CFOs at growth and midsize organizations retain their core financial planning and analytical responsibilities as they are increasingly taking on responsibility for a larger number of organization-wide activities. At the core, the CFO is responsible to the company’s owners and management team for all accounting and financial matters. The CFO core functions include managing risk and providing a foundation for success by establishing company-wide objectives, policies, procedures, processes, programs, and practices to assure the company of a continuously sound financial management and reporting structure. This article addresses the key core CFO responsibilities that enable growth and success.
CFO Core Responsibilities
- Cash Flow. The CFO needs to manage the cash flow position throughout the company. This includes understanding the sources and uses of cash, maintain the integrity of funds and manage banking relationships. The CFO is responsible for establishing accounting policies and procedures for credit and collections, purchasing, payment of vendors, and other financial obligations. Cash is king and the flow of cash, or cash flow, is the most important role the CFO has in any company.
- Company Liabilities. After cash flow, a CFO must understand all of the company’s liabilities. A company has many legal contracts, statutory and tax obligations, hidden liabilities in the form of contingencies, leases, or insurance summaries, and expectations from loan covenants and/or the board of directors. A lack of focus on liabilities puts the company at significant risk.
- Company Performance. The CFO must understand the company’s business model for generating customer value and translate the operational metrics into measures for performance. The CFO must be the company scorekeeper using tools like dashboards and key metrics as well as financial and operational analysis to communicate both the company’s projected and actual financial performance.
- Department Supervision. In growth and middle market companies, the CFO is typically the supervisor of Accounting, Finance, HR, and IT. In a larger company, the CFO may only be responsible for the Accounting and Finance functions.
- Budgeting and Expense Control. Budgets are a necessity for measuring, benchmarking and achieving company success, and CFO responsibilities include overseeing the budget process. This includes establishing the culture throughout the organization to support the budgeting process, defining and collecting the necessary inputs, and thoroughly communicating the company’s actual performance with budgets in a way that management can proactively react in a timely and meaningful way.
- Financial Relationships. The CFO establishes and maintains lines of communication with the CEO as well as owners, PE investors, investment bankers, commercial bankers, outside auditors and legal representation. The CFO administers banking arrangements and loan agreements and maintains adequate sources of capital for the company’s current borrowings from commercial banks and other lending institutions. In addition, the CFO invests the company’s funds and administers compensation incentive plans.
- Finance or Raising Capital. You would think that finance is one of the key roles of the Chief Financial Officer. Yes, it is important, but it comes after other more pressing operational issues, like those listed above. The CFO establishes and executes programs for the provision of capital required by the company, including negotiating the procurement of debt and equity capital and maintaining the required financial arrangements. The CFO coordinates the long-range plans of the company, assesses the financial requirements implicit in these plans, and develops alternative ways in which financial requirements can be satisfied.
- Financial Obligations. The CFO approves all agreements concerning financial obligations, such as contracts for raw materials, investments in long-term assets, and significant service providers, and other actions requiring a commitment of financial resources.
- Record Control. The CFO responsibilities include the financial aspects of all significant company transactions including real estate leases and contracts. The CFO also ensures risk management is properly addressed through adequate insurance coverage, as required, ensures the maintenance of appropriate financial records, prepares required financial reports and insures audits and tax reporting are completed in a timely manner. The CFO has primary responsibility for ensuring company compliance with financial regulations and standards.
- Shareholder Relations. The CFO analyzes company shareholder relations policies, procedures, and information programs, including the annual and interim reports to shareholders and the Board of Directors, as well as recommends to the CEO new or revised policies, procedures, or programs when needed.
The performance of the core responsibilities of the CFO are paramount in developing a successful finance function in growth and middle market companies to enable growth and profitability and minimize risk. Using the above list, CEOs, investors and owners can develop a scorecard as to how their finance function is currently performing. Harvest CFOs understand the need to ensure the core is strong. From a solid core, the CEO and leadership will have the confidence to proceed with strategic plans towards success.