As Preferred CFO performs speaking engagements and advisory with CEOs around the country, one of the topics we’re continually asked to address is how to evaluate the quality of a financial team. Among these is answering the question, “What makes a great CFO?”
We’ve been surprised how many companies promote a controller to the CFO title without the experience, coaching, or training that would make them great in that role. (In fact, many CEOs tell us that they’re not confident that they understand the difference between a controller and CFO).
A job title—or even a large salary—does not make a CFO great. It is the skills, experience, and tools that set a CFO apart.
What Makes a Great CFO?
A great CFO is distinguished by his or her experience in the field. A CFO will have high-level operational experience as well as finance experience. They will also have finely tuned skills in forward-looking strategies, modeling, leadership, and more.
Below are 9 qualities of a great CFO.
1. Forward-Looking Strategy
One of the main qualities of a great CFO is a forward-looking strategy. Accountants, bookkeepers, and controllers are tasked with record keeping. They keep the books clean and accurate while producing reports that show performance. They may also help create budgets based on historical data, but it’s important to understand that their roles are backward-facing.
Conversely, a CFO is skilled in forward-looking strategy. One of the primary tools of a CFO is a forecast. A forecast uses historical numbers, industry trends, competitor analysis, and strategic modeling to design a blueprint to help a company achieve its financial goals. It is exceptionally forward-looking, aiming to actively and strategically progress a company forward in its goals rather than to only predict and/or document that progress.
2. Acts as a Strategic Partner
More than almost any quality, a great CFO will have the ability to act as a strategic partner. This means not only providing financial data and reporting but also to be able to advise actions that will “move the needle” in a company’s progress toward its goals.
A great CFO has a well-rounded view of the company, with monitoring, insights, and strategy that reach from sales to customer service, R&D to vendor relationships. They are an integral asset to each arm of the business, helping to optimize performance and make strategic adjustments to achieve growth and optimal profitability.
As an example, a CFO will help to perform an in-depth product line analysis. For those underperforming products, they will be able to determine whether an adjustment in vendor agreements, pricing, or sales and marketing may help to improve performance, or if the product should be cut altogether.
3. Real-World Operations Experience
Unlike many financial professionals, a great CFO has real-world operations experience. This may be either in a COO role or in a mentored CFO role. This is an important distinction between inexperienced and experienced CFOs, as it allows the CFO to provide realistic strategic advisory beyond budgeting and cost cuts.
4. Significant High-Level Financial Experience
Many CFOs come into their role after being promoted from Controller to CFO in a previous company. However, in many cases, this promotion does not include a change in expertise, coaching, or mentorship. If your CFO made this transition long ago, they would likely have developed this high-level financial experience over time. However, if your CFO is relatively new to the financial industry, has only recently been promoted to CFO, or—worse—if you have promoted a previous controller to CFO, you may be missing out on much-needed experience.
Not all CFOs are created equally. If you do have a new or inexperienced CFO, mentorship from a highly qualified CFO can help your new CFO increase their competencies. However, if you’re deciding between an inexperienced full-time CFO and a highly experienced part-time CFO, it is in almost every instance more beneficial to rely on the latter.
5. Advanced Modeling Tools
There are many financial tools used by financial experts, including balance sheets, income statements, cash flow, profit margins, and EBITDA. Most also include budget-to-actual reporting. However, a great CFO has many more modeling tools to use. This includes short-term (3-month), mid-term (12-month rolling), and long-term (5-year) forecasts. It should also include tools such as:
- Contribution margin analysis
- Breakeven analysis
- Product line analysis
- Revenue bridge analysis
- Pro forma cap table & liquidation
These documents help to advise more advanced financial strategies.
6. High-Quality Relationships
Another quality great CFOs bring to the table is a network of high-quality relationships. In the financial world, relationships can have a big impact on the success of the company. This is true in situations such as lending, investing, improving vendor relationships and contracts, etc.
In recent months, we’ve also seen how these relationships affected a company’s ability to get COVID-19 stimulus funding faster and more successfully than less-connected finance and business professionals.
A good network is a sign of an experienced CFO, while a weak or nonexistent network is often a sign of a less experienced one.
7. Strong Leadership
A great CFO will not only have strong financial skills but will also have excellent leadership skills. Many finance professionals have a reputation for being soft-spoken. However, a CFO should be able to lead their financial team as well as to provide guidance to the operations team.
A great CFO should be able to make data-backed strategic suggestions and to be able to carry those strategies out.
8. Well-Rounded Industry Insights
While it’s not imperative that a CFO have direct industry experience in your field, it is certainly helpful. This helps the CFO have a frame of reference when comparing analytics. It also often means the CFO is more likely to have industry contacts, competitive analysis, industry benchmarks, and more.
9. Expert Financial Team
One of the final important qualities of a great CFO is to have an expert financial team supporting them. CFOs are expensive—and for good reason. They should not be performing lower-level tasks like payroll, end-of-month close, or preparing financial statements. If they are, the company is wasting time and money.
A great CFO should have an expert financial team behind them. This team should be producing financial reports and functions in a timely, accurate manner—supervised by the CFO. The CFO will be able to use these reports as a base for developing financial strategies, assessing risk, progressing the company toward its goals.
Help Me Assess My Financial Team
Are you unsure about the capabilities of your financial team? Preferred CFO is happy to help you do a financial team analysis to discuss your team’s strengths and potential areas for improvement. Request a financial team analysis by reaching out to Preferred CFO today.
You may also be interested in…
Does My Business Need a Financial Advisor?
The wise business owner will “know what they don’t know,” and will seek the appropriate experts such as financial advisors to fill those gaps.
3 Reasons you Need a Financial Forecast
If Your Company Doesn't Have a Financial Forecast, You're Wasting Time and Money Every company has goals. Where do you want your organization to be 5 years from now? 10 years? Most even have a general idea of the benchmarks you need to hit to get there—"By increasing...
Determining the Payback Period of a Business Investment
Whether implementing a new software system, adding office space, acquiring another company, or any other substantial investment, companies want to know how long it will take to recoup the money they spend on major purchases. The way to determine this is by calculating...
10 Steps to Prepare for Raising Capital
Finding funding for your business is a process that takes a lot of time and effort, especially during the startup phase. Many entrepreneurs fail in their first attempts at fundraising because they are poorly prepared. Others get themselves into trouble by choosing the...
How Can a Fractional CFO Help You Save Money?
In these days of economic challenges and changes, many companies struggle with uncertainty about the future, seeking tools and resources to best position their businesses for financial success. Often it can be beneficial to bring in a financial advisor who has...
What is a Capitalization Table and Why Does it Matter?
Capitalization tables, commonly called “cap tables,” are highly useful spreadsheets maintained by companies that have multiple owners or investors. Cap tables are especially important for private companies at startup and in the early stages of the enterprise. They...
Top Benefits of Financial Staff Augmentation
Many companies experience times when they find their accounting departments short on staff or short on expertise. Sometimes emergencies and financial needs arise that are beyond the capability of their financial personnel to address. This is particularly true in times...
Qualities of an Effective Profit & Loss Report
A Profit and Loss (P&L) Report, also called a Profit and Loss Statement, is a key financial document that details a company’s income and expenses over a specific period of time. This time period is typically a month, a quarter or a year. Depending on company needs...
What Is a Quality of Earnings Report?
When a business sale, acquisition, or major investment is contemplated, one important step in the due diligence process is the generation of a Quality of Earnings report, sometimes abbreviated as QOE. Even though a company may have strong financial statements, those...
What Is the Purpose of Accrual Accounting?
What Is the Purpose of Accrual Accounting? There are two methods of accounting: cash and accrual. In cash accounting, transactions are recorded when payment occurs. In the accrual method, revenues and expenses are matched and recorded at the time the good is delivered...
3 Things to Know Before Choosing a Supplier
Choosing the right supplier for your business can be complicated, especially if a large portion of your product comes from a single company. For many companies, supplies are secondary only to labor in their expenses. But choosing the right supplier has even more...
How Does a CFO Influence Strategic Decisions?
In every company, there are important decisions to be made on a daily basis. Some decisions are mundane and have only short-term consequences. Others are strategic and can affect the company’s performance and profits for years. Too often, these critical decisions are...