The CFO role may have been defined by large public companies, but the position is becoming more common in midsize and even small businesses. Recent job postings for full-time CFOs on job-search websites include a 94-bed community hospital in Hawaii and an emerging air mobility design and manufacturing company in Massachusetts with fewer than 20 employees.
What motivates this investment in expertise? CEOs who are at a strategic crossroads frequently recognise the value of a skilled financial adviser who can assist them in increasing market share and growing their businesses.
In short, smart businesses now regard the CFO position — both internal and virtual or fractional CFO — as an investment rather than an expense.
There’s no doubt that a global pandemic highlighted the importance of having an experienced hand at the helm of finance. But, in our opinion, the rise of the CFO is more than just an economic crisis. Let’s take a look at the role, responsibilities, and skills that finance executives require to be effective in their roles.
What Is the Chief Financial Officer’s (CFO) Role?
A chief financial officer (CFO) is the highest-ranking financial professional in an organisation and is in charge of the company’s financial health. The CFO is responsible for developing a strong finance and accounting team, ensuring that revenues and expenses are balanced, supervising FP&A (financial planning and analysis) functions, making merger and acquisition recommendations, obtaining funding, working with department heads to analyse financial data and craft budgets, attesting to the accuracy of reports, and consulting with boards of directors and the CEO on strategy.
CFOs may also help set technology direction, particularly in fintech, and make recommendations on everything from supply chain to marketing based on their fiscal insights and industry knowledge.
The most valuable CFOs are visionaries; they look ahead, collaborate closely with top management, and aren’t afraid to recommend strategic moves.
What Does an AKSSAI Chief Financial Officer Do?
The CFO’s role is twofold: he or she oversees the organization’s financial activities, including being responsible for the finance and accounting professionals who perform operational functions, and he or she serves as a strategic advisor to the CEO and other C-suite peers.
The Winter 2021 Survey from Brainyard reveals how finance and business leaders rank success factors and how those priorities have changed over time.
Meeting revenue and earnings targets, as well as maintaining cash flow stability, are clearly the CFO’s responsibilities. Finance executives also provide advice to department heads throughout the organisation, assisting them in both maximising revenues, if they serve in a revenue-generating capacity, and controlling expenses without sacrificing customer or employee satisfaction or the company’s reputation.
The CFO assists in the selection of skilled personnel for the finance team and collaborates with departments to allocate budget for human capital management.
CFOs put complex data — current, past, and predicted financial results — into context and assist the CEO in making sound financial decisions, such as: Should we launch this new product or service? Can we afford to bring our supply chain in-house? What are the tax consequences of our employees working from home?
CFOs are in charge of the following tasks on a larger scale:
The ability of an organisation to pay off its short-term liabilities — those due in less than a year — with readily available, or liquid, funds is referred to as liquidity. The liquidity of a company is typically expressed as a ratio or percentage of what it owes versus what it owns.
CFOs are concerned with ensuring that customer payments are made in full and on time, as well as controlling expenses to ensure that there is enough cash on hand to meet financial obligations.
Return on investment (ROI)
A CFO’s strategic focus includes ensuring a high return on investment (ROI) for their companies. ROI is a measure of the likelihood of receiving a return on investment as well as the exact amount of that return. It considers the gain or loss of an investment as a percentage of the cost.
Because ROI is a relatively simple KPI that does not account for all variables — for example, net present value — CFOs add context to determine whether a project will deliver a sufficiently robust ROI to justify the investment.
Importantly, CFOs don’t just report what is; their ability to accurately predict likely future outcomes is a significant part of their value to an organisation. This includes financial forecasting and modelling based not only on past performance of the company but also on internal and external factors that may affect revenue and expenses. The CFO is in charge of making sense of the various departmental forecasts in order to generate profit projections for the CEO and shareholders.
Internal factors include sales trends, labour and HR-related costs, raw material prices, and other factors, whereas external data inputs could include opportunity costs for capital, shifts in market demand, emerging competitors, and technological advances.
CFOs may rely on government data, analyst firms, and business and general media to monitor the external environment, supplemented by insights gained through trade and association memberships and input from board members, lenders, and others.
Financial reports, such as balance sheets, profit and loss statements, and cash flow statements, assist both internal leaders and external stakeholders in understanding the financial state of the business, and it is the CFO’s responsibility to certify that these statements are accurate and complete in accordance with generally accepted accounting principles (GAAP).
Although private companies are only required to file financial reports with the SEC if they have $10 million in assets and 500 or more shareholders, many businesses create these statements anyway in case they need a bank loan, venture capital, or equity funding.
AKSSAI’s CFO Responsibilities
The primary responsibilities of the CFO vary depending on the organization’s size, industry, and whether it is a public or private company, but they generally fall into three broad functional areas: controller, treasury, and strategy and forecasting.
Some or all of these roles may be overseen by professionals who report to the CFO.
Controller: Controllers manage day-to-day accounting and financial operations and frequently hold a CPA or MBA. They are in charge of creating reports that provide information about a company’s financial situation, such as accounts receivable, accounts payable, inventory, and payroll.
Treasury: The treasurer is in charge of the company’s liquidity, debt, and assets. This includes any investments made by the company, whether they are physical assets like buildings and equipment or financial investments.
Strategy & forecasting: Strategy and forecasting entails advising on areas such as product development, market expansion, human capital management, M&A, and capital investments using available data and reports, both internal and external. It also includes structured planning and forecasting exercises such as scenario planning and FP&A.
Controllers, treasurers, and FP&A analysts are valuable team members, but the buck stops at the CFO’s desk in all of these areas.
Advantages of Having a AKSSAI Chief Financial Officer
CFOs direct the finance and accounting teams and have a broad view of an organization’s financial health, allowing the CEO and peers such as the CMO, COO, and VPs of HR and sales to focus on their respective goals and operational issues. While a CEO or COO may have a background in accounting or finance, they typically lack the technical knowledge and experience that a chief financial officer brings to the table.
A CFO also provides:
leadership skills that allow them to put together a successful finance and accounting team. CFOs understand when a company needs to hire someone like a tax specialist and will define roles and responsibilities.
Industry knowledge allows a company to compare itself to its competitors. There’s a reason why B2C companies often try to poach CFOs from competitors, as Netflix did when it hired Activision’s finance chief. Manufacturers and healthcare providers are in the same boat. Specialized knowledge is essential in developing KPIs and metrics for various business types.
Growth experience gained from assisting previous employers in successfully expanding, whether organically or through M&A, is invaluable to CEOs, particularly those looking to go public. A CFO assists in the identification of investment opportunities and the prudent use of capital.
Risk assessment and management, including regulatory compliance as well as the dangers of excessive debt and insufficient liquidity, brittle supply chains, improperly hired contractors, and poorly implemented technology.
While hiring an experienced CFO is an investment, the payback can be substantial.