More ... Role of the CFO

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​Many middle-market executives believe that a CFO’s responsibility is limited to ensuring that the financial statements are properly prepared – accurate, consistent, timely etc. – payroll and invoices are paid, and tax/fiscal reporting is completed on time.  This is a controller’s job description … tactical and compliance driven, but truly an essential function to be completed.

A CFO must go beyond the numbers, and work closely with operating executives.  Some may describe the CFO as an executive that helps the operating executives more effectively manage business risk and opportunity.  The CFO converts operating concepts into financial decision criteria, weighted for both risks and opportunities, and balanced with the probability of success.  The CFO will help the CEO understand the capital and debt structure required to execute operating plans, and also ensure that accountability is established and monitored throughout the organization.

How does the CFO complete this?

The CFO is responsible to have a financial management system that ensures timely, accurate, consistently prepared financial statements for the operating executives to manage their responsibility.  This is not limited to mere P&L’s and Balance Sheets, but extends to analysis and reporting that will support the operations’ decision-making.  Sales analysis by product line, region, trade class… manufacturing reporting to include variance analysis, what-if analysis … broad trend analysis etc. based on the operations’ executives needs.  Each company’s requirements differ, and the requirements may change annually, based on the company’s strategy.

In addition to the tactical reporting, by working with the CFO and operating executives the CFO can help them brainstorm strategic initiatives such as M&A transactions and valuations, joint ventures, geographic expansion, new product lines, R&D investments, reorganizations etc.  The CFO has insight into statutory, tax and administrative issues, and will have an excellent understanding of acceptable debt/equity parameters and stockholder requirements.   

Occasionally, operating executives view the inquisitive CFO’s nature to be intrusive, but without understanding the operations, a balanced risk-weighted decision cannot be made.  For example, if the Manufacturing executive wants to invest $500,000 in new equipment and can prove it’s current worth, but the R&D executive also needs $500,000 for a new product critical to the company’s future, the company strategy will guide a good decision.  The unbiased CFO will understand each executives needs, and present the information so that the company (CEO and executive team) will make the best decision.

An effective CFO will often temper the enthusiasm of the operating executives, and allow the company to develop balanced, well-considered strategies that are within the risk-tolerance of debt/equity holders, and within the competitive landscape.… Mike Gendron