The Finance Gem 💎 Week #23 - CEOs, CFOs, and COOs

Welcome to this week's edition of The Finance Gem 💎 where I bring you unabbreviated Linkedin insights you loved - so you can save them, and those you missed - so you can enjoy them.

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• COO vs. CFO

• 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐢𝐧𝐠 VS. 𝐅𝐢𝐧𝐚𝐧𝐜𝐞

• The CEO Checklist

• Operating Leverage vs. Financial Leverage

These two critical C-Suite roles have essential responsibilities in steering a company's strategic direction and operational success.

However, many companies have these roles comingled as CFO/COO, which can be confusing.

And several others struggle to delineate responsibilities between the COO and CFO roles.

Here’s how to think about them:

🎯 The CFO focuses on managing and strategizing the company's financial health and growth.

🎯 The COO focuses on managing and strategizing the company's operational efficiency and effectiveness.

🎯 Together they focus on balancing financial planning and operational execution to help the organization achieve its strategic objectives

The COO:

- Primarily oversees the organization's day-to-day operations

- Although involved in financial strategies and decisions, focuses mostly on managing only those financial aspects strictly related to operations

- Focuses on how money is spent in the execution of day-to-day operations and works to optimize those expenditures for efficiency and effectiveness

- Typically the second/third-in-command after the CEO and/or CFO depending on organization

- Plays a critical role in ensuring the efficient and effective allocation of resources to enable the organizational strategic objectives

- Mostly internal-facing role focused on operations, production, and departmental performance

CFO:

- Responsible for managing the company's financial strategy

- Broader financial scope than COO, oversees overall financial planning, risk management, record-keeping, financial reporting, and financial data analysis

- Despite operations involvement, main focus is the financial health and fiscal strategy of the company

- Responsible for analyzing the company's financial strengths and weaknesses and implementing effective corrective actions

- Plays a critical role in aligning strategic organizational objectives with financial strategy

- Often external-facing, interfacing with investors, lenders, and other third party stakeholders

Because Finance is NOT Accounting.

Here are the best 50 posts from myself and other top ranking Linkedin Finance and Accounting Content Creators curated for you.

Accounting

1. The Intro to Accounting - https://lnkd.in/ebfeTYYE

2. The Accounting fundamentals - https://lnkd.in/eRfEEFuq

3. The Accounting KPIs - https://lnkd.in/e4R65yAg

4. The Debits & Credits - https://lnkd.in/eyDqv-E8

5. The Accounting Equation https://lnkd.in/efU6sYKm

6. The Cash vs Accrual difference - https://lnkd.in/ePfkkTXq

7. The 10 Accounting basics https://lnkd.in/exhm87KT

8. The 13 Accounting Principles https://lnkd.in/ehdZEKFJ

9. The Accountant Checklist https://lnkd.in/eGXrUphJ

10. The Accounting Cheat Sheet https://lnkd.in/eakRYYdC

11. The Accounting Fact Sheet - https://lnkd.in/eM56h6gq

12. The Chart of Accounts - https://lnkd.in/d5edWWnu

13. The 3 Financial Statements - https://bit.ly/3m0PGvO

14. The Profit and Loss - https://bit.ly/3m0wLRL

15. The Sections of the Balance Sheet - https://bit.ly/3Uag6I3

16. How to balance the balance sheet - https://bit.ly/3MaQQ2z

17. The Statement of Cash Flows - https://bit.ly/3nD9QfU

18. The CAPEX KPIs https://lnkd.in/eRAqR3Ri

19. The Budget vs Actuals analysis - https://lnkd.in/dGH63FWa

20. The Management Dashboard - https://lnkd.in/dnFP2kA7

Finance

1. The Difference between Finance and Accounting - https://lnkd.in/e2_fnG3r

2. The Move from Accounting to Finance - https://lnkd.in/eR3nKzAm

3. The Basics of Finance - https://lnkd.in/euEtGwaB

4. The Finance career paths https://lnkd.in/esw4ubJF

5. The way Finance is organized https://lnkd.in/eHQpMi98

6. The Ten Drivers of shareholder value - https://bit.ly/40x3rRO

7. The 3 Main Cash Flow Drivers - https://lnkd.in/eqy9JNvN

8. The Financial Analysis Scorecard - https://lnkd.in/exTU7ha8

9. The 20 Management Analysis Tools - https://lnkd.in/eiw_XD3v

10. The steps to build a 3 statement model - https://lnkd.in/dD2q5vCT

11. The Cash Inflows and Outflows - https://lnkd.in/e4TcWvRw

12. The Cash Flow Statement: Direct or Indirect - https://lnkd.in/e-NBhUG4

13. The method to forecast cash flows - https://lnkd.in/diUpCgfU

14. The Cash Conversion Cycle: https://lnkd.in/eWZgYGBQ

15. The 5 Steps to manage your cash flow: https://lnkd.in/eXckPBqb

16. The 5 Types of Cash Flow and how to use them: https://tinyurl.com/3bkc3px2

17. The difference between EBITDA and Cash Flow: https://tinyurl.com/bjndbxnd

18. The 5 EBITDA Ratios to Know: https://tinyurl.com/47zva4rk

19. The 5 Alternatives to EBITDA to Know: https://tinyurl.com/5n8jrp4y

20. The CEO KPIs dashboard - https://lnkd.in/dD5jnfmd

It’s hard being a CEO.

Every decision impacts financial health, employee morale, and stakeholder satisfaction.

To succeed, you’ll need a good CFO.

And you’ll need to Master Strategic Management.

Here are 15 key areas that a CEO should focus on, to help you track your learning, your progress or your performance:

1. Vision and Strategy Development: map the company’s future, ensure alignment with strategic vision, and develop long-term goals and strategies to overcome challenges.

2. Leadership and Organizational Culture: create a positive and productive organizational culture, leading by example to inspire teams and uphold company values.

3. Financial Management: oversee the company's financial health

4. Corporate Governance: work with the board of directors to ensure adherence to the highest standards of governance, ethical conduct, and regulatory compliance

5. Risk Management: identify potential risks to the company and ensure it has systems in place to mitigate them

6. Operational Efficiency: streamline operations, improve productivity, and promote innovation

7. Talent Management: hire and develop key executives, ensuring the right people are in the right roles to effectively drive the strategic plan

8. Customer Focus: foster a customer-centric approach across all department, to understand and meet customer needs

9. Investor Relations: maintain strong relationships with investors, shareholders, and financial analysts to secure capital, support growth, and maintain market confidence

10. Brand Reputation and Image: act as the face of the company, and ensure their actions reflect positively on the brand

11. Innovation and Technology: foster a culture of innovation to gain and retain competitive advantages

12. Sustainability and Corporate Social Responsibility: balance the drive for profit with the need for ethical and sustainable operations

13. Stakeholder Management: manage relationships with various stakeholders, including employees, customers, suppliers, local communities, and regulatory bodies.

14. Mergers and Acquisitions: evaluate opportunities for growth via mergers, acquisitions, partnerships, or joint ventures, and oversee their successful execution.

15. Business Continuity and Succession Planning: develop and implement a comprehensive business continuity plan, to ensure operations continue during a crisis as well as after they change positions and are no longer CEOs.

Download a PDF copy of this checklist below.

You have 2 main Controls to improve Business Profitability and avoid Distress.

Many companies use them jointly to compound profitability and growth, but they can be as deadly as they are attractive.

Do you know what they are?

𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗟𝗲𝘃𝗲𝗿𝗮𝗴𝗲 𝗮𝗻𝗱 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗟𝗲𝘃𝗲𝗿𝗮𝗴𝗲.

They have the power to amplify the company's earnings in both directions.

🎯 Modest increases in revenue can greatly enhance earnings.

🎯 Modest drops in sales can trigger dramatic losses.

1️⃣ 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗹𝗲𝘃𝗲𝗿𝗮𝗴𝗲 𝗶𝘀 𝗽𝗿𝗼𝗱𝘂𝗰𝗲𝗱 𝘁𝗵𝗿𝗼𝘂𝗴𝗵 𝘁𝗵𝗲 𝘂𝘀𝗲 𝗼𝗳 𝗳𝗶𝘅𝗲𝗱 𝗼𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗲𝘅𝗽𝗲𝗻𝘀𝗲𝘀 (𝘀𝘂𝗰𝗵 𝗮𝘀 𝗿𝗲𝗻𝘁 𝗼𝗿 𝗱𝗲𝗽𝗿𝗲𝗰𝗶𝗮𝘁𝗶𝗼𝗻).

🎯 High fixed costs >> High Operating Leverage >> Low variable costs >> High Gross Margins

🎯 The more fixed costs your company has, the more sales it needs to generate to cover them, which introduces significant risk in the business.

🎯 However, after you've covered fixed costs for the period, each new dollar of sales net of variable costs trickles straight into profit.

🎯 For operating leverage to be beneficial, your company must be operating above its breakeven point (sales - variable costs > fixed costs)

2️⃣ 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗹𝗲𝘃𝗲𝗿𝗮𝗴𝗲 𝗶𝘀 𝗽𝗿𝗼𝗱𝘂𝗰𝗲𝗱 𝘁𝗵𝗿𝗼𝘂𝗴𝗵 𝘁𝗵𝗲 𝘂𝘀𝗲 𝗼𝗳 𝗯𝗼𝗿𝗿𝗼𝘄𝗲𝗱 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝘄𝗵𝗶𝗰𝗵 𝗴𝗲𝗻𝗲𝗿𝗮𝘁𝗲𝘀 𝗳𝗶𝘅𝗲𝗱 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗰𝗼𝘀𝘁𝘀 (𝘀𝘂𝗰𝗵 𝗮𝘀 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗲𝘅𝗽𝗲𝗻𝘀𝗲).

🎯 Financial leverage picks up where operating leverage leaves off.

🎯 The higher the leverage, the higher your potential benefits (tax deductibility, lower overall cost of capital, higher potential shareholder value created) and potential risks (bankruptcy, financial distress, decreased valuation).

🎯 Financial Leverage is typically measured with the use of leverage ratios like Debt to Equity, Debt to Assets, or Debt to EBITDA.

🎯 For financial leverage to be beneficial, your return on assets must exceed the interest rate on your debt.

𝐓𝐨𝐠𝐞𝐭𝐡𝐞𝐫, 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐋𝐞𝐯𝐞𝐫𝐚𝐠𝐞 𝐚𝐧𝐝 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐋𝐞𝐯𝐞𝐫𝐚𝐠𝐞 𝐦𝐚𝐤𝐞 𝐮𝐩 𝐭𝐡𝐞 𝐃𝐞𝐠𝐫𝐞𝐞 𝐨𝐟 𝐓𝐨𝐭𝐚𝐥 𝐋𝐞𝐯𝐞𝐫𝐚𝐠𝐞.

🎯 During periods of economic slowdown, a high degree of leverage can greatly increase business risk and the probability of financial distress.

🎯 Consider:

☑️paying down debt or refinancing to reduce fixed payment obligations

☑️temporarily switching fixed expenditures to variable as appropriate for your business

Read a version of this post published by The Corporate Finance Institute.

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Thanks so much for reading. See you next week.

Oana