There's a dizzying array of "C" titles in the hierarchy of larger enterprises such as CEO, CIO, and CCO. The profusion of C-suite titles can get confusing for a founder who wants to ensure that their business has the right kind of talent at the top.
Two C-suite roles that eventually become indispensable once a business reaches a certain size are CFO (chief financial officer) and COO (chief operating officer).
In this article, we'll go over what each one does, how to know when you're ready to hire a CFO, and what happens when the CFO is also the COO.
Let's get started!
What's a CFO?
A CFO is the highest-ranking financial officer in an enterprise. The CFO's responsibilities will vary depending on what your business does and how big it is. However, in virtually every company, their primary responsibility is to oversee fiscal operations.
A strategic role
The role of the CFO is integral to your executive management team and is a strategic one. In addition to managing the accounting and finance team, this C-suite member will show you how you can grow, scale, and fund your enterprise in a financially responsible way. Their penetrating financial insights and deep dives into your organization's fiscal data will provide you the intelligence you need to make sound business decisions.
They'll take a good look at where you want your company to be and create financial goals that will help you get there. CFOs review the organization's long-term objectives with other senior managers to develop operational strategies to turn these goals into a glorious reality. Then, they'll get busy building the financial infrastructure to support these plans.
The adult in the room
Some financial experts call the CFO the "adult in the room." That's because they're famous for their level-headed pragmaticism. They're the stable, guiding presence that builds the practical financial underpinnings supporting the CEO's vision.
However, even they need to balance their dispassionate love for the practical with bursts of creativity when it's called for.
Generates actionable insights
CFOs are ultimately responsible for generating accurate and timely financial statements, such as income and cash flow statements and balance sheets. They translate that information into meaningful, actionable insights to share with other members of the C-suite. They might also present this information at company events, internal meetings, and to the board of directors.
Contact point for external financial relationships
Besides managing an enterprise's internal financial affairs, they're typically the critical contact point for its external financial relationships. These might include:
- Tax advisors
- Insurance firms
- Real estate representatives
- Commercial bankers
- Government and regulatory representatives
What are the responsibilities of a not-for-profit CFO?
CFOs in nonprofits are responsible for tasks similar to that of a CFO in a profit-generating enterprise. However, they typically do much more than mere financial oversight.
For example, they might play a role in information technology, legal oversight, and fundraising. As a not-for-profit gets bigger, the CFO's role might narrow to a more traditional focus.
Nonprofit CFOs typically receive a much lower salary than their for-profit counterparts.
How Do You Know You're Ready to Hire a CFO?
If you're running a small- to mid-sized business and your needs are relatively simple, you might not need the services of a CFO for some time. This means you can probably get away with still using a bookkeeper, accountant, or CPA.
Let's say your operations are based on a complicated business model and generate massive amounts of highly detailed data. In that case, your bookkeeper might not have the skills to wade through all this information.
You'll also need an experienced CFO if you require professional-quality executive-level financial reports with in-depth analyses to present at quarterly board meetings. Another situation when you'll need a CFO is when you're embarking on an ambitious financial project with many moving parts. This could be a fundraising effort, acquisition, or overhaul of your existing financial infrastructure.
What's the typical CFO background?
Some people become CFOs after first having careers as public accountants. However, others forgo this route by leveraging time spent in corporate finance or investment banking to become CFOs.
What's a COO?
The COO oversees the day-to-day operational functions of an enterprise. The COO usually reports directly to the CEO and is often considered to be second in command.
The COO is said to be internally focused, while the CEO is externally focused. Sometimes, a COO is called a vice president of operations. However, many more titles exist for the function.
There isn't some universal, agreed-upon list of what the role entails.
The responsibilities of the COO might vary depending on how the company and the CEO define the position.
Operationalizes CEO’s vision
The COO starts by taking the CEO's vision and operationalizing it into an executable business plan. Whatever operational tasks need to be accomplished to achieve this plan, the COO ensures they get done.
To do this, COOs meet with the various departmental heads to figure out what parts of the plan they'll be responsible for. The leaders of each department then further break down tasks and projects and designate team members within their division to carry them out.
For example, let's say an enterprise suffers a sudden drop in market share because of a marked decrease in product quality. The CEO might call for increased quality control to avoid damaging its reputation among customers. The COO would carry out the CEO's directive by meeting with division leaders to figure out how to translate this mandate into concrete operational objectives.
Complements CEO’s skillset
In some cases, a board of directors or founder hires a COO not because they necessarily need someone to oversee operations but to complement a skill set a CEO is deficient in. This may be because while the CEO is proficient at most of their day-to-day responsibilities, there are a few areas where they could benefit from more managerial expertise.
Manages HR department
A COO manages all of the HR and staffing functions of an enterprise. They're responsible for setting and maintaining a company's recruitment standards and the internal policies of the HR department. A company's HR director reports to the COO.
Liaison between CEO and rest of company
The COO often acts as a liaison between the CEO and the rest of the enterprise. The COO does this by playing the role of intermediary between the heads of departments, ensuring they communicate with each other when an initiative requires multiple departments to work together to achieve the CEO's vision.
What are the similarities and differences between COO and CFO?
Both the COO and CFO are members of the C-suite who report to the CEO. Both typically are trusted advisors to the CEO. However, CFOs focus primarily on the financial affairs of an organization, while COOs oversee operations.
COOs usually need to have a bachelor's degree in business or a related field like business administration. CFOs also need to have a bachelor's degree, but it must be in a specific, finance-related area such as economics or accounting.
However, most enterprises want candidates looking to fill either role to have a master's degree.
What Happens When the CFO Is Also the COO?
An interesting development in the world of corporate governance over the last 20 years or so is that some enterprises have beefed up the CFOs role to encompass other than merely financial duties.
This is typically due to cost-cutting measures. Sometimes, this means they take over the COO's role. For some companies, this has been proven to be a disastrous idea. That's because, in these organizations, the individual assuming the dual role frequently got overburdened.
However, a study by the American Accounting Association's Journal of Management Accounting Research showed that this wasn't the case in most companies. The conclusion was that there was "no evidence that CFO/COO duality adversely … affects operations, a finding that may calm concerns about the operational business acumen of accountants."
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