A good CFO helps the CEO run the company. The CEO’s job is to set a vision, hire management, build a culture and make sure the firm has enough capital. A CFO partners with the CEO by buying into the vision and taking on responsibilities for managing capital and building the management team and culture.
CFO Magazine a couple of years ago tried to define the difference between a good CFO and a great one. They basically concluded that great CFO’s understood the customers, used data and analysis to distill problems down to simple words that the team can use to run the business. I like to think that having a CFO in the mix helps all parts of the management team get better, by bringing in new concepts and ways of thinking about problems.
The basic functions of a CFO revolve around reporting & compliance, treasury functions and strategic planning duties. The main difference between an accounting manager or controller and a CFO is a matter of perspective and approach. A CFO focuses on the longer term, and often on issues affecting people outside the business.
Reporting and compliance are often handled by a Controller who manages the monthly close, and maybe the annual audit. The Controllers focus is on this month and this quarter. The CFO should be a decent accountant, but they add value by asking the right questions. A CFO helps define the key indicators (both internally and externally) that need to be tracked, managed and communicated. A good CFO thinks through the business model so that when it shows up on the financial statements, the data is not just right, but the accounting policy is sound.
Treasury functions (borrowing, investing) require thinking out a couple of years, and an investor/outsider perspective. Figuring out cash needs, matching borrowing with investments, estimating the debt vs equity ratio are relatively simple calculations. The art is in the estimates. Managing the relationships with the bankers, lawyers, investors and advisors requires understanding the needs of the firm as the outside advisors. If you don’t trust your CFO to handle this responsibility, you don’t have a CFO.
The CFO is a leader on the executive team in implementing strategy and a planning process. Converting from a simple annual budget to a strategic plan and multi-year budget requires someone to run the process. Coordinating projects, assessing investments and developing workable plans is a balancing act frequented by “no’s”. Good CFO’s build relationships across the organization to make those no’s understandable and the yes’s more likely to be successful.
A lot of planning includes thinking about the world outside the firm: customers, the environment and what is going on in the industry. Firms are often buffeted by economic storms that could be foreseen, for those who would look. If the CFO is not facing outward, it is unlikely any other executive will be either.
CFO’s have to be thinking out a year or two and sometimes longer. The quarterly earnings focus that the street demands is a false choice. Great performances can’t be generated quarter after quarter (and year after year) if you are focused on closing transactions in the last two weeks of a quarter.
Capital allocation and investing in technology and capabilities requires thinking about how things will look in the future. I’ve signed dozens (maybe hundreds) of leases with 20+ year life. If you can’t think further ahead than next month you can’t make long term investments.
I am sure that there are great CFO’s and lousy CFO’s. What separates them is the perspectives they bring and the actions they take.