This is CFO Secrets. Helping you bring the heat to your CFO game

5 Minute Read Time

In Today’s Email:

• 🪜 How to step up from controller

• 🤝 Everything you need to know about negotiation

• 🔥 Next Week: The start of a 6 week series on the Income Statement

THE DEEP DIVE

What a CFO can do that a controller can’t

Proving you are ready for the CFO job is more than just sitting out a few years in roles at the controller level.

The finance profession is littered with people that race up to the CFO minus one level. Who then spend 20 years+ without ever making the final step.

But, why don’t they reach the big seat? What are the real gaps between the CFO role and a Financial Controller / Finance VP role?

Firstly, as CFO, you must get comfortable operating at a greater distance from the day to day.

Some take this too literally. They think delegation = abdication. This is a great way to get fired. Don’t let stuff go wrong on your watch.

It is more common for new CFOs to struggle to give up the reins on the financial management cycle. They gravitate to familiar territory; FP&A, management accounts, balance sheet. It’s comfortable.

This frustrates teams; you will have an ambitious team beneath you that want to grow too. But even worse… it will soak up your time and attention from where it should be.

And where it should be, is on the heap of new responsbilities you have as CFO.

There are huge parts of the CFO job, that you don’t see properly until you do the role itself.

This makes low stakes practice impossible.

In other words, you are learning on the job. Building the airplane whilst you fly it.

So what are those things? And what can you do to practice them ahead of time?

There are many, but I see five big themes:

• Board Management

• Owning the Numbers

• Seeing Round Bends

• Being the Deal Principle

• Being the Face

Board Management

This was definitely the biggest shock to me in my first Group CFO role.

It took up soooo much time and mental energy. Each independent director (which included 3 former CFOs) had an agenda they wanted to push. And their own information requirements (for which the agenda was less clear).

The Chair, Audit Committee Chair, and Independents all wanted different things. All expecting ‘pre-meets’ before the board meeting to ‘align’. F*cking exhausting…

My first experience of a BigCo Board is a bit of a horror story. A good Board will be more functional than this. But the problem here is information asymmetry. You won’t know how it really works until you are in the seat.

So how do you practice this from a CFO - 1 ?

• Get some exposure to board members through sub-committees. Audit committee is the obvious one. Get yourself an invite so you can observe the cycle if you can. Contribute when relevant. Volunteer to coordinate the papers.

• Get an outside mentor who is an experienced independent director. Get a feel for how they think. Create a safe space to ask ‘stupid questions’. Listen carefully.

• Build direct relationships with the independent directors in your current business. You should ask your CFO to facilitate this. This is a great way to build your profile with the current Board.

Owning the Numbers

When you are the CFO you feel the numbers more.

You can’t help it. Your mood is affected by this month’s P&L and cash forecast.

It’s hard to explain, but it becomes personal. You know the buck stops with you.

There is no ‘group’ balance sheet to fall back on. No benevolent HoldCo to wire you intercompany funds to help you through a tight spot. It’s you. You’ve got to fund the balance sheet properly.

If the business goes through a rough patch, you start to visualize WSJ headlines with your name on it. Not good ones.

If harnessed, this can be very powerful. Motivating. It focuses the mind.

But … I’ve also seen many great senior finance pros crumble under this pressure. Learning to harness that accountability into driving performance is hard. It’s a skill.

And by definition you need to be in the CFO seat to truly experience it.

But you can get close: through a Business Unit CFO role.

In a BU CFO role you have the same accountabilities as a Group CFO over business performance (for your BU). But with one difference. You have the protection of a group balance sheet, someone to step in and plug a funding gap if needed.

To practice, simply behave as if that protection isn’t there.

Perform in your BU as if you have to stand alone. Treat that intercompany treasury balance like it’s real cash (spoiler: it is real cash).

And set internal targets around it, that manufacture a stand alone balance sheet. Your Group CFO will love you for it for being so accountable, and you will become battle hardened.

See Round Bends

The further you move up the finance organization, the more the perspective changes. At entry level, you are looking in the rear view mirror 100% of the time. You are recording things that have already happened.

That does change a bit as you move up. You get exposure to budgets, forecasts, adhoc analysis, which are forward looking. But even at controller level you will spend most of your time looking backwards.

That’s different in the CFO chair though. Here you will spend your time looking forward.

But the best CFOs don’t just look out the windshield. They also see round the bends. They see the unseeable. They see the hazards (and opportunities) that others can’t.

It is this foresight that will get you paid big money. An ability to join dots and connect issues in a way that others can’t.

By giving the business early fair warning of upcoming issues. That extra reaction time can become a durable competitive advantage for a business. It is that powerful.

This is another skill that is built on experience (which skill isn’t?). So exposure is key. Gotta get the reps in.

The good news is that spending some time in a good FP&A role will help. Exercising that ‘forward look’ muscle. Whilst in that role, you can also practice by expanding the time horizon of your thinking.

Try and worry about the things your CFO might be worrying about. Think about what impact those issues will have on other parts of finance. And the wider business.‘Wargame’ these scenarios all the way through. What would it mean in practice? And given that… what actions should the business take to protect itself?

Once you are good at this, you can use it to expose the risks in a business.

Being the Deal Principal

As CFO you become the ‘deal principal’ for most corporate finance activity. M&A, capital raises, refinancings, etc.

This means leading negotiations.

Corporate Finance deals are often the most high stake negotiations in the business.

And everyone is looking to you to get it done right.

If you are diluting the current shareholders by 30% to introduce new equity, you better have got a good deal.

Likewise if you are locking a debt structure in for the next 7 years, that extra eighth of interest matters.

Early career technical corporate finance helps (e.g. corp fin, corp dev, IB, etc.). There is a lot of jargon in this world.

The good news? It’s not as complicated as people make it sound. I’ll demystify the jargon in a future newsletter.

The skill you will need through, is negotiation; as deal principle.

You will do 10x + more negotiating as CFO than as a controller. Don’t wait until you are a CFO to practice this.

Take opportunities to lead lower stakes negotiations throughout your career. Supplier negotiations, advisor fees, software contracts. And treat it like it’s the highest of high stakes.

Being the Face

I’ve known some brilliant CFOs that check every box except this one. They never got comfortable with the public scrutiny of leadership.

Like it or not, you just became a ‘face’ of the company. In many businesses people will see you as a number 2 to the CFO.

Internally, people will watch your every move. You have to be mindful of everything you say and do. All whilst trying to being yourself in the name of being authentic.

You will have to land it on stage at the company conference. And be consistent in 1 on 1 situations too. It’s harder than it sounds.

Then there is the external world. Stakeholders. Investor calls. It could mean media too. Especially if you are after the biggest CFO jobs.

There is little you can do here to prepare. I found my confidence here came from my experience and competence in the day job. The more you know your sh*t, the easier it is to come across like you know your sh*t.

MEME OF THE WEEK

The midwit strikes again. DCFs are great in theory, but every non-distress M&A deal I’ve ever seen was negotiated on multiples.

BOOK CLUB

If you are going to learn to be the ‘deal principal’, you gotta learn to negotiate.

Negotiation is about psychology. Understanding and influencing human behavior.

Never Split the Difference by Chris Voss has everything you need to know. Simple but powerful techniques told by a brilliant storyteller. Chris is a former FBI hostage negotiator turned business negotiation consultant.

I use the techniques in this book everyday to try and get what I want, in work and life. Everyone should read this, regardless of whether they are in business or not.

WHAT NEXT

That is the end of a four week series on the role of the CFO. We will revisit this from many other angles in the future

BUT…

Starting next week, we will change gear…. We are going for a 6 week trip into the Income Statement. We are going deeeeeeeeep.

Gonna be fun.

FEEDBACK TIME

Respect from a reader who knows game when he sees it ⬇️

POACHED GREG

Yesterday we saw some teaser images from Season 4 of Succession, Including one of our favorite bromance. Remember: you can’t make a Tomlette without breaking some Gregs.

Looks to me like Cousin-G is carrying some of that CFO energy … if that happens I might explode. It will also give me endless Twitter content for the next 3 years. We can hope.

What do you think Greg is saying to Tom? Hit reply, give me your caption, and I’ll feature the best next week.

If you want more, be sure to follow my Twitter @secretcfo

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Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director or friend. Well, maybe I’m your friend. But I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need to make the right decisions.