What does a CFO do? According to abbreviationfinder, the acronym stands for Chief Financial Officer and designates a position responsible for managing the financial operations of a company. It therefore has a significant influence on the productivity, strategy and growth of the company.
A CFO is one of the key players in corporate governance. A person in this position appears both as a strategy manager with the management and with the board of directors, of which they are a member. The CFO usually reports directly to the management, i.e. the CEO (Chief Executive Officer) of the company. Ideally, the CFO and CEO work closely together.
What are the responsibilities of a CFO?
What are the duties of a CFO? A Chief Financial Officer ‘s area of responsibility includes the entire financial apparatus of a company. The focus is on bookkeeping, including planning, management and control. The concrete activities of a CFO include, for example, the following points:
- Strategic tasks– The CFO develops strategies to optimize processes and plans the sensible use of financial resources. The financial strengths and weaknesses of the company are identified and corrective measures are defined.
- Budget distribution– The CFO allocates funds or budgets to the individual departments.
- Internal Information Sharing– A company’s Chief Financial Officer is responsible for ensuring that management and other managers have an overview of the financial condition of the company. This also includes passing on analysis results, decisions and recommendations.
- External communication in financial matters– The CFO is the contact person for auditors. He also maintains relationships with external lenders and potential borrowers. Communication with institutions whose relationship with the company is based on financial matters is also carried out by the CFO.
The scope of duties of a CFO also depends on the size of the company and the number of subordinates.
When does a CFO make sense and how is he integrated into the company structure?
The position of CFO can be found in a wide variety of economic sectors. A Chief Financial Officer can, for example, be hired for trading, craft and industrial companies. As the chief financial officer of a large company, the responsibilities of a CFO are too extensive for a single person to perform. The chief financial officer therefore typically reports to a finance team and general accounting. The precursor to a chief financial officer is a chief financial officer. If there is a need for a finance manager, he reports directly to the CFO. Whether and how many financial managers a company has depends on the size of the company. For example, if a company operates multinationally, it may have one chief financial officer per location.
The prerequisite for obtaining a CFO position is usually a degree in business administration with a focus on finance and controlling. In addition, CFOs usually have several years of professional experience as well as leadership qualities and leadership experience.
Requirements of a modern CFO
The role of the CFO has changed in recent years. Whilst analytical thinking and excellent handling of numbers is still relevant, the position has become more dynamic. Modern CFOs must be creative, be able to identify key findings from best practice examples and know how to generate revenue for the company. The following four skills are fundamental for a modern CFO:
Good leadership and communication skills of a CFO ensure effective support for management. This also includes the fact that the CFO can break down information in order to transfer it into a generally understandable context.
- Business activity
A CFO must have a thorough understanding of the business model and the industry environment. This understanding should ensure that financial decisions can be made on the basis of reliable inputs. By viewing and processing complex data, opportunities should be made visible and profits increased.
In a constantly changing business world, the CFO should be able to identify, assess and mitigate risks. Finance leaders must view risk from both a financial and commercial perspective.
CFOs support management in developing and implementing strategies. _ _ The CFO has a duty to prioritize plans where necessary and to ensure financial feasibility . Communicating strategies to external stakeholders is also part of the CFO’s duty.
Interim management in the field of finance
Interim management is a temporary type of business management. First of all, the question arises: what is an interim manager CFO ? An interim CFO is used when transformations or changed situations in the company have to be managed. Unpopular measures can often be implemented better by external people than by well-known superiors. This can, for example, concern a company restructuring or the introduction of new systems.
Interim management can be useful in family businesses, for example, in order not to damage existing structures. The assignment of an interim CFO can last six to nine months . Estimating the duration of the assignment is often difficult, since it is often not clear how long the change or crisis situation will last. Interim CFOs are mostly employed in companies with at least 100 employees.
Companies benefit from the experience and independence of an interim CFO and their “out-of-the-box” thinking. The tasks of an interim CFO cover those of a permanent CFO and also go beyond their activities.
External CFO service
While an interim manager only takes on the tasks of the CFO in the company for a short period of time, the area of activity can also be outsourced in the long term by means of an external CFO. Small to medium-sized companies in particular often do without this staff position, which is decisive for the preparation of decisions, for financial reasons. External CFOs, also known as CFAs (=Chartered Financial Analysts), offer a solution for this. Working as a CFA brings the following benefits:
- time saving
- there is no need to create a new position within well-functioning structures
- variable costs instead of fixed costs (the service is only used when required (depending on the contract design))
- extensive experience of an external service provider (it can be assumed that the CFA has already advised various companies and has mastered similar challenges)
- Connectedness of CFAs
How sensible it is to set up a CFA is a question of the cost/benefit ratio. Both established companies and fast-growing start-ups can benefit from external CFO services.
CFOs and digitization
Digitization is also an important topic with regard to the position of the CFO. Automated reports and analyzes of data allow more time to be spent on forecasts and trend analyses. While technology represents a great opportunity for CFOs, its effectiveness depends on the accuracy, availability and consistency of data and the software used. Modern CFOs have to learn how to use ERP systems and should be able to use cloud-based solutions. Data visualization tools in particular make it easier for CFOs to communicate with other corporate divisions and administrative departments. The advantages that these offer should therefore be taken advantage of.