The role of the CFO has changed dramatically in the past 20 years. Budget cycles have gotten shorter, margins of error tighter, and the need to automate the budgeting, planning and analysis processes is exponentially greater.
The business world is accelerating and CFOs must be more proactive and forward thinking to keep their companies ahead of the curve.
Planful CFO Ian Charles is in a unique position to witness these changes. His job as the head of finance and corporate development for a SaaS provider of financial performance management software gives a first-hand view of the challenges that CFOs face—not only from his own experiences; but also, those faced by Planful CFO customers. With 25 years of experience in corporate finance, Ian has spent the last four years overseeing Planful rapid growth, including a doubling of the employee base and a jump in revenues of 500 percent.
In a recent podcast interview on CFO Thought Leader, Ian shared his insights into how the role of the CFO has changed over the past few years, and what today’s CFOs must do in order to ensure their companies’ future success.
Perhaps the greatest shift in the role of a CFO, he believes, is the change of focus from the past to the present and future. Traditionally, the finance department generated reports on the historical performance of the company. But now, that historical focus has been replaced by an urgent need for strategic analysis of current and future growth prospects. As part of that new perspective, CFOs today must take a more holistic look at their companies’ overall business operations and market development.
“It’s evolving to be more operational, more in tune with the needs and requirements of the customer base,” he said. “CFOs are looking at the customer more closely, looking at metrics like the lifetime value of a customer vs the cost of acquiring that customer, and why customers chose the product and why others reject it. It’s deep diving into the question of how to reduce the reasons why customers churn and increasing the value they get from it.”
A good measure of company’s success with pleasing customers is the lifetime customer value metric which, Ian noted, is also a prime indicator of the company’s future financial health.
Another increasingly important benchmark of long-term success is that of annual recurring revenue (ARR). ARR is especially critical for SaaS companies, of course, because they depend on subscription renewals as the main source of income. But it’s a valuable measure of financial health for other companies as well.
“The most important driver of future shareholder value and future growth is the growth of annual recurring revenues,” said Ian. “Every company has a different level of churn, but at the end of the day, if there’s more water falling out of the bottom of the bucket than is being put into it, you’re not going to survive very long.”
A successful CFO will also promote a progressive and transparent culture, one that emphasizes collaboration and information sharing.
“Some finance organizations are content with looking off the back of the ship and reporting historical results, while others are very proactive in understanding the operations, the nuts and bolts of the revenue base, or why customers chose the company,” he said, adding that a culture of information and analysis is critical for finance executives today.
Transparency and visibility are also important qualities in the office of finance, according to Ian. Everyone involved in budgeting and planning should have access to the appropriate level of data.
Otherwise, “when you’ve got departments calculating projections on spreadsheets that finance either doesn’t have access to or isn’t connected to the overall company plan, you wind up with surprises.” And they’re rarely good surprises.
Regardless of how decisions get made in a company – bottom up, or top down – the people making those decisions should communicate and work with the same set of data.
At Planful, the finance department assigns financial analysts to serve as liaisons between finance and other parts of the business. These liaisons facilitate collaboration between finance and the rest of the organization, and help department managers navigate financial issues – such as understanding compensation trends or how to budget for growth. That ensures that everyone is working with the same data, processes and standards.
“Communicating is critically important. Often what’s being said isn’t what’s being heard,” he explained. “Clarifying the message and openly communicating is something that is core to my success.”
Download the episode below and listen to Ian as he explains how effective communications and measuring the customer experience are now central to CFO success.