CFOs can take on crucial roles in growing companies, and their approach to financial strategy and management is increasingly important as economic and market fundamentals keep shifting these days.
That’s the view of Navneet Govil, which he shared at the CFO Leadership Council’s recent 12th Annual Leadership Conference. Govil is CFO of SoftBank Investment Advisers, the Tokyo-based holding company headed by Masayoshi Son and one of the most influential investment groups in the world.
SoftBank has invested in about 450 companies globally in nine sectors, and its $98.6 billion Vision Fund One is the world’s largest tech-focused investment fund, with a portfolio of nearly 100 companies, including Uber and online mortgage company Better.
“Technology and AI are disrupting and transforming every facet of life and business,” said Govil at the gathering of Chief Executive Group’s CFO Leadership Council in Boston.
That has great implications for CFOs no matter the size or sector of their company. So do current economic pressures, including inflation and higher rates, and market dynamics, including a marked softening in tech valuations.
Govil advised CFOs to respond in the following ways:
Nurture board relationships. CFOs should build their own strong ties with directors, especially with the chair of the audit committee, Govil advised. “He or she oversees a lot of financial functions on behalf of the board, so they need to be completely in tune with [company] finances. Are there weaknesses? Deficiencies? What is the strength of the finance team? What’s the cash runway like for the company?”
And CFOs should take into account how board members like to receive and consume financial information. “Understanding their style is critical,” Govil said. “Some don’t [like to receive] that many materials before board meetings. Others get lots of materials or PPTs that get shared at or before board meetings. Some people like to do pre-briefings on issues for the next meeting.”
Build your team carefully. In constructing a strong finance team, Govil said, “the two most critical [positions] are controller and the head of SG&A. The controller, to make sure there are no deficiencies or material weaknesses, and you need a good head of SG&A for forecasts—where the business is headed, both top and bottom line.”
Govil said CFOs tend to build large teams, “which is good if companies have linear paths to growth. But there’s never a linear path. There are all sorts of surprises, so a company’s fundamentals may be great, but it will never really be a linear journey. So you don’t want to be caught in a situation where you’re building a big finance team and then have to cut.”
Rationalize resources. Invest in beefing up decision support for analytical work, he suggested. Meanwhile, outsource transactional functions such as accounts receivable and accounts payable as well as collections. That can put the burden of scaling on third-party companies and help CFOs avoid having to cut their own teams.
“And try to automate as much as you can, a lot of reporting functions and accounting closes.”
Understand the levers of the business. To support the C-Suite in scaling the company, Govil said, CFOs must have a handle on the tools in their arsenal. “What levers are available to scale the company to grow? [Or] if you’re at the point where you have to reduce costs, do you have a model you can dial up or down, a lot of variable costs that allow you to do that?”
The most important tool to master, he said, is cash runway. “What’s appropriate” to have on hand? “Three years? Six months? Most CFOs should plan ideally on having 12 to 18 months.” That range falls between raising too much cash at a lower valuation or raising too little cash at all.
Communicate broadly. “Include the rest of the organization, not just the C-Suite” in communications, Govil said. “Be transparent if you’re going through a difficult time and you have to pivot, or change direction, or have to cut back on costs so you can accelerate [again] when the time is right. Those types of candid messaging make a lot of sense for the entire employee population.”
This important role also could include writing the S-1 for IPOs, the essential document that tells the story of the company, discusses relevant internal and external factors, and provides the initial registration with the Securities & Exchange Commission for the offering. “You need to spend time on the S-1 to tell the narrative of the company and the business as part of this journey,” Govil said.
Prepare for an IPO. If the company is moving toward an initial stock offering, the CFO’s role is very important for setting the table, in a number of ways. Obviously, they include helping choose the form of the offering, and just as important is pricing of shares.
“As CFO, make sure you’re not leaving money on the table,” Govil said. “If you had priced it higher, the price probably wouldn’t have risen so much” after the offering, is one thing that can happen. “But also having too much off on the price on the day of the IPO means you’re leaving money on the table.”
Get ready for public reporting. In preparing for the new world of investor expectations in the runup to the offering, and afterward, he said, CFOs must “nail the basics. And that is two things. First, the ability to close the books on time. Once you’re a public company, you have a quarterly cadence of earnings calls and reporting numbers. You can’t have a situation where you’re not able to file a 10Q or a 10K on time and having audited financials. You need to ensure there are not any significant deficiencies or material weaknesses in your financial reporting.”
Second, CFOs must make sure there is “future visibility and line of sight” to results. “What does the revenue backlog look like? You have to guide [on the future], not just report on the quarter that went by. Having a really good handle on the top line as well as expenses” is important. “The last thing you want is to go public and give guidance and then you miss in a big way, and the stock craters. You want to be able to ‘beat and raise’: beat guidance and then raise guidance for the next quarter or next year. That’s nailing the business.”
Target key audiences. Two of them stand out for CFOs of companies that are newly public: long-term investors and Wall Street securities analysts.
“Really work with equity analysts,” Govil said. “Sometimes, CFOs think they’ll do that after the company is public. But it’s important to get to know some of the good sell-side analysts for your industry and build a relationship with them. Ideally, you want a good equity analyst to write a report on you even before you go public. It can influence a lot of investors and shareholders.”
And, he advised, “Be cognizant of your investor base. Ideally, target long-term shareholders. [Target] your messaging to these types of investors and shareholders you want to keep, and have those types of discussions with them. Go outside of the quarterly earnings cycle and build those relationships and your story.”
Advance yourself. “The number of CFO jobs that have opened up is through the roof now,” Govil said. “There are more early retirements, and more startups. If you want a CFO job, it’s available, [and the] criteria aren’t as stringent as five to 10 years ago.
“But don’t chase the title; just because the job says ‘CFO’ doesn’t make it enticing. Really look at the experience you’re going to gain. Most importantly, can you move the needle? As CFO, you want to be part of an organization where you can have an effect, move the needle, contribute to the bottom line and influence the CEO and management team.”