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.
Qualities & Characteristics of a Good 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…
Welcome to our insightful webinar featuring Tom Applegarth, a renowned expert in the field of Human Resources and our expert Outsourced Human Resources Manager at Preferred CFO. In this webinar, Tom shared with us his valuable strategies and insights for HR success in...
Deciding whether and when to sell your business is a significant and complex decision that should not be undertaken lightly. If the timing is right, the offer is right, and the necessary work is done correctly, selling your business can be highly beneficial. However,...
12 Things Investors Look for in an Investment Opportunity Being funded by a VC fund has been glamorized in the past 10 years—and it’s no wonder why. Venture capitalists not only provide funding for young and innovative businesses, but also bring a partnership with...
Business growth requires both organic and inorganic growth. Each method carries its own set of advantages, challenges, and implications for the trajectory of a company. Whether you are a startup or established enterprise, understanding the dynamics of organic and...
This episode of Management Development Unlocked marks the 50th episode! Eric’s guest is Tom Applegarth. Tom’s entire career has been spent in human resources at multiple companies, both big and small. Today, he is the Vice President of Human Resources for Preferred...
Recognizing Cash Flow Problems & How to Solve Them We know that the majority of small businesses fail within the first five years, but a study by Jessie Hagen, previously with U.S. Bank, drilled down into the reasons why this occurs. In her study, she found that...
In today's dynamic business landscape, having a strategic financial perspective is more crucial than ever. However, not all businesses can afford to have a full-time Chief Financial Officer (CFO) on their roster. Many choose instead to utilize virtual CFO services – a...
Financial Key Performance Indicators (KPIs) are crucial measurements of a company’s fiscal health. These metrics provide a window into the current and projected profitability of an organization, enabling managers and stakeholders to make informed decisions. By...
For many businesses, product inventory is their biggest asset. Effectively managing the inflow, storage, and outflow of inventory is critical to the financial success of the company. When inventory management is done right, customers can place orders with confidence,...
Preferred CFO recently added Human Resources Veteran, Tom Applegarth, to the Preferred CFO team to offer outsourced HR services in addition to or standalone from outsourced CFO services. In this video, Tom introduces his experience and key benefits he offers Preferred...
Your employees are the lifeblood of your business. However, labor is also typically the highest cost for most businesses. Costs associated with hiring, training, compensating, retaining, rewarding, and managing employees can easily spiral out of control when there is...
A financial audit serves as a valuable tool for ensuring a company’s compliance with legal and regulatory requirements, building credibility with stakeholders, managing financial risks, and maintaining transparency in the financial operations of the business....