Engaging our clients about their company’s finances often entails developing a detailed financial model fed by historical (actual) financial results from the accounting system. In some instances, we are asked to develop a fiscal plan in the absence of a solid strategic plan. If a strategic plan exists, but is absent of enough detail, it is difficult to understand the context with which to build a solid financial model. Without a fiscal plan that is tied directly to the company’s strategic plan, a CEO could find him/herself unable to achieve the company’s (long-term) goals or, in some cases, actually running out of cash.

Let’s take an example. Suppose you have a company that provides technology services to small and medium-sized businesses. You sell your managed IT services for an annual subscription and want to analyze what it would take to double the business, either by expanding your service offering into professional services (e.g. software development), adding locations, or simply expanding your presence in your target market. You meticulously evaluate how you would achieve annual revenue growth of 30% for the next few years, but you neglect to include your finance team in the conversation. Alternatively, you bring your financial advisors in after you have developed the plan with the expectation that they report back on the results, which by then could be unhelpful.. If your financial team were brought into the conversation earlier, they could have alerted you as to the true expense of this expansion opportunity in terms of people costs, infrastructure, marketing, and more, before incurring the actual costs.

A strategic CFO will help you evaluate your opportunities and advise you and your team as to the development of the optimal risk-adjusted investment(s). As your partner, he/she can develop the tools with which you can monitor the viability of a new investment so you can easily see how well the new expansion is doing. Furthermore, by providing timely data, a valuable CFO will encourage you to cut spending before it gets too late for those expenditures that are not bearing fruit.

“The chief financial officer’s biggest contribution to a company’s success is not the backward looking function of overseeing the company’s accounting. The CFO’s prime functions should be forward focused, acting as a key strategic and tactical advisor to the CEO and the rest of the executive team.” – Lance Osborne, Founder – Osborne Financial Search

Ideally, building the relationship between strategy and finance (advisors) begins by defining your business objectives, outside of simple profit-building; it grows to assessing your business strengths and weaknesses, analyzing your industry, and culminates with integrating financial planning into your business strategy.  This analysis can happen in several different ways: determine your market share to resolve cash-inflow, gather data, and analyze market trends before projecting cash outflows. You want your strategic plan to be a roadmap that helps you navigate around the hazards of increased costs and decreased revenue and instead point you towards decreased costs and increased revenue

Financial and strategic planning are highly dependent on one another. A change in budget necessitates reevaluation of your business strategy and a change in strategy requires reworking the numbers so you know what resources you have. Ultimately, the viability of a project is determined by its growth, not simply its profit.