If you want to make a significant investment in your company's future, consider bringing a CFO on board. They'll help ensure your company is leveraging its financial resources to accelerate growth. They'll also mitigate any risks that stand in the way of this goal and communicate their keen financial insights to stakeholders.
What Is a CFO?
A Chief Financial Officer (CFO) manages the financial affairs of a company. The primary responsibility of the CFO is to optimize a company’s financial performance, including its liquidity and return on investment.
The CFO is a member of the C-suite, the highest management level in any enterprise. The C-suite also includes the Chief Executive Officer (CEO), the Chief Operating Officer (COO), and the Chief Information Officer CIO).
The Importance of Soft Skills
Today, CFOs are expected to do more than merely crunch numbers.
No longer are they limited to finance and accounting roles but work alongside other C-suite executives in devising strategic initiatives that’ll help grow the enterprise.
That’s one of the reasons why these days, CFOs need soft skills to do well at their job. This means that capabilities like leadership and the ability to effectively collaborate with others are essential components of the modern-day CFO’s toolbox.
For example, CFOs must be excellent communicators because they need to explain insights derived from complex data to stakeholders such as investors, employees, and shareholders. Many of these individuals don’t have a background in finance, so it must be conveyed in an easy-to-understand way.
Qualifications and Experience
CFOs usually need to have a graduate degree in finance or economics. Most CFOs of large companies have credentials such as a Master of Business Administration (MBA), Master of Science in either Finance or Accounting, Chartered Financial Analyst (CFA) certification, or are Certified Management Accountants (CMAs).
Large companies often require a CFO to have at least ten years of experience in helping to manage an enterprise’s financial affairs. This might include previous roles as a controller, director of accounting, or vice president of finance.
CFOs also need broad knowledge related to the industry they're working in. This is important as each sector has its own needs and objectives. Additionally, each industry may have a totally different approach to documenting business transactions.
Duties and Responsibilities of a CFO
The CFO usually reports to the CEO and the board of directors and might have a seat on the board. They hire and fire staff, provide direction to finance team members and oversee the preparation of financial statements.
While the CFO’s role has traditionally been considered that of the closest advisor to the CEO, this role has only grown in significance as CFOs concentrate more on strategy than number crunching.
However, there are usually distinct differences in their approaches. Both executives share the common goal of growing the company. However, the CEO focuses more on having a compelling vision for the enterprise. In contrast, the CFO takes a more realistic view that encompasses stark risk assessment.
The CFO also assists the chief operating officer (COO) in budget management, cost-benefit analysis, forecasting needs, and securing new funding.
A CFO has the authority to create accounting policies regarding bill payments, purchases, and other financial transactions. They must also review employee incentive and benefit plans to ensure that they're cost-effective.
A CFO ensures that an enterprise's financial records are always in order so that nothing is amiss. This means impeccably maintaining the integrity of the company’s books.
The CFO uses generally accepted accounting principles (GAAP) established by the Securities and Exchange Commission (SEC) to maintain the accuracy of financial information. Stakeholders expect this information to be reliable because they use it to make decisions crucial to the future of the enterprise.
CFOs see that company policies, procedures, and practices comply with those set by regulatory bodies and external auditors. They help the company to stay within legal boundaries, including with tax obligations and contracts.
When auditors find that a company has inadvertently or deliberately violated regulatory standards, the CFO is responsible for implementing their findings and recommendations.
A CFO manages the capital structure of a company, determining the best mix of internal financing, debt, and equity. The CFO must be able to successfully implement policies and procedures that foster business growth. These include reducing costs, optimizing pricing strategies, and other improvements that make the company more profitable.
A CFO creates and oversees budgets, ensuring the company sticks to them, so spending doesn't spiral out of control.
Here are some other financial responsibilities of a CFO:
- Deciding how to best invest a company's funds
- Overseeing mergers and acquisitions
- Analyzing operations to find opportunities for increased efficiency
- Identifying new business opportunities
- Managing budget proposals
- Coordinating with the CTO (chief technology officer) and IT (information technology) personnel to monitor and manage financial IT systems
The role of a CFO has shifted from compliance and quality control to strategic business planning. To do this, they meticulously analyze data, identify trends, and plot the best financial course for the company. This means a CFO should be proficient at economic forecasting and modeling. This is choosing the market and economic scenarios that will best contribute to the company’s success.
A CFO makes sure that all money going in and flowing out of an enterprise drives company growth. If there’s a problem, they’ll collaborate with the CEO to create a plan to get back on track.
What Are Interim and Fractional CFOs?
Interim CFOs are chosen by large companies undergoing leadership changes, such as financial disruptions or hiring a new CFO. They’re usually brought in for one to three months.
Some companies may also hire an interim CFO when the permanent one doesn’t have the knowledge or experience to deal with emerging challenges, such as the possibility of a merger or acquisition.
In cases like this, an interim CFO will work alongside the permanent one.
Some startups decide at the outset that hiring a CFO is the best way to chart a course to financial success. That way, they can receive the benefits of strategic financial insight and have someone on board who can create projections, budgets, and cash flow forecasts.
However, hiring a full-time CFO might not be the best choice for an early-stage company. That's because paying their salary might be cost-prohibitive for a startup just getting off the ground. Also, many CFO candidates aren't willing to tolerate the uncertainty of an early-stage enterprise.
If you’re running a startup, you probably don’t need a full-time CFO anyway. In that case, consider hiring a fractional CFO. This way, you’ll be able to hire a finance professional who can do more for you than a mere bookkeeper can.
A fractional CFO offers all of the services of a regular CFO but on a part-time basis. This means they’ll work for you a few days a week. Usually, small and mid-size businesses hire fractional CFOs because their operations are smaller in scale, so they don’t require full-time professional CFO help.
Small and medium-sized businesses also hire fractional CFOs when they are beginning to grow and get more traction. These early-stage companies need more than an accountant but aren’t at the stage where they need full-time support.
As of 2021, the average Chief Financial Officer salary in the United States was $395,820.
How much you should pay your CFO varies widely depending on several factors, including education, certifications, additional skills, and experience level. As your company grows in size, you’ll be able to offer your CFO more executive perks and fringe benefits. Many early-stage companies offer benefit packages that emphasize cash and equity compensation with few perks.
For example, after a multi-million-dollar Series A funding round, some startups offer a 1-2% equity grant to a non-founding CFO. At the bare minimum, a CFO’s benefits should include Social Security, 401(k), disability, healthcare, pension, and time off. The value of these benefits for the average CFO is approximately 20% of total compensation.
Looking To Hire Your Next CFO?
If you want to build a company you can be proud of, you’re going to need to recruit top-tier talent. Hunt Club can help you do that. We’ll use our proprietary methodology honed over the years to source and hire high-caliber candidates.
The end result?
A robust talent pipeline that can help fill all your open roles.