This article was originally published on Forbes.com
Thinking back to his investment banking days at Deutsche Bank, Brad Kinnish recalls having had a number of awkward conversations with corporate CFOs about their finance teams’ forecasting rigor.
Kinnish, who stepped into a CFO role at Aryaka Networks in early 2020, no doubt finds himself replaying these earlier conversations in his head as today he confronts the unique challenges that finance leaders face as they seek to field and maintain crack forecasting teams in the midst of the pandemic. (Ep #667: Brad Kinnish)
“As a banker, you can say, ‘Hey, your finance function stinks’—the company may fire you as an advisor, but still those conversations did happen,” recalls Kinnish, who credits the pandemic with having helped financial planning teams once and for all shake off the “growth for growth’s sake” mantra that had frequently ginned up forecasting models during the preceding decade.
Instead, Kinnish says, these days he is keeping his financial planning and analysis (FP&A) team focused on the trade-offs between growth and gross margin.
“If you’re at 75% gross margins, do you want to keep taking those up to 78%? Of course! But if this comes at the expense of growth, then maybe not,” continues Kinnish, who adds that the urgency with which companies began conserving cash due during the pandemic resulted in yet another trade-off for FP&A teams to monitor and render projections on.
Asks Kinnish: “How much do you want to be focused on cash flow versus growth?”
Such trade-offs can be particularly tricky to calculate for midsize companies with fewer than 1,000 employees and where new FP&A hires are sometimes hard to come by.
“Every dollar that’s not going into the go-to-market organization to fund sales and growth has to be rationalized,” comments Shane Hansen, who has found little appetite for new finance hires since stepping in as the CFO at Planful 10 months ago.
Says Aryaka’s Kinnish, “The trade-off there is: Do you want to hire an engineer who can help you to get your product to market faster? Or do you want to hire a finance and accounting person? And the unfortunate reality is that most CEOs and board members want to hire another engineer to get product to market faster.”
According to Hansen, such “trade-offs” have become more manageable for Planful as it adopts a continuous planning mind-set—one that allows the developer to evaluate business developments with greater frequency and to more quickly allocate dollars to pursue short-term as well as long-term opportunities. (Ep #671 CFO Shane Hansen)
“Like most companies, we are focused on how to accelerate our growth, but at the same time, we are asking, ‘How do we spend prudently this quarter, and what investments do we need to make next quarter?” observes Hansen.
Still, Planful’s finance chief believes that the challenges facing FP&A teams can be daunting.
“There is a disproportionate burden that is sometimes placed on FP&A’s shoulders, and very often this happens when times are tough or when times are exciting, such as when a company is going public,” observes Hansen.
One finance leader who recently weathered such “exciting times” is Jason Eustace, CFO of CuriosityStream, an upstart streaming media company launched in 2015 by Discovery Channel founder John Hendricks.
“I kind of walked in when the business functions and roles had to quickly right-size to what a public company would require in the near future,” remembers Eustace, who helped to take the media company public through a reverse merger last October after having arrived in the CFO office only 8 months earlier. (Ep #668 CFO Jason Eustace)
Asked about his finance leadership priorities in 2021, Eustace replies: “Number one for me is hitting that revenue goal that I promised my investors—that’s key, that’s paramount, that’s my North Star.”
To help navigate the complexities of a reverse merger and the sales of shares to the public, Eustace says, he relied heavily on his auditor, Ernst & Young, to begin to identify “subject matter experts” who could help to beef up CuriosityStream’s FP&A function.
“Now we need to find out the best ways to deploy the company’s capital and make the best choices when it comes to acquiring customers via our marketing channels,” reports Eustace, highlighting one of a number of tasks likely to fall on the FP&A docket.
When it comes to publicly held firms, Aryaka’s Kinnish boils down the forecasting task this way: “Part of what you’re trying to figure out is whether you have a realistic 2-year projection and whether you are going to be able to meet and beat it.”
Asked whether he ever had to admonish a CFO during his banking days for not having an FP&A team up to the task, Kinnish responds: “I would put it a little bit differently, something like, ‘Mr. or Mrs. CFO, you need to realize that your world is changing. You’re going to become very public-facing—and you’re not going to have time to sit in Excel for 4 hours a day building and refining the forecast.’ – Jack Sweeney