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What does a Finance Director do?
The role of the finance director varies dependent upon the scale and complexity of the business. Their most fundamental function is to contribute to excellent decision making by the board, providing a financial and commercial perspective.
In order to understand the role of the FD, we first need to be clear on the role of the Managing Director in a small business as the needs of the MD shapes the role of the FD.
The Managing Director
The principle role of the leadership in any business is to make the most important decisions that will affect its future.
Typically, decisions over the deployment of the business assets and resources fall into this category. The principle asset is cash as it enables the business to procure all others, which are usually people, equipment, machinery, intellectual property, software etc.
The Managing Director’s role is to make decisions about the strategy of the business which will determine how the assets are deployed. There are almost always a variety of options, each of which has different implications for cash, margin, profit, capital, overheads and risk etc., which are financial in nature.
The Finance Director
The effective use of assets for profit is the primary objective for most businesses. The overall strategy and the tactics planned to deliver the results, form the business plan and financial forecast.
The Managing Director relies on their FD to financially illustrate scenarios in a format that is understandable and provide commercial experience to assist in the decision making of which option may be the best.
The finance director has the training and experience to support the leadership in these strategic and financial decisions.
How is this done?
This means using financial skills to look forward at the prospects for the business in various scenarios under consideration, provide guidance and a commercial perspective on the options.
What value do Finance Directors bring to a small business?
Every business is about cash and profit and put simply no other person on a board of directors understands these two things as well as a finance director because of the training they have had.
Are they just about numbers?
The numbers part of the role is a given for an FD, the modern Finance Director is very versatile and contrary to old myths very commercially minded with excellent communication skills. They will look across the whole business to provide financial guidance on each area to help it achieve their goals.
How can an FD help businesses at various stages of the lifecycle?
If you are growing quickly or want to, if you want to sell your business at some point or buy another, if you want to raise capital or renew lending facilities, if you have landed on hard times and need to map a way back, each have financial implications and as such the Finance Director as the financial expert for businesses will be able to provide expertise to help.
Can’t my accountant do this? Why do I need a finance director?
Both are accountants, yes, however, accountants in practice have chosen to operate in an external advisory capacity with technical specialisms in tax, vat, annual accounting and audit etc. External advisors are useful in many situations, however the role of the finance director is to understand extremely well the business, its markets, customers, people etc. In order to provide the best assistance to the Managing Director they work in the business with them day to day.
Good decisions require good information
In order to present the various scenarios, it is necessary first to understand where a business is starting from and what information about performance is being produced.
The Finance Director will use this data and develop new systems if required, to make sure all the necessary information is available.
Where you start from
Based on good information and with the support of a commercially focused and highly experienced Finance Director, making the best decisions will help drive growth, improve performance and value.
The decisions that you make determine your success. The best businesses got to be so because of the decisions they made, using a combination of good information and the right skills and experience.
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