I recently received an e-mail asking me what it would cost to hire a good CFO. His current CFO is in the process of retiring, and he wanted an idea of what the market rate was for the position. Based on the size ($20 million in annual revenue) and location (Miami) of his business, I told him about $125,000 per year plus bonus. He seemed agreeable to my estimate, since his current CFO was making just over that.
Upon further discussion, I asked him what the job description was for this position. He said they didn’t have formal job descriptions, but he knew what he wanted out of his CFO. Below is the list of job duties he provided:
- Monthly financial statements
- Oversee accounting department
- Prepare reports for the bank and CPA
- Perform miscellaneous human resources (HR) functions
- Perform miscellaneous information technology (IT) functions
After listing the duties, I told him “You only need to pay your CFO $80,000 per year.”
“That’s great, why?” he responded.
“Because you’re not looking for a CFO, you’re looking for a controller.”
“What’s the difference?” he asked.
Business owners often have no idea what their CFO should be doing. A CFO is responsible for managing the financial reporting and compliance of a business. However, the CFO’s responsibility does not stop there. A CFO also needs to perform these additional tasks:
- Participate in strategic planning activities: This includes developing the organization’s vision, formation of the core values, performing a SWOT analysis, setting goals for the next one to ten years, expansion/contraction planning, etc. Your CFO’s role should be to contribute ideas, as well as evaluate the feasibility of the plan from a financial perspective.
- Perform financial statement analysis: Preparing financial statements is important, but interpreting the data is critical. Is the organization on track to hit the goals for the year? Are corrective actions required (e.g., downsizing, expansion, investment in equipment)? Is the available cash sufficient? These questions often can be answered through analysis of the financial statements and management reports.
- Manage budgets and projections: Both profitability and cash needs to be budgeted and monitored. Specific tasks include creating the annual budget, performing a monthly activity-based budget-to-actual analysis, explaining material budget variances, and recommending any applicable corrective actions. Additional responsibilities can include evaluating potential capital expenditures, analyzing expansion plans, etc.
- Establish and maintain financing: This responsibility requires both analytical and interpersonal skills. This includes finding and interfacing with potential sources of funding (banks, private equity, friends/family, etc.), securing adequate financing, and maintaining relationships with financing sources. The financing function also consists of monitoring cash reserves and identifying additional sources of funding in case the need arises.
- Manage risk: On the surface, this responsibility may appear simple. The majority of organizations feel that managing risk is as simple as purchasing insurance. Although it is critical that all of the proper insurance is in place (workers’ compensation, umbrella, etc.), what about the risks of entering a new market—especially outside the countries where you normally do business? Acquisitions, currency fluctuations, regulatory changes are just a sample of the risks a CFO needs to manage. Managing risk includes running the applicable what-if analysis and determining the cost-vs.-benefit of hedging the applicable risk (if possible).
- Manage merger, acquisition, and divestiture activities: These types of transactions are life altering for an organization. Differences in cultures, systems, customers, product lines, and vendors can be difficult, if not impossible, to align. Failure to run the numbers and properly plan the transaction drastically increases the likelihood of disaster. Your CFO needs to manage these transactions for your organization.
If your CFO is not performing these duties, you may want to reconsider his or her job description (or compensation).
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