What is a CFO? Overview of CFO Duties & Responsibilities

A chief financial officer or CFO is the senior executive in your finance department who is responsible for analyzing and tracking the financial impact of your business decisions.

In particular, the CFO is responsible for anticipating financial roadblocks or opportunities and bringing these insights to the owner and executive team to drive success throughout the organization.

As a business owner, you are possibly at the crossroads of deciding when to hire a CFO.

Let’s start with understanding the jobs and duties required of a CFO and then determine when your business is financially ready to hire a CFO.

In this article, we will answer the following five questions:

1. What are the duties of a CFO?
2. Who does the CFO report to?
3. What qualities should a CFO have?
4. When should a CFO be hired?
5. Why hire an outsourced CFO?

What Are the Duties of a CFO?

CFO duties include forecasting financial statements,  analyzing cash flow, keeping and reporting financial records, tracking return on investment, managing financial risks, and analyzing data. In layman’s terms, a CFO analyzes your organization’s financial strengths and weaknesses and proposes ideas for financial improvement to increase the company’s profitability.

In the finance department, the CFO manages the controller and accounting team to ensure that the financial reports they provide the CEO are accurate and timely.

Forecasting is another one of the most critical areas that should take the majority of the CFO’s time. Understanding your organization’s financial future through past and current reporting combined with forecasted sales, personnel, economic, banking, investor, and other financial data is an important part of the CFO’s job.

For example, imagine that you are trying to determine the best time to purchase a piece of expensive equipment in a manufacturing plant. Should you finance the equipment or rent it? Would it make more sense to outsource this part of your manufacturing process? These are all questions that the CFO must answer.

Analyzing sales mix and considering economic factors, company growth, cost, profit margins, and future sales allows a CFO to help reduce the financial risk involved by showing the CEO the result of each decision. Forecasting can mean the difference between a highly profitable year and scrambling to meet payroll in manufacturing, where overhead is expensive and inventory turnover is essential to profitability and cash flow.

Overall, a CFO’s duties include:

• Overseeing your organization’s accounting and finance department
• Handling cash flow, reporting, and financial planning
• Reporting critical financial information to executive teams and at board meetings
• Providing insight and ideas to become more profitable and improve cash flow
• Delivering direction on taxation issues and planning
• Addressing issues surrounding capital structure, including determining the best mix of debt, equity, and internal financing

Who Does the CFO Report to?

The CFO reports to the chief executive officer (CEO) and provides valuable information to directors and board members during decision-making processes. This means the CFO works closely with the CEO in forecasting, cash flow analysis, cost-benefit analysis, and obtaining investment funding. Think of a CFO as someone you can rely on to help you make decisions about the longevity of your organization’s success. Even an unbiased resource in the Outsourced CFO model.

When your organization wants to invest, review its capital structure, or create the yearly budget with the controller, the CFO is expected to weigh in and provide insight into how your organization manages its income, expenses, and cash flow.

As part of the executive team, a CFO can help with department success. For example, suppose you are looking to launch a new product. In that case, the CFO will help develop a feasibility study, look at product costs and services, and ultimately, the profitability and cash flow requirement of the new product over a period of time.

What Qualities Should a CFO Have?

A CFO must provide accurate information regularly within your organization to allow your teams to make educated decisions without putting your organization in financial jeopardy. CFOs should adhere to generally accepted accounting principles (GAAP) and other vital regulations such as the Sarbanes-Oxley Act. Understanding taxes, knowing when to bring the tax professionals in, and understanding cash flow requirements for taxes are also critical skills that a CFO should have.

A newly appointed CFO typically has at least ten years of controller expertise and a bachelor’s degree in accounting. They have experience overseeing an accounting team and have worked closely with CFOs for many years to understand cash flow analysis, forecasting, and budgeting processes. Even more important is the knowledge to solve many business and financial problems.

Hiring a controller from a smaller organization into a CFO role can be daunting for both your organization and the newly controller-turned-CFO. Without experience working directly with a CFO and learning directly from them, the “new CFO” can make mistakes that will cost your organization time, resources, and money.

When Should a CFO be Hired?

The need for a CFO starts when the CEO realizes that they need answers to complex financial questions. Have you asked any of the questions below or desired more detailed answers from your bookkeeper or controller?

It is time to hire a CFO when the CEO starts to ask questions like:

• Should I buy equipment or rent it?
• Can I take a distribution?
• Can I give raises and pay bonuses?
• Can I purchase a company?
• Will I have enough cash to pay my taxes?
• How much capital do I need to raise?

The need for a CFO’s insight becomes more apparent when making decisions from historical financial statements. The average time from decision to full implementation is usually four to six weeks. If the CEO makes a decision from a historical statement, eight weeks will likely have passed before the impact is felt. If they make a decision affecting a future month, the results will begin to change by the time they get there.

This proactive decision-making comes from forecasting and is required as your organization grows. The need to better anticipate your organization’s finances, not react to them, is a key CFO function.

Why Hire an Outsourced CFO?

Most companies become interested in an outsourced CFO when they earn over $100 million in sales. Organizations ranging between $5 million to $15 million in sales predominantly hire an in-house CFO. But, the size of an organization is starting to matter less as outsourced CFO services become more affordable. These services are also scalable and can grow with your organization’s financial demands.

Organizations are opting to outsource 100% of the CFO and other accounting functions to:

• Reduce the cost of hiring internally.
• Reduce employee turnover in the accounting department and the risk of losing key personnel in a short period of time.
• Avoid hiring the wrong person and the risk of that person taking you in the wrong direction.
• Avoid making poor decisions due to a lack of data
• Improve overall financial management based on accounting best practices

Trusting the finance and accounting team to manage your organization’s assets and anticipate its profit and cash flow is paramount to its success.