The image of a finance director (FD) sitting in the corner of the board room, tapping his calculator and explaining why the managing director’s latest initiative may just be a step too far has been consigned to the last century. And it’s a good thing. The last thing you need in this prolonged period of austerity is a finance director with the countenance of Ebenezer Scrooge wielding a cattle prod.
In all fairness, the role of the FD has extended beyond adding up for many years. Yes, they invariably have some sort of accounting qualification and an all-round grounding, but they’re generally supported by someone who produces the numbers for them to interpret. And, like every other member of the board, the FD needs to find a way of overcoming challenges, rather than avoiding them.
“The FD needs to be strong: he needs to tell you if a project can’t be pursued and why it can’t be pursed. But ideally, he needs to be able to look at a project in depth and find a way of making it happen, to achieve what the entrepreneur wants, but also to keep the finances in order,” says Jeremy Bowler, chief executive at accountancy firm Cooper Parry. “You need someone who is proactive and will make sure scenarios are properly evaluated. He needs to bridge the gap between the numbers and the ambition.”
Businesses usually have a visionary running the show, and the last thing a FD should do is pour cold water on his ideas. But he does need to be able to go back to the entrepreneur and avoid wasting time. Particularly now, the FD must be able to take corrective action quickly: “Businesses that are doing well usually don’t mess around making half a dozen cuts – the FD has got in and sorted it out,” says Bowler.
Prospering businesses usually have a strong FD as the managing director’s right hand, and the transition from accountant to strategic adviser has put the incumbent in a handy position to ultimately take the step up. Bowler says: “The FD is a good candidate to take over the running of the business as his background and qualifications give him a degree of common sense. He sits alongside the entrepreneur, who often isn’t great at management, so he almost becomes a managing director. The entrepreneur’s enthusiasm and vision often rubs off on the FD, who remains adept at the financial functions but begins to develop the passion for the business – that’s why so many FDs end up as a chief executive.”
The measure of a good FD is more about the commercial picture than money matters, says James Bagley, partner at Smith Cooper: “A top quality FD has typically done a number of transactions, bought a few businesses and can raise finance. He knows what’s going on in the market, he knows what everyone else is doing in the sector, and he knows what the trends and the margins are. If you haven’t got a view of what the rest of the world is doing your own figures mean very little.”
While Bagley acknowledges the entrepreneurial development of the modern FD, he insists the partner who has every financial ratio at his fingertips still needs to ensure that controls are in place and all the costs are nailed down.
“When the time is right the FD still needs to be able to say ‘no’. In recent years, the strongest FD’s made the cuts quickly, stopped taking the cash out and have built up funds to enable them to weather the storm a little. Many of the businesses that went early didn’t have the financial controls in place. The business needs to be in the right shape so you can forecast and move forward,” he says.
There will always be winners in any cycle, but you are unlikely to find one with an average FD – hunting down a great one should be a priority.
Also in: February 2012
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The hilight zone
It may be two years before enterprise zones get under way but the concept is already attracting serious interest from the global financial community. Several banks (British and overseas) and a consortium have already approached the Greater Birmingham & Solihull local enterprise partnership (LEP) about providing future finance streams.
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The need for speed
The government’s announcement that the HS2 line will go ahead has brought relief and joy to the Birmingham business scene. Whereas before businesses in Birmingham and the wider West Midlands have had to tell clients they face a tiresome and slow trudge on an outdated line if they want to come to the city from London, now they can say: “I’ll see you in an hour.”