The Role Of The CFO Chapter 2

My last blog discussed what I would put in “My New Book” if I were to write one. This year’s Blogs will follow this theme and this month’s blog deals with the topic “The Role of the CFO”.

Why does every business regardless of size need a CFO? To answer that question, we will look at the role of the CFO and relate that role to the requirements of all businesses, regardless of size!

Control Function

The first area is known as the control function. This area is generally operated by accountants known as, are you ready for this, Controllers.  This function is primarily responsible for the accuracy and timeliness of the financial reporting of the organization. They oversee the system of internal control and assure expenditures are properly authorized, and that internal controls are functioning as designed. Checks and balances, assuring proper authority and assuring transactions are properly recorded are all part of this area of responsibility.

So does your company have an adequate control function? Here is the test:

1.  Are your financial statements produced monthly without errors?
2. Do your accounting processes adequately segregate duties that would minimize the chance of an intention or unintentional error or irregularity going undetected?
3. Do you have a good understanding what the numbers mean?
4. What interpretation of the numbers do you have? Need?

These are but a few of the functions in the Control Function that a CFO typically oversees. Further as mentioned last month, this function provides the information required to perform the next function, Finance.

Finance

Finance is the function that assures the business has the capital required to meet the business plan. Using the financial statements prepared by the accounting department control function, the Finance function forecasts the needs of the business and is responsible for assuring the organization never runs out of cash, no matter what!

Short term, medium term and long range cash forecasts are needed that reflect the planned growth of the company. Finance assures that the bank facilities are in place and perhaps even equity capital is raised if necessary.

For example, if the company is growing rapidly, do you have the necessary financing to add inventory, carry additional trade accounts receivable and add people? If not, you will run out of cash!

So who is watching your company’s finances? Who has the expertise to forecast the future cash needs and put in place a strategy to assure those needs are met? Who knows what type of financing is needed, long term, working capital, mezzanine?

Treasury

This area is tasked with the safe guarding of assets.  It includes areas such as investments, investment type and safety, insurances such as property and casualty and accounts receivable, cash management strategies including yield management and utilization of banking tools to assist in automating as much of this strategy as possible. This are works in harmony with the control function to assure that all assets are protected and risks minimized as practicable.

This role typically involves establishment of customer credit policies, extension of credit, executes notes of indebtedness and the protection and custody of funds.

So again, in your company, who is fulfilling this function?

In large companies, these functions are all filled with individuals. In your company, these may all be filled by you, the founder, owner, CEO, chief cook and bottle washer! And if that is the case, the next question is how do you get the Job of the CEO done while simultaneously wearing the hat of the CFO. Do you have experience in these areas? Are they getting done well? And if you are doing these things, who is spending time with your customers?????

All of these areas are required to run any company, regardless of size and accordingly all companies do need a CFO!

Editors Note: Hopefully this amplifies last month’s entry that discussed the difference between finance and accounting. All of these roles fall under the auspices of the CFO, who is yours?