To get results, you need to get attention and approval for your initiatives from the decision makers at your company such as the Chief Financial Officer (CFO). To do this, you need to see facilities the way your chief financial officer and the finance department do.
Since facilities cost money and money is the bottom line for any organization, the chief financial officer is a key decision maker. Unfortunately, the drivers at the executive level of your organization may not line up with how you think about facilities costs.
If you are going to get the CFO’s attention, you need to know how to assess the financial impact of decisions and present them in a way your CFO understands and cares about.
Avoid Being a Cost Centre
Facilities are often seen only as a cost to the company, so the pure expense side of the equation is usually the focus of financial analysis. In fact, a much broader and more strategic approach is needed.
This includes efficiency gains, revenue increases, cost avoidance, risk mitigation, future value and replacement costs, total cost of ownership, return on investment (ROI) and more.
Understand how to Look at Money
Before you begin to look at your facilities in these terms, however, you need to clearly understand how your company looks at money. Corporate finance can be complicated and may lack obvious links to the expenses you control. This includes taxation issues, capital versus operating expenses, the debt/equity ratio, expected ROI and margins for the main business line, financial liability and many other issues.
Only when you understand how your CFO looks at finance issues will you position facilities-related initiatives and opportunities in a way that is meaningful to them and likely to get attention and approval.
By successfully representing the impact of facilities in a way that matters to the corporation, you increase your ability to sell your initiatives and be consulted about major decisions that impact facility costs.
The first step is to learn more about how your company looks at and assesses financial issues. You can do that by talking with your CFO or other key members of the finance group. In addition to learning about the specific approaches necessary within your company, you should also teach yourself about general corporate finance.
Here are 11 questions that will help you do that. Before you ask them, do a little homework on the general issues around the financial terms so you will understand the context.
If you’re unsure about the answer you get, ask for clarification so that you understand the implications about how you run your facilities department.
Most importantly, build a relationship so that you can test your ideas and continue to learn from your CFO.
Questions for your CFO
After you do your homework, learn the answers to these questions by talking to your CFO or someone in the finance group:
- How are facilities-related costs (capital and expense) accounted for relative to the company’s other costs and revenue. Are they distributed to divisions and products or maintained as a central cost?
- How are assets and liabilities (i.e., leases) for facilities accounted for on the company’s balance sheet, and what is the impact of increasing or decreasing assets or liabilities?
- How are the company’s taxes affected by capital investment related to facilities?
- How does the company deal with exchange rates? Does it hedge, and if so, what impact can it have on procurement and expenses (for companies with facilities in other countries)?
- What is the amortization / depreciation approach for assets and how does it impact the company’s results, including tax liabilities?
- What is the company’s cash position and how do facilities costs affect this?
- What is the company’s cost of borrowing?
- What is the expected return on investment or payback period required to justify capital expenditures? Is it different for energy/environment/sustainability initiatives?
- What is the proportion of capital and expense budgets for facilities relative to the overall corporate costs?
- What is the target debt/equity ratio, and how does increased investment in facilities impact the company?
- What model is used to analyze investment and other financial decisions? Is there a process or spreadsheet?
This is an excerpt from the book “Managing Facilities & Real Estate”