Editorial Policy

CFOs share top money lessons to take home

Matt Alderton

March 9, 2015

In most households, the family finances are a lot like the family car: One person typically does all the driving. If that person is you, you've earned the title “family CFO.”

Never mind that you wear pajamas, not pinstripes, when you pay bills; that you rely on your smartphone to calculate tips; or that you know more about the farmers' market than you do the stock market. The fact that you manage your family's money means you have more in common with senior finance executives than you think.

“A business is like a home, just more complex,” explains Eric Siu, CFO at Mystery Room NYC, a New York attraction offering room escape games in which groups solve clues to get out of the room. “Both have needs, desires and future planning.”

Indeed, businesses and families alike have financial goals they want to reach, and income and expenses that either help or hinder their ability to reach them. Despite their similarities, however, there remains fundamental differences between personal and business finance, the results of which often drive companies forward while holding families back. To level the playing field, family CFOs must learn to think and act more like their corporate counterparts — starting with these four lessons culled from the corner office:

1. Cash flow is king

“Cash flow management is the most important basic financial practice for any business … because the day you run out of cash is the day your company closes its doors,” says Jeff Haydock, president and CEO of ecoCFO, which provides outsourced CFO services for energy and environmental businesses. “You may have plenty of cash in the checking account today, but you should be projecting out over a period of time … your cash inflows and outflows to ensure there are no surprises,” he says.

At home, cash flow planning should take the form of budgeting. “Too many people don't have budgets,” continues Haydock, who says families must do a better job projecting and planning for future expenses. “They think they can afford the car payment on a new car, for instance, but they forget to take into account things like registration, insurance, maintenance and fuel. You have to have an accurate and thorough cash flow plan that helps you budget.”

2. Every penny counts

The economic downturn was equally hard on businesses and families. One thing that the former learned, and that the latter still must grasp, is the importance of cost cutting.

“Ultimately, the best advice I can give the family CFO is that recognition of an issue is the first step toward solving it.”
–Eric Siu, Mystery Room NYC

“Businesses and families each have to have some level of discipline when it comes to deciding what they want versus what they need,” Haydock says. “Cash tends to leak out of both business and personal checking accounts in meaningless ways because nobody's really paying attention,” he says.

During the downturn, CFOs helped businesses bolster their bottom lines by re-evaluating spending on everything from insurance premiums and travel to energy and office supplies. Families likewise should examine what they're spending on food, entertainment and utilities. Turning off the lights and trading in cable for Netflix, for instance, could yield significant monthly savings.

3. Revenue rules

CFOs know that success hinges not only on their company's ability to spend less, but also on its ability to make more.

In that spirit, families should reframe financial conversations to include not just expenses, but also income. “Rather than focusing on saving the money from a latté a day to put toward a retirement plan, my plan would be to spend that money on the latté and focus on [creating additional income],” says Perry Jones, a former CFO who is an investment advisor for the Kearsedge Boston Group, a private equity investment trust.

Additional income can come from making investments, getting a second job, starting a small business, selling unwanted possessions or reducing one's debt.

There's another reason not to skip your morning latté: Opportunity costs. “People sometimes don't consider that the pursuit of small tasks to 'save money' may actually be more detrimental compared to simply finding another part-time job or gig,” Siu says. “For example, if it wastes a gallon of gas for you to drive to a farther-away supermarket to save $1 on food, you're actually at a loss for both time and money. The waste of time also removes your ability to either spend it with family, use it for your own entertainment or to self-improve [through education and training, which can increase your earning potential].”

4. There's power in planning

While families often live for today, businesses typically live for tomorrow. “The best CFOs look into the future and make predictions about either what they know is going to happen or what they think is going to happen so the company can plan for it,” Haydock says. “This should be something you do at home, too.”

Thinking about the future can help families save for college or retirement. As most CFOs can attest, however, it also can be helpful at tax time. While most families are reactive — for example, they pay what they owe at the end of the tax year — most businesses are proactive: At the beginning of the year they strategically plan their spending in order to reduce their tax burden. A company might plan a major equipment purchase, because it's tax-deductible; with a little forethought, families likewise can plan charitable contributions, retirement savings and other tax-advantaged investments.

“Taxes are a big deal for businesses and families both,” Jones says. “Fortunately, 70 to 80 percent of the tax code is about how to save on your taxes by taking deductions.”

At the end of the day, it doesn't matter whether you pay bills for a family of four or a company of 4,000: Being a good CFO means resolving financial problems, not ignoring them.

“Ultimately,” Siu says, “the best advice I can give the family CFO is that … recognition of an issue is the first step toward solving it.”