I was having lunch a couple weeks ago with a banker named James. James asked me if I got along with the Owner at all of my clients. My quick response was, “of course I do!” James then replied that the best CFO’s / Controllers don’t always see eye to eye with the business owner. James tells his customers to make sure that they don’t have a “Yes Man” as their CFO.
I thought about that conversation for a while, and James is absolutely right. There should always be a healthy conflict between the CFO and the business owner. Business owners are either risk takers, or risk avoiders. I work with both types. The risk avoider learned how to do everything correct 10 (or maybe 20) years ago and doesn’t listen to new ideas. He or she is willing to put all profits in the bank and earn interest at .02%, because anything else is too risky. Speaking of risk, the bank is insured up to $250,000, so the risk avoider will have an account at several banks, just in case something bad was to happen.
The risk avoider is content to use the 10 year old hardware and software because it still works most of the time and all the employees know how to use it. How about a new strategy to save taxes or modify fringe benefit plans? The risk avoider doesn’t want to hear it.
Then there is the risk taker. A couple of good months in a row, and the owner is ready to start hiring more people and looking for new locations. The owner’s neighbor just got a brand new Red Ferrari, and now he needs one too. The owner heard from a friend of a friend how his business saved 90% on their tax bill, and he is convinced that his company can do it too. There is always a new business idea that sucks up any extra cash that the business had. The company is maxed out on their bank line of credit.
So how can the CFO be of service to these two types of business owners with vastly different personalities? First of all the CFO, needs a great line of communication with the owner. A good CFO will then always be able to quantity the results of the owner’s next action or inaction. It is the CFO’s job to show the owner the potential upside or downside of each event. No one can predict the future with certainty, but the more information that you have, the better the decision.
So if you own a business and your CFO agrees with you 100% of the time, you might not have the right CFO.