Can you ask Andi for a recommendation on books she thinks would be
useful to me to read to learn about the role of CFO? Basic accounting principles, investing for small businesses, typical roles/responsibilities, etc.
The four partners in this company have worked hard to divide up responsibilities. Each has assigned management tasks. Each partner 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.
As part of the management team, the CFO charts the company’s future growth path. The CFO insures 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 1-3+ 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 insures 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 insure 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 the CFO 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.
In small businesses, the role of CFO often falls to one of the owners of the business. Often that person has little, if any, formal training to prepare for the role. Attending conferences, subscribing to magazines, and working with financial advisors 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 insuring 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.
Looking for a good book? The Complete CFO Handbook by Frank J. Fabozzi, Pamela Peterson Drake and Ralph S. Polimeni.
Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi? Please send it to her, via e-mail at AskAndi@StrategyLeaders.com or by mail to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Visit www.AskAndi.com for an entire library of Ask Andi articles.