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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125K for a good CFO is a joke. Check your market rates!
And 80k for a controller is also subpar….most accounting managers earn this and more…
Great points Ren. I can’t believe his current CFO was getting 124k+ for that !
In addition to outsourced accounting and controllership services I am trying to move my firm into more CFO coaching services. Many of the areas you mentioned we are very comfortable in, and now I know some areas we need to work on.
In many respects, I agree with the article. The CFO should be a key member of the senior management team, as indicated, and deeply involved in the aspects of the business listed at the end of this article. However, the article implies that the CFO is remiss if he or she isn’t participating in the listed activities. Many times, perhaps most commonly in Emerging Markets, CEO/managers/owners do not want the CFO to participate in these activities in a meaningful way. In fact, I would argue that a good CFO during the interview process presses on exactly these points to ensure the position is desirable and avoid the bean counter roll.
Keith I totally agree with you. Quite often CFO’s struggle with the attitude that they are not required to attend this meeting or be a part of this decision, etc. In hindsight many times, the company will spend more time and resources after key decisions have been made or key plans constructed, to find out it needs to be reconstructed because key parts of the plan are not financially structured properly, not tax compliant, all expense included etc. It constantly reminds me of the impatient man who does not read the instructions when assembling a bicycle for his child at Chritmas, only to find near the end he has a part with no idea where it goes, then finally he refers to the insturctions and discovers that he must disesemble the bike to put a key brace on the basic structure. How much time and effort did he waste, and everyone knows in the business world wasted time is wasted money!
Your salary rates are wrong. You may get somebody to do the job, but they’ll drive the company into the ground with their lack of ability. You get what you pay for.
1) To all the folks commenting about the wages be aware that you are dealing with South Florida – many skilled people will take a lot less to be there just to be there.
2) Regarding the tasks and the pay level and title – be careful. Many times is talking to CEO’s they do not realize exactly what is done and who is doing it in these small organazitions. Comments like “some” IT or HR could mean running the whole department. While these CEO many not give CFO’s credit it is the sum of total effort and we all known who is number one.
3) How many times have seen lenders give more importance to the CFO type rather the CEO. Being the quality control person who the lender trusts can trump all the rest. No consultant type and walk in and have that – it must be earned. With very tight credit currently this may even more key. Many CEO’s do not get this – till their line reduced or pulled.
Having sat in all three chairs and seen stranger things than what presented here I would say that many questions need to answered before coming to a conclusion.
Perhaps we need to remember that the Chief Financial Officer is just that, the chief financial officer. Taken literally, the skills of any company’s CFO should match that company’s recurring needs, not some hypothetical job description.
Most middle market and smaller companies need systems, controls and reports more than they need finance, M&A and the like (at least day to day). When the periodic need arrises, the company should reach outside and supplement the limited skills of their otherwise competent (presumably) CFO.
Indeed, the location (South Florida) and job market determine the pay rates. Remember, there are hundreds of skilled Finance employees unemployend and underemployed in the country. I am sure they would move from Oregon or Minnesota to Florida for the salary mentioned in the article.
It isrrelevant, how much companies are paying. What matters is – for how much you can find a candidate now. And this is significantly lower that two years ago.
Great article. I once accepted a CFO position with a $100 million Florida-based company for $165,000 per year (the rates cited in the article are way, way off). After a few weeks, it became clear that the CEO really wanted nothing more than a controller. After 6 months I left for a better role in a better run company.
Great article. In my experience, I have found that the CEO/President of small companies like this are the person/persons that originally started the company. They don’t have any real concept what their top financial person does from day to day. Typically they themselves enter into projects and or deals without ever first consulting or including their CFO or Controller in the discussions and many time they get sold a raw deal.
Your description of the difference between a controller and a CFO is on point. We are a CPA firm and have had that discussion more than once.
Ren: This is right on the money, just this morning I was just looking for the difference between the two, it’s clear I am looking for a Controller. Thank you for saving me time and money.
This posting bring up a great point about job descriptions in general. Its nearly impossible to compensate someone correctly if the employer does not have a deep understanding of what the position entails. Often times HR, or hiring managers do not have the depth of knowledge to tell the difference between that critical Controller vs CFO debate.
On a personal note I will tell you, the accounting management side of the job is fine, but the really challenging and rewarding part is all the other stuff (i.e risk management, deep analysis, strategy work etc..)
I am happy that I discovered this web site, exactly the right info that I was looking for! .
Thanks for your posting. I also think laptop computers have grown to be more and more popular lately, and now tend to be the only form of computer found in a household. The reason being at the same time they are becoming more and more reasonably priced, their processing power is growing to the point where they may be as potent as personal computers out of just a few in years past.