It has been my experience that most small business owners don’t really know what a Chief Financial Officer (CFO) does and often assume that their Certified Public Accountant (CPA) or bookkeeper performs essentially the same duties as the CFO. The analogy I use early on with business owners is that CPAs and bookkeepers look through the rear view mirror at where the business has been while CFOs look through the windshield at where the business owner wants to go. That generally helps make the point that CPAs and CFOs are different, but it still leaves a lot of uncertainty in the business owner’s mind as to what exactly does the CFO do.
The purpose of this article is to remove some of the mystery relative to the roles and functions of the CFO. The job of the CFO falls into five major categories: Planning, Operations, Financial Information, Risk Management, and Financing.
Planning – The CFO is intimately involved in crafting the overall strategic direction of the company. The strategic plan is supported by tactical plans, budgets, and key performance indicators designed to guide the achievement of the desired objectives.
Operations – The CFO is a key member of the management team. In addition to having direct responsibility for several departments, the CFO usually influences or participates in aspects of the operation of other departments such as purchasing, inventory management and production.
Financial Information – There are many internal and external users of financial information including the periodic statements such as the income statement, balance sheet and various management reports. External users may include stockholders, Board of Directors and the SEC in the case of publicly held companies.
Risk Management – There are a great many risks that can be potentially damaging to business. The CFO is a critical player in identifying, understanding and mitigating risks to the business.
Financing – Financing refers to the identification of where the “business” obtains the funds in order to operate effectively and without interruption. The CFO plays an essential role in the monitoring of the cash position of the business and exploring additional sources of capital if needed or determining where to put excess funds to work.
In addition to the above key categories, the CFO is a key member of the management team and usually presents the company’s financial results to the Board of Directors. At the very least this includes the Income Statement, Balance Sheet, Cash Flow Statement and perhaps Key Performance metrics.
A second important relationship that needs to be developed is that with the Audit Committee and Auditors. The audit committee does not work directly for the CFO, but joint participation is vital, particularly when a formal audit by an external accounting firm is being conducted.
This article has endeavored to to clarify the roles and responsibilities of the Chief Financial Officer. The CFO Guidebook served as the basis of the concepts for this article.