A better question might be how your organization can function without one. One of the most important positions in any organization is that of the Chief Financial Officer (“CFO”). While in smaller companies the CFO might sometimes seem like a glorified CPA, producing monthly and annual financial reports and signing off on payrolls, a CFO does much, much more.
Who has full situational awareness of the financial state of your organization? Your CFO
In a larger organization the above tasks are left to bookkeepers in the various departments of the organization. The CFO oversees, reviews and analyzes the departmental accounting, deciding on pay scales and allocating resources based on department and division reports. The CFO provides the big picture of the organization’s financial statues to the board of directors, and partners with CEOs and corporate boards in long term strategic business planning, funding and tax structuring. As such, he also plays a critical role in reviewing contracts with both suppliers and customers. It is also the responsibility of the CFO to maintain an updated capitalization table of the organization.
What kind of education and background does a good CFO have?
A good CFO is more than a mere financial technician – his knowledge and expertise of markets and funding sources enables him to provide senior management with the economic outlook required to optimize resource allocation. In terms of education and training most CFOs have a background in accounting, finance and taxes and are usually required, to hold a CPA certification and/or an MBA and/ or advanced degrees in accounting, finance or economics.
CFOs, CPAs and bookkeepers – what is the difference?
While a CFO often has a background in accounting and can often carry out some of the tasks of a controller, particularly in small organizations, it should be stressed that his function is in fact quite distinct.
Bookkeepers manage and organize cash flow procedures, keep track of accounts payable and receivables and reconcile bank accounts and credit cards. In other words, bookkeepers manage and record the cash flow of the company and ensure the accuracy of financial statements.
A CFO, on the other hand, focuses on the larger picture, overseeing the long-term financial health of the company. Unlike the bookkeepers and the controllers, who work with historical company data to ensure the veracity of its current financial statements, the CFO Plans, forecasts, budgets and projects the future performance of the company. Unlike the controller who prepares financial statements weeks or even months after receiving the relevant data, the CFO must analyze results and prepare actionable reports within days for presentation to management. Rather than passively presenting the data and responding to queries, the CFO must interpret and explain the data in terms management can understand and relate to. As such, the CFO is a crucial part of the company and frequently works closely with the CEO.
What are the advantages of an outsourced CFO?
This would seemingly indicate that an in-house CFO is a crucial must. But that is not necessarily the case. You might not have the budget for it, or, if your company is still small, might think a full-time CFO is redundant and that having a bookkeeper or controller to manage your financial statements, and provide payroll services (such as payroll tax statements) is sufficient for routine operations.
In such a situation outsourced CFOs can provide project by project basis consultation and review on source financing, improving processes and organizational development. An outsourced CFO can help introduce companies to different financing options, such as bank debt, asset-based lending or private equity.
The outsourced CFO often enjoys greater and more varied recent experience compared to the in-house CFO. In addition, the parent organization of the outsourced CFO can provide him with additional benefits such as networking with other professionals and constant updates and professional training.