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.