CFOs come from a variety of educational backgrounds, most often finance, accounting, or business. Those are valuable, but one that is often undervalued is a background in economics (specifically microeconomics).
Economics is important for CFOs to understand, because it demonstrates how businesses truly work and what ties different businesses together. This understanding allows a CFO to work across many different types of businesses. Economics provides a broad level knowledge of finance, production, management, resources, and scarcity. Someone with a background in business may focus on ROI, someone with an accounting background may focus heavily on the balance sheet and detailed numbers, but the economist is also looking at the big picture.
A CFO with an economics background will have a unique perspective when it comes to concepts such as diminishing returns, price setting, shutdown points, growth, and scalability. For example, when a business owner wants to scale his or her company, a CFO with economics knowledge will understand how everything connects and how the other areas of the company will need to grow with it.
Economists are often excellent decision makers because they have an excellent understanding of opportunity cost, which is the idea that every choice a business makes means it is rejecting other options. A CFO with a good grasp of opportunity cost is well-suited to guide companies when deciding where to invest their limited resources, which can help businesses make the best possible long-term decisions.
Understanding the economy as a whole allows a CFO to recognize and predict what is happening during different economic conditions and how a business should respond. Economists know how banks, governments, and interest rates interact with businesses. For example, many people become fearful and reactionary in response to talks of a recession. Economists recognize that every recession differs, and they are aware of indicators which can help a company make informed decisions regarding saving and spending money. This allows a company to maintain a strong position in any economic condition.
CFOs with an economics background also realize that every local market is essentially a mini-economy, and can see the company’s place in both its local and wider market. This leads to insight about what kinds of decisions companies should make based on various market factors, such as competition, demand, and local government policies.
The CEO of Sentinel Finance Group has a background in economics and accounting, which allows Sentinel Finance Group to bring a unique advantage to its clients’ businesses.
Sentinel Finance Group is a fractional CFO firm in Kansas City and provides outsourced CFO services and controller services to local businesses.
