All businesses have three critical areas:
Why are they critical?
Usually a business invests in functions in the order above. Few entrepreneurs have a financial background, which often means less appreciation of the value that a good finance function brings to a business: many see it as a background, administrative role.
Yet at Board level, the FD is often second in command to the MD, so the Finance function has got to be delivering more than neat paperwork.
Let’s explore what value the Finance function can bring to your business.
How does a Finance Director create value?
Value for a business is created when what’s produced is worth a lot more than the cost of producing it. This is true of staff as well as goods.
A Finance Director will cost you anywhere between £100k to £1m+ depending on the size of your business and the reward package. The level of remuneration needed to bring the required skills into your company will depend on the size and complexity of your business.
So how does a Finance Director become a value-creator, rather than just an expensive employee?
Consider the FD’s input on the following:
The above alone gives your Finance Director plenty of opportunity to create financial benefit from their own and their function’s output within your business. A good FD will find many more opportunities for improvement, as no business’ needs ever stand still.
“A business’ success or failure is due to the sum of the decisions leaders and staff make”
How much value creation should you expect from your FD?
This is not an easy question to answer.
The sector, the business and the number of levers available to pull to improve performance all have an impact. The life-cycle stage and situation of the business also play a large part. For instance, an FD is more likely to create higher value in the turnaround of a £500m business than in managing a mature, stable £100m business.
Our opinion: we believe that a good Finance Director should be able to create at least £3 in measurable benefit for every £1 spent on themselves. That means if their total cost to the business is £150k, then they should be able to generate at least £450k during each year in measurable benefits to the business. An excellent Finance Director should be able to achieve many times this level with the right opportunities.
Do remember that benefits to your business include the pitfalls you have AVOIDED due to the presence and guidance of your FD. Your FD might be running a project that seems to create no incremental revenue or cost savings – and you might feel that this brings no measurable value. Yet what would have happened without this project? Has it prevented your systems from crashing, nullified a key risk or even stopped your company from going bust? Then the value of the project and the FD is more than any incremental profit result: it is incalculable in that it has kept an entire business afloat for the future.
How do you create EVEN MORE value?
Continued development. That’s the short answer.
Your FD could be anywhere from terrible to amazing. Even if they are already good, you can help them be amazing. If your FD’s performance improved by 5% or 10%, think about the knock-on impact this would have on your business’ results. The same could be said for any Director’s performance, including yours.
When you get to Director level, your time becomes even more precious. You want to spend it where it really counts for your career and for your business. The amount of effort spent on development at
Director level should increase, not decrease: the Directors are the ones making the key decisions and have the most impact on the business.
People skills are vital for a Director’s success
Your Finance Director can significantly influence a large number of people at all levels within your business. Every decision, activity and project has a financial impact, which gives the Finance function unparalleled visibility into every area of your business. The Finance Director, in particular, has the opportunity to build relationships throughout your business.
Directors should deliver most of their objectives through their team’s work, rather than doing the ‘doing’ themselves. Your Finance Director, with their network of relationships, has ample opportunity to leverage others and achieve their goals.
However, people management requires a raft of skills to be truly effective and a Director is not automatically good at management just because they’ve been promoted. It is a tall order to find anyone perfectly equipped with the raft of skills they will want to employ: communication, motivation, consistency, approachability, inspiration, empowerment, teamwork, self-awareness….
Developing your Finance Director’s, and other Directors’, people skills creates value for your business, which translates into tangible worth. Some of the most easily accessible and visible metrics are from the HR department: your attrition rate and the proportion of ‘regretted’ losses – ie, those staff you would have wished to keep in the business. It’s a well-known saying that
“Staff don’t leave jobs, they leave Bosses”
so to save your business from losing the best staff, losing knowledge, spending time and (significant) money on recruitment and training, why not invest in your Directors up front? As an added benefit, your Directors will appreciate the career development opportunities that you are giving them, which will prevent them from joining the attrition list themselves.
“When I want to, I perform better than when I have to. I want to for me, I have to for you. Self-motivation is a matter of choice.”
Coaching is one of the most cost effective and focused ways of developing people. Visit www.enhance.coach or call 0203 500 6300 to develop your ambitious Director.