It might seem like a matter of semantics in a small to mid-sized company to use the Controller and Chief Financial Officer (CFO) job titles interchangeably. After all, don’t they essentially do the same thing?
The fact is there is a difference between the two. A CFO is not simply a more experienced and higher paid controller – the roles are different and require a different level of experience and a different way of operating.
The Role of a Controller
Your financial controller is the person in your company that acts as the head of your accounting department. They oversee the preparation of financial reports, such as income statements and balance sheets.
In addition to preparing reports, the controller’s responsibilities might also include monitoring internal controls, conducting compliance audits, analyzing financial data, and participating in the budgeting process.
Controllers are typically strong accountants that operate tactically, ensuring timely and accurate accounting and financial statement preparation. They are focused on historical accounting and reporting. Controllers manage the accounting operation as a process, seeking efficiency and accuracy.
The Role of a CFO
Your chief financial officer (CFO) is the senior executive that is responsible for managing the financial actions of your company. They oversee financial planning, track cash flow, and analyze the company’s strengths and weaknesses so they can recommend proposed actions.
Your CFO has a broader role that is focused more strategically and forward-looking. The Controller function typically reports to the CFO and is just one element of the CFO’s role. CFOs are also responsible for Treasury management, Risk Management, Financial Planning and Analysis and are considered part of the company’s senior leadership team, typically reporting directly to the CEO.
In smaller organizations, it is possible to combine the two roles. But the functions noted under each are distinct and need to be addressed for every organization. We will discuss how to address this later on in this article.
When to Hire a Controller
You can bring on a controller at any time, but your business should make it a priority once the size of the company and the number of transactions it generates increases to the level that it needs accounting records based on Generally Accepted Accounting Principles (GAAP). At this level, you are beyond cash-basis bookkeeping.
Beyond using GAAP as a benchmark for your decision, here are some of the other situations that might prompt your business to hire a controller.
- Supervision of a bookkeeper. If you do not have a CFO and do not have the time or expertise to monitor bookkeeping, a controller can fill this role.
- Better support of CPA. During tax season or when participating in an audit, bookkeepers may not have the ability or experience necessary to support a CPA.
- Accuracy of financial reports. A controller can fill the gaps when your bookkeeper is unable to identify the source of inaccurate figures or develop a strategy to fix an issue.
- Preventing errors, security breaches, and fraud. Bookkeepers generally don’t have the skills and training necessary to implement the internal controls that will prevent costly mistakes and other types of financial trouble.
- Streamlining the closing and report delivery process. The financial close process, which can take weeks or months, can be challenging for a bookkeeper. A controller can help make this process timelier and error-free.
- Ownership of the accounting process. As your business grows, its accounting process will become more complex. A bookkeeper generally does not have the experience and background required to take ownership of these processes and drive the change you will need to be successful.
When to Hire a CFO
When your company needs more than accurate accounting and reporting, it might be time to consider hiring a CFO. Many companies find themselves at an inflection point where they would benefit from having a senior finance leader involved in making and executing key strategic decisions.
Some of the situations that might prompt your business to hire a CFO include:
- Supervision of finance team. If the business owner does not have the time or expertise to provide financial oversight and guidance to the finance staff, the best option is to hire a CFO that can take on this role.
- Guidance of financial strategy. A CFO can help the business owner with various financial strategies, such as pricing, major acquisitions, and long-term projections. The CFO is part of the executive team that participates in strategic planning sessions.
- Need for sophisticated reporting and analysis. If the CEO or business owner has trouble interpreting numbers, another set of eyes is vital. The CFO is a finance-minded professional that can tell the story behind the numbers as well as give recommendations based on various metrics.
- Generation of stakeholder reporting packages. Investors, boards, and banks will require the presentation of timely data that is presented in a useful format. CFOs are often called on to prepare and present these materials.
- Assistance with fundraising. When your company needs or wants to raise funds, your CFO can take the lead in telling the financial and business story required to secure financing from investors or lenders.
Should You Hire a Controller or CFO?
Now that you understand the roles of a controller and CFO, and what each can do for your business, which one do you hire? It depends. Every business is unique, so it is difficult to generalize.
What is important to note is that roles are not interchangeable. Many companies choose to hire a controller when they really need a CFO. Although both come from the same area of discipline, their functions and responsibilities are different.
You should not hire a controller and expect them to act as your CFO. Many in the controller role do not have the characteristics necessary to analyze a company’s financial situation, identify issues and opportunities, and represent the financial interests of the business with external parties.
A CFO’s role is more strategic, helping drive the company’s future, while a controller’s role is more tactical, assisting with the day-to-day operations of the finance and accounting departments. CFOs are forward looking; they are focused on what's coming. While controllers focus on looking in the rear-view mirror to see what has happened through historical data. The differences between the two are more than just a matter of semantics.
When Your Company Needs Financial Leadership
Every company needs a financial leader. Depending on the size of your business and its stage of life, the role you choose for that leader might be a controller, CFO, or both. The clarity we provided above can help you make the right choice, but taking action is vital. Don’t wait until you have unchecked growth or are ready to investigate an IPO before getting a financed-minded person on your team to help guide strategic decisions.
And it is OK to start small. If a full-time CFO is not feasible, consider the benefits that a part-time CFO and controller can deliver to your business.
If you believe there is a need for financial leadership in your organization, please contact us here. We would be happy to schedule a complimentary consultation at your convenience to discuss your goals.