January 22, 2024
min read

4 Questions Boards Ask CFOs – and How to Answer

Reporting to the board remains one of the key responsibilities of a CFO, requiring deep institutional knowledge and forward-looking assessments. 

As headcount typically represents more than 70% of a company’s spend, questions around headcount expenditure and forecasting represent significant parts of board presentations and conversations for the chief finance officer. The CFO needs to have a full understanding of all the headcount data and how that fits into the big-picture of the company’s initiatives and growth targets. 

In my previous roles as the chief financial officer for globally distributed companies, I spent weeks meeting with department heads and huddling with my finance directors to prep my reports — and my answers to the quarterly board questions I knew would come about headcount. 

Today, I’m a co-founder, and founding CFO, of Precanto, software that leverages the power of artificial intelligence and machine learning to support headcount forecasting for enterprise finance leaders. 

Here are some of the common questions about headcount and headcount forecasting I would hear when I presented our corporate finances to the board, and how I answered them. 

1. You budgeted for $500 million in new headcount this quarter, but you’ve only spent $480 million. Why? 

These questions around budgets vs. actual spend are especially key for public companies. If we’re 5% over or under our expected performance, we’re in trouble, and everyone – stakeholders, board members, advisors – want answers. 

That $20 million difference could be due to a number of operational challenges. A delay in hiring niche skilled resources to drive a new product line lowers our spend. Maybe there’s economic factors at play, like a slower hiring season due to a global shift, like the pandemic, or a more competitive hiring environment.. Maybe the recruiting team was short on talent scouts or recruiters.  

Headcount can be a game of dominoes that the CFO catches at the end of the line – even if the CFO wasn’t directly involved in arranging the course. Such is the nature of hiring. Each one month of missed hiring opportunity or early onboarding means shifts in salary and benefits that add up quickly.

2.Do we need to make any adjustments to headcount? 

This is a dreaded question if the CFO relied on unclean data, or didn’t forecast appropriately.  

An accurate, reliable headcount build on clean data leads to an easy answer: No, no adjustments needed. 

Without that, a CFO risks more work due to the unclean data that prescribed the incorrect plan of action. They’ll have to meet with the department heads again, to discuss headcount options and priorities that align with the business, and the impact any headcount reductions would have. 

Then the CFO would return to the board with more detailed readouts and suggestions.  

This cycle of recurring conversations without a single source of data-based truth for the finance teams burdens everyone involved.  

3. What is our revenue per employee and our cost per employee? 

Headcount is the key driver of strategic initiatives and priorities, and that extends to headcount management. When I presented to the board, I would offer projections for the year, and then the immediate two quarters in slightly more detail. 

During quarterly meetings, the board typically examined headcount spend, including stock based compensation and sales compensation, with an eye on how these metrics relate to the balance of revenue vs. cost. That’s how vital headcount forecasting was to the overall health and direction of the company — and yet my team relied on spreadsheets with unclean headcount data.

4. Are we properly staffed? 

Before the board meetings, my director of finance would call out any variances in our plan, the implications of those variances, and why those variances occurred. This way, when I presented to the board, I had ready-made answers and strategies for them. 

For example, what does it mean to the business if a key hire like a senior engineer isn’t in seat yet? This can often spark additional questions:

  1. What can we not do yet, because this planned hire hasn’t happened? 
  2. How does that impact our growth plan? 
  3. What else can we do to fill that gap or hire that person? 
  4. If we lack multiple planned hires, do we need to revisit hiring for our recruiters, so we can handle the hiring that’s now rolled over to increase the next quarter’s goals?
  5. Will this impact our revenue plan enough that we should consider cutbacks elsewhere? 

Since we knew these were coming, we’d do our best to plan in advance, with good data, and the right data.

That dedication to the right planning, with the right data, is what led me to help build Precanto. 

Learn more about Precanto. Book a demo today.

Naresh Nemali
Co-Founder, Precanto
CFO insights
Precanto Platform

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