Guest Post By Sam Bowman
The role of a chief financial officer (CFO) is an essential component of a thriving C-suite business. Their approach to your resources is key to not just survival but also innovation. Your CFO’s expertise can mean the difference between your company falling behind the pack or achieving an impressive trajectory.
One of the areas in which your CFO can have an impact is your company’s approach to investment. It’s no secret that it’s a precarious time for such expenditure. Between the fallout of COVID-19 and supply chain issues, many companies are reluctant to allow space for investments. Yet, the right CFO can help you navigate the difficult periods and invest in the right areas to help your company thrive.
Let’s take a closer look at how your CFO can help handle investments in the current climate.
One of the dangers C-suite businesses face during a difficult economic climate is in being too short-sighted regarding investments. This is certainly understandable. You may feel it best to place the majority of your focus on putting out any immediate fires. You may want to make short-term gains before you can be in a position to consider the future. While there is certainly some wisdom in this cautious approach, your CFO can develop a long-term investment strategy to make certain you can thrive beyond the current hurdles.
One of the core skills any CFO worth their salt will possess is in examining the markets and making assessments as to their direction. They are not fortune-tellers by any stretch of the imagination. But part of their remit is to perform research and data analysis into the elements related to your company’s long-term financial health. This will include establishing the upcoming needs of consumers in your industry and where smart investments should be made to push the sustainable growth of the business.
This means your CFO can take your business beyond mere survival. The market research and financial forecasting they perform allow them to plant seeds for your future success now. Indeed, they’ll translate their findings for key organizational stakeholders to demonstrate how and why these investments are important. This is a vital tool in achieving stakeholder support and even greater external investment into the company.
Diversifying Wherever Possible
A CFO’s attitude toward an investment strategy should always be multifaceted. This has to be tailored to the unique needs of the corporation. Yes, there will be some areas that are consistent among many businesses, particularly those in the same industry. But your CFO should understand your company can’t rely on a single source of investment. They have to develop strategies to meet the various needs.
As such, they need to constantly review the balance of active and passive investments. This may be reviewing how placing resources into the education of individual staff members might produce both direct financial returns. It could be establishing what investment into innovative technologies may put you ahead of the curve in your industry. Alongside the active components, they are likely to also consider a range of financial investments to support the underlying operations of the business.
These passive investments aren’t necessarily limited to traditional stocks and bonds. Your CFO should have in-depth knowledge of varied investment focuses and techniques. While alternative investments are traditionally considered to be risky, they can help make for a stronger portfolio. Some of the more common types of targets here are real estate, hedge funds, and even collectibles. Though some organizations also invest in cryptocurrency and movie production.
Part of the role your CFO will play is identifying these opportunities for diverse investments and establishing their suitability for your company. This may not just be on a strictly financial basis. They could also consider the value these investments provide in community engagement and marketing potential.
Maintaining Risk Awareness
An effective CFO doesn’t just wade into the fray and start recommending diverse long-term investments despite a shaky economy. That’s a surefire way to find your business in a state of crisis. A core part of their responsibility in handling your company’s investment approach is solid financial risk management. Their expertise and strategic experience can mean your company moves confidently forward with a more informed set of investment principles.
As such, it’s important to bear this aspect in mind when taking on a new CFO or reviewing the suitability of your current contributor. Experience or professional qualifications in general risk management are certainly an advantage. This is because almost all the common forms of risk — financial, compliance, debt, and liquidity — feature in considerations for your investment portfolio.
It’s also wise to look for a CFO with technical accountancy qualifications. Their accountancy skill set will include an in-depth and practical understanding of the ethical, commercial, and logistical elements of business finance. These competencies will allow your CFO to work closely with the finance department and recognize areas of stability and concern in both the daily operations and long-term view. As such, they’ll be well equipped to both understand the full extent of and manage the risks that apply to your investment strategy.
This risk awareness also factors into the psychology of approaching the financial markets. Your CFO’s appreciation of the applicable hazard factors helps to drive their instincts when it comes to recommending tactics and focuses for investment. They’ll be better informed about which investments and tools mesh effectively with the unique set of risks your company is working with.
A CFO is an essential influencer of your organization’s success story. Their expertise and experience can be particularly useful when it comes to developing an effective investment strategy. They have a nuanced perspective of the long-term needs of the company. Not to mention their approach should embrace diverse sources that support all facets of your company. It’s also important to make certain your CFO has the skills to manage the risk elements of your investments, particularly in a tough economic climate. Investment is always a tricky area to get right, but it’s vital to treat your CFO as a trustworthy and agile resource here.