What is a CFO in business? If you’re asking this question right now, you probably want to learn more about it and what it means for you as a business owner.
CFOs are vital in ensuring an organization’s financial status is stable.
As such, they are very vital in the business world.
Read on to find out all you need to know about this important business term.
What Is a CFO? – What Is a CFO in Business
CFO is an abbreviation for Chief Financial Officer.
It is the title specifically given to the senior financial manager in a company or organization.
In the financial department, there is no other official above a CFO.
A CFO supervises all the financial activities in an organization.
In other words, they are responsible for building an effective accounting team to maintain the financial status of a business.
Their responsibilities also include the following:
- First, working with leaders of departments in crafting budgets and analyzing financial data.
- Obtaining funds.
- Other financial-related tasks.
Additionally, they report and consult an organization’s CEO and board of directors on finance-related strategy.
Furthermore, a CFO is accountable to their organization and different regulatory authorities and entities.
The CFO is also accountable to the (SEC) Securities and Exchange Commission for a publicly held company.
Plus, CFOs are expected to know federal and state regulations and generally accepted accounting principles (GAAP).
Above all, organizations value visionaries CFOs because they keep the future in perspective, and work effectively with the organization’s leadership and recommend strategic moves.
CFO Versus Other Executive Posts – What Is a CFO in Business
Sometimes the position of a CFO can be confused with the following:
CEO versus CFO
The (CEO) Chief Executive Officer of an organization is the top-ranking executive.
Specifically, this office serves as an organisation’s official voice and even more face to the press, general public, analysts, and sometimes the organization’s board.
Depending on an organization’s structure, a CEO can be in charge of every aspect of the organization’s operational and financial health.
Or they might have to share some responsibility with a president.
Conversely, a CFO is an organization’s top senior financial manager or officer.
They directly report to CEOs and closely work with boards of organizations.
From an organizational chart standpoint, a CEO has a top-level position.
However, in well-functioning companies, a CEO and CFO work collaboratively and closely, but the CFO serves as a sounding board, strategist, and risk mitigator.
Financial Controller versus CFO – What Is a CFO in Business
Financial controllers are certified public accountants (CPA) and often have an MBA (Master in Business Administration) degree.
Specifically, their duties include analyzing financial data and preparing financial reports.
Also, they are responsible for an organization’s accounting function and report to the chief financial officer.
Financial controllers are often a member of a CFO team.
Moreover, CFOs depend on the reports obtained from accounting and financial controllers to consult CEOs and their boards of directors on the best strategic direction for organizations; finances.
What Do CFOs do? – What Is a CFO in Business
The role of CFOs is twofold: supervising the finical activities of an organization and acting as a strategic advisor to CEOs and the C-suite.
In the purview of the CFO, achieving goals, stabling cash flow, and meeting revenue are included.
A finance chief is also expected to advise and assist leaders of departments in the organization in maximizing revenues.
Moreover, they are to assist the leaders in controlling operating costs without sacrificing employee or customer satisfaction or even the company’s reputation.
Additionally, they assist the finance team in recruiting skilled and qualified staff.
CFOs analyze past, current, and future financial data.
With this information, they assist CEOs in making sound financial decisions.
CFOs Responsibilities – What Is a CFO in Business
Generally, CFOs act in a twofold role; the following are the defined responsibilities of CFOs
This refers to when an organization is unable to pay its liabilities that are due within a year (short-term liabilities)
For clarity, if an organization doesn’t have liquid or readily accessible funds to pay those liabilities, it will face liquidity.
Liquidity is measured as a percentage or ratio of what organizations owe against what they own.
Here, the CFO is tasked with ensuring that substantial cash is available to meet all financial obligations of the organization.
So, they work to ensure that customers pay on time, fully cover payments, and control the organisation’s expenses.
Forecasting – What Is a CFO in Business
CFOs do not only base their report on organisations’ current or past financial status.
They also conduct financial forecasting, which makes them highly valuable to organizations.
Financial forecasting entails predicting likely future results based on a company’s past performance and external and internal factors that might affect expenses and revenue.
Furthermore, CFOs are tasked with breaking down and understanding departmental stage forecasts and creating profit projections.
The internal factors are HR and labour costs, raw materials price, sales trends, etc.
Meanwhile, external factors can include changes in demand, capital opportunity cost, technology advances, and emerging competitors.
CFOs often rely on analyst business and firm, general media, and government data to monitor external factors.
And they sometimes supplement their research with insights from association members and trade and inputs from lenders and board members.
(ROI) Return on Investment
Another aspect of CFOs’ strategic role is focusing on and ensuring that their organizations have a firm return on investment.
ROI measures an organisation’s chance of getting a return on the amount it invested and the exact return amount.
Return on investment measures the loss or gain of investments and is expressed as a ratio or percentage.
The CFOs are responsible for overseeing the evaluation and measurement of their organization’s ROI to see how well their investment is fairing or yielding.
Reporting – What Is a CFO in Business
Lastly, CFOs are responsible for making financial reports which include P&L, cash flow statements, and balance sheets.
Their financial reports are made to external shareholders and internal leaders to help them understand their business’s financial state.
Particularly, it is the CFO’s role to confirm that their statements or reports are correct and are in total accordance with the generally accepted accounting principles (GAAP).
Several businesses create their statements to be available in case they seek a loan from a bank, equity funding, or venture capital.
CFO’s Team Members – What Is a CFO in Business
A CFO’s main duties depend on their organization’s size, private or public company, and industry.
Nevertheless, a CFO’s functional area of duties generally falls into three categories: treasury, forecasting and strategy, and controller.
Therefore, an organization is expected to have professional personnel performing some roles under these categories and reporting to their CFO.
Controller – What Is a CFO in Business
Controllers run the daily financial operations and accounting of an organization.
Specifically, controllers oversee financial reporting, prepare operating budgets, and perform payroll-related duties.
Across all their duties, controllers often work with collecting, analysing, and consolidating financial data.
Controllers often hold an MBA degree or a CPA certification.
All of their work is reported back to their CFO.
A treasurer deals with a company’s liquidity, assets, and debts.
This includes managing the company’s investments, physical assets like equipment or building, and financial investments.
A treasurer is expected to have a finance or accounting degree or a CPA certification.
Forecasting and Strategy – What Is a CFO in Business
Forecasting and strategy are all about using available reports and external and internal data to advise senior officials and department leaders on different areas.
The team responsible for this is the FP&A team, who reports to the CFO.
All these different personals are important for CFOs to execute their responsibilities effectively.
Skills and Qualities Needed To Be a Successful CFOs – What Is a CFO in Business
CFOs are required to have a finance or accounting background and a business degree.
However, a CFO needs more than that to succeed in their position.
Particularly, they need several soft skills and qualities that include:
CFOs oversee all financial activities and give financial reports and advice to CEOs and board members.
To do this, they will need to communicate with people.
If they lack good communication skills, they will struggle to communicate their thoughts to board members and team members.
Additionally, their communication skills will make them transparent and open with their subordinates and superiors.
As a result, this will allow them to provide clear and accurate reports and advice to their superiors and earn the respect of their subordinates.
Critical Thinking – What Is a CFO in Business
Another important skill a CFO should possess is critical thinking skill.
A CFO needs critical thinking skills to succeed in their role and responsibilities.
This is because they give financial advice to an organization’s top leaders in pushing their business forward.
However, if they lack critical thinking skills, they will struggle with making strategies and providing the needed financial advice to their superiors.
Critical thinking skills will help them better understand different financial issues and what to do better to mitigate risk.
Above all, this skill will help them discover the best step or direction to take when an organisational change occurs.
A CFO needs to possess strong leadership skills.
They need to earn respect in the company they work for to ensure that they are taken seriously by both their subordinates and superiors.
A CFO earns the respect of people in their organization by daily demonstrating good principles and ethics.
The following are some of the leadership skills that a CFO needs to be effective and successful:
First, the CFO should be able to influence people and bring them together to align with the organization’s financial goals and vision.
Specifically, trust, open communication, and transparency make it easier to be influential.
Also, generating optimism that lifts people’s spirits in every circumstance can help improve a leader’s ability to influence others.
Adaptability – What Is a CFO in Business
A CFO needs to adapt and work efficiently in different environments despite changing circumstances.
Their ability to adapt to different changes and situations will consequently help them build an agile organization.
Gratitude and Respect
Finally, CFOs should be able to respect and appreciate their subordinates.
This, as a result, will empower their subordinates and makes them good decision-makers and self-starters.
In all, a CFO should trust those under them to make decisions and provide avenues for them to take on more responsibilities.
Courage/ Composure – What Is a CFO in Business
CFOs need to be courageous to do the right things and challenge others in overwhelming or difficult situations.
Changes often occur in companies, and they are usually scary.
Equally important, a CFO should be brave and bold to see past challenges, changes, and dangerous tendencies, see the bigger picture and, even more, guarantee others that their decision, advice, or action will work out.
As they need to be courageous, they also need to be calm, consistent and collected.
Ultimately, this will show others they are in control and confident and make it easier for others to trust their judgment.
Challenges of CFOs – What Is a CFO in Business
CFOs experience multiple challenges on different fronts.
These are some of the challenges they encounter:
Handling Several Responsibilities
First, CFOs have a broad role that often grows based on situations and needs.
Juggling so many responsibilities can be quite challenging for them.
Therefore, it will work best for them if they can delegate some tasks effectively to employees under them.
Managing Cashflow – What Is a CFO in Business
Another challenging task for finance chiefs is maintaining cash flow.
This is because they have to manage accounts receivables and incoming revenue while watching long-term liabilities and outgoing payments.
Again, having practical hands working with them on this will make it easier for them.
Producing Accurate and Timely Reports
Thirdly, making reports and delivering reports are one of their main responsibilities.
Their reports have to be timely and accurate.
Often, it can be challenging to gather all the documentation, statements, analysis, and others needed to make their report accurate.
Developing Precise Financial Scenarios – What Is a CFO in Business
Scenario analysis helps CFOs understand economic conditions and predict how they can impact an organization financially.
CFOs use this analysis to strategize for negative and positive outcomes.
However, they often face the challenge of developing precise financial scenarios.
Implementing Finance Tech
Lastly, CFOs make use of sophisticated technology for forecasting and reporting.
They make their work easier and more effective.
However, most tech needs human and financial capital to get and implement them.
So, it can be challenging getting these techs.
Advantage of Hiring a CFO – What Is a CFO in Business
CFOs serve a vital role in ensuring the financial health of an organization.
They help CEOs, and board members make good financial decisions that benefit organizations.
Apart from this, your company can benefit the following from having a CFO:
CFOs provide good leadership to the accounting and finance teams.
They build up teams that will be effective and successful.
Interestingly, CFOs know and understand when an organization needs more accounting or financing team personnel.
They are the ones capable of effectively defining roles and assigning responsibilities.
Avoid Financial Fraud and Error– What Is a CFO in Business
Another benefit is that CFOs work with organizations’ bookkeepers to keep every financial book in order.
Specifically, they oversee the books and ensure they are error-free before submitting the needed yearly or quarterly information and data to the IRS.
Fractional CFOs are often the vital player that links business bookkeeper and accountant.
In small businesses, part-time CFOs often act as bookkeepers.
Provide Financial Strategy and Advice
Furthermore, a CFO evaluates opportunities and makes forecasts based on internal and external factors that can influence business finance.
With their evaluation and forecasting, they can create strategies to benefit a business despite changing factors financially.
Also, they provide the CEO and other senior officials with advice that will enable them to make sound financial decisions.
Risk Identification, Assessment, and Management
CFOs identify risks arising from financial situations, like when a business owes several debts or little liquidity.
They identify them in time, assess them, and then take steps to manage them.
If an organization doesn’t have a CFO, it might suffer a lot of financial risks.
Negotiate With Vendors and Customers – What Is a CFO in Business
CFO also serves as a negotiator.
They negotiate prices and rates with organizations’ vendors and customers.
To be precise, CFOs know the financial status of the company they work for, so they know the prices they can accept from their vendors and customers.
They work to achieve the most beneficial rates, credit lines, terms and conditions, and also options for payment.
This can ultimately help your company have a sustained and available cash flow that will ensure that your business operation keeps running smoothly.
Build Relationships with Different Funding Sources
Another merit is that a good CFO identifies and knows the best institution or firm to get funds for business operations.
When there is a need for funds, they reach out to those institutions or firms.
They ensure that they build good relationships with them and provide them with the necessary information to get the needed funds or capital.
This, as a result, makes it easier for your business to get funds and capital.
Oversee Organizational Changes – What Is a CFO in Business
Organizational changes such as IPOs, mergers, and acquisition affects ownership.
Most organization undergoes these changes because of growth purposes.
CFOs are the ones who oversee these changes by providing the appropriate analysis and strategic plans that will direct the organization on how to transition smoothly.
Conclusion on What Is a CFO in Business
Finally, we have come to the end of our day’s discussion.
In summary, a CFO is vital in ensuring a company’s finances are stable.
In addition, they heir play a two-fold role in any organisation- supervising financial activities and serving as financial advisers to CEOs and board members.
This makes them valuable assets to businesses.
CFOs’ responsibilities involve reporting, forecasting, and others.
They are expected to have a background in finance or accounting and an MBA.
Notwithstanding, CFO still needs some soft skills to be successful in their positions.
Overall, we’ve discussed every important information there is to know about what a CFO is in business.
We also hope that this gives you a better grasp of this concept and what it means for your business.