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What is a CFO, and when does my business need one?

Posted by Kanika Sinha

May 5, 2022    |     6-minute read (1114 words)

Your growing company likely requires financial skills that are beyond what you as a founder or most bookkeepers and controllers can provide. That’s where the role of a chief financial officer comes in. 

The CFO brings a strategic financial perspective that can help your company optimize operations, boost profit and build capacity for the future. In these times of transition, as the world of work undergoes rapid change, the role of CFOs has become even more important.

That said, there is often confusion about the role of CFOs and the value they bring, particularly for a younger business. Business owners may see them as mere record-keepers or number crunchers, but in truth they play a more strategic role in organizations — both big and small firms, as well as startups — and can be central to their success.

Here’s a more comprehensive look at the responsibilities and skills of a CFO to help you better leverage their guidance and move your business ahead.

Decoding the role and responsibilities of a CFO

CFOs are responsible for the overall planning and management of a company’s financial affairs. They are members of the C-suite and report to the company’s CEO. The CFO is usually deemed an organization’s third-highest executive.

The responsibilities of a CFO can generally be divided into these 10 broad buckets:

1. Managing cash flow.
2. Monitoring liabilities.
3. Tracking business performance.
4. Supervising accounting and finance, and possibly HR and IT.
5. Establishing and maintaining financial relationships.
6. Obtaining financing or raising capital.
7. Approving all financial obligations.
8. Ensuring compliance with financial regulations and standards.
9. Overseeing budgeting and expense control.
10. Overseeing shareholder relations.

How does a CFO steer company growth?

Particularly at an early-stage company, the CFO can spearhead growth initiatives, from the incipient planning stage through execution. This is where their financial acumen and skills really shine. 

CFOs accomplish growth by:

Zeroing in on your business’s strengths and competitive advantage – The CFO identifies where you’re making money and where your biggest ROI is to help tap into these strengths. They also identify opportunities that will bring a positive impact to the business.

Identifying weaknesses – The CFO brings an objective assessment on where you may need to invest and where you may need to cut your losses.

Analyzing the competitive marketplace The CFO identifies market opportunities and determines how to leverage them. 

Developing a portfolio of growth initiatives The CFO creates multifaceted growth initiatives.

Thinking long term rather than short term – The CFO employs financial projections to help shape your long-term strategy. 

Finding strategic partnerships – The CFO is adept at finding key players with whom you can form relationships to boost growth. 

Assessing the efficacy of management The CFO evaluates the management team to assess whether they are positioned to execute on your growth strategy.

Maintaining focus on the customer – The CFO will help make sure you maintain the quality of your offerings and customer service to existing clients as you acquire new customers. 

How CFOs drive change 

In addition to maintaining fiscal soundness and steering growth, CFOs also must respond quickly to opportunity and market changes. This means they often act as change agents when the strategy or business mode needs adjusting. Below are recent examples of CFOs who drove change within their organizations.

Former Tesla FO Deepak Ahuja saved the company from not one but two near-bankruptcy crises and guided the company on its path to becoming the world’s most valuable auto company.

Zoom CFO Kelly Steckelberg, who joined the company in 2017, not only put the company on the path to IPO but also helped the CEO navigate its meteoric growth in 2020 — which entailed a 314% increase in revenue and a 600% surge in stock price.

Constellation Brands CFO Robert Ryder defined a new direction for the beer, wine and spirits distributor. By realigning its distribution model, Ryder steered the company to gain market share for several key products.

When is the right time to hire a CFO? 

It is evident that CFOs are pertinent to business success, particularly in the pandemic-affected world, but how do you know when it’s time to bring one onboard? 

To help you decide, here are four signs your company needs a CFO.

1. When new business is coming through the door: Acquiring new clients doesn’t necessarily mean you’re making money on their business. Not all customers are created equally, says Matthew Bud, managing partner at The Financial Executives Consulting Group.

“Many small businesses say yes to a new client, but don’t understand how to evaluate the costs associated with servicing that customer,” Bud said. A CFO who can accurately determine the cost structure of each new piece of business and help ascertain what the company should charge to actually make a profit.

2. When considering raising capital: Every method of raising capital, whether it’s a bank loan, a line of credit, equity financing or fund infusion from an investor, involves more complex and frequent financial reporting. It is during this crucial juncture that a CFO can prove to be an excellent resource for the company — working in the heart of the data flowing in and out of the company and well-acquainted with reporting requirements of banks, institutions and investors.

In addition, CFOs can ensure that the existing stake of the founder(s) in the business is protected, and that their role going forward is clearly spelled out.

3. When contemplating mergers and acquisitions: It has been well established that growing your business with a strategic alliance or acquisition can be imbued with risks. It is not only important that a prospective purchase is valued correctly, but also how the structure and workforce of your organization might need to change. This is where a CFO’s role is vital. An experienced CFO who knows all the steps along the way will ensure things stay on track and that you don’t end up overpaying.

4. When it’s time to advance to the next level: While entering new markets can significantly boost sales, doing so involves a much more complex set of operating procedures, tariffs, increased shipping costs and country-specific regulations. Having a CFO on board can help your business better navigate this process to ensure a successful expansion, one that truly enhances the bottom line. 

Wrap-up

In short, the role of a CFO is especially salient during periods of business transition, such as when it is:

• Experiencing rapid growth.
• Developing new products, services or offerings.
• Leveraging diversification.
• Breaking into new markets.
• Acquiring investment capital.
• Seeing dwindling profitability.
• Experiencing market segmentation.
• Using unconventional methods for growth.
• Steering changes in tax planning.

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