The CEO Must Know Financial Numbers to Chart a Company’s Future

The role of a CEO includes closing deals, matching new products to customers, evaluating financial numbers and seeking out innovative ways to make customers and shareholders happy. These are all legitimate tasks expected of a CEO, but executive managers must also watch the numbers.

Business consultants tell us that most CEOs don’t have a strong background in finances. Good CEOs have an unerring radar to see opportunities, read markets, both global and local, and determine the needs of customers. As a rule, most CEOs leave the bean counting to CFOs, accountants and controllers. However, ignoring the numbers’ side of a business could result in serious consequences to a company’s bottom line.

A smart CEO will learn about and know what the numbers mean when the financial books are opened.

“In and of themselves, numbers don’t make success,” said Glenn Waring, the head of Vistage Community. “But the failure to understand the numbers and what’s happening to them can kill your company, no matter how good your product or service,” he added. Vistage provides consultancy services to CEOs to better develop high-level management of companies.

The CEO’s proper role in financial management can be broken down into five different activities.

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1. Get up-to-date accounting and reporting

Good financial management requires that fresh information is provided to allow the CEO to make the right management decisions. That means that the proper procedures and systems must be established, according to Warring. Checks and balances must be set in place along with the right accounting systems.

2. Watch the right numbers

The job of the CFO and the accountants is to create the raw financial data. It’s the job of the CEO to analyze this data and pick out the best numbers that allow tracking of the business. The CEO should pay special attention to the data that speaks to where the business is heading.

3. Reading the key financial numbers

CEOs must understand the cash flow statement, the balance sheet and the income statement, Waring said. Knowing these three financial documents allows a CEO to understand exactly what is transpiring in a business.

4. Cash flow management

CEOs must understand where the money in a business is going. By understanding this, companies won’t run out of money. Cash flow is not the same as profits. Running out of cash because of laxity can make a profitable company go out of business.

5. Forecast the future

Looking at financial sheets tells a company what happened last month and last year, but this data can also be used to help a CEO make management decisions for the future.

Ultimately, it’s the job of the CEO to read financial statements for the purpose of directing the company into a profitable future for the shareholders.

This has been a guest post from the new Norwegian CEO Magazine, if you’d like to read up on the latest in Norwegian business news and tips for executives, check them out online.

- Fonthip Maspithak (Guest Writer)

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