CFO Skills to Benefit any Consulting Firm

In many small to midsize consulting firms, financial operations often fall under the responsibility of individuals with technical backgrounds, typically engineers, who have limited financial expertise. This situation arises due to budget constraints, making it imperative for these professionals to acquire essential financial skills. In this post, we outline five fundamental financial skills that can empower engineers acting as financial managers to enhance their firm's financial operations effectively.

1. Return on Investment (ROI) Analysis

ROI is the cornerstone of sound financial decision-making. It involves assessing the cost of an action or expense and weighing it against the expected financial benefits. Whether it's investing in new software, hiring talent, or expanding office space, understanding ROI helps in comparing options, making informed decisions, and uncovering hidden costs that may impact profits.

2. Budgeting and Projections

Developing annual revenue projections and expense budgets is vital for division or profit center managers. This creates a monthly roadmap for expected financial performance, allowing managers to track progress and make informed decisions. A key CFO responsibility is to identify fixed costs that cannot be managed monthly (rent, insurance, utilities, etc.), helping managers focus on areas where they have the most control. For many firms division managers are able to manage less than 10% of their total costs on a monthly basis. A good CFO will help focus their time where it has the greatest financial impact.

3. Effective Reporting

A CFO can provide division leaders with actionable reports that highlight key areas for improvement. Monthly performance reports should highlight items that require specific attention, guiding managers toward actions that can drive revenue growth rather than solely focusing on cost reduction. This is the value in creating both a revenue projection and expense budget. Each can be tracked monthly to help managers make effective decisions.

4. Strategic Planning

CFOs often play a crucial role in strategic planning efforts. Learning this process can benefit any financial manager. Strategic planning involves creating a vision, setting goals, and outlining the required investments and anticipated financial benefits. It relies upon ROI skills, budgeting and revenue forecasting to lead the management team down the optimum path.

5. Financial Benchmarking

Benchmarking against industry Key Performance Indicators (KPIs) provides valuable insights. For instance, if your firm's target profit is below the average that other firms routinely achieve, it may be time to reevaluate your financial goals and strategies. Benchmarking helps CFOs understand where their firm stands in comparison to competitors and prioritize areas for improvement.

There are many more benefits that a CFO can offer a consulting firm, but these five skill areas can serve as a reasonable starting point. To acquire these essential financial skills, new financial managers can enroll in relevant courses, attend seminars or higher a CFO coach. Alternatively, small firms can explore the option of hiring a "fractional CFO" to provide part-time financial expertise at a reduced cost.

In conclusion, regardless of a firm's size, building financial knowledge is a valuable investment. Neglecting to develop these skills or just relying on "how it has always been done" can hinder performance and growth. By equipping engineers turned financial managers with these fundamental skills, small consulting firms can strengthen their financial operations and unlock new opportunities for success.