For many privately held businesses, the decision to hire a chief
financial officer (CFO) is often a difficult decision. Beyond the issue
of whether the company can afford a high-caliber financial
professional, many business owners are often confused over just what it
is that a CFO does or should do.
More than just a glorified bookkeeper (or someone whose long service
to the company has been rewarded with a fancy title), an effective CFO
plays a number of important roles within the entrepreneurial company
that are essential in providing a strong financial foundation for a
growing business. Listed below are some of the critical areas in which
an effective CFO will work to provide financial support for a company’s
business objectives.
Implements/Supervises Internal Controls: A
CFO is responsible for bringing important financial controls to a
company. Those controls should include the effective management of cash
flow and overhead expenses, establishing credit policies for customers
and working with major vendors to achieve more favorable payment terms,
and implementing procedures for measuring and evaluating optimal
inventory levels. At a higher level, a CFO should also develop
effective controls that provide oversight against fraudulent activities.
Handles Projects With Major Financial Impact: Beyond
implementing and monitoring company controls and systems, an effective
CFO will also handle those projects that require significant
quantitative and qualitative analysis in order to arrive at an
understanding of the options that are available. For example, a CFO
will take responsibility for developing a company’s annual budget,
interacting with the business owner and department managers to ensure
that the final product accurately and objectively reflects the real
requirements of the business. A CFO might also conduct a thorough
analysis of a company’s future capital investment requirements as a
first step in securing additional financing.
Cultivates Relationships With Outside Financing Sources: A
major responsibility of an effective CFO is to establish good working
relationships with banks as well as other financial institutions that
may have an impact on the company’s ability to finance its operations.
Activities in this area can include regular meetings with officers at
the company’s bank to review ongoing operations, negotiating more
favorable terms for bank lines of credit, and discussions with private
investors on how additional capital might be invested in the firm.
Drives Major Strategic Issues: An
effective CFO can also be expected to play an important role in
addressing major strategic issues that can have an impact on the
company’s long-term future. Such issues might include the development
of an company acquisition strategy to help fuel additional growth, or
the divestiture of particular product lines or business activities that
no longer match the company’s business objectives. A CFO would also
play a key role in any effort to seek investment from the public
financial markets or to launch an initial public offering (IPO).
Serves As Key Advisor To Company Management: Finally,
an effective CFO is a key member of the management team of a growing
entrepreneurial company. Because of his/her financial acumen and
general business knowledge, a good CFO will help the business owner and
other top executives make the tangible connection between a company’s
operations and its financial performance.
