What Should the CFO Expect from Contract Management?
Chief financial officers use contract data to determine company performance, areas of risk, goals for growth, and financial projections. Anyone who manages contracts within an organization needs to submit information to their CFO, allowing them to have oversight of things like revenue and expenses. In this article, we talk about areas that CFOs are most likely to have concerns and expectations.
Purchase Side Cost Tracking
Perhaps one of the main things a CFO is going to be concerned about is how each contract affects financials, notably the costs associated with the buy-side. If you happen to be involved in this, the chances are that questions have been raised about the things you buy that allows the business to operate effectively. It may have been suggested to you to investigate how to lower these costs, perhaps by finding an alternative vendor or through negotiation with existing ones.
To respond to these types of queries quickly, you’re going to need to keep an eye on buy-side contracts by tracking costs. You will also need to encourage your team to lower their spending, whilst investigating where other expenses can be eliminated. CFOs will also be responsible for creating financial projections because they help shed light into how healthy the business is. With this in mind, make sure you have all contract costs at hand.
Revenue Tracking For Sell-Side Contracts
While CFOs do tend to be interested in the tracking of contract expenses, they want to know expected revenue from sell-side contracts as well. Contract managers will also need to be aware of any problems that have occurred during the contract cycle which may have affected the estimated revenue. For example, if any agreements are being renegotiated or restructured due to an unhappy customer, the CFO needs to be aware that the original contract estimate will not be the same. Above all, be sure to provide the most up to date information to your CFO with regards to revenue and expenses, so they have everything they need for budgeting and forecasting.
Audit Preparation
If a business has an audit scheduled, both CFOs and contract managers will need to have input. Corporate documents and contracts will need to be reviewed so that auditors can determine the performance of the company. The chances are that the auditing team will want to see all contracts so they can determine whether they meet various industry regulations and back up your financial information. As a result, your CFO will request contracts from you, and this information will probably need to be provided quickly. So, if your audit is fast approaching, be sure to have everything collated and readily accessible.
Know The Business Impact Of Deadlines
End dates, revenue, and expenses associated with individual contracts are some of the tools that CFOs use to determine the financial health of an organization. Aside from these, there are other questions which can be asked such as:
- Will revenue be affected when accounts churn for sell-side expiring contracts?
- After contracts expire, will they renew or be renegotiated?
- What date do different agreements expire?
- Will a large number of contracts expire around the same time?
- Do new agreements need to be in place when a buy-side contract expires?
- To keep revenue healthy, is there anything in place to replace expiring agreements?
Several different departments will need to be consulted. Ultimately though, contract managers will need to provide as much information to the CFO as possible.
Contract Information That CFOs Might Request
CFOs are typically more focused on certain parts of contracts like financials and contract costs. They use this data for financial projections which can then be used to determine the overall health of a business. CFOs are also interested in contract revenue for the selling side. They may request information related to budgeting and forecasting so they can determine things which have a knock-on effect on revenue. Audits are likely to take place with regards to contracts, so all information needs to be accessible from a single, central location. While all this might seem like a burden for contract managers, other departments within an organization will also need to have some input, particularly in circumstances when contract managers do not have that information available.
