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- The Finance Gem ๐ Week #23 - CEOs, CFOs, and COOs
The Finance Gem ๐ Week #23 - CEOs, CFOs, and COOs
Welcome to this week's edition of The Finance Gem ๐ 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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Now letโs move on to this week's top strategic finance insights:
COO vs. CFO
๐๐๐๐จ๐ฎ๐ง๐ญ๐ข๐ง๐ VS. ๐ ๐ข๐ง๐๐ง๐๐
The CEO Checklist
Operating Leverage vs. Financial Leverage
Do you want full size, print-ready PDFs of my strategic finance infographics and cheat sheets for your personal use? Visit my store and find your favorites!
COO vs. CFO
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.
Hereโs how to think about them:
๐ฏ The CFO focuses on managing and strategizing the company's financial health and growth.
๐ฏ The COO focuses on managing and strategizing the company's operational efficiency and effectiveness.
๐ฏ 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
๐๐๐๐จ๐ฎ๐ง๐ญ๐ข๐ง๐ VS. ๐ ๐ข๐ง๐๐ง๐๐
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
The CEO Checklist
Itโs hard being a CEO.
Every decision impacts financial health, employee morale, and stakeholder satisfaction.
To succeed, youโll need a good CFO.
And youโll 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 companyโs 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.
Operating Leverage vs. Financial Leverage
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?
๐ข๐ฝ๐ฒ๐ฟ๐ฎ๐๐ถ๐ป๐ด ๐๐ฒ๐๐ฒ๐ฟ๐ฎ๐ด๐ฒ ๐ฎ๐ป๐ฑ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐๐ฒ๐๐ฒ๐ฟ๐ฎ๐ด๐ฒ.
They have the power to amplify the company's earnings in both directions.
๐ฏ Modest increases in revenue can greatly enhance earnings.
๐ฏ Modest drops in sales can trigger dramatic losses.
1๏ธโฃ ๐ข๐ฝ๐ฒ๐ฟ๐ฎ๐๐ถ๐ป๐ด ๐น๐ฒ๐๐ฒ๐ฟ๐ฎ๐ด๐ฒ ๐ถ๐ ๐ฝ๐ฟ๐ผ๐ฑ๐๐ฐ๐ฒ๐ฑ ๐๐ต๐ฟ๐ผ๐๐ด๐ต ๐๐ต๐ฒ ๐๐๐ฒ ๐ผ๐ณ ๐ณ๐ถ๐ ๐ฒ๐ฑ ๐ผ๐ฝ๐ฒ๐ฟ๐ฎ๐๐ถ๐ป๐ด ๐ฒ๐ ๐ฝ๐ฒ๐ป๐๐ฒ๐ (๐๐๐ฐ๐ต ๐ฎ๐ ๐ฟ๐ฒ๐ป๐ ๐ผ๐ฟ ๐ฑ๐ฒ๐ฝ๐ฟ๐ฒ๐ฐ๐ถ๐ฎ๐๐ถ๐ผ๐ป).
๐ฏ High fixed costs >> High Operating Leverage >> Low variable costs >> High Gross Margins
๐ฏ The more fixed costs your company has, the more sales it needs to generate to cover them, which introduces significant risk in the business.
๐ฏ However, after you've covered fixed costs for the period, each new dollar of sales net of variable costs trickles straight into profit.
๐ฏ For operating leverage to be beneficial, your company must be operating above its breakeven point (sales - variable costs > fixed costs)
2๏ธโฃ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐น๐ฒ๐๐ฒ๐ฟ๐ฎ๐ด๐ฒ ๐ถ๐ ๐ฝ๐ฟ๐ผ๐ฑ๐๐ฐ๐ฒ๐ฑ ๐๐ต๐ฟ๐ผ๐๐ด๐ต ๐๐ต๐ฒ ๐๐๐ฒ ๐ผ๐ณ ๐ฏ๐ผ๐ฟ๐ฟ๐ผ๐๐ฒ๐ฑ ๐ฐ๐ฎ๐ฝ๐ถ๐๐ฎ๐น ๐๐ต๐ถ๐ฐ๐ต ๐ด๐ฒ๐ป๐ฒ๐ฟ๐ฎ๐๐ฒ๐ ๐ณ๐ถ๐ ๐ฒ๐ฑ ๐ณ๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐ฐ๐ผ๐๐๐ (๐๐๐ฐ๐ต ๐ฎ๐ ๐ถ๐ป๐๐ฒ๐ฟ๐ฒ๐๐ ๐ฒ๐ ๐ฝ๐ฒ๐ป๐๐ฒ).
๐ฏ Financial leverage picks up where operating leverage leaves off.
๐ฏ 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).
๐ฏ Financial Leverage is typically measured with the use of leverage ratios like Debt to Equity, Debt to Assets, or Debt to EBITDA.
๐ฏ For financial leverage to be beneficial, your return on assets must exceed the interest rate on your debt.
๐๐จ๐ ๐๐ญ๐ก๐๐ซ, ๐๐ฉ๐๐ซ๐๐ญ๐ข๐ง๐ ๐๐๐ฏ๐๐ซ๐๐ ๐ ๐๐ง๐ ๐ ๐ข๐ง๐๐ง๐๐ข๐๐ฅ ๐๐๐ฏ๐๐ซ๐๐ ๐ ๐ฆ๐๐ค๐ ๐ฎ๐ฉ ๐ญ๐ก๐ ๐๐๐ ๐ซ๐๐ ๐จ๐ ๐๐จ๐ญ๐๐ฅ ๐๐๐ฏ๐๐ซ๐๐ ๐.
๐ฏ During periods of economic slowdown, a high degree of leverage can greatly increase business risk and the probability of financial distress.
๐ฏ Consider:
โ๏ธpaying down debt or refinancing to reduce fixed payment obligations
โ๏ธtemporarily switching fixed expenditures to variable as appropriate for your business
When you need help making better strategic finance decisions, here are 3 ways I can help you:
Upgrade your (or your teamโs) strategic finance skills with The Cash Flow Masterclass. Leverage my unique on-demand video course to improve your knowledge, elevate your decision making and accelerate your career.
Enjoy full size, print-ready PDFs of my strategic finance infographics and cheat sheets for your personal use. Buy here.
Apply to sponsor a future issue of The Finance Gem.
Thanks so much for reading. See you next week.
Oana