Tight budgets are a very common obstacle for small businesses. Entrepreneurs have to get frugal and creative when it comes to meeting their company’s needs. However, it is important to know the difference between luxury and necessity when it comes to the resources one utilizes in the interest of managing corporate finances. A common mistake that business owners share is expecting their CPAs to serve as CFOs, because they have to review the spectrum of financial reports. Below is an explanation as to why your CPA should not be your CFO.
1. CPA stands for Certified Public Accountant, and these professionals are trained to perform tasks such as tax preparation, auditing, and verifying legal compliance. CFO stands for Chief Financial Officer, and these executives manage the financial risks, project long-term financial planning, and strive to optimize profitability. While it is possible for a CFO to have experience as a CPA, one must also have experience as a top executive of a company and understand how to gear financial plans in sync with a company’s objectives.
2. CPAs analyze your company’s numbers after the fact, and verify the validity of the documentation. CFOs help develop strategic goals to help the corporation achieve financial success.
3. CPAs are hired to look at a company’s books in an objective way, to verify that they are legally compliant. They work independently of a company, and often have numerous clients. CFOs are hired to act on behalf of the company, to boost profitability.
4. A CPA’s focus is on risk aversion and legal compliancy, whereas a CFO focuses on maximizing opportunities while managing risk.
5. As mentioned above, most CPAs have little to no executive experience. While a CFO could have CPA training, they also understand how to work with a company’s finances to increase profitability within the corporate objectives.
6. Your CFO and CPA need to focus on completely different third-parties. While your CPA is looking to oblige government agencies, your CFO should be courting clients, lenders, and investors. Appealing to different audiences requires different skills.
7. Your CPA should NOT be the professional who is guiding your financial activity. The numbers have to be validated and if your CPA makes an error in the original reports, with no one else to verify these numbers, he or she may be motivated to cover up the error!
8. Because a CPA works outside of your company, and has other clients, it can take up to a month after the end of an accounting period to receive your reports. However, a CFO should provide up-to-the-minute metrics to help you stay informed and capable of monitoring and managing your business.
9. A CPA is focused on communicating your finances to the government, whereas a CFO’s goal is to make sure that your management team understands this information and knows how to use it.
10. Lastly, and most importantly, your CPA is going to assume that you know exactly what your finances look like and what they mean to you. He or she is not going to inform you that your costs exceed your income, if that is the case. They will just make sure that everything is accounted for. However, your CFO’s job is to make sure that you are aware of your financial state, and if it is in trouble, how to fix it.
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Interesting article, but let’s clarify some facts… You article is not just biased, but nearly inaccurate in every respect.
#1 – Agree, just because one is a CPA does not mean they can be a CFO. However, a CFO with experience as a CPA is more knowledgably and generally more experienced.
#2 – Wrong. While auditors look at numbers after the fact as they are engaged to give an opinion on the reasonableness of the numbers, most public accountants providing tax services are proactive. How else can they provide tax planning and strategies? So, if a CPA is independent, that is one issue, if they are a consultant, that is another.
#3 – Wrong. I have never signed an engagement letter that states the objective of my work is to determine if the client’s accounting records are legally compliant. Rather, my work is to minimize risks, taxes and maximize profits. Furthermore, unless a CFO has public accounting or legal experience, how does he or she know the full impact of business decisions.
#4 – Wrong, Our focus is to help clients be successful. While this encompasses risk management, I have helped my clients land contracts with companies like Starbucks and Tyco.
#5 – Wrong. I guess you think running a CPA or consulting firm is not a business. Enough said.
#6 – Wrong. Again, I have never signed an engagement letter stating that I am responsible to the government. A CPA is engaged by, and responsible to, the shareholders or those charged with governance. We do not disclose any information to third parties unless we receive a subpoena. Furthermore, we work with clients to address their needs related to financing and other business objectives.
#7 – Wow, wrong in a big way! First, if I as a CPA make a mistake, you really think I am going to jeopardize my license to “cover up” a mistake. Not only is that a violation of my professional ethics, no professional with any integrity would knowingly lead a client down a path based on inaccurate information. Second, regardless of the person, internal CFO or external CPA/CFO, management needs to have additional controls in place to make sure information is correct/reasonable and make the appropriate decision. No single individual is perfect.
#8 – This depends on the individual or firm. Some firms have professionals that do nothing but consulting and part time CFO work. If you hire a tax practitioner, then you might be at risk for not having timely information.
#9 – Again, where do you get this position from? I have never seen an engagement where it stated that the objective of the CPA is focused on communicating a company’s finances to the government. Even if I were a tax person, which I am not, my objective would be advise the client in the best way for their long-term business objectives.
#10 – This depends on the nature of the engagement a company has with their CPA firm. If you hired a CPA firm to prepare your taxes, then you cannot expect them to monitor your financial condition. However, if you hire a CPA for advisory services, you can expect them be monitor their financial state.
Matthew E Breecher, CPA, CISM, CISA