The Role of a CFO
While a controller/accountant lives in the past, a CFO lives in the past, present and future.
An accountant manages data. A controller produces financial statements, implements controls, and may offer some analysis. A CFO helps lead the organization by overseeing all financial activities – living in the present and looking to the future through continuous scenario-based planning. CFOs take a forward-facing role by managing budgeting, forecasting, vendor relationships, tax strategy, compliance issues, and succession planning. Leaning on data and industry experience a CFO provides key insights to advise the CEO through all the company’s life stages.
For these reasons, no one in the company is better positioned to create scalable and sustainable revenue growth than a CFO, creating value for owners and stakeholders. This role is strategically vital because, “A CFO has a deep understanding of your business model and your banking relationships, works with your board of directors, prepares detailed financial and management reports, works with auditors, oversees tax planning, and sets policies around controls and payroll.” The following is an overview of how a CFO operates and adds value in small to mid-market, closely held organizations.
When You Need a CFO
The question is does your business need a CFO right now, or can hiring someone into the role wait? While a company can always increase its long-term value by leaning on an experienced CFO, this role is instrumental during periods of transition, such as:
- Rapid growth
- Acquiring investment capital
- Developing new products or offerings
- Entering new markets
- Engaging in M&A activities
- Declining profitability
- Tax planning changes
Types of CFOs
All Chief Financial Officers can perform the same types of functions, but not all CFOs are the same. While some companies hire their CFO internally, others outsource the role to expedite the hiring process and reduce costs. The different types of CFOs include consulting CFOs, fractional CFOs, and interim CFOs.
Hiring a consulting CFO allows a business to obtain all the advantages of bringing on an experienced CFO without the carrying cost of paying for benefits and other full-time employee expenses. They may also act as a fractional CFO performing essential financial functions on an ongoing basis or during specific transitional periods. An interim CFO can fill the gap after a CFO has left before a new CFO has been hired to provide organizational continuity.
How a CFO Adds Value
A good CFO will find ways to improve cash flow, profitability, and the balance sheet to cover the added cost of a CFO and then some. Controlling costs, improving productivity, and analyzing pricing strategies are a few ways a CFO improves profitability.
The CFO will put an effective cash management system in place. By managing the cash cycle, the company improves collections, pricing, and terms – all adding to increased liquidity. This includes managing capital and debt obligations, ensuring the ability to invest in new projects. Cash flow projections prepared by the CFO provide a means for the management of cash, which is the lifeblood of a company. Among the many reasons, a CFO will manage cash flow to:
- Make payroll
- Grow sustainable revenue
- Make wise capital expenditures
- Fuel ongoing investments in R&D
- Seize market opportunities
- Finance continued business growth
- Facilitate expansion plans
Sales and operations departments often distance themselves from company finances or financial strategies, but an effective CFO brings financial insights and leadership to help the company maximize profits by increasing cash flow and minimizing costs. A CFO will also oversee tax and compliance efforts to:
- Mitigate exposure with tax authorities
- Minimize compliance costs
- Manage overall risk
A CFO brings credibility with finance-based professionals and may act as a liaison with the bank to secure funding. Therefore, a CFO adds value by bringing knowledge to financing, leasing, and purchasing decisions. They provide knowledge around issues like the advantages of operational expenditures over capital expenditures. This means a stronger position when negotiating with vendors. In this way, a CFO ensures that:
- Financial statements will meet bank requirements
- Financing terms are advantageous
- Important vendor relationships are preserved
- Critical processes are protected when business obstacles arise
A CFO will know what steps are required to develop long-term exit strategies and succession plans that fit the company goals and circumstances. They help to prepare a company by having defensible financials and a logical strategy before an interested party is available. If needed, a CFO can:
- Establish exit goals
- Evaluate exit readiness
- Propose exit options
- Provide analysis about business value for exit options
- Execute an exit plan
Merger & Acquisitions
A CFO helps business owners identify and target potential companies for an acquisition or merger. CFOs can fill a critical role in the success of these initiatives by being a strategic growth advisor to the CEO. For companies who are selling, raising capital, or acquiring smaller businesses for growth, the CFO plays a vital role at every stage in the deal process:
- Overseeing merger/acquisition transition
- Helping to integrate multiple accounting departments
- Establishing/integrating accounting systems
- Evaluating and documenting existing procedures
- Interviewing and assessing key financial staff
- Performing due diligence on a potential M&A company to ensure the integrity of its valuation
- Creating a comprehensive integration plan ready for execution when a deal closes
A CFO attends to the future of the business and thinks strategically about the company’s future growth and prosperity. The most effective CFOs can build consensus, anticipate change, and manage surprises. As a problem solver with an innate desire to learn, they understand what initiatives are needed to help the organization move forward within its strategic vision. They build and nurture productive relationships inside and outside of a company, act with integrity and transparency.
When you are ready to increase the long-term value of your company, hire an experienced CFO to plan for and manage your organizational growth.