If you do a little bit of research, you’ll soon read about the importance of a CFO, that they play a key part in the finances of a business. This is true, but that’s not where their skills stop. A CFO plays a big part in determining the overall strategy of business, making key financial decisions and driving growth. Though they are focused on the finances – which, as a Chief Financial Office, their title suggests – their roles and responsibilities go beyond managing cash flow and tallying up investments.
From managing risks and overseeing financial planning, to connecting with stakeholders and ensuring regulatory compliance, the responsibilities of a CFO span far and wide, further than many people realise. Whether you’re considering hiring a CFO, or you simply want a better understanding of what’s involved in being one, this blog tells you all you need to know.
What is a CFO?
If you know anything about business, you’re sure to have heard of a CFO, but you might not know the ins and outs of what they do, why they do it and how they help a business on a day-to-day basis. A Chief Financial Officer (CFO) is a senior executive of a business, and they’re responsible for managing the financial actions of that business. They are often viewed as the head of the finance department, and that used to be the case, but things have changed since then. The role of a CFO has evolved a lot over the years, and now it includes a wide range of responsibilities that extend beyond traditional finances.
A CFO is in charge of a business’ health, sustainability and long term success. By managing a business’ financial resources, a CFO ensures that the business can achieve its strategic objectives, whilst remaining financially stable and healthy. By looking at financial data,
researching market trends and making informed decisions, a CFO helps a business to navigate challenges and make the most of growth opportunities.
What are the Responsibilities of a CFO?
The role of a CFO goes far beyond simply managing the finances of a business, watching the pennies and looking for ways to save money. Their key roles and responsibilities include:
- Strategic Leadership – A lot of the responsibilities of a CFO are centred around leadership. They are in charge of strategies, guiding investments, making financial decisions and making sure that various parts of the business are in alignment with overall business goals. CFOs work closely with other executives to assess potential opportunities and risks, using their financial knowledge to benefit strategic planning. By doing so, they help businesses to navigate complex market environments and be as competitive as possible.
- Stakeholder Engagement – CFOs are responsible for building relationships and credibility with investors, board members and key stakeholders. This involves not only sharing information about the business’ financial performance and highlighting key successes, but also communicating their strategic direction and plans for the future. A CFO needs to build trust and be completely transparent with stakeholders to attract investments and secure financing. By ensuring that stakeholders are informed and engaged, CFOs also contribute to the business’ reputation.
- Risk Management – There are a lot of risks in business, regardless of sector or industry. In an increasingly complex business landscape, understanding and mitigating risks associated with cash flow, capital, resources and compliance is key. It’s the responsibility of a CFO to identify potential financial problems and put strategies in place to protect the business’ assets. By addressing these challenges as soon as they arrive, a CFO helps to protect the business’ long term health and success.
- Role Models – As well as a whole host of responsibilities that benefit the business financially, a CFO is also a role model for others. A CFO leads by example, showing employees, team leaders and other executives how individual, team and organisational performance all work together for the benefit of the business as a whole. By creating a culture of financial awareness and accountability, a CFO encourages teams to make informed decisions that align with the business’ objectives. This approach not only improves financial literacy across all teams, but it also creates a collaborative environment where everyone understands that they are contributing to the business’ success in equal measure.
Do All Businesses Need a CFO?
Not all businesses need a CFO, but those that do, really do. Here are some examples of when having a CFO on board is beneficial.
- As a business grows and expands, its finances often become a lot more complex and hard to handle. Having a larger budget, more transactions and additional regulatory requirements to keep on top of. A CFO can help to navigate these complexities.
- Larger organisations usually have complex financial needs, including risk management, compliance, financial reporting and strategic planning. A CFO oversees all of this.
- Businesses that are looking for investments often need a CFO to prepare financial statements, forecasts and business plans that give potential investors confidence.
- If a business is considering mergers or acquisitions, a CFO’s expertise in valuation, due diligence and financial structuring is beneficial. Without a CFO, merging with another business or acquiring a company becomes a lot more difficult, and mistakes are more likely.
- Businesses looking to implement long term financial strategies and navigate market uncertainties can benefit from the professional insight a CFO can provide. This includes budgeting, forecasting and investment decisions, which a business owner may not have the expertise to effectively manage alone.
- Businesses operating in heavily regulated industries or those that require complex financial reporting often need a CFO. A CFO can ensure the business’ compliance with laws and regulations, even those that are regularly changing.
Outsourcing vs. Hiring a CFO
Now you know what a CFO does and why they’re important, you need to think about the right approach for your business. You have the option to outsource your CFO needs, or hire someone to work in-house, and there are pros and cons to both.
Outsourcing your CFO needs gives you access to financial expertise, but without the cost of hiring a full time executive, which can be costly. This option is ideal if you’re a startup or small business that needs strategic financial guidance, but you don’t have a budget big enough to hire someone full time, or if you just don’t have the workload for a full time executive. Outsourced CFOs work on a contract or part time basis, providing flexibility and specialised support when you need it, allowing you to scale as you grow.
But, on the other hand, there are also benefits to hiring a full time CFO. This route is usually more suited to larger or growing businesses, those with complex financial operations that are too much to handle on a part time basis. A full time, permanently hired CFO is a big part of your business, playing a key role in daily financial management, strategic planning and making long term decisions. This commitment is important if you need consistent assistance, leadership and a CFO with a deeper involvement in your financial and operational strategies. This wouldn’t be possible with someone working part-time, with the rest of their time being spent working for other businesses.
The Importance of Managing Business Finances
Whether you need a CFO or not, managing the finances of your business is vital. Otherwise, you’re unlikely to grow and succeed in the way that you want. After all, it’s hard to expand as a business if you’re spending more than you’re making, you’re not appealing to investors and everyone is on a different page financially. With a CFO helping you out, you can relax, knowing that your business’ financial health and resources are being taken care of by someone who knows what they’re doing.
To find out more about how finances impact business growth, speak to a member of the Profici team. Get in touch today and see how we can help.
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