At its heart, business is about relationships. How and with whom you interact can make or break your organization, and that starts with a small business owner’s most important partner: its Chief Financial Officer, or CFO.

A good CFO manages your business’s finances; a great CFO is a trusted ally who works with you to ensure the financial growth and success of your business. The difference comes down to understand how to work with your CFO effectively.

Here’s part one of a two-part series on how small business owners can maximize their relationships with their CFOs:

Establish a safe space where honest communication is encouraged and expected.

For your business to thrive, you need to have a clear understanding of its financial health, even—and especially—if things are going south. If your CFO holds back or sugarcoats information because they feel it will make you uncomfortable or fears they’ll lose their job (or a performance-related bonus) by revealing the truth, you’re setting your business up for failure. Put your ego aside, and create an environment where you and your CFO can have open and honest communication. When your CFO knows they won’t be penalized for being a straight shooter, you’ll establish a foundation of transparency, trust, excellence, and respect.

Allow your CFO to conduct an in-depth and holistic analysis of your business.

A CFO is only as good as the information s/he can analyze. To make the most of your CFO’s talents, allow them to assess the current financial state of your entire business, including operations, sales, marketing, HR, and IT. This begins with your CFO taking a look back at your historical data to establish a baseline. 

They’ll likely review: 

• Your balance sheet and profit and loss (P&L) statement
• The accuracy of accounts receivable
• Your turnover rate and its relationship to accounts payable
• The way you list fixed assets like property and equipment and their relationship to actuals
• Vendors, their pricing (including any increases) and whether or not they contribute directly drive revenue (Also called costs of services or costs of goods sold)
• Which major vendors and cost components will not change (i.e., insurance, health benefits, IT, outside consultant, contractors) even if revenue changes
• Your customers and identifying which ones provide the largest percentage of profit
• Differentiation of Payroll and employee costs directly or indirectly drive your revenue up and down. 
• Classifying your fixed (rent, insurance, overhead charges, etc.) and variable (labor, packaging, etc.) costs

Work with your CFO to identify priorities for your business and its rate of return.

Once your CFO has established a baseline, they need to understand your priorities and what’s most important for you right now before working with you on a plan for the future.

A key aspect of this? Identifying your business’s rate of return, or how much it costs your business to make $1.00 in revenue. 

For example, if to make $1.00 you spend $0.50 in variable costs and $0.30 in fixed costs, you’d be left with $0.20, which equates to a 20% rate of return.

Unfortunately, most business owners have no idea of their rate of return. And worse, this could become even more problematic if a business owner is spending more than $1 to make $1. Having that number is crucial when determining your plans: Should you open a new factory? Price your products differently? Hire a new salesperson? Find an alternate material source. 

Similarly, knowing your industry’s benchmark on the rate of return and how your business compares to it factors into its ability to compete and innovate effectively.

A CFO can be an invaluable partner to a business owner in navigating this process, guiding them through their financial data, and finding resources to ensure that they reach their benchmark.

Ask your CFO to communicate their findings and interpretation in terms you can understand.

Many CFOs work with acronyms and financial terminology that can be confusing to or misinterpreted by business owners. To get the most out of your relationship with your CFO, ask him or her to explain their findings in layman’s terms you can understand. This will allow you to ask additional questions and gain greater and deeper insight into the current state of your business.

As you can see, maximizing the relationships with your CFO is crucial for your success. Stay tuned for the second part of this two-part series on effectively working with the CFO of your small business.