Managing Your Finances Like A CFO

Managing Your Finances Like A CFO

Taking a business leader approach to managing your finances.

Because of my background in business, I tend to look at my finances as if I’m the Chief Financial Officer. I look at it from that perspective instead of being cheap or a tightwad.

I’m always trying to optimize my finances so the outlook on the future is bright.

What is a CFO?

“A Chief Financial Officer is a senior executive with responsibility for the financial affairs of a corporation or other institution.”

In all businesses, someone has to be in charge of the business finances. How this person operates could depend on the success or failure of the business.

Think of it like driving a ship. The ship is only as good as the crew members aboard and without any clear purpose and direction of where they want to go will end up wandering aimlessly. The captain of the ship has to set the direction.

Becoming the captain of your finances requires the same intentionality and focus. If you’re not on top of your game, it’s easy to get thrown off course and it will take time to recover.

You become the CFO of your finances by setting clear goals, charting a course, managing your finances and doing what it takes to get to where you want to be. If it’s not you, who’s it going to be?

For example, if you signed up for a subscription last year and forgot about it, that’s bad business on your part. You’re paying for something that you no longer use and no longer serves a purpose. It’s the CFOs responsibility to catch these.

One of the main functions of a CFO is decreasing business expenses to increase cash flow. All of these ads to the bottom line which is the only number anyone cares about at the end of the day.

Why should you think like a CFO?

You want to start thinking like a CFO of your finances because you’ll look at your money with different eyes. If you’re not happy with where you are, it’s probably because you haven’t taken ownership of your situation or you have no idea what you’re trying to do.

The CFO has to get results. Results mean decreasing expenses, increasing cash flow and hitting future financial projections. If they don’t do this, they don’t have anyone to turn to and could end up losing their job.

When you approach your finances with a business mentality you’re going to see results.

Managing your finances like a CFO

Manage cash flow

Cash flow is the lifeblood of every business. Without it the business dies. They’re responsible for directing funds so the business can function. The same goes for your personal finance.

When you get paid and the money hits your bank account, does it all just sit in your checking account until bills are due? If it does, you’re not being a very good CFO. Divide it up into investments, savings, paying off debt, etc.

Long term projections

The CFO is responsible for the long term success of the company. Along with other executives in the company, they set cash flow projections and try to be as accurate about the future as they can be based on sales projections, market demand, the economy, etc. They then base their goals off of these numbers.

If you’re not setting financial goals at least annually you’re like a ship without a rudder.

“A man without a purpose is like a ship without a rudder.” -Thomas Carlyle.

Monthly or quarterly board meetings

When cash flow projections are complete and goals have been set the board gets together as often as possible to monitor their success, talk about challenges, and adjusts numbers and goals if needed. This is a high-level view of what it takes to operate a successful corporation.

Risk Management

The CFO constantly considers the risks the business may be exposed to. They then make sure they have adequate insurance and liability coverage in case something were to happen that would be catastrophic to the company. They also make sure they’re not overpaying for coverage.

As the CFO of your finances, you should be reviewing your coverage on policies such as homeowners insurance, car insurance, renters insurance, health insurance, and life insurance each time the policies renew.

Tax Planning

Last but not least, The CFO focuses on paying as little in taxes as possible. Perhaps not only focused on paying the least amount possible but focusing on increasing after-tax net income. If it means paying more in taxes but it increases the bottom line, it’s a good decision.

CFOs don’t just think of taxes once a year, everything they do should be centered around how to minimize taxes by getting deductions, expanding the business, writing off bad debt, etc. The CFO has some say in how the company pays taxes but it’s mostly up to the accountants who report to the CFO. Ultimately the CFO is focused on the future while accountants are focused on the past.

When it comes to tax planning, you should be keeping track of receipts or online transactions, understand which purchases are tax write-offs and deductions, and maximize the after-tax return of your capital. That way when you go to file at the beginning of the year it’s not a headache getting everything together when you file your taxes.

Conclusion

If you think of your finances from the perspective of a CFO, you’ll look at money differently. Instead of getting to the end of the month and wondering where all of your money went, take responsibility and narrow everything down to the penny. If you do, you’ll have a better grasp of the overall health of your financial household.

Turns out there’s an actual book written about this subject. If you’d like to read more on this subject you can check it out on Amazon: How to Be the Family CEO.

Best of luck managing your finances!

Pin It on Pinterest