Kishore believes that the CFO's role is expected to grow in response to evolving economic conditions.
Kishore Dasaka
Chief Financial Officers (CFOs) were once considered a luxury, only accessible to large companies with complex financial needs. Small and medium-sized enterprises (SMEs) often manage with the assumption that an accountant is sufficient to run their operations. In many such SMEs, a team of accountants handles everything from bookkeeping to compliance.
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In fact, a recent study showed that 80% of business owners still need monthly financial reports. And those who get them either do not review them or do not know how to read those numbers. The lack of financial literacy is one of the most significant factors contributing to poor decision-making, poor cash flow management, and poor business management.
In business, intuition based on experience is very powerful. Intuition based on emotions is a killer. It's why most people lose money in businesses. Business owners do not know how to read numbers on a financial report, and hence, they end up using their emotions to make financial decisions.
Today, the world has changed. Thanks to the advent of technology, the growth of Artificial Intelligence (AI), and advanced accounting and finance tools, data-driven decision-making has now become the need of the hour. And that's where the role of a CFO has become critical, even for smaller organizations.
Kishore Dasaka, a seasoned fractional CFO and founder of KayOne Consulting, has been at the forefront of this shift. Over the years, he has worked with several SMEs across the globe, helping founders understand their numbers to make better and more informed financial decisions.
“For small businesses, the CFO role has changed from a financial reporting function to a front-line strategic partner in growth,” Kishore explains.
From Compliance to Strategy
Traditionally, bookkeepers and CFOs' roles revolved around reporting and adhering to regulations. They dedicated their efforts to ensuring the timely submission of year-end tax returns and salary disbursements. When these responsibilities were fulfilled accurately, and there was a cash surplus at the end of each month, the business owner was happy. Although these tasks hold significance, they merely scratch the surface of the finance function.
The role of CFOs has evolved significantly over the years. This is especially true for those working with SMEs.
- Strategic Planning: A CFO doesn't simply monitor information but uses it to forecast future trends, assist companies in preparing for growth prospects, and manage potential risks.
- Cash Flow Management: Managing cash flow goes beyond handling money coming in and going out. It also involves making sure the business has enough cash to take advantage of opportunities and navigate challenges as they come along.
- Efficiency: CFOs play a role in analyzing expenses and identifying shortcomings in operations to assist companies in streamlining their resources effectively.
- Technology: As financial technology tools become more prevalent in the industry landscape, CFOs are taking the lead in embracing technologies that improve accuracy, reduce manual effort, and provide real-time insights.
Kishore highlights this shift with a simple analogy: “Think of the CFO as the navigator in a ship. While the captain steers, the navigator ensures the journey is smooth by reading the maps, spotting obstacles, and charting the safest route.”
The Rise of Fractional CFOs
SMEs are starting to understand the value of having a CFO on board; however, not all can afford to have one on a full-time basis. That's where fractional CFO services come in. These fractional CFOs collaborate with businesses part-time or for specific projects, providing specialized financial expertise without the hefty price tag of a full-time hire.
Businesses anyway don’t need a CFO every day of the month; they need CFO’s input or advice only during certain key decision making times or to guide accountants. This is a win-win-win for business owners, accountants and the CFOs because the business owner gets the timely financial advice, accountant gets the guidance, CFO’s time is effectively utilized by serving multiple clients.
Hence, this approach has become popular as it enables SMEs to receive customized financial advice that effectively meets their individual requirements. At pivotal moments, such as fundraising activities or expanding business operations in uncertain economic conditions, a fractional CFO can provide support without the need for a permanent full-time hire.
Why SMEs Need CFOs More Than Ever
The changing business environment has highlighted the importance of the CFO for SMEs. Here are some key reasons why:
1. Competition: SMEs face heightened competition in today’s global market environment, where robust financial strategies are essential for pricing competitively while effectively managing costs to ensure sustained growth.
2. Complex Financial Ecosystems: SMEs encounter a more intricate financial environment nowadays due to diverse income sources, changing payment terms, and evolving tax regulations. The CFO plays a role in handling these intricacies effectively.
3. Data-Driven Decisions: Gone are the days when relying upon intuition sufficed; today, CFOs provide clarity by analyzing financial data to empower business owners to make informed choices.
4. Capital Raising: Access to funding is crucial for businesses to thrive and expand their operations efficiently; CFO involvement in securing loans or negotiating with investors is instrumental in showcasing a company’s well-being and growth prospects.
5. Risk Management: Risk management is an aspect of financial management where CFOs play a pivotal role in overseeing cash flow risks and ensuring adherence to regulations to prevent expensive business errors.
What does the Future Look Like?
Kishore believes that the CFO's role is expected to grow in response to evolving economic conditions. He highlights the importance of bridging the gap between financial literacy and strategic thinking. "Today’s CFO goes beyond number crunching," according to him. They're storytellers, helping business owners understand the narrative behind their numbers and how to use that story to drive success."
SMEs must now see the importance of adapting to the changing role of the CFO as crucial for their sustained growth and prosperity. Seeking professional guidance from fractional CFOs allows SME business owners to tap into specialized knowledge while retaining their resources.
Building the Future, One Decision at a Time
In today’s competitive business environment, the CFO's role in guiding companies through uncertain times will remain crucial. For business owners and entrepreneurs alike, it's essential to recognize that financial management goes beyond bookkeeping; it involves using data strategically to drive growth, foster resilience, and accomplish long-term goals effectively.
With professionals like Kishore Dasaka leading the way, SMEs are proving that the proper financial guidance can transform even the most modest operations into thriving enterprises.
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