What is a CFO?

A Chief Financial Officer or CFO is the senior executive in your finance department that is responsible for analyzing and tracking the financial impact of your business decisions.

Financial anticipation is the power that the CFO brings to the owner and the executive team to drive financial 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 at what point your business is financially ready to hire a CFO.

what is a cfo

CFO Duties

what is a cfoCFO duties consist of financial statement forecasting, cash flow analysis, record-keeping and reporting, tracking return on investment, financial planning, managing financial risks, and analyzing data. A CFO analyzes your organization’s financial strengths and weaknesses and propose ideas on financial improvement to become more profitable.

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

Forecasting is 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 the most important for a CFO.

Imagine if 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?

Being able to analyze sales mix, consider economic factors, and company growth along with 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. In manufacturing, where overhead is expensive and inventory turnover is essential to profitability and cash flow, forecasting can mean the difference between a highly profitable year and scrambling to meet payroll.

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?

cfo reports to a ceoThe 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 you, the CEO, in areas such as forecasting, cash flow analysis, cost-benefit analysis and obtaining funding for investments. 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 make an investment, 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 as well. For example, if you are looking at launching a new product, the CFO will help develop a feasibility study, look 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?

cfo qualitiesA 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. Having an understanding of taxes, knowing when to bring the tax professionals in and understanding cash flow requirements for taxes is critical to the financial strength of a business.

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 the CFO for many years to understand processes such as cash flow analysis, forecasting and budgeting. 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 I hire a CFO?

The need for a CFO starts when you, the CEO, realize that you need to answer detailed 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 you, the CEO, start to ask questions like:

outsourced cfo

Should I buy equipment?

Can I take a distribution?

Can I give raises and pay bonuses?

Can I buy 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 you are making decisions from historical financial statements. The average time from decision to full implementation is usually four to six weeks. If you, the CEO, make a decision from a historical statement, likely eight weeks have passed before the impact is felt. If you make a decision affecting a future month, the results will begin to change by the time you get there.

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

Can I hire an outsourced CFO?

outsource cfoOur outsourced CFO clients range from start-up to over $100 million in sales. Organizations ranging between $5 million to $15 million in sales usually consider hiring an in-house CFO; however, the size of an organization no longer matters because our outsourced CFOs services are affordable and 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 that lack data
  • Improve overall financial management based on accounting best practices

Trusting the finance and accounting team to manage the assets of your organization as well as anticipate the profit and cash flow needs of the organization for financial, banking, and investor needs is paramount to the success of your organization.

Learn how RTA Group can meet your Outsourced CFO needs with our expertise.