A chief financial officer (CFO) is an executive officer responsible for creating and implementing financial strategies that manage the past, present, and future financial situations and actions of an organisation. The CFO monitors financial statements, manages liquidity, analyses financial reports, and forecasts future cash flows within the organisation.
As a business owner, staying on top of your finances can seem like a never ending process.
Your sales are strong, your customers and staff are happy and your business is clearly growing but there never seems to be enough money in the bank to do everything you want.
Inevitably, that leads to doubts as to whether you’re even making money in business. The truth is, if you can’t diligently monitor your financial situation, it’s near impossible to know if you’re actually making or losing money.
So to help monitor finances, many business owners rely on external accountants to manage tax and compliance and bookkeepers to record and keep financial transactions.
While accounting firms and bookkeepers are very beneficial in keeping financial records more accurate and organised, there still remains a gap between these two, and that is financial strategy.
Financial strategies tackle more than just historical data – they identify ways to improve your financial situation, therefore positively impacting your business’ profitability.
So, if you want to make sure you’re paying yourself what you deserve and that your cash flow paints an accurate picture of your finances, you need to consider implementing an effective financial strategy.
That means hiring a CFO.
What does a CFO do?
A CFO, short for Chief Financial Officer, is responsible for managing the past, present, and future financial situations and actions of an organisation.
They do this by focusing on creating financial strategies that help drive a business to succeed.
A CFO’s goal is to unlock more opportunities while taking into account current financial constraints and finding ways to overcome them as the business grows.
More specifically, the CFO leads the business in these areas:
Controllership (The Past)
Controllership duties focus mostly on the “past” aspect of a CFO’s responsibilities. CFOs do a lot of reporting, ensuring that they present accurate and timely historical data relating to the organisation’s finances.
The CFO is in charge of monitoring the accuracy of financial statements required for all shareholders, employees, creditors, analysts, and regulatory bodies, since many decisions are based on all of this information.
Treasury (The Present)
The CFO is also responsible for the organisation’s current financial situation.
They manage cash flow and decide how to invest money based on historical financial information and by assessing potential risk. This is one of the most important responsibilities of a CFO.
The CFO also oversees the organisation’s cash balance and working capital, determines how to balance debt, equity, and internal financing, and makes decisions on issues relating to liquidity.
Economic strategy and forecasting (Your Future)
Businesses also heavily rely on the CFO for their financial future.
This means that a CFO is tasked with pinpointing areas of finance that are most efficient. They will then use this information to generate new objectives to improve the organisation and maximise its return on investment.
This aspect includes financial planning and analysis, where the CFO forecasts the business’ future cash flow and predicts the best ways to ensure the business’ financial profit in both the short and long term.
Because of this, the CFO plays a critical role in the organisation’s decision-making processes.
Other duties of the CFO
While controllership, treasury, and economic strategy and forecasting are the most important roles of a CFO, their duties aren’t limited to these three main aspects.
CFOs also help in the following areas:
- Compliance – Many CFOs manage compliance with federal, state, and local laws to ensure that the business meets all financial standards. This avoids any penalties and lawsuits.
- Policy development – In line with creating effective financial strategies, CFOs can also develop policies that shape and align with their strategies.
What are the qualifications of a CFO?
Given that CFOs have large responsibilities that are crucial to the financial success of a business, you can’t hire just anyone for the job.
Finances are the most sensitive facet of a business, that’s why you want a CFO who is competent, trustworthy, intelligent, and dependable.
You also want a CFO who has experience in managerial or executive positions, since this is a leadership role.
Here are the skills that a good CFO will possess:
A good CFO knows how to lead their controllership, treasury, and financial planning teams to provide accurate data and make the right decisions for the business’ future.
This means that a CFO should know how to properly manage time, delegate tasks, communicate with their team, carry themselves with confidence and positivity, value accountability, and inspire others to do and be better.
And of course, one can’t be a good leader without demonstrating integrity and honesty in all their responsibilities.
The duties of a CFO require a lot of analysis of complex reports and data to inform short-term and long-term financial decisions.
If you’re not a natural numbers person, a CFO can analyse your situation on your behalf and explain the actual ‘story’ financial reports are telling you about your business. Utilising this expertise is crucial in developing strategies to overcome the financial issues you face and help you sustainably grow.
Going further, a CFO will identify and analyse trends (i.e. which product or service margins are slipping) and put you in a position to respond to or capitalise on them.
With a large percentage of their job revolving around reporting and analysis, a CFO has excellent problem-solving and critical thinking skills that will enable you to future-proof your business.
Apart from being a leader to their finance team, a CFO needs to build wider internal relationships (e.g. other managers and executives, board members, etc.) and external relationships (e.g. creditors, investors, etc.), so a CFO must be proficient in communication.
A CFO will set up your finance functions including your accounting system, accounts staff, reporting and will liaison with your accounting firm. That means, you no longer have to manage every relationship personally and be a conduit to finding answers from different parties to appease questions from accountants and lenders (and everyone in between).
With the complexity of a CFO’s duties, they must have a wealth of knowledge in finance to perform their responsibilities competently. It’s also advisable to employ a CFO with corporate experience.
The work of a CFO can be very technical, so a CFO should also be proficient in:
- Strategic planning.
- Financial modelling.
- Risk management.
- Financial compliance management.
Apart from work experience, an ideal CFO needs to have the appropriate level of education.
The minimum requirement is a bachelor’s degree in accounting, business administration, or finance, but it’s highly preferred for the CFO to have a master’s degree in these fields.
A CPA (certified public accountant), CFA (chartered financial analyst), MBA (Master of business administration), and CMA (certified management accountant) are not required, but are definitely a bonus.
How is a CFO different from a CEO?
In its most basic sense, here’s the difference:
- The chief executive officer (CEO) is the highest-ranking overall position.
- The CFO is the highest-ranking finance position, and they report to the CEO.
To be more specific, here are some of the main differences between the two roles, according to the Corporate Finance Institute:
- Key responsibilities
The CEO keeps an eye on the big picture. This means that they oversee all departments and ensure that the organisation’s goals, relating to all areas of its operations, are achieved.
The CFO on the other hand, has more specific tasks (budgeting, accounting, compliance, and auditing) and only handles finance-related departments.
The CEO is responsible for the general strategy of the organisation, whereas the CFO is responsible for the financial strategies to support the business’ general strategy.
- Relationships and reporting (internal and external)
Internally, the CEO reports to the board of directors, while as mentioned, the CFO reports to the CEO (but may also attend Board meetings). All department executives report to the CEO, but only finance executives and managers report to the CFO.
Externally, the CEO is the public face of the business, meeting with community leaders and the media (if need be), while the CFO builds relationships with lenders, banks, investors, regulators, and other financial institutions.
What is a Virtual CFO?
CFOs are important in all businesses. But because of their value in growing an organisation, corporate CFOs can be very expensive. For this reason, some businesses decide not to hire a CFO at all. However, there’s a good alternative to a corporate CFO that saves you a lot of money: a virtual one.
Apart from working remotely, virtual CFOs deliver their services on a contractual, flexible schedule. What this means is that their services are customised based on your needs – they don’t need to report in person or work full-time.
Since you only pay for their services and time rendered, they become a much cheaper option when compared to a full-time corporate CFO.
There are many reasons a virtual CFO is the perfect fit for a business in growth stage or even an established business looking to utilise the experience and skills of a CFO but aren’t necessarily looking to employ one full time.
A virtual CFO is an investment into the future success of your small business. You can use the services of a skilled CFO as needed, without the significant cost.
Hiring a CFO – whether corporate or virtual – is like having a ‘financial co-pilot’ to guide you through turbulent times and help you avoid making incorrect financial decisions that could cost you later.
Looking to work with a CFO to ensure your business remains financially viable? Please reach out to us for a no obligation one-on-one business review.