Like any small-business CFO, I am taxed with a multitude of competing priorities. Working in a highly regulated industry like financial services only compounds this reality.
However, given today’s volatility and complexity, a mid-year business review should be a priority for any finance chief at small and midsized companies. This assessment affords the CFO an opportunity to identify strategic deficiencies, take timely corrective actions, and reallocate resources appropriately.
Ultimately, in light of the landscape in a company’s particular industry and the increased role of technology, a CFO may then find it necessary to modify the company’s strategic vision and redesign business models in order to remain viable, let alone competitive.
Following are three key areas for CFOs to review at mid-year.
Regulatory and Compliance Check-up
Managing regulatory risk and compliance in the current environment is not an easy task. Change happens regularly, often on a daily basis, requiring the CFO to emphasize risk management on a much more frequent and all-inclusive basis.
At a minimum, CFOs of small and mid-size firms typically are tasked with ensuring the business is adequately insured by directly purchasing (or working with a broker to purchase) general and professional liability insurance.
In highly regulated industries such as financial services, utilities, and pharmaceuticals, it’s crucial to keep abreast of the respective governing agency’s general provisions, minimum required coverage, and deductibles. It’s the best way to avoid monetary penalties and/or public censure.
It’s often necessary to engage attorneys and consultants to help navigate the rules. At the very least, CFOs should review their insurance policies semi-annually and always upon the occurrence of any significant change in their business.
Mid-year is also an ideal time for a CFO to ensure that the company has robust controls around its various accounting cycles (e.g., cash disbursements, revenue recognition, payroll).
In a small company, it’s often challenging for the CFO to maintain adequate segregation of duties, since there are only a few employees engaged in performing accounting and finance functions.
In this instance, it’s important to develop compensating controls to make up for this business constraint and mitigate any known risks. To avoid any year-end surprises, particularly when subject to a financial statement audit, CFOs should consider performing their own internal audits at mid-year around key accounting cycles.
As businesses become increasingly dependent on new and advanced technology to perform all aspects of their trade, assessing technological risk is crucial.
With cybercrimes and data privacy breaches becoming the norm, companies must integrate tech into their overall risk management strategy. Unfortunately, traditional risk management tools are proving to be ineffective in understanding and monitoring this risk.
Not surprisingly, more and more companies are employing analytics to transform data into useful business knowledge as a solution. To that end, a mid-year review will enable the CFO to be more proactive in monitoring change and more receptive in redesigning its company’s business models to accommodate evolving technology and its associated risks.
Furthermore, monitoring technological advances and using them to enhance and promote the company’s strategic vision should be of particular importance to the small-business CFO. That’s especially so given the recent emergence and growth of innovative companies cultivating disruption in the marketplace.
As an example, the nascent fintech space has transformed the role of technology from merely a tool to a vast, open platform.
In order to remain competitive, a CFO must be flexible and may have to consider making significant changes to outdated financial systems, processes, and skillsets.
In this day and age, keeping abreast of and embracing technological developments has never been so critical, and the mid-year check-up can help gauge how a company stacks up against its industry peers.
Human Resources Check-up
Many small-business CFOs are also responsible for the human resources function, which can prove to be a tall order when coupled with a myriad of financial duties.
This balancing act is further compounded for the CFO in a fast-paced start-up experiencing explosive growth. I know this situation all too well. At my prior employer, in addition to my CFO role I was head of human resources. I function in the same manner at my current company, an early-stage fintech start-up.
Many HR functions, such as payroll and benefits administration, can be outsourced. However, it’s imperative that the small-company CFO be very hands-on when it comes to creating and implementing compensation plans for new hires. The finance chief must also be very involved in developing ongoing performance-review plans in concert with the company’s management team.
When one is the HR leader, it’s crucial to ensure that compensation plans are meeting their stated objectives, particularly when it comes to salespeople, and that stated employee performance goals are on track to being met.
At mid-year, the CFO should perform a well-documented analysis and thorough review of compensation benchmarks used to ensure they accurately reflect those used in their company and industry.
It’s extremely important that a firm’s compensation plan be in line with its existing strategy and the market. If there is glaring misalignment with respect to the company’s corporate strategy, mid-year may be the time to make some adjustments to compensation benchmarks.
If there are discrepancies with respect to the market, the mid-year review should be used as a platform for the CFO to discuss the circumstances that have created those variances with the leadership team. Perhaps divergences can be attributed to lack of profitability, cultural attributes, or life-cycle stage.
In summary, the mid-year business review is an essential tool for the small-company CFO. Now is the time to get after it.
Heather Hall is CFO of 280 CapMarkets. The firm combines a cloud-based technology platform with the in-depth market expertise and execution services of a traditional broker-dealer to help independent financial advisers buy, sell, and manage bonds.