The Finance Gem 💎 #80

1. This issue’s Finance Gems 💎 vote your favorite at the end of the newsletter.

• Strategic vs. Operational Finance

• CAPEX vs. OPEX Strategy

• Drive Profitability with Break-Even Analysis

2. If you’re a CEO or CXO looking to improve their financial acumen to drive better business decisions, please fill out this form to help me tailor the best program for you.

3. AFP 2025 will take place in Boston in October 2025. AFP already opened the call for proposals and I’d love to return for a 3rd consecutive year. If you have ideas for topics or would like to present together, reply to this email and let me know.

4. The overwhelming majority of Finance Gem readers that responded to the poll so far indicated their DISC style is Dominant. Take a free DISC assessment and share your own profile below.

   Knowing your DISC profile can be critical for the success of your working (and personal) communication. It will greatly improve your ability to deliver results, helping you compound your impact and accelerate your career.

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1. Strategic vs. Operational Finance

The Most Valuable Finance Skill in 2025 Isn’t Budgeting—It’s Strategic Financial Planning

Why? Because, as the saying goes, “He who fails to plan, plans to fail.”

And nowhere is this more true than in the divide between strategic finance and operational finance.

Understanding the Difference: Strategic vs. Operational Finance

1. Strategic Finance: Future-Focused

   • Strategic finance isn’t about the day-to-day; it’s about the big picture.

   • It involves setting the course for growth through M&A strategies, intelligent capital allocation, long-term forecasting, and building a roadmap for the next 3, 5, or even 10 years.

   • It answers critical questions like:

     • Where should we invest to maximize long-term returns?

     • How can we position ourselves for sustainable growth in an evolving market?

2. Operational Finance: Present-Focused

   • Operational finance ensures the lights stay on.

   • It’s all about managing current cash flow, ensuring budgets are adhered to, and producing timely financial reports.

   • While vital, operational finance is reactive by nature—focused on immediate needs rather than long-term objectives.

The Problem: Imbalance is Dangerous

Most businesses get stuck in operational finance. They’re so focused on managing today’s cash flow and meeting short-term targets that they lose sight of the bigger picture.

Without a strategic financial plan:

• You’re only reacting to problems instead of preventing them.

• You miss opportunities to secure future growth.

• You risk stagnation because you don’t have a roadmap for scaling the business.

Think of it this way: operational finance keeps your boat afloat, but strategic finance determines where that boat is going. Without a map, you’re just drifting.

The Solution: Balance Both—With a Bias Toward Strategy

To build a resilient and growth-oriented business, you need both operational and strategic finance. But strategic finance must lead the way.

Here’s how to make it happen:

• Get the right expertise at the table. A strong CFO or strategic financial advisor can bridge the gap between the present and the future, ensuring day-to-day operations support long-term objectives.

• Focus on growth-oriented financial planning. This means thinking beyond quarterly earnings. Prioritize investments that will drive innovation, scalability, and market leadership.

• Stop putting out today’s fires. Build a financial plan that doesn’t just react to immediate needs but creates opportunities for tomorrow.

Why This Matters in 2025

The business landscape is evolving faster than ever. Companies that fail to plan will struggle to adapt to new market dynamics, rising competition, and unforeseen challenges.

Strategic financial planning is the difference between:

• Struggling with short term strategies to survive today, and...

• Thriving tomorrow with a clear, intentional path to growth, improved profitability and a much stronger valuation.

Remember: Operational finance keeps you afloat, but strategic finance ensures you’re heading in the right direction.

Let’s see where your organization stands.

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2. CAPEX vs. OPEX Strategy

It’s always astonishing to see how many companies pour millions into growth yet fall into a common and costly trap: confusing CapEx with OpEx.

This doesn’t just muddle your books—it can lead to cash flow problems, tax headaches, and long-term financial strain.

Let’s break it down so you can get it right.

The Key Differences

➡️ CapEx (Capital Expenditures)

Funds spent to acquire or upgrade long-term assets like buildings, equipment, or technology. Think of CapEx as an investment in future growth.

Impacts on Financial Ratios:

↳ Lowers Return on Assets (RoA) temporarily as assets increase.

↳ Increases leverage when financed with debt.

↳ Reduces EBIT based debt coverage ratios due to lower reported earnings.

➡️ OpEx (Operating Expenditures)

↳ Day-to-day costs like salaries, rent, utilities, and maintenance—expenses that keep the business running. Think of OpEx as the cost of maintaining operations.

Impacts on Financial Ratios:

↳ Directly affects Operating Margin and EBITDA.

↳ High OpEx relative to revenue can signal inefficiency unless costs drive proportional growth.

Strategic Approaches for CapEx and OpEx

CapEx Strategy:

↳ Assess investments using capital budgeting techniques like NPV (Net Present Value) or IRR (Internal Rate of Return).

↳ Ensure Operating Cash Flow can support CapEx, or arrange financing to avoid liquidity strain.

↳ Monitor ratios like RoA and leverage to ensure resources aren’t overstretched.

OpEx Strategy:

↳ Optimize OpEx to balance profitability and growth.

↳ Clearly distinguish between maintenance (OpEx) and improvement (CapEx) to avoid misclassification and tax surprises.

↳ Monitor OpEx trends to avoid unnecessary cost-cutting that could jeopardize long-term success.

Quick Reality Check - Ask yourself:

1️⃣ Are you capitalizing short-term expenses as CapEx to artificially boost earnings?

2️⃣ Do you have a solid plan for financing CapEx without straining cash flow?

3️⃣ Is your OpEx driving revenue growth—or just increasing overhead?

3. Driving profitability with break-even analysis

Most business leaders think breaking even is about covering costs. It’s not.

Breaking even is all about profit targets. It’s your starting block, not your finish line. So if you’re not using this analysis effectively to plan your growth, you’re not playing to win—you’re playing not to lose.

Here are 10 things you need to know about breaking even:

1️⃣ What Is Breaking Even? It’s when revenue equals total expenses.

But the real goal isn’t just to break even; it’s to understand what you need to achieve your target profit levels.

2️⃣ Setting Profit Targets: Break-even analysis isn’t just about hitting zero.

By adding desired profit to fixed costs, you can calculate the sales volumes needed to reach your profit goals.

3️⃣ Units or Dollars: Break-even can be calculated in units or revenue dollars.

This helps you see what it takes to cover costs and achieve profit targets.

4️⃣ Break-Even Formulas

Units: Break-even (units) = (Fixed cost + Target profit) / CM per unit

Dollars: Break-even (dollars) = (Fixed cost + Target profit) / CM ratio

5️⃣ Contribution Margin: It’s the incremental profit on each sale, helping you see how many units or how much revenue you need to hit profit targets.

Per Unit: CM per unit = Selling price – Variable cost

Ratio: CM ratio = CM / Sales Price

6️⃣ Round Up for Accuracy: Always round up to the next full unit or dollar. You can’t break even on a partial sale.

7️⃣ Understanding Costs: There are fixed and variable costs:

Fixed costs don’t change with sales volume.

Variable costs adjust as business activity changes.

Step costs are fixed up to a certain threshold, then shift.

8️⃣ Internal Analysis Only: Break-even analysis isn’t found in external financials. It’s a management tool to guide strategic decisions and target profits.

9️⃣ Integrating Target Profits: To plan effectively, include your profit goals in your break-even analysis. This way, your break-even point becomes the roadmap to achieving your strategic business objectives

🔟 Here’s how you use break-even strategically:

↳ Set Product Strategy: Evaluate if a product’s profit potential justifies its place in your lineup.

↳ Price Products: Determine what price covers costs and meets profit targets. Plan Market Strategy:

↳ Decide if you can sell profitably in specific markets.

Remember: In business, the magic happens when you move past short term thinking and start strategizing for success.

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How to take your business to the next level

Today’s CEOs need intelligent strategic financial plans to achieve their goals, and real-time reports, analytics and dashboards to act quickly on risks and opportunities. Financiario elevates controllers and enables CFOs so they can become true strategic business partners. We bring institutional level financial intelligence to your finance team, empowering midmarket organizations to scale effortlessly to the next level.

Transform your organization with intelligent CFO forecasts and BI dashboards, dynamic financial reports, flexible scenarios, and best-in-class presentations. Multi-currency, multi-company, any accounting software.

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