Allocating capital is an important role for CFOs and that includes making decisions around inflection points. Invest in R&D or add employees; pay down debt or buy back shares; secure new funding or maintain the status quo.
A key driver is alignment – aligning the financial resources to enable the business. First and foremost there needs to be a defined business strategy that includes a realistic assessment of the market potential, the competition and the company’s competitive advantage. As to the role of the CFO, think of it as Chief Fact Officer to ensure you bring an honest, intellectual understanding of what’s driving the business.
Equally important is to ensure the business model is in alignment with the expectation of investors. There are businesses that are more focused on market saturation and others that rely on a revenue plan. Both models can work, but there are different trade-offs and it is critical that investors understand that path that has been chosen.
It’s also important to have a model that connects financial projections with operational considerations such as engineering capacity, manufacturing lead times and sales expectations.
In sum, smart growth is a combination of defining and aligning business and financial metrics.
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