What is a CFO and What Do They Do?

 Published:  21/02/2024  | Updated:  21/02/2024

To run a successful business, you must understand well every role, even if you wouldn't be the one playing it. A CFO has a very important role in nearly all industries. In this guide, we will go over exactly what is a CFO, what is expected from that role, how it connects to the other teams, and how can it affect the whole business.

A Guide to Everything You Need to Know

A CFO and the finance team play a very big role in the success of any business. Whether you want to run a business or you want to be a CFO, this guide will help you with all the information you need to know.

What is a CFO?

A Chief Financial Officer (CFO) is simply a high-level executive responsible for managing the financial activities of an organization.

Many people confuse the Chief Financial Officer (CFO) with the Chief Executive Officer (CEO). The difference is simply that the Chief Executive Officer is the highest-ranking executive of the whole firm, while also being the face of it, while the Chief Financial Officer is the highest-level executive within the financial team.

This role is typically found in large corporations, but can also exist in small and medium-sized businesses as well.

Chief Financial Officers are appointed by the company's board of directors and are responsible for overseeing the financial planning, analysis, reporting, and decision-making processes.

Roles and Responsibilities

The specific roles and responsibilities of a CFO can vary depending on the organization and industry, but typically include:

Financial Strategy

In the most important financial position, Chief financial officers are responsible for both developing and implementing the overall financial strategies and financial planning of the company.

They develop them to align with the goals and objectives of the firm. Because of this, the CFO is an important strategic partner to the CEO.

Financial Analysis

The Chief Financial Officer doesn't only come up with a financial plan, but they also do in-depth financial analysis of all financial operations.

Based on the analysis, they provide insights and recommendations to improve the overall financial performance and revenue growth.

Financial Reporting

Producing the company's financial reports is also a big part of the Chief Financial Officer's role. They ensure accurate and timely financial reporting.

This financial reporting includes the preparation of financial statements, budgeting, and forecasting.

Risk Management

Especially with an experienced chief financial officer, the reliance on them for risk management is big. They identify and evaluate any financial risks for the company.

Then they come up with and implement strategies to navigate those risks.

Funding and Capital Management

As the chief financial officer fills the most important financial position, they manage and oversee any cash flow.

Managing cash flow means managing the company's capital structure, both human capital management and otherwise, which includes investor relations as well as fundraising activities and capital allocation.

Financial Compliance

As the Chief Financial Officer not only overviews and has access to all financial data, the person filling this position ensures compliance with all accounting standards, and tax regulations, and maintains regulatory compliance with all other regulatory entities like the Financial Accounting Standards Board for example.

This is a big part of the company's financial health and as the senior executive, the CFO is responsible for it.

Importance of a CFO

Those CFO responsibilities illuminate the role the Chief Financial Officer plays in any firm. This section intends to show you just how crucial this role is when it connects to everything else in the firm.

The CFO plays a crucial role in an organization for several reasons:

Financial Decision-making

The CFO doesn't just adhere to generally accepted accounting principles. The strategic direction any company takes needs the insights and experience of the chief financial officer. The analysis and insight rightfully influence major business strategy decisions within the organization.

They evaluate investment opportunities and assess the financial viability of new projects or initiatives, and many chief financial officers provide recommendations to the executive team and board of directors.

Strategic Planning

CFOs are involved in the development and execution of the organization's long-term strategic plans. They analyze financial data and market trends to identify opportunities and risks, helping to shape the company's strategies and objectives.

The CFO is also in the position to decide on changes in the finance function, which naturally is a change in the entire structure of the firm.

Financial Performance Management

CFOs are responsible for monitoring and managing the financial performance of the organization.

They establish financial goals and key performance indicators (KPIs) and work with other departments to ensure alignment and accountability. Through financial analysis and reporting, they identify areas for improvement and implement strategies to optimize financial performance.

Stakeholder Relations

CFOs play a vital role in maintaining strong relationships with stakeholders.

They communicate financial performance to investors, lenders, and shareholders, and provide transparency and accountability. CFOs also work closely with external auditors, regulatory agencies, and financial institutions to ensure compliance and build trust.

General Information About the CFO

Now that you know what the main CFO responsibilities are and the role this financial controller plays in the large scheme of things regarding how well a company does, here's some additional information that's important to know for any business owner or anyone who wants to become a CFO.

Qualifications

If your business direction is to one day fill the CFO position, then you should know the career trajectory.

To become a CFO, individuals typically require a strong educational background and several years of experience in finance and accounting. A bachelor's degree in finance, accounting, or a related field is typically required, and a master's degree is often preferred.

Many CFOs also hold a Certified Public Accountant (CPA) certification. In addition to education and certification, extensive experience in financial management, strategic planning, and leadership is typically required. Going up the ladder through junior accounting and financial positions is the most likely way to go.

Reporting Structure

In most organizations, the CFO reports directly to the CEO or president.

This reporting structure enables the CFO to provide direct financial guidance to the executive team and board of directors. In some cases, the CFO may also have a dotted reporting line to the Chief Operating Officer or other executives in the business leadership.

Career Path

Many CFOs begin their careers in accounting or finance roles, such as financial analyst or accountant. They then move into management positions, such as finance or accounting manager, before progressing to more senior roles such as controller and eventually CFO.

Some CFOs also have experience in other areas of the organization, such as operations or marketing, which can provide a broader perspective on the business.

Industry-specific Challenges

CFOs face different challenges depending on the industry in which they work.

In healthcare, for example, CFOs must manage the complex financial landscape of insurance and government reimbursement programs, as well as ensure patient care is not compromised by cost-cutting measures.

In technology, CFOs must balance the need for innovation with profitability, and in retail, they must manage inventory and supply chain costs to maximize profitability while providing customers with excellent service.

Therefore, this exact information we present to you will likely be modified according to the larger industry the business is in.

Role in Technology

Even outside the technology industry itself, the role of technology in finance has evolved rapidly in recent years, and CFOs are increasingly responsible for overseeing technology investments and operations.

CFOs are responsible for ensuring the organization has the necessary technology systems and infrastructure to support financial analysis, reporting, and decision-making. They are also tasked with selecting and implementing new technologies such as advanced analytics, automation, and cloud computing to improve efficiency and accuracy. This means that nowadays the role of the CFO involves a certain level of technological savviness as well.

Overall, the CFO role is a critical component of any organization. From financial strategy to risk management, CFOs are responsible for financial decision-making and providing insights that drive business growth and sustainability.

In this guide, we have shown you what is a CFO and what role this key executive plays in any organization. Their expertise in financial analysis, planning, and risk management contributes to the overall success and sustainability of the organization. A role that any successful business owner can't afford to disregard.

At Davidrivero, we care immensely about starting and growing a business. Check out our website for valuable information advice and business services.