What Does a Chief Financial Officer Do? An Introduction

What Does a Chief Financial Officer Do? An Introduction

Written by Deepak Bhagat, In Business, Published On
August 8, 2021
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A chief financial officer is the second most senior executive at a company. They are in charge of managing all aspects of finances. They work closely with the CEO to ensure that the company has enough money to keep running smoothly.

The chief financial officer is also responsible for planning long-term investments for their organization. While many people think that this role only deals with numbers and spreadsheets, there’s much more involved than that!

In this article, we will set the record straight and elaborate upon this important role.

So whenever you’re ready to learn more about the CFO, get your notes handy and keep reading.

Everything About Chief Financial Officer

  • The History of the CFO (Chief Financial Officer)

There isn’t a lot of historical documentation about the CFO. Still, we know that they had existed as far back as ancient Roman times. This is when their duties were typical to oversee finances for family estates.

The first documented usage of this term is in 1819. This is William Cubitt’s appointment as a superintending architect and engineer. This happened at Trinity College Dublin.

In modern-day business culture, the CFO is usually used interchangeably with other common titles such as treasurer or COO. It may be appointed by an organization’s board members instead of being given that title outright.

Furthermore, the role of the chief financial officer has been evolving and expanding. This is since it was popularized in the 1970s with firms like General Electric, Honeywell International, Inc., and AT&T.

  • What Does a Modern-Day CFO (Chief Financial Officer) Do?

The chief financial officer of any company will have various responsibilities. Their main job is to keep expenses in line with revenue.

They also work with other executives and departments like marketing or sales. This is to make sure that they meet their organization’s budget goals.

This position can be advantageous if there are changes in tax laws (e.g., new administration). It helps them plan accordingly and save money on taxes owed throughout the year. They do so by following proper accounting procedures.

Another major responsibility includes managing external resources such as cash flow forecasting. This involves predicting how much money will come into or go out during certain time periods. This is so they know when funds may need replenishing from an outside source such as borrowing or issuing stock shares.

The chief financial officer is also in charge of reporting on its finances to shareholders. They typically publish their reports each quarter.

For example, a CFO will have to present information such as cash flow forecasts, operating budgets for the next year. They will also cover capital expenditures budgeted and planned out for the next three years.

Furthermore, they might take care of long-term debt obligations or new financing arrangements.

Every business needs a qualified person overseeing its economic health. This is because there are many different factors at play when it comes to financial decisions. For instance, accounting fundamentals like risk assessment and management and marketing strategy, product pricing analysis, and competitor data modeling.

  • Who Can Become a CFO (Chief Financial Officer)?

In short, anyone can become a chief financial officer if they are qualified for the position and have all the necessary training.

There is no one path to becoming a CFO. This is because many different industries require this type of expertise. But in general, it requires someone who has experience with accounting, finance, or economics.

They may need an advanced degree like an MBA. Other relevant education degrees work too. This individual should also have excellent problem-solving skills due to the workload demands of being responsible for any company’s finances.

Furthermore, the requirements may vary depending on the industry. For example, a CFO for an oil company will have different requirements from a software company.

To become qualified for this position, it is usually necessary that they are certified by groups such as the Association of International Certified Public Accountants or the Institute of Management Accountants, which can be achieved through education and credentials in accounting, finance, or business administration.

There may also be other certifications that could apply – like Chartered Financial Analyst (CFA) certification for investment professionals. This is based on what industry you want to work in and your desired responsibilities within it.

  • How Much Does a Chief Financial Officer Get Paid?

The average salary for a chief financial officer is $150,000. However, this can vary wildly depending on what industry they are in and their responsibilities within it.

Some CFOs may be responsible only for finance-related work. In contrast, others will have P&L (profit and loss) responsibility as well.

In addition to the base salary, other factors could impact compensation. For instance, bonuses or benefits like stock options or retirement plans. This is depending on company policies.

An important thing to consider when looking at compensation is how much expenses affect your take-home pay. This applies either positively or negatively.

If you incur more expenses than revenue, that will likely bring down your earnings before taxes and deductions. One strategy to mitigate risk is to keep track of expenses to predict future earnings and plan accordingly.

  • Who Should Hire a CFO?

Some companies may not need a chief financial officer. This is depending on the industry they are in and the size of their organization. However, if you want to grow your company or make it financially stable, this person would be an excellent investment for hiring.

This individual will help analyze what investments should be made first. This is so that any risks can be minimized as much as possible.

For example, taking out too many loans, which could put a strain on cash flow due to interest payments. Another example is investing in new product lines before researching whether there is demand for them.

To maximize profitability for shareholders, CFOs use these skills with other executives within the team to create plans that will ensure long-term success without putting undue pressure on any part of the company.

A CFO can also be an excellent person to talk with if you are interested in starting your own business. This is because they know and experience what it takes for a company to succeed.

To provide this type of advice, a qualified candidate should handle these two jobs at once without issue. They must ensure that any financial risks or opportunities are analyzed. This is done before making decisions based on them.

The decision will depend largely on how much time is required by each position. However, some may find overlap between both roles. This would help avoid being overworked while still fulfilling expectations.

This could lead to more success within either role individually. It will create stronger relationships between departments when everyone is on the same page.

  • Examples Of Succesful CFO Hires

There are a wide variety of candidates that could also be qualified to work as CFOs in different industries. To ensure you find the right person for your company, it’s important to know what skills and qualifications they need. Then, narrowing down applicants from job postings or interviews with potential hires can help clarify who would best fit within this role.

Some examples include:

A Certified Public Accountant (CPA) is someone who has completed coursework and passed their exams. This is before receiving permission from state governments to perform professional services. For instance, auditing financial statements or performing tax preparation services.

They usually specialize in one area, but some may offer multiple types of accounting. This makes them more attractive for companies looking for someone with a diverse set of skills. These services can usually be obtained by a management consulting firm.

Someone with an MBA would typically have studied management, finance, business administration, economics. This means they know how to analyze data. They know how to make decisions based on the available information.

This can help when it comes to making investment plans. For example, whether there will be enough demand among consumers if new product lines are introduced. It also helps them make decisions about the budget for administration staff.

  • Does a CFO Need to Be Managed?

It might not be necessary for a CFO to manage them to balance the responsibilities and time between both roles. This means that an organization will need enough work hours from another executive within their team.

This is so that any risks can be minimized as much as possible. For example, taking out too many loans. This could put a strain on cash flow due to interest payments.

To maximize profitability, CFOs use these skills with other executives within the team to create plans. Plans that will ensure long-term success without putting undue pressure on any part of the company.

A qualified candidate should also handle two jobs at once and make decisions without being overly influenced by others. Management can be useful when delegating tasks and ensuring a clear line of demarcation between the two positions to prevent overlap.

However, if your CFO needs to be managed, he’s probably not a great candidate in the first place. A CFO should be autonomous and efficient in his work to ensure that he can make decisions quickly and accurately to keep up with the demands of an ever-changing market. Nonetheless, at the end of the day, it’s more so about results, not efficiency.

  • Tips for Hiring a CFO

If you are looking for a CFO, it’s important to first decide on the type of skills and qualifications that your company is most in need of. Once you have narrowed down potential candidates based on these criteria, then research their past projects. Assess their current job postings to see how their skills match up with what your company needs.

To find top talent that might not be immediately available because they’re already employed at another organization, consider reaching out through professional organizations like The Association of Financial Professionals (AFP) who can guide finding qualified candidates within the industry as well as other resources such as education programs, so you know which ones fit best for your team.

When interviewing applicants, ask them questions about anything from budgeting to company policies. This is so you can get a sense of their knowledge and expertise in the field.

When making the final decision, it’s important to consider all aspects. This includes qualifications to skills.

This will ensure long-lasting success for your organization. This is also how you will find the right fit into your culture.

Without these considerations, you are risking the potential of hiring the wrong person. Of course, this risk is always present, but that does not mean it cannot be mitigated.

  • The CFO Role Unhinged

Hiring a Chief Financial Officer is not an easy task. There are many things to consider. The company and the candidates themselves need to be aware of this process. This is to make sure that they find someone who will fit their needs best.

The first thing you need to decide on before looking for potential candidates is what skills your organization most needs. Without having these skills matched up with what type of experience someone has or how qualified they might be, there may not be any benefit in hiring them because they would end up being another executive within the team.

It can also help if you reach out through professional organizations like AFP to get some guidance. Do this when researching other options outside of those currently employed in the industry.

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