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What Makes a Good CFO in Challenging Times?

Posted by Tasnim Ahmed

April 12, 2021    |     7-minute read (1360 words)

A good CFO is the fulcrum of every company, regardless of size. Their shoulders bear much of the responsibility for the viability of the business. Not only can a CFO make or break your brand, but they also have the power to resuscitate a dying company and bring it back on course. It is not an exaggeration to describe the CFO as the next most-powerful leader of a company, right after its owner or CEO.

CFOs face a multitude of responsibilities pertaining to finance, operations, compliance and people management. Depending on the specifics of the company, they also likely are involved in many other tasks. A CFO’s tasks generally comprise:

  • Financial leadership; heading up the finance, accounting, management teams
  • Planning budgets including forecasting
  • Making strategic business decisions with the CEO and other stakeholders
  • Establishing long-term business goals
  • Developing cohesion among company stakeholders
  • Reviewing financial aspects of HR, finance and IT

Education 

A typical CFO has extensive experience at handling businesses’ macrofinancial decisions and has a degree in accounting, finance or economics. Many CFOs are also armed with an MBA degree or with a CPA or CA license. Modern CFOs also tend to have excellent people skills and well-established business networks.

CFOs within the company hierarchy

In essence, the CFO is the most senior executive with the strings to the company’s purse. Planning for cash flow is their forte, and maximizing it is among their primary job descriptions. The position often entails legal obligations that must be fulfilled, for example in terms of taxation and filings. In many firms, the position of a CFO is considered the third-highest in the company structure, with the CFO reporting directly to the CEO and wielding considerable clout when it comes to investments, capital flow and how expenses and income are managed. 

As the CEO’s most important strategic partner, CFOs also assist with forecasting and attaining capital when needed. They frequently work in tandem with other high-level managers, providing advice from a financial standpoint so executives understand the cost-benefit scenario of businesses initiatives. Over time, it is not uncommon for a CFO to progress to any of the following job roles: CEO; chief operating officer or COO; company president; company vice president.

While the CFO position historically was about checks, balances and compliance, nowadays the CEO and CFO tend to work hand in hand. The CFO role has evolved to that of a strategic decision-maker with input that affects the entire functioning of an organization.

The rise of outsourced CFO services

Not every business requires the services of a CFO. Only certain companies need the dedicated stewardship of an onsite CFO, typically only those that have crossed a certain threshold in gross revenue or those dealing with certain service and compliance regulations. Generally, filling a CFO position involves a lot of costs, but not every company can afford one. This has prompted many businesses to look at outsourced CFO functions, with services that can cater to their needs at a fraction of the cost versus hiring an on-staff CFO.

Outsourced CFO services provide a plethora of services catered to every size and nature of company. Listed below are a few of their primary tasks:

  • Bookkeeping 
  • Performing internal financial checks
  • Reviewing data and timely financial reporting
  • Creating key performance indicator-linked reports and dashboards
  • Developing budgets, plans, forecasts
  • Future planning
  • Overseeing legal and compliance concerns
  • Managing people through or with finance-related functions

Note that businesses that choose to outsource CFO services can choose from the following three types:

  1. Shared CFO service
  2. Fractional CFO service
  3. Part-time/contract CFO service

In addition to the above, outsourced CFO services may also comprise consultants, virtual CFOs, single-origin CFOs, staffing firms and CEO consortiums.

More firms are using outsourced CFO services

With many small- and medium-size enterprises opting for outsourced CFO services, there has been a surge of activity among firms that provide the option as it is a relatively inexpensive way to get expert financial advice. Companies can retain the service for a short period or for long stretches. This ensures that the cost is controlled by the client. Tangible and non-tangible benefits for companies that use the services of an outsourced CFO include process improvements, a better bottom line and the development of standard operating procedures.

Why startups may hire a shared CFO service

For startups, the cost factor usually takes precedence over all others when hiring a CFO. This explains why the concept of shared CFO has gained popularity in the startup domain. The top five reasons frequently cited for using a shared CFO service are recapped here:

  • Most viable option: Hiring an in-house CFO is at least three times more expensive than a shared CFO service. As you need to be cautious on investing each penny in your startup, a shared CFO will save you a lot of money and still provide the professional expertise required.
  • Experience: The broad spectrum of financial experience that a typical shared CFO brings will benefit your organization immensely. As these professionals work with multiple industries, they not only have knowledge of your industry but of others as well, which often proves advantageous. The CFO’s team will share insights with that could be useful for the organization.
  1. Credibility: A shared CFO is likely to face more challenges than an in-house CFO, as they are a part of multiple organizations. With this, they bring valuable experience and credibility.
  2. Best practices: Veteran CFOs may have their own set of preferences and formatting styles. But a shared CFO has knowledge of the best practices for generating, documenting and formatting reports across multiple industries.
  3. Professional networks: Seasoned CFOs have a strong and robust network of experienced professionals and organizations that a startup can leverage. They are connected with investors, financiers, CEOs and influencers in multiple industries.

How the nature of outsourced CFO services is evolving

When it comes to who is using and providing these services, there are four trends to watch for, as outlined below.

  • CFOs using a CFO service: Sometimes, a traditional FO may use a CFO service provider for a certain task, project or report. They might require services calling for specialized information or maybe a third point of view. In this regard, CFO services are gaining popularity because they give conventional CFOs an added advantage.
  • Investment firms/hedge funds: An equity firm is concerned about its investments and might not be in a position necessitating the services of a full-time CFO. But they might still figure it for themselves to have expertise in financial planning in regards to their investments, and to also have an extra pair of eyes to monitor their business. It is getting increasingly common among investment groups to utilise services of these CFOs, while not paying the big bucks in employing someone with the same expertise.
  • CFO-finding services: Maybe your company was a small entity that has expanded and now acutely feels the need for a dedicated CFO. A staffing company may be able to fill the role, but a dedicated CFO service offers industry expertise and can identify the right person based on your business’ individual needs.
  • Family-run and small businesses: Small and family-run businesses need sound advice related to finance and operations, too. These businesses, often managed by second- and third-generation family members, may require professional management as their business grows and are turning to outsourced CFO services for help.

Recap: What to know about the direction of outsourced CFO services.

The CFO service industry has matured and expanded in the past few years. Industry experts anticipate such services to expand to smaller cities and among businesses with a smaller clientele. The only limitations to growth are connecting prospects with the right provider, and the potential cost. 

While some argue that an outsourced CFO cannot replace a full-time CFO, the availability and amount of support such services offer for small businesses at the tap of a finger are a sign they are fulfilling a serious need. In a nutshell, when a business’ budget does not permit hiring a traditional CFO, outsourcing services are ready to serve you and can bring a spate of added value to your firm.

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