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What does a CFO actually do?

by Sequel |

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February 27 , 2015

Within a company's chain of command, you probably know that the Chief Executive Officer or CEO, sits at the very top of the pyramid. This person is charge of the whole company and often seen as the face of the company. They make the decisions about where the company should go, which markets it should pursue and where it should invest its money.

The CEO's right-hand person, the Chief Financial Officer or CFO, is perhaps the next most important person in a company, but what is a CFO? and what does this person actually do? How involved are they in the company's day-to-day operations and what parts of the company's finances are they responsible for?

What does a CFO actually do? Let's break down the main responsibilities of CFOs and look at how the role has changed and where it is going in the future.

So what do they do?

The CFO has his or her hands in a little bit of everything around the company, more prominently in the financial area. Basically, a CFO's job comes down to three major jobs: controllership duties, treasury duties and economic strategy and forecasting.

The CFO's controllership duties involve looking backwards and moving forward. The CFO is responsible for determining and reporting the company's financial information, both past and present. The report must be accurate and timely because many of the company's major decisions, such as whether or not to replace or repair equipment, are based off this financial information. Shareholders, creditors, analysts and employees also look to this report for reassurance of the company's longevity.

Treasury duties mainly involve the company's present financial situation. The CFO makes most of the decisions regarding investing the company's money, which means taking into account any risks or liquidity. The company's CFO also handles issues regarding the capital structure of the company, along with its equity, internal financing and debt. If any problems with the capital structure arise, the CFO is the one to address and fix them.

Finally, the CFO looks to the future and helps the company plan for its financial future. The CFO looks at the most stable and efficient parts of the company and determines how it can further capitalise on those successes. For example, the CFO of a car manufacturer like BMW or Audi might look at which models are selling the most and how the company can possibly improve that model or take what is working about it and apply it to other cars in the company.

In short, the CFO is trying to predict what the company's financial future will hold as accurately as possible. There are, of course, many other duties and responsibilities that most CFOs are responsible for, but these are perhaps the most important.

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Growth in the position

The previous three responsibilities usually come within every CFO's job description, but nowadays, CFOs have their hands in other aspects of the company not necessarily related to the financial end.

In December 2014, recruitment consultant Michael Page polled 2,847 CFOs and global leaders from around the globe to determine what their plans and priorities were for the next 12 months. He called his findings the 2014/2015 Global Insights CFP & Financial Leadership Barometer. The results specific to Australia seemed to follow the global trend, which showed that many CFOs were expanding their roles in the company to administrative, HR, procurement and legal.

According to the results for Australian CFOs, 58.8 percent of these CFOs handled some administrative tasks and 55.9 percent reported having IT tasks that they were responsible for. Nearly a third (32.8 percent to be exact) were involved in legal aspects of the company, and a solid 30 percent oversaw the human resources department.

This expansion of CFO roles better the chances of CFOs being promoted to CEO when the CEO decides to step down. Though CEO roles are usually given to people with some sort of sales background, CFOs are now looking to be better candidates for the job.

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The future

Page's barometer found that all Australian CFOs did not expect to become CEO within the next two years. This could mean that most companies feel stable or are not expecting to make any major changes over the next few years, which is great for CFOs. It means job security.

The CFO world, however, is still changing and becoming even more innovative, and it is no longer exclusive to large corporation and companies. Now smaller companies can have their own CFOs without having to pay those high salaries. With the creation of the virtual CFO or VCFO, small businesses can have that same dedication and attention to their finances by hiring a VCFO to track their finances.

VCFOs work to monitor all expenses of your company and provide you with great advice to help you put your money to work. This person is keeps track of your income, expenses, current cash, profit margin and valuation and will meet with you, usually monthly, to discuss your company's progress. Your VCFO offers also budget and financial management plans designed to help your company make the most of its current resources and invest them in the future.

Ideal for start-ups and more established businesses, VCFOs offer all the benefits of an amazing CFO without having to pay the exorbitant salary, and for start-ups especially, a VCFO might be just what is needed to help owners better understand their finances and invest them wisely. As we have seen, CFOs are often involved in aspects of business not related to finance, such as HR and IT. VCFOs concentrate fully on your finances.

Unlike a CFO, a VCFO takes all the functions of a CFO and chooses the ones that would best suit a specific small or medium business. Whereas a large company's CFO would have treasury and management duties, we VCFOs focus on the financial management services that your business actually needs.

The CFO is one of the most important roles in the company, right after the CEO of course. They have quite a bit riding on their shoulders and they must have an intricate knowledge of a company's financial standing as well as the state of the global economy.

 No longer is this role exclusive to large companies. Now small businesses and even start-ups can have a professional VCFO who can take a small business and help it grow into a profitable, reliant company.

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