Good CFOs will constantly optimize your company’s financial strategy, but great CFOs will do so while also ensuring that there’s a team of finance professionals ready to step in and take their place.
When it comes to your company’s finances, nothing should be left up to chance. With that said, CFO succession planning is essential if you want to make sure you have a versatile finance team without succumbing to any leadership gaps.
If you’re not sure how to do it, fear not — here’s a look at how to develop a strong financial succession plan:
The earlier you identify potential future CFOs, the easier it is to mold them into the incredible financial leaders they can be. CFO succession planning shouldn’t be the only thing to keep in mind when you’re recruiting, of course, but it’s worth keeping at the back of your mind.
Not every employee you develop will become a CFO, either, but development efforts won’t be wasted. Even if an employee doesn’t rise to the executive level, they’ll still be an asset to your company, and as a bonus, accelerating the development of newer finance employees means that your current CFO will have more time and energy to focus on strategic, higher-level tasks.
Lastly, you don’t have to start your development efforts as soon as you hire a promising employee, but it’s generally a good idea to start offering development programs once they reach a management role.
Taking the time to understand your employees’ goals might seem like an obvious step, but in some cases, executives and other high-level managers become so enthusiastic about an employee’s potential that they forget to ask what the employee wants.
Even if an employee isn’t interested in one day becoming the company CFO, they might have valuable insight into someone else who may be interested or who might make for a valuable candidate.
If your finance team is full of narrowly focused experts, it may function beautifully; that is, of course, until one of those experts leaves the company (or even just takes a lengthy vacation).
The best finance professionals are versatile, and the best way to achieve that versatility is to learn it while on the job, so — starting at the beginning of their careers — rotate your finance team members through different roles.
These positions don’t have to be limited to finance, either. CFOs should be skilled in corporate strategy and reasonably proficient with finance-related technology, as well, so these are two examples of outside skill sets you should emphasize.
Many companies like to promote from within whenever possible, but there’s nothing wrong with external hiring. As a general rule of thumb, it’s wise to supplement your current employee roster if you can’t identify at least two potential successors for the CFO role. The same goes for other high-level, critical roles.
In a perfect world, you could designate a CFO successor and be done with the process, but in reality, when it comes to CFO succession planning, there are plenty of moving variables to keep track of, such as:
A lot can change in a short period of time, so it’s essential that you regularly revisit your plan and make necessary adjustments. Throughout the process, don’t forget to re-assess the readiness of future CFO candidates as well. While you can often spot top talent from the beginning, some employees might surprise you.
It’s obvious that you want your CFO’s successor to be adept at tracking cash flow, analyzing financial statements, and keeping your company compliant with financial regulations, but a great CFO isn’t just an outstanding finance professional — they’re also a great leader.
As such, your future CFO should have a variety of other skills not necessarily related to finance, such as the ability to do the following:
If you have a successor in mind who doesn’t currently possess all of these skills, that doesn’t immediately mean you need to write them off. It’s possible to teach these soft skills, especially when you identify (and start working with) potential future CFOs early on in their careers.
Your current CFO is probably the one person who is best equipped to identify a successor, but that doesn’t mean that the process should occur in a vacuum. In particular, the CEO and the company’s board of directors should be regularly updated. The role of the CFO is critical to a company’s overall functioning, so the CEO will likely want to see possible candidates in action.
Similarly, the board of directors needs to be assured that the company’s finances will be handled by someone who will continue to take them in the right direction, and if you start CFO succession planning long before your current CFO intends to retire, it will send a signal to the board that the company is generally well-managed.
Many boards don’t just want to see a single successor being groomed for the CFO role, either. As they’re concerned about a company’s long-term health, they often want to see a pipeline of employees at various stages of their development who could one day step in as CFO.
An exemplary CFO succession plan involves two investments — a financial investment from your company and an investment of time from your CFO — and while your CFO should be the one leading the process, a good plan involves collaboration at the C-suite level. When you start succession planning early, you’ll be able to nurture your future financial leaders from their earliest days with your company.
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