Colorado Springs Financial Briefs: June 20, 2008

Growing companies eventually need a chief financial officer.

Titles seem cut and dry -- chief operating officer, chief executive officer, CFO -- but the function of each position can vary widely from one company to the next, especially in a smaller business.

Jeff Schneider, president of EFA Services, said that before hiring, business owners should clarify a CFO's function into one of two categories: managing finance function, including accounting and analysis of financial results, or raising equity or debt capital.

"Often, individuals good at raising capital are not necessarily good at managing the financial operations -- it's a difficult role to fill," Schneider said.

Accounting involves looking backward and reporting on the past. Whereas finance looks forward -- using accounting data to make business decisions.

It takes a certain type of person for fundraising, and a different type for ongoing analysis, forecasting, and account and control functions.

You have to know what your company needs, what experience the individual has and the expectation of what his or her role will be to avoid problems, Schneider said.

Ultimately, CFOs are responsible for the accounting function, but, mainly, they ensure that the accounting staff and controller are in place and doing their jobs.

And immediate duties of a CFO include using accounting and operational data to help the CEO/owner make business decisions.

Such decisions include whether to start new products or enter a new line of business, whether to purchase new fixed assets or buy or lease something, determining how to finance such equipment or increases in inventory or accounts receivable, and creating financial budgets and long-term plans.

CFOs may have more of an operational, financial or accounting background.

But necessary skill sets, Schneider said, include a strong knowledge of accounting principles, the ability to look at details and the "big picture" of a company, the ability to represent financial results of a company to inside management and to outsiders (investors, board members or bankers), the ability to analyze financial problems, scenarios and opportunities and communicate such in non-financial terms, and the desire to proactively address financial issues.

Eliminating competition

None of the recommended strategies, by the way, involve aggression.

The way to eliminate competition is go out alone -- instead of being surrounded by the pack, said John Wilson, senior business consultant at the Pikes Peak Workforce Center.

Wilson tells entrepreneurs and small business owners that a red ocean describes where the crowd of competition is -- plenty of sharks and blood in the water, and typical business strategies include war terminology: "the front line," "officers" and "soldiers."

But a blue ocean is calm and devoid of competition. He touts the principles in "Blue Ocean Strategy," by W. Chan Kim and Renee Mauborgne, as vital to successfully launching a new business or product line.

Only one of seven product launches has a blue ocean strategy. But $3 of every $8 of revenue is from a blue ocean launch -- and $6 of every $10 of profit is from a blue ocean creation.

Wilson said it was much easier to have a successful company during the 1990s, and that the business climate changed after Sept. 11.

However, his favorite example of a blue ocean launch is from a different era.

The first American automobile was sold during 1898 -- and it was "very expensive."

The genius of Henry Ford's first Ford Model T, made during October 1908, was its affordability -- not that he invented cars. Ford was the first to make a car available to the masses, Wilson said.

And automakers continued to follow his example of launching blue ocean strategies that made the competition irrelevant.

During the late 1920s and early 1930s, General Motors introduced the concept of an annual model and designed different cars for different socioeconomic levels.

The blue ocean trend continued with minivans during the 1980s and, recently, with mass production of hybrids.

So, before starting a new business or launching a product line, analyze the market and find your niche -- you won't have to worry about competition.

Copyright 2008 Dolan Media Newswires
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