How To Become Your Own CFO

Thursday, June 19, 2014

If you’re feeling it’s time to get serious about your finances, there are few more serious role models in the world of money than Chief Financial Officers.

These maestros of all things coin are the ones who carefully steer big companies away from hazardous economic shores by plotting their financial routes with prudence, always keeping an eagle-eye on the swells and dips of their journeys across rocky fiscal seas.

They’re (usually) exemplary financial role-models, and, though taking a leaf out of a CFO’s book to run your humble home may seem a little extreme, it’s actually a pretty savvy economic decision.

While you may not be dealing with hundreds of employees and millions of dollars, the processes and planning tools utilised by CFOs can be just as effective on a smaller scale.


You need a financial plan

Every CFO has a financial plan because they know well the old adage: If you fail to plan, you plan to fail.

Creating a financial plan for your personal circumstances is key to bringing clarity to your financial situation. The aim of such a plan is to create a document outlining your financial goals (ie. to reduce your debt or to save for a home deposit) and the steps you’ll need to get there.

To do this, you’ll need a clear and honest picture of your current financial situation, which, for a CFO, requires creating a cash flow statement ('operations' expenditures, investment and loan incomings and outgoings), an income statement (which outlines your expenses and revenues, your 'profit and losses') and a balance sheet (a summary of your assets and liabilities).

Don’t worry if this sounds complex. If you’ve got a spreadsheet program like Microsoft Excel or Google Docs, there are plenty of free templates you can download that will show you what data you need. All you’ll need to do is plug in the relevant figures and, at the end of the exercise, you’ll have a very clear – and very accurate – idea as to where your finances are heading, and what your capabilities are.


You need to set goals

Setting financial goals is an art in itself, and one that effective CFOs excel at because it’s what their entire job revolves around. Their business (in this case, you) sets goals, and the CFO makes them happen financially; by making sacrifices, by finding savings, by simply telling their business counterparts that, while the goal is achievable, the time in which they can expect to achieve it is perhaps a little unrealistic. In short, they think only about finances, and are often given some quite lofty goals.

Which mightn't be too disimilar from what you're looking to do with your finances, so while it's healthy to let your inner CFO be the voice of positive financial thinking, it's in a CFO's nature and effectiveness to also raise issues of rationality and reason.

So, to address goals like a CFO you must first have some. Make a list like the one below, and set a series of future 'life goasl' with an approximate financial value attached to each.

For example:

  1. I want to reduce my mortgage by $20,000
  2. I want to go on a holiday ($5000)
  3. I want to buy a motorbike ($3500)
  4. I want to save $500 a month


Once you have established your financial goals, you’ll need to plug these figures into your cash flow model (the combined excel template solution you settled on) and see if and how you may be able to achieve these goals.


Other considerations your inner CFO should address

Taxes: Any CFO will take a good, hard look at their tax return. Have you looked closely at yours any time recently? Are you paying too much tax? Perhaps you are not paying enough? Especially if you work from home at all, there are probably many deductions you’re entitled to but currently aren’t taking advantage of, so speak with your accountant or contact the Australian Tax Office for help and advice.

Mortgage: If you’ve had your mortgage for a while, it may be time to revisit it. No CFO would go a single financial year without re-assessing their big financial projects and, given that your mortgage is likely to be the biggest drain on your income, it is well worth investing some effort in speaking with your lender about a better deal – or, perhaps, it’s time to start looking for a new one.

Debt: If you have too much debt, you should consider consolidating or restructuring it. There are many debt restructuring programs available and plenty of low-interest balance transfers to be had. The process basically involves substituting expensive debt with cheaper alternatives – and it could save you thousands, which is something CFOs adore!