Can you recommend ways to learn about the role of CFO? Basic accounting principles, investing for small businesses, typical roles and responsibilities, etc.
This question comes from one of four partners who have worked hard to divide up responsibilities in their company. Each has assigned management tasks and also continues to be accountable for revenue generation through sales and project implementation work.
The role of CFO, chief financial officer, is important to the success of any small business. Most business owners did not start out as experts in the role and have a lot of learning to do. Defining the responsibilities and accountabilities that go with the job of CFO will help this owner and his partners understand what’s expected.
The CFO is the senior financial officer of the company. This person advises management. He or she manages risks, builds connections with debt and asset managers outside the company, and is deeply involved in tax planning and compensation. It goes without saying that this person oversees the financial controls of the company.
Advice to management can be both strategic and tactical, and must be focused on marshalling the company’s resources to achieve future growth. The CFO must be able to see down through the numbers and facts. He or she provides advice about what’s going on inside the company, as well as what and how changes in the marketplace are going to impact the company.
The financial controls
As part of the management team, the CFO charts the future growth path and ensures the company has and follows a budget.
Working with sales and marketing, the CFO builds a forecast for future income, typically by product, by division and by month, for the upcoming year, as well as more broadly – one to three-plus years ahead.
Working closely with whoever is in charge of human resources, as well as line managers, the CFO earmarks funds for compensation and then analyzes performance – individual, department and company.
The CFO helps operations to increase operating margins and plan for regular improvements in plant and equipment. Closely working with the company’s accounting firm, the CFO ensures that external reports are prepared on time and that taxes are appropriately managed.
Every company benefits from having strong banking relationships, especially in today’s economy. The CFO is responsible for initiating and maintaining those connections.
Once bank lines and loans are established, the CFO oversees timely payment. Periodically the CFO reviews outstanding lines against the company’s future needs, to ensure they are adequate and supported by the company’s cash flow and profits.
On the asset side, the CFO plans out how to achieve the best mix of liquidity and income from cash on hand. First, the CFO helps the company budget to continually build reserve funds then looks for ways to use other peoples’ money to profitably grow the business.
The CFO will also be deeply involved in searches for other businesses to acquire and plans to integrate those purchases into the company.
Owner as CFO
In small businesses, the role of CFO often falls to one of the owners. Often that person has little, if any, formal training to prepare for the role. Attending conferences, subscribing to magazines and working with financial advisers and accountants can all be ways for the CFO-designee to learn about the roles and responsibilities.
The first place to focus, for most CFOs, is ensuring that adequate controls are in place:
- Is the accounting system up to date, accurate and in agreement with the accountant’s records?
- Does the accounting system provide sufficient reporting to help managers throughout the company understand what’s going on?
- Is there a forecasting system to help the company accurately predict what lies ahead, and then analyze performance against those predictions?
One way for this owner to get started in the role is to define the job in writing. Map reports: Who needs what information by when, inside and outside the company? Build a list of duties, accountabilities and reporting relationships. These tools will help everyone in the company better understand the role.
Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. Questions may be emailed to her at AskAndi@StrategyLeaders.com or mailed to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Phone: 877-238-3535. Visit www.AskAndi.com for archived Ask Andi articles.
