Small businesses that need a turnaround are often on the brink of a breakthrough, just weeks or months, or one big deal away from success. As a result, if your business is in financial trouble, you probably feel an unusual mix of hope and desperation, anxiety and optimism. Working tirelessly to break through the morass, founders often focus too much on sales and operations while under leveraging the skills of a CFO.
What is the role of a CFO in reviving a financially troubled business?
A Chief Financial Officer (CFO) knows exactly why businesses fail financially, bringing useful tricks and insights to the table. Combined with an effective management team, a CFO is a critical element in turning a business around from failure to growth.
What does a CFO do when your business is in trouble?
Businesses often fall into trouble due to poor strategic financial management, often from either ignoring their CFO, or not having one in the first place. One of the first things a distressed business should do is change its relationship with its CFO. Even if you are a small business that can not afford to keep a CFO on the books full-time, the right fractional CFO with experience in turnarounds can be a game-changer.
Your turnaround CFO will hold 3 key roles in the process:
- A leader of the team
- An inspiration for new approaches
- A project manager
A Team Player
No one person can turn around a business. It takes a team all working towards the same goal to achieve results. That’s why the effective CFO knows how to call in the company’s leaders in order to collaborate and drive the change needed to help the company get back on track. During this process, you can expect weekly or daily meetings to:
- Review cash forecasts
- Identify issues
- Assign action items and responsibilities
These meetings should be very organized with clear agendas posted before and meeting minutes published after.
The CFO should facilitate efficient discussion, not ramble or preach. They should listen effectively and understand each teammate’s problems before judging them through a financial lens.
An Inspiration for New Approaches
The CFO should not simply point out problems – they should bring solutions to the table. Instead of saying “we’re running out of cash, we need more sales,” a good turnaround CFO would say “we’re running out of cash, but I think we could afford to drop prices 20% to boost sales. What does everyone else think?”
Fixing a business in financial trouble means changing the way you and your team think about the business. An effective CFO encourages your team to think differently by asking thoughtful questions and challenging others to achieve more.
CFOs use a plethora of tools to analyze the business and find opportunities:
- Gross margin analysis
- Working capital analysis
- Operating forecasts
- Variance analysis
Your CFO should inspire confidence and hope, instead of focusing on the negatives. At the same time, their advice should remain grounded in the seriousness of the downturn. This is a fine line to walk, which all but the most seasoned finance professionals struggle to maintain.
A Project Manager
Distressed companies have more problems than time to solve them, so CFOs must prioritize the most critical company initiatives, investing their time and effort into the biggest most threatening issues. This can feel scary at times since ignoring problems often makes them worse – but some problems grow into headaches while others grow into fatal cancer. If you can only afford medicine for one, which one do you want to treat and which will you accept as an annoyance to endure?
Selecting the correct initiatives requires thoughtful financial analysis with an operating forecast and 13-week cash flow. This analysis should be data-driven, but selection should be collaborative with you and your management team.
Once identified, the CFO will work with your managers to ensure that initiatives like financial restructuring or expense management are executed quickly and effectively to boost cash flow and preserve the company. Weekly or daily war room meetings should include a review of the project plan to hold the team accountable to their commitments.
In addition to boosting cash flow, this focus on accountability often boosts the energy of high achievers who felt they were not recognized for their efforts.
Turnaround CFOs Empowering Bold Leaders
When reviving a troubled business, the role of a CFO is to empower the executive team with data and financial expertise, making the leader more effective and capable. This is challenging and intense work, requiring hard questions and disagreement – but always with professionalism and a mutual goal for progress.
If you are interested in learning more, contact us to meet with our experienced CFOs to get your business growing again.
This article was written by a CFOshare employee with assistance from generative AI for rhetoric, grammar, and editing. The ideas presented are a combination of the author’s expertise, original ideas, and industry best practices.
