The CFO of Western Union was recently profiled in Forbes magazine. Even though Western Union is a large, global business, there are insights that are relevant to San Francisco Bay Area small businesses and startup.
Here are some of our observations on the article from our perspective as an outsourced CFO service provider:
“Change is the only constant in today’s ever-evolving business landscape and with it comes the need to stay nimble.”
Absolutely. Too many companies of all sizes are not adaptive to changes in their business markets. Even a traditional payments business like Western Union which has been very profitable in the past has needed to transform itself in the face of rising competition (especially from FinTech startups):
“This has been our path to continued transformation: to leverage our strong core business, invest in technology, build relationships to further build an omni-channel presence for our customers, and create business opportunities around the world. We continue to focus on growing our core business, including consumer-to-consumer, business solutions, and digital. We are also working to build new channels and serve new customers, meeting their rapidly changing needs.”
Developing new distribution channels to reach new customers as well as to provide new business solutions is a key strategy for almost all businesses in different industries.
“While we invest in these opportunities, we’re also dedicated to generating strong cash flow and returning it to stockholders directly. My team continues to play a vital role in this growth, leading efforts to properly reallocate resources and financial investments to help drive key strategic areas within the business.”
The CFO of any company must work closely with the CEO or business owner to determine how to invest in new growth strategies. Managing and allocating cash flow is crucial. Without careful management of margins, profits, and cash flow there is no ability to invest for growth.
“This includes understanding the unique aspects from a financial modeling and business forecast standpoint…. The finance team has been intricately involved in optimizing our pricing structure.”
The CFO and the Finance department are key in helping to determine improved pricing strategies as a part of the overall business model and financial forecast.
“The Finance team is responsible for formulating the company strategy with its business leaders, then converting that strategy into financial opportunities. In doing so, it is important to understand and address any financial impacts associated with major strategic shifts in strategy due to the transformation. We’ve been successful to this point. The strategy has resulted in a resilient and solid business model which generates strong cash flows, year over year, even while making strategic investments in infrastructure, such as compliance and technology. In 2015 alone, we generated more than $1 billion of cash flow from operating activities and returned over $800 million to stockholders.”
Cash flow is king. Finance, strategy, and operations need to be aligned in order to balance strategic investments while generating sufficient profits and cash flows.
“This business has a very low barrier to entry. As a result, many of them are not profitable.”
Many business owners and CEOs overestimate the competitive barriers to entry and, hence, the need to continuously improve and invest. In our experience as an outsourced CFO in many different industries, we’ve seen many companies get caught by surprise by entry of new competitors.