Every few weeks I read an article about what a Chief Financial Officer (“CFO”) does, what makes a good one, or what people need to do to become one. Interestingly, authors and commentators can sometimes take very different positions on those points. Given that the acronym is so commonly used in Australian business conversations these days, that might be surprising… but when one considers that comparatively few people have ever been a CFO themselves, maybe some confusion is only to be expected.
Recently, with the emergence of “Virtual CFOs”, it’s probably become more important than ever that potential clients or hirers understand what they do – and what to look for when choosing one.
A small confession first: for the first 15 or so years of my career, I probably didn’t understand the CFO role that well. But I spent much of the next 20 years in that role (or something quite like it), so hopefully I can share some useful insights now.
Common Misconceptions of a CFO
Let’s start with some quick “mythbusting”.
CFOs only work in ASX listed companies
Yes, its true that almost every listed company has a CFO (or someone with a different title but similar role). But many major multinationals and larger privately owned businesses, “not for profits” and government owned organisations also employ them.
CFOs are the very best accountants
I agree that most CFOs start out by being very good accountants, but over time those skills can actually fade, as others mature… so most great CFOs actually hire accountants who are “technically” better than them, either internally or as paid consultants.
CFOs only “look after the numbers”
When I started working in accounting and auditing in the mid 1980s, I would say that Finance took up around 80% of the time of most CFOs (or “Finance Directors”, as many of them were called before we became more exposed to American naming conventions). Of course since then business has become more complex, through the rise of digital technology in particular, and nearly all CFOs have diversified their focus accordingly. As a rough estimate, I would say that most CFOs now only spend 40% to 60% of their time on Finance matters, depending on the time of year and what their organisation’s priorities look like.
CFOs aren’t really suited to becoming CEOs
Those CFOs who have expanded their roles, skills and mindsets have also become much better CEO candidates too. And many businesses still encounter situations where CFOs bring much more relevant skills than candidates with only Sales or HR backgrounds.
CFOs don’t care about marketing or people
I’ve met my fair share of CFOs with a disdain for marketers and, ahem… “limited people skills”. Frankly speaking, most of them were pretty rotten CFOs. Successful CFOs today are good communicators who understand perfectly well that no business can thrive without paying due attention to customers and people, especially in an increasingly brand and advertising “saturated” world, when developed economies like ours are predominantly services-based.
What CFOs Might Be
As I’ve already mentioned, CFOs typically now deal with a lot more than accounting, tax and other finance matters. They are often also at least partially accountable for:
- Business strategy
- Information technology
- Premises and infrastructure
- Risk management
- Non-financial compliance
In many large organisations, CFOs will have other “C-suite” leaders, such as CIOs and CROs report to them. In smaller organisations, they might have to wear those hats themselves. For example, when I worked as the CFO of an ASX listed company from 2004 to 2007, I was also Company Secretary and responsible for our office leasing and all non-product related compliance – which is why I studied commercial law for my Masters degree.
Let’s now explore the likely role of a modern CFO further, using our Six Pillars Strategic Framework for guidance:
While Directors are ultimately accountable for business strategy and CEOs usually lead that work, CFOs are highly involved in most Strategic Planning processes, especially implementation work (eg budgeting based on planned business scenarios and dashboard reporting and monitoring).
In that sense, I agree with the commonly held view that CFOs are the CEO’s “co-pilot” – they free up CEOs to do more of the conceptual work, and often deputise for CEOs when they take leave, or when the role is temporarily vacant. In my own case, I worked as an Acting CEO in four different businesses between 1999 and 2018.
Once upon a time, many CFOs stayed away from Sales and Marketing – except for when they had to put together budgets or forecasts, and needed data. Today’s good CFOs take a keen interest in how brands and advertising campaigns are formulated, however, bringing important “return on investment” assessment and challenge skills.
In my experience CFOs and CMOs that work well together are an especially strong combination, because the CFO can help the CMO refine their growth projects, and better brand strategies and customer conversions make businesses more profitable and valuable.
On the Sales side, many organisations now also rely on CFOs to be the custodians and advocates of increasingly valuable “big data”.
“Accountants are people too” – and so good CFOs are actually very interested in HR matters. They often partner with CHROs to review staffing structures and growth plans, not only to manage costs but also to improve productivity and returns on investment.
In tough times, CFOs often take the lead on restructuring businesses, which can often require redundancies. I learned from my time at Manpower’s outplacement services arm that great CFOs know how to “cut fat but not bone” – and oversee those projects with fairness and compassion.
It goes without saying that a CFO has to be in full command of “the numbers”. They normally do this by being very good generalists who can select and work with highly skilled Finance specialists, eg external tax experts who may know more about, for example, the ever-changing world of Capital Gains Tax, Payroll Tax and GST.
It’s essential that CFOs also relay “the Finance story” to internal and external audiences in a practical and engaging way, eg through investor and lender presentations, annual reports and at Board meetings.
CFOs have increasingly become involved in capacity and constraint planning and risk management work, negotiating with key suppliers, optimising business processes and systems and managing property portfolios. To do this, they normally have to “learn by doing”, adapting their problem solving skills through exposure to these common commercial issues.
CFOs also commonly design and oversee the operations of Shared Services teams, because of their broad understanding of business processes and support needs, beyond Finance.
Structures & Risks
Highly experienced CFOs are well placed to design, implement and maintain corporate structures, including funding strategies, often working closely with lawyers. They also commonly oversee governance functions and manage risks, working closely with directors, risk assessors and insurance brokers.
Does Your Business Need a CFO?
Put simply, you may not need a full time person with the title (and salary !) of CFO in your business, but I trust that I have already shown that almost every business will benefit from having access to the diverse skills and other valuable attributes of a CFO, in one form or another. After all, just as the CEOs of large businesses benefit from having great CFOs as their “co-pilots”, so too will the owners of smaller businesses, who have similar responsibilities.
However many privately owned businesses think that they can “get by” with the help of their tax accountant or bookkeeper. Unfortunately most people working in those roles just haven’t been exposed to the incredible range of experiences that good CFOs have learned from. And like most specialists, many of them see business problems only within the narrow context of what they already know well – just as “a person with a hammer sees every problem as a nail”.
So it’s understandable that many smaller businesses think that “the top end of town” has an unassailable advantage over them, simply because they can afford to hire a CFO.
The Rise of the Virtual CFO
Now for some good news….
Just as the digital revolution has made the work of CFOs more diverse, it has also made it possible for people with CFO experience and skills to work as independent contractors for a variety of clients, on a part time or consulting basis. They are also becoming more organised and better at explaining what they can offer their clients, at an affordable price. They can also play a valuable role advising small to medium sized business owners on how to select and get the best out of specialised advisers, eg tax accountants, bookkeepers, lawyers and insurance brokers, because of the hands-on experience they have of working with those specialists.
In my own case, I enjoyed most of my career as an employed CFO, but I get a great deal more satisfaction now from bringing all of those skills and experiences to my small to medium sized business clients, whether that be as a Virtual CFO or through my other work in the Advisory Collective.
Questions to Ask When Choosing a Virtual CFO
Before hiring a Virtual CFO, I recommend that small to medium sized business owners consider these questions first:
- What problem am I trying to solve? If your needs are mostly around tax planning or maintaining management accounts, a good tax accountant or bookkeeper might be better value.
- How open am I to taking experienced advice? The best Virtual CFOs provide great advice regarding both opportunities and risks, so they can help new, growing or stagnant businesses – but any advice will be of poor value if the owner is not really prepared to think and act differently.
Then, evaluate potential candidates by asking these questions:
- Where and how did they learn how to be a CFO? If they have only worked in one or two businesses, their experience might be too narrow. In my case I worked in five CFO type roles over nearly 20 years, in listed, multinational and privately owned businesses operating in very different industries, so I learned many transferable skills along the way.
- Are they personally mature but still open minded? It takes a while to “learn by doing”, as a CFO… if someone has less than 10 years of post-accounting qualification experience, I suspect they will not yet have enough hard and soft skills to be a well-rounded CFO. On the other hand, some very experienced CFOs are too set in their ways, and may insist on a “one size fits all” approach.
- Why did they become a Virtual CFO? Frankly speaking, some of them are no longer employable in the corporate world, eg because their technical skills are out of date. Others – like me – do it because they enjoy variety and have a genuine passion for helping smaller businesses succeed, having already achieved their goals at “the top end of town”.
- Do they have the right networks? As “strategic generalists”, we all have our networks of specialists that we can recommend – but how suitable are those networks to helping your business succeed? My business partner is a very experienced Virtual CMO, and we founded our Collective because we wanted to create the best value business advisory network for small to medium sized Australian businesses.
- Are they properly qualified? A lot of CFOs are experienced beyond the Finance world but still lack valuable complementary technical skills. It was my quest to become the CFO of an ASX listed company that inspired me to also become a Chartered Secretary and study postgraduate law – qualifications that I believe made me far more effective at my work then and now, than simply maintaining my Chartered Accountant qualification.
- Do they offer cost-effective, flexible services? Many Virtual CFOs insist on working fixed hours and schedules for their clients, eg “I will be onsite every second Tuesday to go through the numbers”. We deliberately designed our retained Advisory Services program to provide Virtual CFO services remotely, with maximum client flexibility.
Remember that anyone can call themselves a Virtual CFO – there are no licensing requirements, after all – but only some of us are really suited to helping businesses like yours. So choose wisely!