Definition

CFO (Chief Financial Officer)

Contributor(s): Brian Holak

CFO (Chief Financial Officer) is the corporate title for the person responsible for managing the company's financial operations and strategy. The CFO reports directly to the CEO and has substantial input into the company's investments, capital structure, money management and long-term business strategy.

In the financial industry, the CFO is the highest-ranking position. In other industries, the CFO is often seen as the second highest-ranking person in the company after the CEO.

What the CFO does

The CFO's duties include financial planning, managing financial risks, keeping track of cash flow and expenditures, handling investment and taxation issues, creating and enforcing internal accounting and financial policies, collecting and managing financial data, reporting financial performance to the board, and helping develop the strategic direction of the company.

The CFO is responsible for complying with regulations such as the Sarbanes-Oxley Act, as well as adhering to the generally accepted accounting principles (GAAP) established by the Securities and Exchange Commission (SEC) and other regulatory agencies.

Along with being a team leader for other departments and employees -- both inside and outside of the financial function -- the CFO is also charged with collaborating with the CIO on technology investments and strategy. In some cases, the IT department -- including the CIO -- reports directly to the CFO.

Traits and skills of a CFO

How the CFO role has evolved

According to the Deloitte report, "Four faces of the CFO," the CFO has traditionally encompassed two roles -- the role of steward, preserving the organization's assets by minimizing risk and successfully managing the books, and that of the operator, running a tight finance operation that is efficient and effective. The role was originally meant as a more back-end and fiduciary function, with CFOs tasked almost exclusively with quality control, compliance, and producing and analyzing financial statements.

However, Deloitte research shows the role of the CFO is evolving. With the advent of the digital economy and rapid technological change, as well as increased economic uncertainty and investor scrutiny, the CFO role is becoming more forward- and outward-facing, with a focus on business value and opportunities.

For that reason, along with being stewards and operators, today's CFOs must also be strategists, helping to shape the company's overall strategy and direction, and act as catalysts, cultivating a financial approach and mindset throughout the company to help other segments of the business perform better.

 

Using cloud financial apps

CFOs, once wary of the cloud, are changing their minds.

Today's CFOs are trusted advisors to the CEO and partners to the business, working closely with -- and often serving as the crucial intermediary between -- the C-suite, the back office and front-line business units of their companies. CFOs play a crucial role in helping shape the company's long-term goals.

The CFO must also play the role of diplomat with third parties, as they're required to continually vouch for the financial viability of the company. The CFO is therefore the face of the company's sustainability to customers, vendors, stakeholders and bankers.

CFO qualifications and traits

In today's fast-paced business environment, the CFO is less company accountant and more multifunctional executive with financial skills. Automation of the accounting function has diminished some of the accounting duties in a CFO role, but the position still requires considerable financial management experience and academic training in accounting or finance.

CFO qualifications are often an MBA -- master's degree in business administration -- in accounting, finance or a related field; a CPA -- certified public accountant certification; or a CMA -- certified management accountant certification. Some CFOs are certified management or public accountants.

A CFO candidate is often expected to have at least 10 years of accounting or finance experience, five years of which must have been served in a managerial role. CFOs must have a strong understanding of GAAP and other tax accounting principles and preferably have experience working with or reporting to the SEC.

Along with analytical skills, a CFO must have strong communication skills to effectively communicate the financial health and strategic goals of the company to the CEO, board members, the C-suite, vendors and stakeholders.

A CFO should also have vision and foresight and be in tune with the market and trends. This enables him or her to create and implement business plans for the company that align with the bigger picture and long-term goals of the company.

A deep understanding of business is a must for today's CFO. That includes collaborating with -- and having a macro understanding of -- all the departments within an organization. As with other C-suite executives, a CFO should have strong leadership skills that enable him or her to delegate and oversee the financial operations and business strategy of the company effectively.

Those in the CFO role must also be willing to try new things and take calculated risks to grow the business and improve the overall financial standing of the company.

Differences between controller, finance director and the CFO

The CFO is considered the highest finance position in an organization. Those in this position usually manage a team of controllers and supervise all financial personnel.

Finance directors -- also called vice presidents of finance -- have similar responsibilities to a CFO, but they are generally not part of the top executive team. Those in this position typically oversee the organization's financial operations and report to the CFO.

That said, sometimes companies have one or the other, not both. Large companies typically employ CFOs, while small and midsize companies typically employ finance directors. In small businesses, the company's finance director oversees all the financial operations and reports directly to the owner of the business.

CFOs and controllers usually both come from backgrounds in accounting or finance and start out as accountants.

The controller role is a natural progression from accountant, but CFO is not necessarily a natural progression from controller, wrote Ben Paramore, CFO at Great Southern Wood Preserving, on the website Proformative, an online community for finance professionals. Spending a certain number of years as a controller doesn't necessarily lead to a promotion to CFO -- though it could lead to a promotion to finance director. The reason is because of the evolving skill set required to be a CFO, as discussed in the previous sections.

The primary function of a controller is to maintain and operate the books, looking back at data that has already been generated. The primary function of a CFO is to look ahead; to understand past financial performance in order to accurately predict and direct the organization's financial future. Bridging the gap from controller to CFO can prove difficult for many controllers, and it requires a strong set of business and leadership skills.

This was last updated in July 2018

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