In this video we are going to talk about the CFO role, and how it changes based on the organization. What I want to do is talk through each type of CFO to give you a better understanding of what activities you would perform in a CFO role. WATCH NOW
CFOs will tend to fall into three different categories: Financial, Operational, and Compliance.
Let us start with Financial. You often find this type of CFO in start up organizations. When a business is just starting out, one of their main concerns is raising capital. You need to have a CFO who knows how to raise money, deal with investors, issue debt or perform an IPO. For these reasons, you will probably look for a CFO who has experience in Finance. You may want someone who has experience on their resume of working for an investment bank.
The next category is Operational. This is a CFO with accounting work experience operating businesses. This type of CFO would be helpful during a growth phase in the business. If the business has already raised the money it needs, you would turn your focus on growth, which brings its own unique set of challenges. The problem with having a CFO from an investment back, is they may not have the experience you need in operations. How do you run the day-to-day operations of an accounting department? Investment bankers are always on the outside of businesses looking in, so they do not have the experience of what it is like on the inside. Additionally, most investment bankers are not CPAs, and may not have the experience you need to set up accounting internal controls. Another problem in the growth phase is simply being able to adapt to changing requirements. Accounting controls for a smaller organization will need to change as the organization gets larger, otherwise your accounting will actually hold your business back. A CFO needs work experience inside a business to be able to identify and know the solutions for those changes. Accounting software is one example. For a small organization, you need software designed for a small number of users. A more complex software will be cumbersome. But as an organization grows, you need to switch to the more complex software in order to perform more difficult user management that didn’t exist as a smaller business. These changes are very difficult for a CFO to manage, but are necessary if you want your business to continue to grow.
The last type of CFO is Compliance. This CFO is generally helpful in larger more mature companies. The bigger your business gets, the more scrutiny your financial reports receive. For that reason, it becomes more important to have a CFO who will be able to pass your audits. You need someone who will understand all the compliance issues facing your business. The best type of person for this, is to hire someone with experience in Auditing from an Accounting Firm. Because they have done so many audits, and know the types of issues that can come up, they are going to have the experience needed to manage preparing the business for an audit. For example, a business should be preparing for an audit all year long. Auditors look for documentation, so you want your accounting systems to produce accurate documentation all year long, and then file it in an easy to find location so it is ready when the auditors show up. You do not want to wait to be looking for documentation when the auditors arrive.
Those are the three types of CFO, and they generally conform to the growth phases of a business. A Financial CFO would be useful for startup organizations. An operational CFO would be helpful in a growing business. A Compliance CFO would be helpful in a mature business.
Let me just say, we are speaking in generalizations in this video. In all honesty, whenever you are a CFO you need to wear all three hats. You will have to do all three things, but the emphasis will be different depending on what is going on in the business. From the company’s perspective, this is helpful to know what type of experience to look for in someone you are hiring. From the perspective of someone applying to be a CFO, this is helpful to know what in your experience is going to provide the most benefit to your employer. It is also helpful to know, as you grow your accounting team, what areas in your experience you are weaker in so you can find other members for your team who have that experience.
Leave a comment down below letting me know what you think!
If you find these videos helpful, please subscribe to my YouTube channel.
Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.