are going to come up.”
Scott Crawford on the role of AI in financial data:
“The way AI thinks is more an extension of the way we humans think currently. That will change in the near future. So I don’t think we’re truly to the mature stage of AI yet. There’s still a certain amount of understanding of a business and subjectivism and even gut instinct that brought the founders and the principles of the company to where they are today that AI just doesn’t understand. AI thinks more like a controller thinks: numbers and facts and formulas. There’s not an assessment of what data really means. It’s just a reporting of data. So I think that will evolve and we’re certainly going to keep an eye on it because I think it’ll help us become more efficient in what we do and do it faster. But we haven’t given up on the tried-and-true method of a true CFO being able to look into the future along with the CEO and determine where the company’s going.”
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About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 53.5% during their time as a client, more than three times the U.S. average, and a revenue CAGR of 26.2%, nearly twice the U.S. average.