Understanding the Modern CFO: Rethinking The Role

Jul 27, 2020

We often have misconceptions about the job of a Chief Financial Officer.

To some, a CFO just monitors the income and expenditure of a company, business, or organization. Others believe they are the go-to pro when it comes to business finances.

Neither of these ideas are wrong, they’re just incomplete, and in some ways outdated. There was a time where the expectation of a CFO was simply to monitor expenses and return on investment. Making sure as much money as possible comes in and as little as possible goes out. All the CFO was expected to do was write the checks (and hey, write as few as possible!) Today, the Chief Financial Officer has become far more than just a financial gatekeeper – they’re a crucial strategic component.

Running a successful business of any size goes beyond having someone who monitors the inflow and outflow of cash – there’s a need for more strategic planning, especially where financial functions are concerned. As such, the understanding and expectation of the CFO has to be revisited and readjusted. This expanded view of a CFO puts a strategic complement alongside the CEO and other organizational leaders to not just “manage the money”, but understand and even guide broad aspects of how a company is growing or could grow.

The Expansion In The Role Of A Chief Financial Officer

The shift in the role and responsibilities of a CFO arose over two decades ago, with the rise of the internet creating a necessity for forward thinkers.

Companies began to realize the need for innovation; that having a forward-looking strategic focus was key to the success of the company. The expansion in the role of a CFO was born out of a necessity to preserve businesses, particularly in light of the dot-com bubble bursting.

Businesses that had success were increasingly involving strategic planners as Chief Financial Officers, who didn’t just monitor the cash flows within and outside the business but put attention on the future.

Today’s organizations recognize that there is a need to make the role of the CFO more encompassing, understanding that such transitionary moves can strengthen leadership and strategic positions, and not just financial perspectives.

Many businesses, however, have not made this transition in roles, or claim to have made the shift but, in reality, are still running with the old idea.

What Is The Difference Between An Accountant And A CFO?

The CFO shouldn’t be confused with an accountant. Although both functions can share similarities, they are quite different.

Accountants are usually more focused on tax-related issues. Their primary role and greatest purpose to a company is to ensure that the company’s tax is adequately calculated.

A CFO may have a tax background or possess tax-related expertise, but it’s better for the CFO to be involved in making sure organizations hire the right accountant or a tax professional. The accountant is a quarterback. The CFO is a general manager who understands what makes a great quarterback and their place on a winning team.

Companies need strategic perspective on their financing, and the role of an accountant is generally not one of strategy. Accountants typically report on past financials of the company, and while they may point out future areas of focus, the nature of their role doesn’t expose them to other facets of a business that inform future strategies.

The right CFO, on the other hand, develops guidance for the future based not only on past reports and performance but on a forward-thinking study of where other aspects of a company is concerned, like systems and processes, marketplace analysis, supply chain dynamics, vendor relationships, among many others. It’s this unique capability to connect key relationships, relevant to an organization’s financial functions, that defines the modern CFO.

What Is The Role Of A CFO?

Many businesses commonly make financial decisions based on past performance. Last year’s or last quarter’s performance metric drives this year’s new goal. Again, this provides an incomplete picture that can ultimately compromise future performance if a broader perspective isn’t achieved. A profitability goal that doesn’t involve increasing manufacturing costs isn’t a well informed goal. The ten-year-old software that serves as the IT backbone of a company can be creating redundancies and inefficiencies that ultimately increase overhead expenses – which will impact operating expenses.

This is where Chief Financial Officers come into play. Having a picture of where the organization wants to be and setting actionable goals to that end drives the success of the organization. That picture of the future needs to be realistic with other drivers of business performance, and goals set need to include how all those drivers may perform in achievement towards – or against – the goals.

Your CFO should be uniquely capable of assessing that picture to assist in creating clear, actionable goals. Then, the CFO leverages their expertise to help set up structures, processes, and frameworks that are in line with what the company wants to achieve. The CFO can identify gaps in processes, holes in the structure, and where strategic bridges need to be built to help a company reach its goals.

The Characteristics Of The Modern CFO

The role of a CFO is ideally reserved for a person that is strategic and proactive. This means that the individual should be able to forecast and envision the future of the business. A CFO is not expected to be merely reactive. Facts, not feelings, should influence their actions, advice, and activities.

A CFO should also be able to adapt to changing circumstances. Their ability to be flexible makes it possible to adjust the strategies they use, when needed, to the ever-changing business world.

The Chief Financial Officer is, in addition, a skillful leader. They not only discover problems but offer solutions. They don’t sit back, fold their hands, and expect answers to fall out of the sky. The CFO is capable of taking the lead and paving the way for others to follow.

Consider your CFO a strategic complement to the CEO, capable of advancing the CEO’s ideas and visions by delivering a better understanding of how an organization’s financial functions operate in alignment with that vision. At the same time, the modern CFO should free up more visionary time and space for the CEO, helping them focus on the most essential things (whatever that might be to a particular CEO) to give them the information they require to keep driving the company forward.

Assess Your Need For A Modern CFO

Financial management and forecasting are major issues for any company. If the goals, targets, and objectives you set for this year or last year seem pointless, random, or poorly informed, it might be time for stronger financial guidance in making those goals. If the strategic plans you’ve put in place are being poorly executed, and there seems no way to achieve those business goals, rethinking the role of the CFO in your organization will help.

A CFO who’s uniquely capable of understanding and creating relationships among the financial drivers of your company, and who can then help establish the support systems to better manage those relationships in efforts to achieve a goal, can help you achieve more goals more quickly, avoid mistakes or wasted time, and complement the roles and responsibilities required of other leaders to help the company grow.