Big public companies may have defined the CFO role, but the chief financial officer position is becoming increasingly common in midsize and even small firms. Recent postings for full-time CFOs on job-search sites include an emerging air mobility design and manufacturing company in Massachusetts with fewer than 20 employees and a 94-bed community hospital in Hawaii.
What’s driving that investment in expertise? Often, CEOs who are at a strategic crossroads and recognize the value of an expert financial adviser who can help them grow market share, and their businesses.
In short, smart companies now view the CFO position — both internal and on a virtual or fractional CFO basis — as more of an investment than an expense.
There’s no doubt that a global pandemic made the value of an experienced hand on the finance helm very evident. But our take is that there’s more to the rise of the CFO than an economic crisis. Let’s look at the role, responsibilities and skills finance chiefs need to serve their companies well.
What Is a Chief Financial Officer (CFO)?
A chief financial officer (CFO) is the highest-ranking financial professional in an organization and is responsible for the fiscal health of the business. The CFO’s responsibilities include, but aren’t limited to, building a top-notch finance and accounting team, ensuring revenues and expenses stay in balance, overseeing FP&A (financial planning & analysis) functions, making recommendations on mergers and acquisitions, obtaining funding, working with department heads to analyze 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, especially fintech, and make recommendations on everything from supply chain to marketing based on their fiscal insights and industry knowledge.
The most-valued CFOs are visionaries — they have an eye toward the future, work closely with top leadership and aren’t shy about recommending strategic moves.
CEO vs. CFO
The chief executive officer (CEO) is a company’s highest-ranking executive. Depending on corporate structure, the CEO may be responsible for all aspects of a company’s operational and fiscal health, or a president may share some duties. The CEO is the official face and voice of the company to press and analysts, the general public and, if applicable, the board of directors.
CFOs are the most senior financial officers in an organization. They report directly to the CEO and work closely with the board of directors.
While the CEO occupies a higher-level position from an org-chart standpoint, in high-functioning companies, the CFO and CEO work closely and collaboratively, with CFOs serving as sounding boards, strategists and risk mitigators.
Financial Controller vs. CFO
A financial controller is a CPA (certified public accountant) and often holds an MBA. Financial controllers are responsible for preparing financial reports and analyzing financial data. The financial controller is generally in charge of the accounting function in an organization and reports to the CFO. A controller may be part of a team that includes bookkeepers, accounts receivable/payable clerks, payroll specialists, tax preparers and accountants.
The CFO relies on the reporting generated by accounting and the financial controller to advise the CEO and board on the company’s strategic financial direction. The controller and other functional specialists report to the CFO.
- What informs the need for a CFO is less company size than a desire for a strategic adviser with deep financial expertise.
- CFOs are captains of a team that covers both accounting and finance and consists of senior leaders, such as controllers and VPs of finance, and operational staff — accountants, bookkeepers, tax specialists, data analysts.
- Serving as a CFO requires a background in accounting or finance and an advanced business degree, generally including an MBA. But it also takes plenty of soft skills.
Chief Financial Officer (CFO) Defined
The chief financial officer (CFOs) holds the top financial position in an organization. They are responsible for tracking cash flow and financial planning and analyzing the company’s financial strengths and weaknesses and proposing strategic directions.
CFOs are accountable to both the organization and various regulatory entities and authorities, including the Securities and Exchange Commission (SEC) in publicly held companies. They are well-versed in both generally accepted accounting principles (GAAP) and state and federal regulations, such as the Sarbanes-Oxley Act.
What Does a CFO Do?
The CFO’s role is twofold: Oversee the organization’s financial activities, including being responsible for the finance and accounting professionals who perform operational functions, and serve in a strategic advisory role for the CEO and C-suite peers.
Brainyard’s Winter 2021 Survey shows how finance and business leaders rank success factors and how those priorities have changed over time.
Meeting revenue and earnings goals and keeping cash flow stable are clearly in the CFO’s purview. Finance chiefs also advise department heads across the organization, assisting them in both maximizing 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 helps select skilled staff for the finance team and works with departments to allocate budget for human capital management.
CFOs put complex data — current, past and predicted financial results — in perspective and help the CEO make sound financial decisions: Should we introduce this new product or service? Can we afford to on-shore our supply chain? What are the tax implications of our employees working from anywhere?
Liquidity refers to an organization’s ability to pay off its short-term liabilities — those that will come due in less than a year — with readily accessible, or liquid, funds. Liquidity is usually expressed as a ratio or a percentage of what the company owes against what it owns.
CFOs are concerned with ensuring that customer payments are made in full and on time and controlling expenses so that enough cash is on hand to meet financial obligations.
Return on investment (ROI)
Part of a CFO’s strategic focus is on ensuring a strong return on investment (ROI) for their organizations. ROI is a measure of the likelihood of receiving a return on dollars invested and the precise amount of that return. As a ratio, it looks at the gain or loss of an investment as a percentage of the cost.
Because ROI is a relatively basic KPI that does not account for all variables — net present value, for example — CFOs add context to evaluate whether a project will deliver sufficiently robust ROI to be worth the investment.
Importantly, CFOs don’t only report what is — a significant part of their value to an organization is their ability to accurately predict likely future outcomes. That includes financial forecasting and modeling based not only on the company’s past performance but on internal and external factors that may affect revenue and expenses. The CFO is tasked with making sense of the various departmental level forecasts to create profit projections for the CEO and shareholders.
Internal factors include sales trends, labor and HR-related costs, the price of raw materials and more, while external data inputs could include opportunity cost for capital, shifts in market demand, emerging competitors and advances in technology.
To monitor the external environment, CFOs may rely on government data, analyst firms and business and general media, supplemented with insights gleaned through trade and association memberships and the input of board members, lenders and others.
Financial reports including balance sheets and P&L and cash flow statements help both internal leaders and external stakeholders understand the financial state of the business, and it’s up to the CFO to attest that these statements are accurate and complete in accordance with generally accepted accounting principles (GAAP).
Although private companies are required to file financial reports with the SEC only if they have $10 million or more in assets and 500 or more shareholders, many businesses create these statements anyway so they’re available should the company seek a bank loan or venture capital or equity funding.
Members of the CFO’s Team
The key duties of the CFO position vary depending on the size of the organization, its industry and whether it’s a public or private company but generally fall into three broad functional areas: controller, treasury and strategy and forecasting.
Organizations may have professionals overseeing some or all of these roles and reporting to the CFO.
Controllers run day-to-day accounting and financial operations and often hold a CPA or MBA. They are responsible for creating reports that provide insights into a company’s financial standing, including accounts receivable, accounts payable, inventory and payroll.
The treasurer is responsible for the company’s liquidity, debt and assets. That includes any investments the company may have, whether physical assets, such as buildings and equipment, or financial investments.
Strategy & forecasting:
Strategy and forecasting involves using available data and reports, both internal and external, to advise on areas including product development, market expansion, human capital management, M&A and capital investments. It’s also where structured planning and forecasting exercises, like scenario planning and FP&A, fall.
Controllers, treasurers and FP&A analysts are invaluable members of the team, but in all these areas, the buck stops at the CFO’s desk.
Benefits of Having a CFO
CFOs guide the finance and accounting team and have a broad view of an organization’s financial health, allowing the CEO as well as peers including the CMO, COO and VPs of HR and sales to focus on their own goals and operational issues. While a CEO or COO may have a background in accounting or finance, they generally don’t possess the same level of technical acumen and experience that a chief financial officer brings to the table.
In addition, a CFO provides:
Leadership skillsthat enable them to assemble a successful finance and accounting team. CFOs understand at what point a company needs to add, for example, a tax specialist and will define roles and assign responsibilities.
Industry knowledgethat enables a company to benchmark itself against peers. There’s a reason B2C often seek to hire CFOs away from competitors, as Netflix did when it hired Activision’s finance chief. Same for manufacturers and healthcare providers. Specialized expertise is key in framing KPIs and metrics for various company types.
Growth experiencegleaned from helping previous employers successfully expand, whether organically or via M&A, is invaluable to CEOs, especially those looking to take their companies public. A CFO helps find investment opportunities and use capital wisely.
Risk assessment and management, in terms of regulatory compliance but also the dangers that arise from too much debt and too little liquidity, brittle supply chains, improperly hired contractors and poorly implemented technology.
While hiring an experienced CFO is an investment, the return can be significant.
5 Top CFO Challenges
Today’s CFOs face challenges on multiple fronts, even as they benefit from ongoing technological advances and the ability to analyze and forecast based on massive amounts of data. These are the top five challenges challenges facing CFOs:
Juggling too many responsibilities (51%):
As we’ve seen, this role is a broad and expanding one. A growing regulatory landscape, rapidly evolving technology and massive market shifts worldwide squeeze CFOs from one side, while difficulty finding and retaining the right accounting and finance talent adds pressure from a time-management POV.
Managing cash flow (43%):
All organizations need runway, but maintaining a healthy cash flow is a balancing act. CFOs must manage both incoming revenues and accounts receivables while keeping an eye on outgoing payments and short- and long-term liability. Cash flow analysis is an ongoing endeavor.
Developing accurate financial scenarios (43%):
Like cash flow analysis, scenario analysis is, or should be, an ongoing process. By guiding thorough analysis of the potential impacts of a variety of economic conditions on the organization’s revenues, CFOs can plan for both positive and negative outcomes.
Producing timely, accurate reports (37%):
Timely reporting has always been critical, but in a fast-paced global business environment, access to information is the foundation of sound, strategic decisions and identifying and avoiding risks. Moreover, the reports issued by the finance team, like P&L statements, can make or break efforts to obtain financing.
Implementing tech for finance (33%):
CFOs are aided in their roles by increasingly sophisticated technology that can help with both reporting and forecasting, including dashboards with built-in business intelligence. But tech represents a significant investment in both capital and human resources.
We’re likely to continue seeing these challenges into 2021 as CFOs tackle the pandemic’s lingering effects on sales, consumer demand and the workforce.
Changing Role of the CFO
Companies that look at the CFO role as more about reporting, less about strategy are or will soon be at a disadvantage. Yes, finance chiefs need to ensure that they and the management team have timely data to support decisions. But strategic planning and collaboration across all parts of the business are what drive success.
Thus, it’s no wonder that CFO surveys consistently show that evolution. Especially in small and midsize businesses, CFOs tend to wear many hats. Not only are they doing the traditional CFO job, they’re assessing cyber security risks, managing system and data integration, filling talent needs and evaluating new technologies like Blockchain and AI.
When Should You Hire a CFO?
Organizations should consider hiring a CFO when the CEO and more junior financial staff no longer have the skills to adequately evaluate the organization’s fiscal standing, assess cash flow, forecast future financial needs and inform business strategy. Some experts advise $10 million in annual revenue as a marker that it’s time to hire a full-time CFO. But don’t forget that part-time/fractional and virtual CFO-as-a-service offerings are available.
While many organizations may wait to create this role until they begin to experience financial challenges, we recommend a more proactive stance. Ask yourself:
Are we beginning to pursue a growth strategy? If so, you’ll need deep insights into P&L, income and cash flow statements. Who will look at the books if you spot an acquisition opportunity? Banks and other potential investors like having a CFO attest to accuracy and completeness. Oh, and have you calculated your valuation multiples lately?
Do we have a sound, repeatable planning and budgeting process? If not, you lack a firm financial foundation. Ad hoc is no way to run a business.
Are we using our data fully, and not just in the obvious areas? For example, are we mining ecommerce data to inform customer success programs? CFOs tend to champion data use.
Do we feel confident in financial reporting requirements? For example, were intangible assets impaired due to the economic downturn? If so, how will you account for that?
Then there are industry-specific considerations. For many manufacturers, retailers and distributors, the pandemic revealed weaknesses in supply chain operations that an experienced CFO can help address.
CFO compensation in public companies is typically a mix of cash and stock. In both public and private businesses, remuneration is based on a number of factors, from company size and industry to geography, experience, seniority and how many finance/accounting divisions or departments report in to the CFO. In 2021, the highest-paid CFO by a wide margin was Goldman Sachs’ Stephen Scherr, at $20.2 million total comp. Among all companies, U.S. CFO pay as of early 2021 averaged $394,235, according to Salary.com data. But at smaller companies, pay hovers between $150,000 and $200,000, according to salary and job sites.
CFO Qualifications & Skills
Serving as a CFO requires a background in accounting or finance and an advanced business degree, generally including an MBA. CFOs must also have experience analyzing data to make recommendations on financial and organizational strategy.
In addition to having "hard skills," including understanding generally accepted accounting principles (GAAP), budgeting and data analysis, today’s CFOs need to have solid leadership and management chops — the "soft skills" of effective communication, conflict management and negotiation.
Individuals in this role must forecast and offer strategic direction to the organization based not only on internal data but also on the external environment — regulatory, market and macroeconomic — and be able to advise on industry-specific challenges and opportunities.
Finally, CFOs need a firm grasp of financial technology, or fintech — its ongoing evolution, options available and their applications, how to make financially sound decisions about IT investments and infrastructure and how to communicate to and educate staff to ensure full adoption across the organization — if tech is not used, there goes your ROI.
Technologies CFOs Use
CFOs and their teams rely on technology to analyze the massive amounts of data available to them. Modern financial management software helps with informed decision-making, freeing up time to focus on strategy and the critical advisory role.
CFOs need core financial reporting, audit and compliance capabilities and should also look for integrated systems that can help in FP&A, treasury and capital structure and allocation, regulatory compliance and corporate portfolio management and modeling.
Today’s CFOs are working long hours — 54% of CFOs in a recent Brainyard survey say they’re working 50 hours or more per week — and juggling a lot of responsibilities. But the return is a fulfilling job where senior financial professionals are able to take advantage of their experience and work closely with CEOs to build not only great companies but rewarding careers.
Is a CFO an accountant?
While a CFO may have an accounting background, that is not necessary to achieve success in the CFO role. Accounting encompasses activities around AR, AP and maintaining financial records. While CFOs depend on these activities, many chief financial officers have a broader financial skill set and focus more on managing assets and liabilities, planning future growth, business strategies and risk management. Unlike an accountant, the CFO provides forecasts and makes strategic recommendations on organizational direction to the board, CEO and other senior leaders.
What is the CFO in charge of?
Chief financial officers hold the top financial position in an organization. They are responsible for forecasting the organization’s financial standing based on financial and operational data and reports provided by the finance and accounting teams and advising the CEO and board on strategic direction.
Is the CEO higher than the CFO?
The CEO is the chief executive officer of a company and is above the CFO on the organizational chart. CFOs often work closely with the CEO and weigh in on high-level strategic decisions. Both the CEO and CFO have a direct conduit to the board or directors and are entrusted with the organization’s stewardship.
How do you become a CFO?
CFOs generally come up through the ranks, holding a variety of financial positions, such as VP of finance or controller, before rising to the C-level. Many also have deep business backgrounds, often hold dual degrees in business and finance and/or an MBA and have gained industry-specific expertise. Experience at lower responsibility levels positions finance professionals to achieve the CFO role.
What qualifications are needed to become a CFO?
CFOs need operational knowledge related to accounting, finance and general business practices and an ability to think strategically and see the big picture. Companies generally look for advanced degrees or commensurate experience.
Because of the significant impact of technology on all aspects of business, including finance, today’s CFOs must also be familiar with the software required to run a modern finance and accounting operation.