A Chief Financial Officer (CFO) is an essential part of an organization. While it is a CFOs responsibility to ensure financial discipline, compliance, and internal control, the role also demands involvement in defining business strategy, mitigating risks, and mentoring the leadership. A CFO is someone essential to critical decision-making and planning. He or she brings strategic ideas to the C-suite table, is heavily involved in developing and executing the company’s long-term agenda, and is expected to execute the required upgrades throughout the organization. CFOs also play a vital role in establishing a clear financial baseline for business transformations to happen.
Well, now that we have a quick overview of the responsibilities of a CFO, let’s look at each one of these in more detail. Before we get into the details of how a CFO helps a business, it is beneficial to understand more about the role.
What is a Chief Financial Officer (CFO)?
A Chief Financial Officer (CFO) is an organizational leader responsible for overseeing the financial aspects of the entire organization.
The CFO tracks the end-to-end financial operations of the company. Their primary focus includes:
- Leading the accounting department.
- Implementing corporate goals.
- Supporting the other executives to better understand the firm’s fiscal health.
On the technical side, they help track and maintain the company’s cash flow to make the business financially stable.
CFOs also have to stay ahead of the financial standings of the market and the industry and make pitch presentations or quarterly updates for the organization or any new venture. They are great at communicating with executives and have the drive to steer the company forward during times of business crisis.
CEO vs. CFO
Are CEO & CFO roles different from each other? Well, of course, yes! Let’s find out what these differences are!
CEOs & CFOs share equal responsibilities for overseeing a company’s financial and operational departments, but each one will have its own unique roles and responsibilities. In simple words, CEOs are responsible for steering the organization toward overall success (including increased revenue, market share, brand awareness, etc.). At the same time, the CFO is responsible for ensuring the organization has the right financial resources in place to achieve its goals.
Here are some key differences between a CEO and a CFO
| Chief Executive Officer (CEO) | Chief Financial Officer (CFO) |
| Guides the organization and manages all divisions. | Guides and manages the finance division. |
| Is responsible for the overall strategy of the organization and oversees processes across all departments. | Is responsible for funding the organization’s strategy with monetary resources and forming a company-wide budget. |
| Evaluates business threats and monitor earnings | Evaluates financial threats and sources of income/expense |
| Liaises with all stakeholders. | Liaises with all stakeholders when it comes to implementing a financial strategy. |
| He/she is responsible for the overall operational performance of the organization. | He/she is responsible for the financial performance of an organization. |
| May come from any background (including sales, operations, creative, etc.) | Usually from a finance/accounting background. |
What does a CFO do?
Chief Finance Officers are trusted with one of the most important aspects of a company — the finances. Part of a CFOs responsibility is ensuring that a company utilizes its funds wisely and manages any financial risks that may stand in the way of growth. Hiring a CFO is a necessary investment for the future of any firm.
A Chief Financial Officer (CFO) has a plethora of responsibilities. To be successful in their role, a CFO needs to understand the company’s internal and external environment and leverage the conditions to facilitate growth. The better they know their company & industry, the more accurate their insights will be.
Here’s a list of responsibilities that a CFO will need to cater to:
- Providing leadership and management to the financial department.
- Creating financial strategy recommendations to the CEO/President and executive team.
- Identifying and addressing potential financial risks for the company.
- Overseeing all financial decisions, such as budgeting and auditing.
- Implementing strategies and systems to improve financial performance.
- Supporting the financial department in developing short and long-term financial goals.
- Reviewing financial reports and determining methods to reduce costs.
- Taking control of financial records and documentation.
- Serving as a key point of contact between the financial department and auditors.
- Overseeing the reconciliation of income and expense reports.
- Preparing and analyzing financial statements and profit and loss reports.
- Designing financial models that will benefit different operating initiatives.
- Supervising the finance department and ensuring that all activities are current and updated.
Why Do You Need a CFO?
Strong financial management is something any company needs to survive during hardships, thrive when all business goals are met, and continue improving. That is why companies serious about standing out in the market invest their time and effort in hiring a competent chief financial officer (CFO). A CFO provides an in-depth review of your business model and balance sheets. They work with your board of directors, prepare detailed financial and management reports, work with auditors, oversee tax planning, and set policies around controls and payroll. Their existence is crucial in a company’s atmosphere, especially in one to grow. A CFO can bridge the company’s founders, shareholders, and customers.
Here are some ways a CFO can help you out:
Financial planning
A good financial planner can be an integral part of growing a business, though some entrepreneurs skip over hiring one because they think it will be too expensive. Remember, though, that hiring someone to manage your financial matters shouldn’t be seen as an expense but as an investment in your company’s future. Financial planning is key to driving growth, so it’s wise to enlist strategic services from accountants or tax experts even if you don’t currently require them, as they will only help you in the future.
Monitor spending
The role of the CFO includes overseeing day-to-day operations, as well as budgeting and accounting, tax compliance, risk management, insurance planning, auditing, and more. While each company is different, one thing that remains the same is that every firm needs to spend. A CFOs job is not to control spending but to ensure that every penny spent is done with a goal and return in mind.
Budgetary control
The most crucial role for any finance executive, especially for small- to medium-sized companies, is budgetary control. Unfortunately, this is one area in which smaller organizations tend to lag behind more significant firms; they simply don’t have access to enough high-level data to know where they should direct their resources. It can be challenging even just getting that data from other departments in some cases. The good news is that basic budgetary control, especially cash flow management is relatively easy for a CFO to implement.
Process of raising capital
Obtaining capital for a new business venture is often essential to its success. Some people think you can walk into a bank and get the money, but that’s not how it works. Companies need to undergo a rigorous application process to acquire capital from banks, private investors, or other institutions. It is often impossible to do this without an experienced CFO to help you prepare your pitch decks and connect you to the right set of investors.
What are the advantages of hiring a CFO?
Industry Knowledge
A CFOs sector knowledge helps a firm stand tall against its industry peers. There’s a reason businesses usually try to hire CFOs away from their competitors (just as Netflix did when it hired Activision’s finance leader). Focused expertise is priceless to organizations as it can help them frame accurate KPIs and metrics regardless of the type of company.
Growth Experience
CFOs that have helped organizations scale up rapidly before (whether organically or via M&A) are extremely valuable to CEOs, especially those looking to take their companies public. A CFO helps find investment possibilities and assists the company uses these funds wisely.
Financial Control
With a CFO, you can be confident that your financial department is under control and working smoothly. By choosing the right CFO, you can rest assured that the company’s finances are in good hands. Moreover, they can even help identify the organization’s threats and resolve them even before they affect your business.
Growth in Earnings
Sustaining and growing revenue is one of the most critical tasks CEOs face. When we think about a firm’s earnings, we often tend to focus on the number of sales and confuse that with profitability. However, CFOs play a vital role in managing this approach by using data to get better predictions on profits.
Decision Making
A CFO constantly provides the organization with essential data needed to help it make better and more informed decisions. CFOs also assist with creating an end-to-end strategy that includes specific actions and how to go about implementing them.
Frequently Asked Questions
What is the best option for me? A part-time CFO or a full-time CFO?
Both full-time and part-time CFOs have their respective advantages. In terms of benefits, tax deductions, etc., hiring a full-time CFO is more advantageous; hiring a part-time CFO offers a more significant advantage in terms of salary, flexibility, and expertise. It depends entirely on your needs as an entrepreneur/business owner. One easy way to find the right choice can be by looking at your annual turnover. If your business’ annual turnover is less than 200 Cr, a part-time CFO can be a better choice for you!
What questions should I ask potential CFO candidates?
You want to make sure that your hire is the right person for leading your business finance. That doesn’t just mean getting someone qualified; it also means finding someone who brings a special skill to your team that can help you scale.
Here are three quick-to-answer questions you can ask your prospects:
1) Can they fully assimilate your business vision?
2) What are some of the new strategies they have in mind?
3) How do they see themselves growing further in the CFO role?
Should a company outsource hiring their first CFO?
While it is tempting to do it yourself, it is often better to leave your financial planning to experts who can leverage their experience and industry insights to take you higher. As an SME/Startup, you can surely partner with an outsourced CFO provider to get some capable hands onboard while still keeping your investments in control.
Can you recommend some good resources to learn more about virtual CFOs?
Sure! Whether you’re hiring your first CFO or simply looking for a virtual CFO service provider, CFO Bridge regularly publishes informative content designed to guide you through each step in your growth journey. You can also schedule a free consultation with one of our experts, and we will be happy to help you!
Do you think your business can benefit from having an experienced CFO onboard?
CFO Bridge is India’s largest virtual CFO service provider. Having helped over 400 businesses on their journey to growth, we have the workforce, skills, and expertise to help your business overcome all kinds of financial hurdles.
Book a free consultation with one of our experts today to get a glimpse of the value we add to your business!
