Too many businesses that I’ve seen don’t differentiate between their “accountant” and a Chief Financial Officer. Some even regard having an outside tax accountant or a simple bookkeeper as being sufficient for their business. I wish I could just sit these business owners down to get the message across that “This is not smart!”
I want to highlight three key differences that are proven to make a difference in your organization—should you choose to utilize the services of a CFO rather than someone whose primary experience is just accounting-related.
A Different Lens
You’re at the helm of your enterprise riding the waves of the market up and down. Do you grab the spyglass or the rear view mirror? If you’re being shot at by poor profitability, the rear view mirror might come in handy. Accountants measure the historical performance to help you gain insight. Unfortunately, only a handful of accountants understand how to interpret financial information to help business managers make meaningful decisions. A CFO steps in to not only review historical performance, but to help chart the course through the most treacherous waters to help arrive to your goals. That takes the form of strategic planning, evaluating investment options, and evaluating large financial decisions with regard to their financial impact to the business.
Hard Data vs “Soft” Data
Accountants are used to dealing with real, historical transactions. They work with historical data to help draw the picture of performance. CFO’s on the other hand deal with a softer type of data to draw a future picture of performance. They use their years of experience in companies of similar size and type to draw conclusions from assumptions that they make. CFO’s spend time forecasting, budgeting, and projecting the future financial performance of an organization. This provides a road map on which you can chart your course throughout the future. Since the CFO is using his experience with other comparable companies, you can also use it like a benchmark. Try to meet or beat the benchmark, and you can feel comfortable that your company is on the right track.
Materiality
Most of the world knows “material” as a choice of medium with which you build something. Accountants and CFO’s understand “material” as something completely different. This term refers to the relevant precision with which an accountant decides to calculate or measure items, or when they consider an error large enough to do something about it. In more simpler terms, it’s like the accountant deciding, “We can round this category to the nearest thousand.” In some businesses with multiple billions in revenue, a ten thousand or even one hundred thousand dollar difference may not be materially significant. What’s important to know about this is that accountants or bookkeepers typically lack the experience of determining what is an acceptable material amount for each account. They may spend far too many hours worrying about getting an account perfectly right, when a more simple approach may have been “good enough.” For example, you may be ok with being off on calculating the worth of your equipment by, say, 5%, but you certainly wouldn’t want to be that far off when calculating your receivables. CFO’s have the experience to determine what’s appropriate for your business to help you make better decisions without wasting valuable time.
At the end of the day, there are many differences between trained and experienced CFO’s and less experienced accountants. If you don’t know where you want to go, then it doesn’t matter the course you take. But if you want to chart a course of financial success, we suggest remembering these three keys differences to help influence your decision hire part-time or full-time help.
