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What is a Chief Financial Officer (CFO)?
Chief Financial Officer (CFO) is the corporate title the highest-ranking financial executive in a company typically holds. They’re responsible for overseeing their company’s entire financial operations and strategy.
A CFO’s duties include:
- tracking cash flow
- financial planning
- tax and regulatory compliance
- analyzing the company’s financial strengths and weaknesses
- making strategic recommendations to improve profitability
- overseeing investment decisions
- managing relationships with investors and financial institutions
The CFO position in a company is generally reserved for highly skilled and experienced financial professionals with a well-established track record. CFOs typically hold a Bachelor’s degree in finance, accounting, economics, or business administration. Particularly at larger or more successful organizations, they also hold a Master of Finance or Chartered Financial Analyst (CFA) designation.
Most CFOs have extensive backgrounds in accounting, financial analysis, or investment banking. In the finance department, the CFO position is usually a firm’s most prestigious and highly-paid.
- Finance Chief
The CFO’s Role in an Organization
Importance of Chief Financial Officers
As a member of the C-suite, the CFO holds the highest financial position within a company. As such, they’re more than just a corporate leader — they’re a strategic partner.
They work alongside other C-suite members, including:
- Chief Executive Officer (CEO)
- Chief Technology Officer (CTO)
- Chief Operating Officer (COO)
- Chief Revenue Officer (CRO)
- Chief Marketing Officer (CMO)
- Chief Information Officer (CIO)
People in the Chief Financial Officer role have the largest (and final) say in a company’s capital structure, investments, and income/expense management.
With the CEO, they help with…
- risk management
- merger and acquisition decisions
CFOs also work with lower-ranking senior managers in the finance function to develop financial strategies and budgets.
Their influence spans beyond just the finance department, however. They also often work side-by-side with marketing and sales leaders to improve a company’s bottom line and attract investors. For example, a VP of Sales who wants to expand their team to enter new markets would consult the CFO (and Chief Revenue Officer, if there is one) to determine whether it’s feasible, get approval, and secure the funds for hiring and expansion.
Who the CFO Reports To
CFOs are third-in-command, behind the CEO and COO. They report to the CEO, but the CEO isn’t necessarily their “boss.” The CEO relies heavily on the CFO’s advice regarding capital structure and investments. So, they work together.
The CEO generally creates the vision and direction, while the CFO helps guide, develop, and execute that vision in a financially responsible way. They might also report to the COO, and they report to the company’s Board of Directors alongside the CEO.
Who Reports to the CFO
The position of Chief Financial Officer is hierarchical. They have numerous employees in their reporting chain.
Directly under them are:
- Tax managers
- Finance directors
- VPs and SVPs of Finance
- Accounting directors and executives
Smaller companies might only have a few of these roles, or they may be defined as different positions — for example, a finance director may also serve as the company’s treasurer. In scaled corporations, they’re distinct and well-defined.
In turn, these individuals lead their own teams of staff accountants, payroll specialists, financial analysts, or administrative assistants.
Difference Between CFO and Financial Controller
The financial controller is the CFO’s right-hand person. They’re directly under the CFO in an organization’s financial hierarchy and also report to them.
Their primary job is handling the day-to-day financial operations of the company, such as:
- managing accounting processes
- tracking accounts payable and receivable
- budgeting and forecasting
- preparing financial statements
The main difference between the two positions is how hands-on they are. While a financial controller works directly with financial statements and data, CFOs are more focused on big-picture decision-making and strategy.
They’re also in direct (or near-direct) communication with the company’s accounting team. It’s unlikely an analyst or staff accountant will work anywhere near the CFO. The controller is usually the head of a company’s accounting department, and they interact daily with staff accountants.
Responsibilities of a CFO
The CFO is responsible for the overall leadership, management, and direction of a company’s financial strategy. They oversee the entire finance function within an organization.
CFOs also have a hand in shaping company culture and setting standards for financial performance. For that reason, they’re often involved in hiring decisions within their department. They might also contribute to other departments’ hiring and staffing decisions in some companies.
CFOs are often involved in fundraising efforts for Series A, B, C, etc., startups or companies going through a merger or acquisition. Investors often look into a company’s financial health before anything, and it’s up to the CFO to present that to them and communicate it in a way that’s attractive and compelling.
Mergers & Acquisitions (M&A)
The CFO is often involved in major mergers and acquisitions — whether it’s providing financial data to potential buyers or conducting due diligence on behalf of their own organization. They might lead a team of financial analysts and advisors to accomplish this.
M&A deals can be highly complex, often involving multiple rounds of negotiations. The CFO uses their expertise on the financial implications of any deal and ensures it aligns with the company’s long-term strategic goals. They’ll also evaluate whether M&A is the right route to take in the first place.
Treasury management is the practice of managing a company’s holdings, including cash and debt. The CFO has the final say on how funds are allocated within an organization.
They’re also responsible for:
- Liquidity management — Ensuring there’s always enough cash flow to meet obligations
- Capital budgeting — Determining what assets to invest in
- Working capital management — Managing the assets and liabilities that support day-to-day operations
Treasury is one of the most crucial aspects of a CFO’s role. They’re the ultimate authority on the cash flow and capital structure decisions that keep a company running.
As the head of the Finance Operations (FinOps) team, the CFO oversees all financial activity within an organization. They work hand-in-hand with the CEO (and sometimes other C-suite members) on high-level financial planning, concentrating on long-term strategic planning for both revenue generation and expense management.
Any major investment in headcount, equipment, expansion, R&D, or product development, lands on the CFO’s desk before moving forward. The same goes for anything having to do with acquiring additional capital through debt or equity.
CFOs read and interpret internal trends and external market dynamics, create long-term financial strategies in line with the company’s vision, and make decisions that influence those numbers. They aren’t necessarily the ones creating the forecasts, though they are well-versed in forecasting models (they spent years in positions where they worked directly with them).
Part of forecasting is relaying the results of those forecasts to the CEO and Board of Directors, which takes a little more finesse. Once the CFO has those figures and interpretations in hand, they’ll take it to other C-suite members or investors to communicate the company’s current and future financial health. Then, it’s their job to help the others make sense of it.
For tax compliance and financial statement preparation, many CFOs rely on finance managers. But it’s up to the CFO to review and approve all the data they put financial reports together. That way, nothing gets missed or misunderstood.
In addition to tax compliance, CFOs are also responsible for ensuring their company’s financial statements are accurate and timely. Public companies must meet SEC filing requirements, and CFOs are responsible for providing the data necessary to do so.
ROI is something every department calculates from their own activities, but they all find their way up to the CFO’s office. That’s because the Chief Financial Officer is ultimately in charge of determining the effectiveness of every investment an organization makes.
When they don’t agree that a specific expense, piece of equipment, or process will generate enough revenue to make it worth it, they can veto it or suggest alternatives. They also have the power to cut funding for underperforming projects and shift resources elsewhere.
Based on everything they know about…
- current cash flow and working capital
- ROI from different departments and their activities
- current company health according to financial metrics and ratios like the Rule Of 40
- trends within the company and outside its walls
- short-term and long-term objectives
- situational financial considerations like an upcoming product launch
…the CFO develops a company-wide financial strategy. They use these factors to fine-tune the organization’s direction and establish goals for their department, as well as those of other departments.
CFOs oversee compliance according to several different laws and regulations:
- Revenue recognition according to ASC 606 (national) and IFRS 15 (international) standards
- SEC compliance for publicly-owned companies
- Sarbanes-Oxley Act, which addresses corporate governance and financial reporting requirements.
CFOs are also responsible for overseeing internal audits and ensuring the company complies with all relevant laws and regulations. They work closely with auditors to provide necessary documentation and usually bear the ultimate responsibility for any compliance failures.
Technology Used by Chief Financial Officers and Their Teams
Financial reporting software automates the reporting process and enables financial analysis. Effective finance teams use it for the following accounting tasks:
- Data collection and consolidation
- Forecasting and budgeting
- Data analysis
- Payment reconciliation
- Financial statement preparation
- Financial close
With software, it’s easy for organizations to generate filtered reports and learn vital business details.
Portfolio management platforms like Quicken, Mint, and Personal Capital help the CFO manage their investments in one place. They give an entire bird’s-eye view of assets and liabilities — so it is simple for them to track investments like stocks and bonds.
Financial Planning and Analysis (FP&A)
Companies use FP&A software for tons of different purposes:
- Financial modeling and forecasting
- Budgeting for revenue and expenses
- Analyzing financial data to make predictions and decisions
Companies make money because customers buy or subscribe to their products. So, billing software is the source of the vast majority of their internal financial information.
Billing software feeds data into:
- Accounting/bookkeeping software to recognize revenue in the correct period
- Financial reporting software to accurately reflect revenue performance in dashboards and on financial statements
- FP&A software to improve the accuracy of forecasts and financial models
Aside from enabling the company to receive payment, it saves the entire fiance department valuable time and protects them from compliance issues further down the line, This makes a company’s billing platform the most essential first piece of the puzzle when it comes to financial software.
Finance Trends Impacting CFOs
In 2024, CFOs have to prep their companies for a looming recession, increasing inflation, geopolitical unrest across the world, environmental pressures, banking collapses, and an uptick in cybersecurity vulnerabilities.
To prepare for security risks, PwC’s 2024 Global Digital Trust Insights Survey finds that 79% of CFOs plan to increase their cybersecurity expenditure by investing in additional software and infrastructure to protect themselves.
According to another PwC survey, 40% of CFOs say they’re establishing policies, procedures, and controls for collecting climate data. And 53% say they’re accelerating digital transformation using AI, automation, data analytics, and cloud solutions. In addition to bringing down costs, these tools improve internal efficiency and overall forecast accuracy.
In early 2023, the collapse of Silicon Valley Bank and Signature Bank taught CFOs across the country a critical lesson: they have to be very discerning about whom they do business with. As startup founders and company execs raced to get their funds out of their accounts with these institutions, CFOs across the world learned the importance of diversification.
As for geopolitical conflict, it’s tough to prepare for. While there are always periodic supply chain and workforce disruptions around the world, the ones brewing as we enter 2024 are much more long-term and significant.
The Russia-Ukraine war is just one example. According to Deloitte, finance leaders have to look into their data, current vulnerabilities, and potential technology that could increase flexibility to become more agile when working with employees, vendors, and suppliers in other countries.
People Also Ask
What are the qualifications for a CFO?
In addition to a Bachelor’s degree in Finance, Accounting, or Business Administration, a CFO generally needs to hold a Master’s degree in Finance or Accounting. They also need a professional accounting certificate (like a CMA) or a professional financial certification (like a CFA). Beyond that, they’ll need around 10-15 years of proven experience unless they’re a financial founder of a company.
At what stage do you need a CFO?
A CFO isn’t a requirement for an early-stage company because the financial risks and implications aren’t very significant. Scaled companies that are 12-18 months from an IPO should consider bringing on a CFO. Those entering a period of rapid growth should consider a fractional CFO.