Here at navigate, one of the questions we regularly get asked by a prospective clients and people will meet in the course of our work is “what does a CFO do”?
The answer to this question is not a simple one because the role of the CFO has changed quite a lot in the last 20 years and especially in the last 10 years. It’s becoming less about producing the numbers and more about acting on – and influencing others to act on – the numbers.
The role is now very broad, and covers strategy, risk, contracts, pricing, and the same internal controls and production of financial reports that was always required.
Further, in any particular industry, the focus of the role may vary, and it will also be different when a business is in an early growth stage versus when a business is in a more mature stage. The role will again be different in the early days of a CFO’s tenure compared to when he or she has been in the role for a longer period of time when the understanding of the business nuances will grow to a higher level.
And before I focus on the tasks that a CFO will do for a business, I’ll take it a step further and try to explain what a virtual CFO does in comparison to a full-time CFO, it’s worthwhile to point out the differences from the company’s point of view and the CFOs point of view.
From the company’s point of view there are two major benefits in having a virtual CFO. First the benefit of having a strategic financial resource without the full-time salary plus on-costs. In many cases, the company gets the experience and IP, at a fraction of the cost. Secondly, the benefit of having that strategic resource that does not get caught up in the day-to-day traffic that an internal person has to negotiate in any business. This is an under-rated point.
Now, I’m not saying that a virtual CFO trumps a full-time CFO. Of course, the benefits of having a full-time CFO are numerous and hopefully obvious, but many businesses cannot afford that resource until they reach a threshold of revenue and profitability, and other businesses are simply more suited to a Virtual CFO. Virtual CFO’s can fill the gap and assist driving the growth of those businesses until that threshold is reached and even afterwards.
And the benefits from the CFO’s point of view…. Firstly, being able to apply their passion and purpose to many different businesses. Second, gaining great experience in many different industries. Thirdly, sigh, not being caught up in the day-to-day traffic that “sometimes” slows progress…
So what does a CFO do? In the early stages of working with the company it’s crucial to understand the key priorities of the CEO, owner, or senior management. What keeps them awake at night, if you will….
Most likely this is cash-flow, growth, competitors, or resourcing. The early focus will be gaining as much understanding as possible about the business as quickly as possible to enable an action plan to be put into place. This action plan will relate to whatever the key priorities are, however it will almost always revolve around cash-flow to make sure the lifeblood of the business is being managed well.
Once the cash cycle is being closely and effectively managed with people who owe you money – and people who you owe money to – being proactively managed, the plan can focus on other priorities. These may be a specific project, a supplier contract negotiation, a system implementation or integration, a detailed forecast that is required for seeking funding, or any form of strategic review that looks at how a business competes in the marketplace, from pricing to customer service, operations, and go-to-market processes.
No matter what the action plan focuses on to begin with, no matter what the stage of the business life cycle, and no matter how well the CFO knows the business, the aim is always one simple concept. Clarity.
Once a business has reached a certain size, the owner or CEO cannot be across all the elements that they have been across to that point and needs experts to support them in certain areas. This is where the CFO steps in to cover finance.
In some situation’s it may be the CFO’s role to be a leader and driver of certain initiatives, and in others to be a reserved voice of reason. As technology advances, and business becomes faster and faster, the role of the CFO becomes more strategic with the requirement to work across many functional units of business increases.
So what does a CFO do? Usually, it’s whatever the CEO needs support on to drive the success of the business within ethical and professional bounds.