MT Expert: What to expect from your finance function in 2010

As companies start to see a recovery, priorities change. So the FD's responsibilities change too.

by Sarah Hunt
Last Updated: 31 Aug 2010

Everyone listens to the FD when times are tight and they think their job's on the line. But as soon as sales pick up, cash disciplines can go out of the window. The onus is on finance to keep everyone on their toes.

The silver lining for finance directors during a recession or credit crunch is that suddenly everyone is listening. And for most FDs, the chief message is cash management. In simple terms, that means getting paid as early as possible, keeping down costs and freeing up cash to protect capacity and pay the bills.

But what happens when the worst is over? If 2010 does see the economy stabilise, what does the finance function have to do to stay in the game – and keep their business on the straight and narrow?

The first job is to keep the ear of colleagues and staff. An ACCA survey in July 2009 revealed that 70% of finance executives think the FD got more boardroom backing during the downturn than a year previously. If the FD’s cash forecast says there’s a problem meeting the wage bill or the rent in three months time, it can’t be ignored.

But more companies go under after the recession is over than during the worst of it. The problems are varied, but it principally comes down to over-trading. GDP is growing, business picks up and suddenly you win a big contract. So you hire a few more people, raise inventory levels, loosen cost controls – and before you know it (and usually a long time before customers cough up) you’ve run out of cash.

So you need the finance function to keep pumping out the same messages about discipline. They must be producing reports that are reliable, trusted and simple to understand. Their cash forecast must be the first thing the board looks at when it’s setting company strategy and making key decisions. Let the marketing director have their say – but in the context of your own financial reality, not whatever the headlines are trumpeting about 'the road to recovery'.

The credit crunch magnifies the risk massively. It remains very difficult to get flexible bank finance right now if cash levels run low. So the finance team need to maintain excellent relations with the banks and shareholders this year, too.

Then you need to make sure you have the right kind of FD. When we place a finance director or financial controller, self-confidence is a critical factor. They also have to be right on top of the figures – private equity investment managers ask about the numbers all the time (it’s no cakewalk being PE backed). And they expect an FD who is both open-minded about growth opportunities and has iron discipline about cash. That’s quite a juggling act, but it’s one every business should expect from its finance team this year.

Those qualities – an iron fist in a velvet glove – are vital for FDs in every type of company as the economy picks up. The ideal is an FD with 'influence'. Someone whose numbers – particularly their cash forecasts – are trusted implicitly by everyone around them. Someone who can advise, guide and cajole fellow managers into decisions that are consistent with a financial reality beyond the excitement of a growing order book. Someone, in short, who gives every decision-maker in the business a much-needed shot of confidence and certainty.

Sarah Hunt is the Managing Director of EquityFD and EquityFC, a recruitment businesses focused on sourcing Finance Directors and Financial Controllers into growth companies.

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