Fraud is becoming more of a talking point for South African businesses. From increasingly sophisticated phishing scams to internal fraud and weak financial controls, businesses are finding themselves exposed in ways they may not have anticipated. While every case is different, one common thread often emerges: businesses with weak financial leadership are far more vulnerable because the right controls, oversight and reporting simply aren’t in place.
One of the questions I’m asked most often is what value a Fractional CFO actually brings to an organisation. The answer is surprisingly straightforward. Our role is to give entrepreneurs, management teams and boards an honest assessment of the quality of the financial leadership within their business. Those conversations are not always comfortable, but they are often the catalyst for building a stronger, more resilient organisation.
We’ve touched on this before, but one of the most common patterns we see is entrepreneurial businesses growing faster than their finance function. The bookkeeper becomes the finance manager, the finance manager gradually takes on the responsibilities of a CFO, and before long, the business has outgrown the systems, governance and expertise that once served it well. Revenue grows, headcount increases and operations become more complex, yet the financial function remains largely unchanged.
The consequences of that can be significant. We recently worked with a business where the finance manager had complete control over the payment process. They could load payments, approve those payments and even process ad hoc bonuses without any independent oversight or segregation of duties. What made the situation particularly surprising was that the business had a highly experienced board, yet no one had questioned whether the financial structure was appropriate for an organisation of that size. It wasn’t that the business employed the wrong people; it was that the systems relied too heavily on trust instead of good governance.
That is why one of the first things we assess when working with a new client is the quality of the financial information available to management. Many businesses receive reports that explain what happened last month, but very few have meaningful visibility into what is likely to happen over the next three, six or twelve months. A finance function should never exist simply to report history. It should provide management with the information they need to anticipate challenges, understand future cash flow, monitor profitability and make informed decisions before problems emerge.
Equally important is the capability of the people responsible for producing that information. As businesses grow, the complexity of financial management increases significantly. Business owners should regularly ask whether the people occupying key finance roles have the appropriate qualifications, experience and professional designations for the level of responsibility they carry. The skills that were sufficient when a business turned over R20 million are not necessarily the same skills required when that business reaches R200 million.
Another area that often reveals the quality of financial leadership is the relationship a business has with its bank. Are overdraft facilities constantly under pressure? Are banking covenants regularly being breached? Are conversations with lenders proactive and strategic, or do they only happen when cash flow becomes a concern? These may seem like operational issues, but they often point to deeper weaknesses within the finance function and the quality of financial planning taking place behind the scenes.
One of the biggest misconceptions I continue to encounter is that finance is a backward-looking function. In reality, good financial leadership is about looking ahead. Historical financial statements tell you where you’ve been, but they cannot help you navigate what’s coming unless they are translated into meaningful forecasts, scenarios and commercial insight.
I often think of one business owner we worked with whose company had previously generated well over R1 billion in annual turnover. Within just a few years, that turnover had reduced to around ten percent of its previous level. The business didn’t fail overnight, nor did it suddenly lose its customers. Rather, management simply didn’t have the forward-looking financial information needed to identify problems early enough to respond effectively. Once we introduced proper forecasting, scenario planning and commercial reporting, the conversation shifted completely. Instead of reacting to the past, management could make proactive decisions that positioned the business for the future.
Ultimately, fraud is only one symptom of weak financial leadership. Businesses with poor reporting, unclear accountability and inadequate controls are more likely to experience fraud, but they are also more likely to suffer from poor decision-making, unnecessary cash flow pressure and missed growth opportunities. Strong financial leadership addresses all of these challenges because it provides management with visibility, accountability and confidence in the numbers they rely on every day.
If you’re serious about building a business that is sustainable, valuable and capable of long-term growth, it’s worth asking one simple question: what is the quality of your financial leadership? The answer may tell you far more about the future of your business than last month’s financial statements ever could.
This article is authored by Rowan De Klerk, CEO & Founder of The CFO Centre South Africa. It’s from his monthly newsletter that delivers strategic and leadership insights tailored for CFOs and business leaders.
