Louise Kingston from mid-market private equity firm, Livingbridge, discusses why businesses should consider the role of FD as a crucial one within their senior management team.

Having the right people is what makes any business grow, and an inspiring finance director (FD) can contribute more than most. Yet entrepreneurs we talk to 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 you set out to recruit a glorified accountant, that’s what you’re likely to get. In fact, an FD should be a key member of your senior management team: an expert participant in planning and running the business.

What an FD Can Give You

The FD should be able to give you management information of a kind that your financial controller or accountant can’t: information that will really help you make better decisions. For example, you will know how profitable an individual customer relationship is compared with others, so you can focus on the relationships that really count.

Management information and advice from your FD will also help you with external negotiations. Once you get your hands on solid information about changes in your overheads and the cost of sales, it gets a lot easier to agree price rises with customers, so you can protect your 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 you assess the right target, negotiate and seal the deal, and then help you bring the two organisations together.

If necessary, they should be able to take responsibility not just for finance but also for extra areas, such as IT or legal.

If you still feel doubtful, perhaps you’ve had a bad experience with FDs in the past? Rest assured that a good FD doesn’t say “no” to business propositions for the sake of it. An FD should be a dynamic leader who helps you do profitable deals and put processes in place to make sure you realise that profit.

How to Pick an FD

So what should you be looking for if you decide to recruit an FD? Here are a few pointers that in our experience distinguish a great FD from an ordinary accountant or financial controller. The right FD:

• Understands – and can explain to everyone else – how the business makes its money. This is usually much harder than it sounds! 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, people can make informed decisions about which activities to focus on and which to stop.
• Actively drives 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 key decisions.
• Understands the prime 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 (sometimes more complex) challenge of optimising the business’s cash generation model. This latter challenge could involve a range of measures, from simply 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?
• Is forward-looking. An FD should help you plan ahead by providing analysis, insight and challenge to help you evaluate the company’s options for the future. They should help you pitch your budget at the right level – challenging but achievable – then make sure you can report and understand trading variances from budget on an ongoing basis.
• Is good with detail as well as the big picture. Great FDs 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.
• Is intelligent, well qualified, experienced and ambitious. Look for someone with a professional qualification and experience gained working with respected people. Another good sign is when an FD maintains a network of professional contacts who can help them keep abreast of the latest developments.

Getting Help to Grow

You may have managed without an FD up to now and might feel you can do the same in future. That could be true, but you’ll run the risk that limited management bandwidth will hold back the growth of your business. With the right FD at your side, you’ll make better decisions and have the support to lead your business where you want to take it.