It’s a delicate balancing act that chief finance officers (CFOs) have to perform these days. If they’re too cautious, constantly mulling over the risks to a business, then they’ll be dismissed as a mere bean counter. On the flipside, if they follow every whim and fancy of the CEO, the results can be disastrous.

‘I am probably more the voice of caution and try to give a balanced view,’ comments Tim Clark, the financial director at marketing agency Haygarth. ‘But it’s too easy for an FD to come in and look at all the risks and say, “We shouldn’t do this.” You have to be mindful of the upside.’

The role of head of finance keeps evolving. It requires not only a sophisticated appreciation of the complexities of accounting standards – especially since the introduction of International Financial Reporting Standards (IFRS) – but also sound governance and a keen commercial and strategic awareness.

Karen Bach, who is five weeks into her role as CFO at software company Kewill, argues that the role can be split into four main areas: having a strong hand on day-to-day activities, such as paying suppliers and chasing debtors; maintaining adequate quality controls; improving the efficient running of the business, for instance by renegotiating contracts; and dealing effectively with shareholders.

‘A good CFO does all of those things well,’ she says. ‘Crucially, you need a financial controller below you who really focuses on the day-to-day and has that real attention to detail. The CFO must have an exceptional eye for detail too, but they must also have a real understanding of the business and be part of it.’

Double acts

Iain Johnston, the CEO of design and branding group Loewy, observes that his CFO, Bryan Wilsher, is the best he’s worked with in 20 years. ‘I’m not financially trained but I am financially literate, and Bryan, for an accountant, is one of the most commercial people I have ever met,’ he says. ‘We understand each other’s focus and priorities but always approach things from a slightly different perspective.’

Fortunately, Wilsher is similarly happy with the relationship, comparing the dynamics to how the prime minister and chancellor work (or not, as the case may be). He notes that it’s important to have a solid group of non-executive directors too: ‘You do need a strong chairperson there. The concept of a CEO and CFO cooking up cosy and unchallenged business decisions should not be allowed to happen; there needs to be a group of non-executive directors who rigorously challenge certain decisions.’

Chemistry between the CEO and CFO is vital. Jon Plassard, the CFO and one of the founders of recruitment company NetworkersMSB, observes: ‘I probably am a restraining influence. I’ve worked with the CEO for eight years and we’ve complemented each other quite well. We challenge each other, we ask questions and we can be quite forthright. It’s a case of exhausting most of the avenues between ourselves and then taking the best ideas so that we’re on the same page and can move forward.’

By equal measure, if that chemistry isn’t right then it’s best to part company sooner rather than later. Bach says, ‘If the CEO and CFO don’t have different but complementary skills then I don’t believe the company goes far. I think you get power struggles, a lack of communication and a lack of vision, which causes real issues. If you’re not on the same page, it’s not healthy for either of the two people involved or any of the team.’

Core duties

Before the recession flared up, the CFO of an ambitious company would be assisting with suitable acquisitions and discussing ways to raise finance. NetworkersMSB’s Plassard recalls that when the company acquired MSB three years ago, it took a mere fortnight to arrange a £16 million loan with the bank. ‘I very much doubt you could do that now,’ he says.

The attention of CFOs has naturally turned more to monitoring the health of the balance sheet. Haygarth’s Clark says, ‘The day-to-day is much more about forecasting, reforecasting and having a flexible model to be able to continually update and project forward to 2012,’ he says. ‘We have peaks and troughs in our cash flow, so while cash is excellent at the moment, we know it will probably tail off a little bit at certain points next year. It’s important to ensure we have that headroom going forward.’

Plassard observes that cash flow has always been a priority, but inevitably that’s been intensified in the heat of the recession. ‘It’s a case of making sure you manage your costs and are in a solid enough position to exploit the opportunities that arise when the market improves. If you cut too much, you’ll end up trailing your competitors when you come out the other side.’

Loewy’s Wilsher states that ‘if you haven’t been focusing on cash flow and chasing debtors in the past then you haven’t been performing your FD role’, noting that changing circumstances may create the odd awkward conversation with a landlord, supplier or the HMRC, but essentially during a recession ‘the role doesn’t change one jot’.

He explains, ‘Good business practice should remain in place. Obviously, you’re under increased pressure and a slip can be more dangerous in that situation. You need a heightened awareness of debtor collection, but I think I’ve always been aware of that in any event,’ he says.

As for dealing with banks, the message appears to be that relationships are fine, provided the finances are in order. At NetworkersMSB, which has an annual revenue of £160 million, Plassard says, ‘Our bank likes us because we generate a lot of cash and have paid down most of the debt [we took on for the acquisition].’

Haygarth’s Clark comments, ‘The relationship with the bank has been pretty good. That, for me, is key and it’s been solid for four years. While it has been tempting to shop around and get better deals for corporate deposits and other alternatives, I think sticking to what you know and maintaining that relationship now is vital.’

High standards

If the CFO is supposed to concentrate on the commercial interests of a business then the influx of new and amended accounting standards, directors’ liabilities and regulatory brouhaha seem specially designed to bind a person to the office. For Clark, it’s one of the reasons he decided to work with privately owned companies after finishing his training with a Big Four accountancy firm.

‘I enjoy the entrepreneurial spirit within private businesses. You can get your hands dirty as opposed to getting bogged down in accountancy standards and too much reporting,’ says Clark.

There’s definitely a split between the CFOs of private and public companies when it comes to weighing up the burden of regulation. At Loewy, which has a revenue of £35 million a year and received £16 million of private equity backing in 2007, Wilsher sees little purpose in bemoaning red tape. ‘It’s no different now to how it has always been. You can rail against administration but I can’t remember a time when you sat around and thought: more regulations, that’s good.’

For Bach at fully listed Kewill, which has an annual revenue of £53.3 million and a market cap of £80 million, the introduction of IFRS is ‘about jobs for the boys’. In other words, more work for companies and higher fees for auditors. She explains, ‘I can understand the goal of having everyone reporting to the same standards, and I agree with the need to compare like with like. However, I think IFRS has been defined by a bunch of accountants who have never had to be the CFO or controller of a real-life organisation.’

She refers to IFRS 3 – Business Combinations, which is applied when making an acquisition, as an example of a standard where subjectivity can make a massive difference to the final figure. ‘IFRS can be so theoretical that it almost becomes irrelevant. When I was at IX Europe, we listed and switched to IFRS and our accounts went from something like 50 to 80 pages,’ she says. ‘Do shareholders really understand IFRS 3 or IFRS 2 – Share-Based Payment? All they’ll see is a £5 million charge for amortisation going through the books.’

Plassard is less splenetic, although he acknowledges that ‘regulation is becoming more burdensome’. He says: ‘I have a good team around me, so I don’t necessarily immerse myself in the technical side particularly, although I have a hand on that too. There are other chartered accountants in the business – some are focused more on the technical side as opposed to the strategic. IFRS is of course a pain, but it is to some extent a necessary pain – my team and I have a good understanding of it and it’s just something we have to get on with.’

Results driven

The dilemma for a CFO is how to switch from being obsessive about cash flow to going on the offensive as the economy improves. Loewy CEO Johnston says, ‘It’s easy to lose sight of the fact, whether you’re in a recession or boom time, that’s it’s just as important for directors to invest in the right things for the business. The fact is that recessions are a great time for developing your people and your brands, often because no-one else is doing it.’

That’s the type of tough talking many CFOs will be hearing from CEOs across the UK at the moment. So those performing this role can expect greater pressure as they try to find a sensible medium between security and growth in 2010. As Bach puts it: ‘There was a time when a financial director would just be focused on controls, but I think that’s gone. You do need that, but you get a huge amount of value from someone who questions operations and thinks strategically.’

See also: Chief Future-proofing Officer – the evolving role of the CFO