Every time a successful company comes to our minds, our first thought is what their services or businesses offering are. We quickly then move on to think of their leadership team – the CEO or the MDs. Great CEOs like Jeff Bezos and Tim Cook are, or course, an invaluable key to success, but that doesn’t mean we should ever overlook the second–in-command, namely the CFO.
Behind the scenes, all of the great achievements, most likely, could not have happened without the financial house being kept in perfect order by the CFO. CFOs do all the heavy lifting behind the scenes – which, according to me, is a vital ingredient to sustain the business and may be the key to transition the company from ‘good’ to ‘great’. Here’s one such ‘on-the-ground’ situation faced by one our own CFOs that shows us exactly how priceless a good financial insight can be.
The untold CFO Story
Recently, MyCFO was approached by a Pharma company. Family-owned and managed, with turnover ~INR 700 Crores, they are a leading name in the Active Pharmaceutical Ingredient (API) and Finished Drug Formulation (FDF) segment, sold in both the regulated and the generic markets in India and over 50 countries worldwide. The company has a ‘state-of-the-art’ manufacturing facilities approved by US FDA and has 17 Abbreviated New Drug Application (ANDA) filed and 12 in the pipeline.
MyCFO, as their in-house CFO, realised the importance and the need to run a budgeting exercise, which would help the management get a clear idea on the cash flow requirement and help stabilize the FDF business. The parameters were discussed and debated amongst the leadership team – such as stock (max order quantity, credit period, lead time, logistics, distribution), debtors, creditors, zero based budgeting for PDF business, competency of personnel involved in the process, inter departmental dependencies, product strategy, capacity utilization making each SBU within the company profitable, EBITDA improvement, misses and issues based on last year’s achievements amongst others.
Our team completed this exercise in 8 weeks with 3 revisions. As the CFO of the company, this exercise helped us see how important it was to set individual KPIs for department heads and were eventually link it to their incentives to improve the overall efficiency of the team.
The Company reaped huge benefits from MyCFO’s service and the impact created by our team was appreciated by the management of the company.
The budget exercise allowed standardization of the MIS reports across the company, helped the company to institute track performance measures for the Senior Managers, built the foundation n to form a budget committee, helped the departments resolve potential issues, all of which may have someday come in the way of achievement of targets and hence, impact the performance of the company. The process also allowed a formal mechanism to review actual progress along with setting the ball rolling in terms of weekly monitoring reports on sales, cash flow, stock movement reported in a timely and concise manner to the management.
This is the power of what a good CFO can do for a firm – provide visibility to the management and enable them to take the right decisions benefitting the company.
This goes to show that no matter how many times the role of a CFO maybe overlooked, their impact can never be missed or dissed!