Mary Winston, executive vice president and CFO at Family Dollar, discusses what ten questions a company’s senior management should be asking its head of finance.
1. What are the biggest risks to the business?
As a member of the senior leadership team at Family Dollar, the chief financial officer is the “financial conscience” of a company and should have a direct line of sight to the risks the business faces, says Winston. As a result, a company’s management team should look to the chief financial officer to identify enterprise-wide risks and ensure action plans are developed to address them. “In our case, economic pressures on our customer, aggressive competition, and product-related risks are the biggest risks,” Winston says.
2. How are you managing macroeconomic risks?
The chief financial officer’s role is to understand the macroeconomic environment. In the case of Family Dollar, the economic recovery has benefited many, with improvements to the housing market and stock market, but these changes haven’t benefited the company’s cost-conscious customers. As customers, and therefore sales, remain under pressure, senior management can look to the chief financial officer to determine how the company can continue to deliver value.
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3. How are you managing competitive risks?
As a key business partner who meets regularly with the chief executive officer and other department heads, a chief financial officer understands the competitive landscape from numerous perspectives, and can offer suggestions on how the company can stay ahead of the competition.
4. How is the board feeling?
The chief financial officer has direct communication with the board of directors, and can offer senior management guidance on understanding the board’s perspective and areas of concern. “I can let leadership know what the board is expecting, explain the level at which that information should be conveyed, and provide an idea of how the board is using that information,” says Winston.
5. When business is challenging, where do we tighten our belts?
Most companies are cost-conscious, says Winston, particularly where margins are low. However, in addition to managing costs on a day-to-day basis, senior management must often make tougher decisions about which projects to cut, how much staff can be retained, and what spending can be deferred.
6. As a publicly traded company, how do we balance long-term business needs with shareholder expectations?
Senior management tends to focus on long-term business growth, which in the case of Family Dollar involves opening new stores, optimizing merchandising and supply chain, and renovating stores. A chief financial officer must balance that long-term perspective with an understanding of what Wall Street expects the company to deliver on a quarterly basis. “By helping leadership understand Wall Street’s perspective, I can help them make decisions that benefit the company’s long-term health as well as short-term profitability,” Winston says.
7. Where should we focus our efforts?
Two priorities for a chief financial officer are ensuring financial discipline and ensuring the right investment decisions are made. Where the chief financial officer places primary focus at any given time depends on the economic and business circumstances. “When the business is growing rapidly, I focus on making investments that will deliver the highest returns, and when the business is challenged, I focus more on maintaining cost-consciousness,” Winston says.
8. What is your economic outlook?
A chief financial officer comes to the table with an understanding of what is currently happening in the economy and markets and what is projected to happen. These projections allow senior management to understand whether the environment will provide opportunities or obstacles, and develop strategies within that context.
9. How can we partner with you?
“Finance isn’t just about policing spending and reporting numbers,” Winston says. “We understand the business dynamics and can help a company’s leadership evaluate options from a base of knowledge.”
10. How do you determine the right allocation of capital?
No company has unlimited funds, so capital spending should be prioritized. Senior management can depend on the chief financial officer to set priorities based on key metrics and expected returns for shareholders. In the current low-interest-rate environment, it’s cheaper to make capital investments that deliver a higher rate of return. “I make sure leadership is held accountable to financial metrics and not lulled into over-spending when capital is cheaper,” Winston says. “You have to maintain financial discipline.”