Remember the Andrew Garfield character in The Social Network? When he said he was the company CFO, did you know what that meant? A lot of people might have assumed that he was the guy in charge of the company’s bank account. And they wouldn’t have been wrong, exactly. But the role of a CFO is much more than that.
The chief financial officer (CFO) is the corporate officer responsible for overseeing the financial activities of a company. This includes everything from accounting and budgeting to risk management and investor relations. In many cases, the CFO is also responsible for setting and achieving financial targets.
So what does that all mean? Below, we’ll examine:
- The definition of a CFO
- What a CFO does
- The difference between a CFO and a CEO
- How to select a better CFO candidate
Ready? Start counting those dollars, and let’s dive in!
What is a CFO?
Okay, it’s a money man right? Yes, sort of. The CFO is the company’s financial leader and is responsible for all things related to the finances of the organization. This includes both short-term decision-making, such as managing cash flow, and long-term planning, such as setting financial goals.
The CFO position is one of the most important in a company. After all, without proper financial management, a company can quickly find itself in hot water. That’s why it’s so important to select a qualified candidate when you’re looking to fill the role.
What does a CFO do?
On any given day, a CFO’s workload might be completely different. They might be analyzing market data, meeting in person with a client, or reviewing financial reports. But in general, eight key CFO responsibilities take up most of their time.
Developing and implementing financial strategies
First and foremost, the CFO is responsible for steering the ship.
They develop the overall financial strategy for the company and work with other executive leaders to ensure that it’s executed properly. This includes creating budgets, setting targets, and forecasting future revenue and expenses.
The CFO is also responsible for monitoring performance against these targets and reporting any deviations to the CEO. In many cases, they’ll be tasked with developing corrective measures to get the company back on track.
For example, say a company is struggling to meet its quarterly targets. The CFO and their team would prepare an analysis of the situation to figure out what’s causing the problem. They might identify that expenses are too high in one particular area or that revenue is below projections.
Once they’ve pinpointed the issue, they would develop a plan to address it. This could involve cutting costs, increasing sales, or both.
Overseeing the financial operations of the company
It’s not just strategy though. Many CFOs are elbow-deep in the day-to-day financial operations of their company.
This includes everything from overseeing accounting and payroll to managing cash flow and preparing financial statements. In some cases, the CFO might also be responsible for negotiating loans and lines of credit with banks or other lenders.
While some of these responsibilities disappear as a company scales, and the finance team grows, the CFO will always be involved in some capacity.
Preparing and presenting financial reports
Especially in a company that has a board or investor group, the CFO is responsible for regularly presenting financial reports.
This gives them a chance to update key stakeholders on the company’s progress, discuss any deviations from targets, and provide transparency into how money is being spent. Financial reports also provide an opportunity for the CFO to give their recommendations on what should be done moving forward.
C-suite decision-makers have a fiscal responsibility to their shareholders to provide accurate and timely reporting and will need to make the business case for any major changes (or risk being one of those changes themselves.)
If you’re looking to move into a CFO role, or are already there, being able to effectively communicate financial data is critical.
Analyzing financial data to help inform business decisions
While some old-school CFOs might tell you that they “trusted their gut the whole way,” most modern CFOs rely heavily on data to inform their decisions. This means that a typical day might involve reviewing market trends, analyzing financial statements, or developing complex financial models.
The goal is to help other leaders make better business decisions by providing them with accurate and timely information. This might involve anything from advising on a new product launch to negotiating a merger or acquisition.
If, for instance, a company is thinking about entering a new market, the CFO will analyze the potential risks and rewards to help inform that decision. This might involve looking at things like customer demand, competitor analysis, and pricing models. They don’t necessarily have the final say but hold a huge amount of influence.
Risk management is one of the most important responsibilities of a CFO. They need to identify and assess any risks that might impact the company’s ability to meet its financial goals. This includes both short-term risks, like missed deadlines, and long-term risks, like an economic recession.
Once the risks have been identified, the CFO will develop plans to mitigate them. This might involve anything from insurance policies to contingency planning. The goal is to minimize the impact of risk on the company’s bottom line.
If this is done poorly, it can have disastrous consequences. Just look at what happened to Lehman Brothers in 2008. They took on too much risk (clouded by hubris and greed) and ultimately filed for bankruptcy.
At times, this can also be one of the hardest qualities to find in a CFO. They are often so focused on short-term gains that they neglect to plan for long-term risks. This can be a recipe for disaster.
Here is another responsibility that can heavily influence the kind of person you want in a CFO position.
They need to be able to negotiate contracts with vendors, suppliers, and other business partners. This includes everything from payment terms to pricing agreements. And often, these negotiations can be complex and delicate.
A good CFO will be able to navigate these waters without putting the company at a disadvantage. They will also be able to find creative solutions that satisfy both parties. This is a key skill that not all financial leaders possess.
In 2014, the Washington Post interviewed Michael Wheeler, author of The Art of Negotiation. Wheeler explained that it is not just a killer instinct that is needed for negotiation — as some television and film portrayals may suggest. Instead, it is the ability to improvise that Wheeler puts so much emphasis on:
“I’m not a musician myself, but the jazz greats are able to improvise in real-time. In military strategy, they say all plans go out the window at first contact with the enemy. And some of the principles from those realms fit perfectly with negotiation.”
It’s that improvisation (and thorough knowledge of one’s business) that makes a good CFO, as they guide the company through its financial contracts.
Working with investors
Not only does a CFO need to placate investors in the board room, but they also need to go out and find new money. This is especially important for startups and small businesses that are looking to grow.
The CFO is responsible for pitching the company to potential investors or project sponsors and convincing them to part with their hard-earned cash. This requires more than just knowing the numbers — it also requires being able to sell the vision of the company.
This can be a difficult task, as there is always a delicate balance between selling too much and not selling enough.
It is good to be a fan of your own company but the savvy businessman will see right through a snake oil salesman.
The CFO needs to be able to walk this line and find the sweet spot that will result in a successful investment. They also need to have a solid understanding of what valuation methods are appropriate for their company and sector.
Like any executive, developing the next wave of talent for a business is a key CFO responsibility. After all, the CFO position is not a one-man show – there is a whole team of people working under them.
A good CFO will take the time to mentor and develop these employees. They will also create an environment that fosters creativity and growth without micromanagement. This can be difficult, as the finance world is often seen as stuffy and rigid.
But a strong CFO will be able to break down those barriers and build a strong, proactive, innovative team that makes them look even smarter.
CFO vs CEO
You might be thinking “wait, aren’t those all responsibilities of the CEO?” And you wouldn’t be wrong exactly — the CEO is responsible for all aspects of the company. So what’s the difference between a CFO and CEO?
The main difference is that a CFO focuses on financial planning and management, while a CEO is more focused on overall strategy and execution. In other words, the CFO makes sure that the company has enough money to do what it needs to do, and the CEO makes sure that it happens.
- The CFO is responsible for financial planning and forecasting, while the CEO is responsible for setting the company’s overall direction.
- The CFO manages cash flow, while the CEO executes the company’s strategy.
- The CFO creates and explains financial reporting, while the CEO communicates with stakeholders.
It’s important to have both roles filled by competent people, as they are complementary. A good CEO needs to be able to work closely with their CFO to ensure that the company’s financial goals are in line with its overall strategy. They don’t need to be best friends but must be able to have a healthy working relationship.
How to choose a CFO
That’s a big role! When you’re looking for a CFO, it’s important to find someone with the right mix of skills and experience. Here are five qualities to look for.
- Financial expertise: Obviously, this is the most important quality in a CFO. They need to have a deep understanding of financial concepts and be able to apply them practically.
- Business acumen: A good CFO also needs to understand how businesses operate. This includes everything from HR to marketing to product development.
- Communication skills: They also need to be able to communicate their ideas, both in writing and in person. This includes being able to present complex financial concepts in a way that non-financial people can understand.
- Leadership ability: Often seen as a second-in-command type of role, a CFO must have the ability to lead – a different skill than manage – when necessary. This includes being able to train and develop a team of finance professionals so that these core responsibilities can be shared as the company grows.
- Strategic thinking: To be successful, a CFO needs to be able to think long-term. They need to be able to develop financial plans that align with the company’s overall strategy.
- Problem-solving skills: There will always be unexpected challenges that arise, so the CFO must be able to think on their feet and come up with creative solutions.
- Stress management skills: This is a high-pressure job, so it’s important that the CFO can stay calm under pressure. They need to be able to make quick decisions without getting flustered.
These are just a few of the qualities that you should look for in a CFO. Of course, it’s also important to find someone who is a good fit for your company’s culture and values.
Choosing the right CFO is a critical decision for any company. The CFO plays a vital role in the financial health of the organization, so it’s important to select someone who has the right skills and experience for the job.