So you think you don’t need a finance director?

Here, Louise Kingston from Livingbridge highlights why hiring a Finance Director can be beneficial to your business.

Having the right people is what makes any business grow, and an inspiring finance director (FD) can contribute more than most. Yet entrepreneurs can be sceptical about hiring an FD. It’s not uncommon to hear, ‘My business is doing well, and I already have an excellent accountant. Do I really need an expensive bean-counter?’

The idea that an FD is just an overpaid accountant can be a self-fulfilling prophecy. If an entrepreneur sets out to recruit a glorified accountant, that’s what they’re likely to get. In fact, an FD should be a key member of any growing business’ senior management team: an expert in planning and running the business.

The benefits of having a Finance Director

The FD should be able to provide management information which a financial controller or accountant can’t: information that will really help an entrepreneur make decisions. For example, how profitable an individual customer relationship is compared with others, so they can focus on the relationships that really count.

Management information and advice from an FD will also help a company with its external negotiations. Once an entrepreneur gets his or her hands on solid information about changes in their overheads and the cost of sales, it gets a lot easier to agree price rises with customers and ultimately protect profit margins.

FDs can also provide advice about which opportunities to pursue. For example, if an acquisition is on the cards, an experienced FD will be able to help assess the right target, negotiate and seal the deal, and then help bring the two organisations together. A FD should be a dynamic leader who helps a company to do profitable deals and put processes in place to make sure you realise that profit.

How to pick a Finance Director

So what should an entrepreneur be looking for if they decide to recruit a FD? The right FD should:

Fully understand, and be able to explain to everyone else, how the business makes its money

A great FD will put in place systems to gather and disseminate information so as to ensure that everyone in the business knows how profits and cash are generated – by product, service, customer, contract, geography, etc. With this knowledge, a management team can make informed decisions about which activities to focus on and which to stop.

Actively drive value in the business

Successful FDs are leaders, motivated by the desire to help grow business value as quickly and effectively as possible. They therefore want to be influential in supporting and challenging business planning and decisions.

Understand the importance of cash flow. Future cash flow is critical to a company’s valuation. A good FD will deal with the basics of forecasting and managing cash flow, as well as the challenge of optimising the business’s cash generation model.

This latter challenge could involve a range of measures, from extending supplier terms through to rethinking the business model and client payment terms. For example, should the business shift from short-term contracts, with lumpy unpredictable payments, to a long-term recurring revenue model?

Be forward-looking

An FD should help the business plan ahead by providing analysis, insight and challenge to help the management team evaluate the company’s options for the future. They should help the business pitch their budget at the right level – making it challenging but achievable and then make sure this can be reported.

Good with detail as well as the big picture

Great FD’s are adept at contributing to strategy, but also want to get into the detail to ensure the information being used around the business is absolutely right.

Be intelligent, qualified, experienced and ambitious

Entrepreneurs should look for someone with a professional qualification and experience working with respected people. Another good sign is when a FD maintains a network of professional contacts who can help them keep abreast of the latest industry developments.

Ultimately, while an entrepreneurial business may have managed without a FD up to now and feel they can do the same in future, they run the risk that limited management bandwidth will hold back the growth of the business. With the right FD growing businesses will make better decisions and have the support to lead the company where the founders want to take it.

Louise Kingston is part of the value strategy team at Livingbridge.

Further reading on hiring an FD

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