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One obstacle to asking for help is knowing that one needs to. This article outlines the functions and competencies of a CFO, allowing you to measure the effectiveness of your current approach. If you find holes in your approach, a smart next step is to ask for help and call in the big guns of a CFO solution.

Big Guns

This is an advertorial for Preferred CFO. We’re the team with multiple startup enterprises under our belts, aggregate decades of experience as CFOs, and more degrees than you can shake a stick at. Unless you’re already paying six digits for financial expertise, we can help you.

Even if you are paying six digits, we can definitely help you.

Preferred CFO Logo

That’s all the promotion you’ll have to read today. The remainder of this article describes what your CFO, partner, or brother-in-law should be providing for you. If you’ve been looking for a chance to fire him, this article just might give you the chance.

The Basics

The job function of a financial officer is to “maximize owner wealth.” That’s different from any other role in the company. Operations does the job. Marketing publicizes the job. Sales trades the job for money. Human resources and executives organize the job doers. Accounting quantifies the income from the job.

The CFO is responsible for maximizing profit and wealth from all of those functions.

Accounting

Some are surprised to learn that a financial officer is not an accountant. It’s true that financial officers usually supervise the accounting staff. They supervise and report the P&L. They make important accounting decisions about depreciation and definitions that impact a Balance Sheet and determine a company’s Book Value. They supervise or act as the controller in managing and controlling cash.

The defining difference between an accountant and a financial officer is that accountants look to the past while a financial officer looks to the future.

Statistical Judgment & Forecasting

Looking into the future is not directly possible, and financial officers are rarely former palm readers. The core competency that financial officers bring to the table is statistics and forecasting. Statistics is the systematic collection of quantitative data. Financial officers are also responsible for perceiving the context in which the data operates and making qualitative judgments. After collecting all available data, a financial officer projects the trend into the future and makes decisions off of those trends.

Every company needs a scientific fortune teller. The second most important principle in business is correct timing, just after correct action. The right product at the wrong moment can spell disaster.

Hard Decisions & Cost-Benefit

Using statistics, judgment, and forecasting, financial officers are frequently assigned ultimate responsibility for hard decisions. When a company needs to cut expenses, the financial officer is tasked with figuring out how to do it. When a company is faced with decisions launching new products, expanding production, salary levels, marketing investment, and other strategic possibilities, the financial officer is responsible for predicting its profitability. When any major purchase is considered, the financial officer is responsible for labeling it a good idea or a bad idea.

The process a financial officer uses is a Cost-Benefit analysis. The complexity of hard business dilemmas means that a financial officer should be an expert in spreadsheets and modeling. Inability to manipulate data is a disqualifying deficiency in a financial officer.  But more than building a complex spreadsheet, is identifying the right questions to ask and pulling in the relevant information to make the decision. And this is the area where expertise makes all the difference.

Securities

Internal decisions are not the only hard decisions a business faces. Strategic investment decisions are more rare but may be even more impactful. Mergers and Acquisitions can make or break a company’s future. Security investments in stocks and bonds can do the same. A company that sells out too early, too late, or too cheaply can diminish or even lose their long-awaited payout. Even more seemingly trivial decisions like real estate and property management can impact, in the long-term, a company’s solvency.

In the complex arena of securities trading, there is no replacement for experience.

Buying Money

Financial officers are especially and even solely responsible for buying insurance, buying loans, and implementing tax strategies. These areas of organizing money, risk, and interest require all of the skills so far described and more. Buying money is an unavoidable for any business. Expertise can make buying money an important and helpful part of a business strategy. Inexperience can make buying money a daunting and disastrous part of a business strategy.

A company that buys insurance, loans, or tax strategies without an experienced financial officer risks much and gains little.

Next Steps

No information can substitute for a personal consultation.

Talk to us. Seriously.

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