I recently met with a Managing Director who’s long-serving Finance Director is retiring. The 90-minute discussion went well beyond balancing the books and reporting.
It mirrored what I’ve witnessed across building products and construction over the past two years. Finance leadership headhunts have become the briefs I’m asked about most, and two of my most successful appointments came from FMCG and automotive. Neither had worked in our industry.
From what I’ve experienced, here’s what the businesses getting this right are assessing:
Communication & Influence
For many years when attended a briefing for a new role with a board, the Finance Director was frequently the one person who would sit quietly in the corner, looking disinterested. Their only contribution came at the end, when fees were discussed (sound familiar?)
Okay, I’m generalising here, but the FD was often the least popular amongst the leadership team. He or she was also one of the most valuable.
That stigma has left the function.
As important as other directors are to any organisation, especially within SME settings, the finance leader is increasingly being asked to be the righthand person to the Managing Director.
They must be able to convey and debate figures to non-finance leaders. Not so much as the oracle of the business, but by providing factual, objective viewpoints.
Any valuable finance leader must have a strong understanding of the product or service sold and the economic levers that are affecting the business.
In fact, Grant Thornton placed this as their top attribute of any finance leader in their white paper, What makes an outstanding Finance Director?
Cash, working capital and resilience
Not on its own a new thing, but increasingly important within today’s environment.
Building product manufacturers, distributors and construction businesses are having margins squeezed from all angles, not least from the volatility associated with raw material costs, freight, and energy.
Earlier this year I managed a Finance Director role where the above was central. And for good reason. The manufacturer had lost complete control of stock analysis. The monthly reporting was at least 8% out for the past 12 months and some £10m askew. Margins were tight and working capital was all over the place. Sales teams were left to sign off payment terms, based solely on their intuition under loose guidelines.
Within six months, the new FD had grasped where the key issues were, built processes and systems (using their existing ERP) and was in the throes of training associated members of staff.
Margin, pricing models and product profitability
The traditional FD owned overall company profitability. In an SME, I’m seeing the role stretch into quasi-Commercial Director: challenging at product range, route to market and customer level.
Two years ago, I worked with a market leader, part of a €1.5bn group, where price rises were set by the Sales Director from what customers said competitors were doing, then jotted on the back of an envelope.
A year after the new FD joined, through partnering with commercial and operations, EBITDA growth was up 6% with no material loss of customers or orders, while industry production costs rose 12%.
Operational guidance
Historically, there’s often been a clash between operations and finance.
In today’s world, any Finance Director in the industry needs to walk the factory floor.
Many Operations Directors stem from engineering. By nature, they want to ensure the business is well equipped with updated machinery. The finance lead needs to own the effect of downtime versus upgrades. Before all of that they must own standard costing, yield and waste costs, along with labour utilisation. An Operations Director will calculate this. The FD needs to manage it.
Data
This has been the key requirement of every Finance Director brief that I’ve taken over the past two years.
Although other directors will have input and management for areas within systems, the finance lead is increasingly expected to take ownership of it.
Whether this be evaluating ERP vendors, reviewing processes used by teams within existing systems, or working in isolation to gather the data required, the director who can demonstrate how they have modernised and made sense of data capture invariably wins.
Whether your company is a standalone SME, or part of a larger group, systems now run throughout the whole of business, from raw material through to the product out of the factory.
Furthermore, accurate and timely reporting has always been a prerequisite. As the industry consolidates, with more SMEs being acquired by larger manufacturers or private equity, this area has been put into the spotlight.
Established finance leaders sometimes haven’t had to build this. A building materials manufacturer acquired by a European leader six years earlier was still largely paper-based. When its FD retired, the replacement came from FMCG, where data across thousands of SKUs, customers and price points is routine.
Within 12 months he had integrated the new ERP, trained key staff and transformed the board updates to the parent company.
Another SME, in the red, had made do with a Finance Manager for over five years. The replacement came from automotive and he firstly had to work out what data was being captured, then built it into monthly reporting for a head office abroad. Six months on, this person has got reporting deadlines back on track to the Group CFO, and problem areas identified with plans in place.
If you’re replacing a long-serving Finance Director or wondering whether the existing incumbent is the one to take you through the next five years, I’m always happy to share my experiences and viewpoint. A conversation costs nothing. A poorly matched hire can cost a year or more – 07570 740490
