As businesses grow, among other things, they need solid financial oversight. However, it is hard for business owners to know exactly what level of financial oversight they need, whether to have in-house support or when to ‘upgrade’ these capabilities. In addition, the role of the CFO gets very muddy, as job titles are not consistently aligned with job descriptions in smaller or medium-sized businesses. As a result, we have seen ‘CFOs’ performing controller-level duties and vice versa.
Most small or medium-sized businesses will not need the services and expertise of a CFO on a regular basis. Therefore, hiring for this position will often result in an employee whose skill set is not being fully utilized and is probably costing the company more than they need to pay. So how do you know if you need a CFO? Below is a summary of the main roles and duties performed by a Controller and a CFO. Once you have identified the main roles required in the business the hiring process can be more aligned with your needs.
Typical job duties of a Controller are as follows:
- Preparation of monthly financial statements
- Oversee accounting department
- Prepare reports for the bank and CPA
- Perform miscellaneous human resources (HR) functions
- Perform miscellaneous information technology (IT) functions
The difference in roles between a CFO and Controller is often not fully understood by Business Owners. While a controller is mainly focused on providing accurate and timely financial reports, a CFO’s role only really starts once accurate financial information is available. Below are some significant duties that should be expected of a CFO:
Participate in strategic planning activities
This includes developing the organization’s vision, formation of the core values, performing SWOT analysis, setting goals for the next one to 10 years, expansion/contraction planning, etc. A CFO should contribute ideas, as well as evaluate the feasibility of the plan from a financial perspective.
Perform financial statement analysis
Preparing financial statements is important, but interpreting the data is critical. A CFO should identify as early as possible whether the organization is on track to hit the goals for the year, if corrective action is required (e.g., downsizing, expansion, investment in equipment), if there is sufficient cash available, etc.
Manage budgets and projections
Both profitability and cash needs to be budgeted and monitored. Specific tasks include creating an annual budget and cash flow forecast, performing a monthly budget-to-actual analysis, explaining material budget variances, and recommending any applicable corrective actions.
Establish and maintain financing
A CFO should take responsibility to find and interface with sources of funding (banks, private equity, friends/family, etc.), secure adequate financing, and maintain relationships with financing sources. A CFO should also be monitoring cash reserves and identifying additional sources of funding in case the need arises.
The majority of organizations feel that managing risk is as simple as purchasing insurance. Although it is critical that all of the proper insurance is in place (workers’ compensation, umbrella, etc.), new products and services, acquisitions, currency fluctuations, regulatory changes are just a sample of other risks a CFO needs to manage. Managing risk includes running the applicable what-if analysis and determining the cost-vs.-benefit of hedging the applicable risk.
Once you have identified your needs you can make sure you have the right financial oversight in your business and the responsibilities and costs of your key financial employees are appropriately aligned.
If you have questions about your business’ needs in this area, contact Austin here.