Guest article by Marilyn Landis, President and CEO, Basic Business Concepts, Inc.

 

A Chief Financial Officer’s job is to predict and mitigate risk. There are the obvious risks that are typically associated with the CFO. For example, management looks to the CFO to predict cash shortfalls and to find funding to prevent non-payment to vendors. Operations works with the CFO to predict cost overruns and track financial impact of corrections. The team depends on the CFO to identify risks to profitability – the life blood of any business. The hidden risks are just that – often hidden – unless the CFO knows where to look. One of the most common hidden risks is the risk of environmental catastrophe. Why? CFO’s are not usually environmentalists or specialists in environmental regulation. Many CFO’s know the horror stories when a company is caught with an environmental issue and know the financial impact to the company could be catastrophic – but not how to predict one.

When the risk is in their skill set – cash, funding, profit, cost – the CFO is trained to be proactive. A CFO will improve their company’s financial resilience through sound financial planning. Unfortunately for most companies this means their CFO will deal only with the cost of environmental regulation – the cost to comply and the cost to report. This is good – like taking vitamins to prevent illness – but not proactive. So – how do you get out in front of an environmental issue? How do you predict where the risk might be hidden and plan for the impact if action is required? In addition to founding a company that provides CFO services for scores of small business across the country, I also serve on the National Regulatory Fairness Board under the National Ombudsman. Over the years I’ve witnessed business owners discover an environmental risk the same time the government agency charged with enforcement finds it. At that point it is often too late to be proactive.

I have also watched countless smart business owners admit what they don’t know and seek professionals who do know. The game of environmental risk requires engaging those who do know where to look for environmental risk. When you engage a professional to do an environmental assessment, they are working for you. Let them identify the risk and suggest the action required to reduce or mitigate the risk. CFO’s know that an expense that is up front and that permits proactive planning, is less costly than waiting until the only action is reaction. A CFO always meets annually with the company’s insurance company to be sure all insurable risks are addressed. I strongly suggest a CFO should meet with an environmental expert to identify the presence or absence of environmental risks. Once you know – as the CFO – you can do what you do best – predict and mitigate risk.