Chief Financial Officer (CFO) Defined: Role, Responsibilities and Skills (2024)

Big public companies may have defined the CFO role, but the chief financial officer positionis becoming increasingly common in midsize and even small firms. Recent postings forfull-time CFOs on job-search sites include an emerging air mobility design and manufacturingcompany in Massachusetts with fewer than 20 employees and a 94-bed community hospital inHawaii.

What’s driving that investment in expertise? Often, CEOs who are at a strategiccrossroads and recognize the value of an expert financial adviser who can help them growmarket share, and their businesses.

In short, smart companies now view the CFO position — both internal and on a virtual orfractional CFO basis — as more of an investment than an expense.

There’s no doubt that a global pandemic made the value of an experienced hand on thefinance helm very evident. But our take is that there’s more to the rise of the CFOthan an economic crisis. Let’s look at the role, responsibilities and skills financechiefs need to serve their companies well.

What Is a Chief Financial Officer (CFO)?

A chief financial officer (CFO) is the highest-ranking financial professional in anorganization and is responsible for the fiscal health of the business. The CFO’sresponsibilities include, but aren’t limited to, building a top-notch finance andaccounting team, ensuring revenues and expenses stay in balance, overseeing functions, making recommendations on mergers andacquisitions, obtaining funding, working with department heads to analyze financial data andcraft budgets, attesting to the accuracy of reports and consulting with boards of directorsand the CEO on strategy.

CFOs may also help set technology direction, especially fintech, and make recommendations oneverything from supply chain to marketing based on their fiscal insights and industryknowledge.

The most-valued CFOs are visionaries — they have an eye toward the future, work closelywithtop leadership and aren’t shy about recommending strategic moves.

CEO vs. CFO

The chief executive officer (CEO) is a company’s highest-ranking executive. Dependingon corporate structure, the CEO may be responsible for all aspects of a company’soperational and fiscal health, or a president may share some duties. The CEO is the officialface and voice of the company to press and analysts, the general public and, if applicable,the board of directors.

CFOs are the most senior financial officers in an organization. They report directly to theCEO and work closely with the board of directors.

While the CEO occupies a higher-level position from an org-chart standpoint, inhigh-functioning companies, the CFO and CEO work closely and collaboratively, with CFOsserving as sounding boards, strategists and risk mitigators.

Financial Controller vs. CFO

A financial controller is a CPA (certified public accountant) and often holds an MBA.Financial controllers are responsible for preparing financial reports and analyzingfinancial data. The financial controller is generally in charge of the accounting functionin an organization and reports to the CFO. A controller may be part of ateam that includes bookkeepers, accounts receivable/payable clerks, payrollspecialists, tax preparers and accountants.

The CFO relies on the reporting generated by accounting and the financial controller toadvise the CEO and board on the company’s strategic financial direction. Thecontroller and other functional specialists report to the CFO.

Key Takeaways

• What informs the need for a CFO is less company size than a desire for a strategicadviser with deep financial expertise.
• CFOs are captains of a team that covers both accounting and finance and consists ofsenior leaders, such as controllers and VPs of finance, and operational staff —accountants, bookkeepers, tax specialists, data analysts.
• Serving as a CFO requires a background in accounting or finance and an advanced businessdegree, generally including an MBA. But it also takes plenty of soft skills.

Chief Financial Officer (CFO) Explained

The chief financial officer (CFOs) holds the top financial position in an organization. Theyare responsible for tracking cash flow and financial planningand analyzing the company’s financial strengths and weaknesses and proposing strategicdirections.

CFOs are accountable to both the organization and various regulatory entities andauthorities, including the Securities and Exchange Commission (SEC) in publicly heldcompanies. They are well-versed in both generally accepted accounting principles(GAAP) and state and federal regulations, such as the Sarbanes-Oxley Act.

What Does a CFO Do?

The CFO’s role is twofold: Oversee the organization’s financial activities,including being responsible for the finance and accounting professionals who performoperational functions, and serve in a strategic advisory role for the CEO and C-suite peers.

Brainyard’s Winter 2021 Survey shows how finance and business leaders rank successfactors and how those priorities have changed over time.

Meeting revenue and earnings goals and keeping cash flow stable are clearly in theCFO’s purview. Finance chiefs also advise department heads across the organization,assisting them in both maximizing revenues, if they serve in a revenue-generating capacity,and controlling expenses without sacrificing customer or employee satisfaction or thecompany’s reputation.

The CFO helps select skilled staff for the finance team and works with departments toallocate budget for human capital management.

CFOs put complex data — current, past and predicted financial results — inperspective andhelp the CEO make sound financial decisions: Should we introduce this new product orservice? Can we afford to on-shore our supply chain? What are the tax implications of ouremployees working from anywhere?

CFO Responsibilities

Liquidity

Liquidity refers to an organization’s ability topay off its short-term liabilities — those that will come due in less than a year— withreadily accessible, or liquid, funds. Liquidity is usually expressed as a ratio or apercentage of what the company owes against what it owns.

CFOs are concerned with ensuring that customer payments are made in full and on time andcontrolling expenses so that enough cash is on hand to meet financial obligations.

Return on investment (ROI)

Part of a CFO’s strategic focus is on ensuring a strong return on investment (ROI) fortheir organizations. ROI is a measure of the likelihood of receiving a return on dollarsinvested and the precise amount of that return. As a ratio, it looks at the gain or loss ofan investment as a percentage of the cost.

Because ROI is a relatively basic KPI that does not account for all variables — netpresentvalue, for example — CFOs add context to evaluate whether a project will deliversufficiently robust ROI to be worth the investment.

Forecasting

Importantly, CFOs don’t only report what is — a significant part of their valueto anorganization is their ability to accurately predict likely future outcomes. That includes financial forecastingand modeling based not only on the company’s past performance but on internal andexternal factors that may affect revenue and expenses. The CFO is tasked with making senseof the various departmental level forecasts to create profit projections for the CEO andshareholders.

Internal factors include sales trends, labor and HR-related costs, the price of raw materialsand more, while external data inputs could include opportunity cost for capital, shifts inmarket demand, emerging competitors and advances in technology.

To monitor the external environment, CFOs may rely on government data, analyst firms andbusiness and general media, supplemented with insights gleaned through trade and associationmemberships and the input of board members, lenders and others.

Reporting

Financial reports including balance sheets and P&L and cash flow statements help bothinternal leaders and external stakeholders understand the financial state of the business,and it’s up to the CFO to attest that these statements are accurate and complete inaccordance with generally accepted accounting principles (GAAP).

Although private companies are required to file financial reports with the SEC only if theyhave $10 million or more in assets and 500 or more shareholders, many businesses createthese statements anyway so they’re available should the company seek a bank loan orventure capital or equity funding.

Members of the CFO’s Team

The key duties of the CFO position vary depending on the size of the organization, itsindustry and whether it’s a public or private company but generally fall into threebroad functional areas: controller, treasury and strategy and forecasting.

Organizations may have professionals overseeing some or all of these roles and reporting tothe CFO.

Controller:

Controllers run day-to-day accounting and financial operations and often hold a CPA or MBA.They are responsible for creating reports that provide insights into a company’sfinancial standing, including accounts receivable, accounts payable, inventory and payroll.

Treasury:

The treasurer is responsible for the company’s liquidity, debt and assets. Thatincludes any investments the company may have, whether physical assets, such as buildingsand equipment, or financial investments.

Strategy & forecasting:

Strategy and forecasting involves using available data and reports, both internal andexternal, to advise on areas including product development, market expansion, human capitalmanagement, M&A and capital investments. It’s also where structured planning andforecasting exercises, like scenario planning andFP&A, fall.

Controllers, treasurers and FP&A analysts are invaluable members of the team, but in allthese areas, the buck stops at the CFO’s desk.

Benefits of Having a CFO

CFOs guide the finance and accounting team and have a broad view of an organization’sfinancial health, allowing the CEO as well as peers including the CMO, COO and VPs of HR andsales to focus on their own goals and operational issues. While a CEO or COO may have abackground in accounting or finance, they generally don’t possess the same level oftechnical acumen and experience that a chief financial officer brings to the table.

In addition, a CFO provides:

Leadership skills

that enable them to assemble a successful financeand accounting team. CFOs understand at what point a company needs to add, for example, a taxspecialist and will define roles and assign responsibilities.

Industry knowledge

that enables a company to benchmark itself againstpeers. There’s a reason B2C often seek to hire CFOs away from competitors, as Netflix didwhen it hired Activision’s finance chief. Same for manufacturers and healthcare providers.Specialized expertise is key in framing KPIs and metrics for variouscompany types.

Growth experience

gleaned from helping previous employers successfullyexpand, whether organically or via M&A, is invaluable to CEOs, especially those looking totake their companies public. A CFO helps find investment opportunities and use capital wisely.

Risk assessment and management

, in terms of regulatory compliance butalso the dangers that arise from too much debt and too little liquidity, brittle supply chains,improperly hired contractors and poorly implemented technology.

While hiring an experienced CFO is an investment, the return can be significant.

5 Top CFO Challenges

Today’s CFOs face challenges on multiple fronts, even as they benefit from ongoingtechnological advances and the ability to analyze and forecast based on massive amounts ofdata. These are the top five challenges facing CFOs:

1. Juggling too many responsibilities (51%):

   As we’ve seen, this role is a broad and expanding one. A growing regulatorylandscape, rapidly evolving technology and massive market shifts worldwide squeezeCFOs from one side, while difficulty finding and retaining the right accounting andfinance talent adds pressure from a time-management POV.

   See Also

   This Is Your Co-Pilot Speaking: The Changing Role of Chief Financial Officers

2. Managing cash flow (43%):

   All organizations need runway, but maintaining a healthy cash flow is a balancingact. CFOs must manage both incoming revenues and accounts receivables while keepingan eye on outgoing payments and short- and long-term liability. Cash flowanalysis is an ongoing endeavor.

3. Developing accurate financial scenarios (43%):

   Like cash flow analysis, scenario analysisis, or should be, an ongoing process. By guiding thorough analysis of the potentialimpacts of a variety of economic conditions on the organization’s revenues,CFOs can plan for both positive and negative outcomes.

4. Producing timely, accurate reports (37%):

   Timely reporting has always been critical, but in a fast-paced global businessenvironment, access to information is the foundation of sound, strategic decisionsand identifying and avoiding risks. Moreover, the reports issued by the financeteam, like P&L statements, can make or break efforts to obtain financing.

5. Implementing tech for finance (33%):

   CFOs are aided in their roles by increasingly sophisticated technology that can helpwith both reporting and forecasting, including dashboards with built-in businessintelligence. But tech represents a significant investment in both capital and humanresources.

We’re likely to continue seeing these challenges into 2021 as CFOs tackle thepandemic’s lingering effects on sales, consumer demand and the workforce.

Changing Role of the CFO

Companies that look at the CFO role as more about reporting, less about strategy are or willsoon be at a disadvantage. Yes, finance chiefs need to ensure that they and the managementteam have timely data to support decisions. But strategic planning and collaboration acrossall parts of the business are what drive success.

Thus, it’s no wonder that CFO surveys consistently show that evolution. Especially insmall and midsize businesses, CFOs tend to wear many hats. Not only are they doing thetraditional CFO job, they’re assessing cyber security risks, managing system and dataintegration, filling talent needs and evaluating new technologies like Blockchain and AI.

When Should You Hire a CFO?

Organizations should consider hiring a CFO when the CEO and more junior financial staff nolonger have the skills to adequately evaluate the organization’s fiscal standing,assess cash flow, forecast future financial needs and inform business strategy. Some expertsadvise $10 million in annual revenue as a marker that it’s time to hire a full-timeCFO. But don’t forget that part-time/fractional and virtual CFO-as-a-service offeringsare available.

While many organizations may wait to create this role until they begin to experiencefinancial challenges, we recommend a more proactive stance. Ask yourself:

Are we beginning to pursue a growth strategy? If so, you’ll need deepinsights into P&L, income and cash flow statements. Who will look at the books if youspot an acquisition opportunity? Banks and other potential investors like having a CFOattest to accuracy and completeness. Oh, and have you calculated your valuationmultiples lately?

Do we have a sound, repeatable planning and budgeting process? If not, youlack a firm financial foundation. Ad hoc is no way to run a business.

Are we using our data fully, and not just in the obvious areas? For example,are we mining ecommerce data to inform customer success programs? CFOs tend to champion datause.

Do we feel confident in financial reporting requirements? For example, wereintangible assets impaired due to the economic downturn? If so, how will you account forthat?

Then there are industry-specific considerations. For many manufacturers, retailers anddistributors, the pandemic revealed weaknesses in supply chain operations that anexperienced CFO can help address.

CFO compensation in public companies is typically a mix of cash and stock. In both public andprivate businesses, remuneration is based on a number of factors, from company size andindustry to geography, experience, seniority and how many finance/accounting divisions ordepartments report in to the CFO. In 2021, the highest-paid CFO by a wide margin was GoldmanSachs’ Stephen Scherr, at $20.2 million total comp. Among all companies, U.S. CFO payas of early 2021 averaged $394,235, according to Salary.com data. But at smaller companies,pay hovers between $150,000 and $200,000, according to salary and job sites.

CFO Qualifications & Skills

Serving as a CFO requires a background in accounting or finance and an advanced businessdegree, generally including an MBA. CFOs must also have experience analyzing data to makerecommendations on financial and organizational strategy.

In addition to having "hard skills," including understanding generally accepted accountingprinciples (GAAP), budgeting and data analysis, today’s CFOs need to have solidleadership and management chops — the "soft skills" of effective communication,conflictmanagement and negotiation.

Individuals in this role must forecast and offer strategic direction to the organizationbased not only on internal data but also on the external environment — regulatory,marketand macroeconomic — and be able to advise on industry-specific challenges andopportunities.

Finally, CFOs need a firm grasp of financial technology, or fintech — its ongoingevolution,options available and their applications, how to make financially sound decisions about ITinvestments and infrastructure and how to communicate to and educate staff to ensurefull adoption across the organization — if tech is not used, there goes your ROI.

Technologies CFOs Use

CFOs and their teams rely on technology to analyze the massive amounts of data available tothem. Modern financial management software helps with informeddecision-making, freeing up time to focus on strategy and the critical advisory role.

CFOs need core financial reporting, audit and compliance capabilities and should also lookfor integrated systems that can help in FP&A, treasury and capital structure andallocation, regulatory compliance and corporate portfolio management and modeling.

Today’s CFOs are working long hours — 54% of CFOs in a recent Brainyard surveysaythey’re working 50 hours or more per week — and juggling a lot ofresponsibilities.But the return is a fulfilling job where senior financial professionals are able to takeadvantage of their experience and work closely with CEOs to build not only great companiesbut rewarding careers.

CFO FAQs

Is a CFO an accountant?

While a CFO may have an accounting background, that is not necessary to achieve success inthe CFO role. Accounting encompasses activities around AR, AP and maintaining financialrecords. While CFOs depend on these activities, many chief financial officers have a broaderfinancial skill set and focus more on managing assets and liabilities, planning futuregrowth, business strategies and risk management. Unlike an accountant, the CFO providesforecasts and makes strategic recommendations on organizational direction to the board, CEOand other senior leaders.

What is the CFO in charge of?

Chief financial officers hold the top financial position in an organization. They areresponsible for forecasting the organization’s financial standing based on financialand operational data and reports provided by the finance and accounting teams and advisingthe CEO and board on strategic direction.

Is the CEO higher than the CFO?

The CEO is the chief executive officer of a company and is above the CFO on theorganizational chart. CFOs often work closely with the CEO and weigh in on high-levelstrategic decisions. Both the CEO and CFO have a direct conduit to the board or directorsand are entrusted with the organization’s stewardship.

How do you become a CFO?

CFOs generally come up through the ranks, holding a variety of financial positions, such asVP of finance or controller, before rising to the C-level. Many also have deep businessbackgrounds, often hold dual degrees in business and finance and/or an MBA and have gainedindustry-specific expertise. Experience at lower responsibility levels positions financeprofessionals to achieve the CFO role.

What qualifications are needed to become a CFO?

CFOs need operational knowledge related to accounting, finance and general business practicesand an ability to think strategically and see the big picture. Companies generally look foradvanced degrees or commensurate experience.

Because of the significant impact of technology on all aspects of business, includingfinance, today’s CFOs must also be familiar with the software required to run a modernfinance and accounting operation.