Key takeaways
- The CFO function is a company's ability to answer questions about the future, survival and funding. It does not have to mean a full-time position.
- The five questions in this article test whether the company has that ability yet.
- Having a good accountant does not answer these questions, because the core job of accounting is to record what has already happened accurately.
A company grows to a certain point. It has an accounting team, financial statements on time and several loan facilities. But when shareholders ask where the company will be in five years, or how much more it should borrow, the meeting room goes quiet, and the answer comes from the owner's gut feeling. This does not mean the accounting team is weak. It means the company still lacks another function.
It is like looking after your health. You do not need a doctor living in the house, but you do need someone who knows what to test, how often, and which readings are worrying.
The five questions
| Questions | An answer that shows a system is in place | A sign that none exists yet |
|---|---|---|
| 1. Where will we be in 5 years? | There is a financial plan linking sales, costs, investment and funding | There are only sales targets, with no effect on cash |
| 2. If sales fall 30%, how many months can we last? | The answer is given in months, with a list of actions to take | The answer is "probably enough", or "ask accounting" |
| 3. What D/E ratio is appropriate? | There is a debt ceiling based on DSCR, Covenant and business volatility | Borrow whatever the bank offers |
| 4. What kind of fundraising should we use? | Compares cost, terms, timing and loss of control | Uses existing sources because they are familiar |
| 5. What is the shareholders' exit? | There are options and time to prepare, such as succession, a sale or long-term dividends | Never discussed, or thought about only when they want to sell |
How accounting, the controller and the CFO function differ
Accounting and the controller
Looks backwards and at the present: closing the books correctly, controlling documents, tax and internal systems. The main question is what happened and whether it was recorded correctly.
CFO Function
Looks forward: planning funding, managing risk and turning numbers into choices. The main question is what to do next and where the money will come from.
This function may sit with a knowledgeable owner, a finance manager, a full-time CFO or a part-time provider. The form should depend on the company's size, complexity and risk. What matters is that someone clearly owns all five questions.
Example: what question 3 reveals
A hypothetical company has debt of THB 90 million, equity of THB 60 million, EBITDA of THB 30 million, tax paid of THB 3 million, maintenance CAPEX of THB 3 million, interest of THB 5.4 million and principal repayments of THB 12 million a year. A bank offers a new loan of THB 40 million at 6.5% interest, with no principal grace period and equal principal instalments over 7 years.
| Item (THB million) | Current | Borrow more, no new EBITDA yet | Borrow more, and EBITDA rises by 8 |
|---|---|---|---|
| Debt | 90.0 | 130.0 | 130.0 |
| D/E (times) | 1.50 | 2.17 | 2.17 |
| Cash flow before debt service | 24.0 | 24.0 | 32.0 |
| Annual debt service | 17.4 | 25.7 | 25.7 |
| DSCR (times) | 1.38 | 0.93 | 1.24 |
First-year interest on the new loan is THB 2.6 million and average principal is THB 5.71 million. This loan is therefore workable only if the investment generates cash on time. If EBITDA grows even one year later than planned, the company's DSCR will fall below 1x. The question to ask therefore changes from "will the bank lend to us?" to "should we borrow with a principal grace period, or use some equity instead?"
Scoring yourself
Score each question from 0 to 2: 0 means no answer, 1 means an answer without supporting numbers, and 2 means there are numbers, an owner and regular review. This score is a tool for internal discussion, not a professional standard. Start with any question that scores 0. Question 2 is usually a good starting point because its data can be reused for questions 3 and 4.
A company with several legal entities must answer these five questions at both group and individual-company level. Group cash may look sufficient while some of it cannot be moved, and one company's debt may carry cross-guarantees to other companies.
Start with the right scale of work
A company does not need to build everything at once. If the business has a single legal entity and little debt, a cash plan and a one-page report are enough at first. Once there are several companies, project loans or outside investors, the need shifts to group-level reporting, Covenant monitoring and regular conversations with financial institutions.
Next steps
- Answer the five questions in writing without opening any files, then check them against the actual numbers.
- Name who in the organisation owns each question.
- Build a 13-week cash plan and a stress test before other major projects.
- Write down the company's own debt ceiling before the bank offers the next facility.
- Set a quarterly meeting on financial direction, separate from the monthly financial statements meeting.
- Talk with shareholders about long-term goals and exit, and reach a preliminary conclusion.