The role of the chief financial officer (CFO) role has changed significantly over time.
Traditionally, a CFO’s role was comprised of reporting, controlling the accounting department, preparing for an audit, supervising capital structure, and overseeing all elements of compliance.
Today not only does the CFO handle all of those responsibilities, but the role has evolved to include duties such as capital allocation and portfolio management, taking the lead in relations with company investors, and being in charge of performance management.
While the role of a finance and accounting leader has many responsibilities, we’ll look at two broad categories: “operational CFO” and “strategic CFO.” Having strategic financial insights is essential, as all business owners already know. First, let’s define these roles, then, let’s address what a business owner can do when a C-Suite hire is not within reach.
What is an Operational Chief Financial Officer?
An operational CFO role is much more than a number cruncher. This person develops a much more holistic understanding of how the company operates, rather than merely focusing on cash flow.
Why? Because an operational CFO typically has a deeper understanding of company processes and systems, which gives them a stronger grasp on what the cash flow figures mean. They also have a firm grasp on operational risk, reporting, and other accounting functions.
These financial management skills make a significant difference in the long-term success of the company.
For example, imagine your company sold suitcases. A traditional CFO could tell you the exact cost to manufacture each suitcase, and how much profit you’d make each time you sell one.
An operational CFO could give you more context into exactly what these figures mean for your business. They might check for inefficiencies in the way the suitcases are manufactured and look for expenses that could be reduced. In the long run, this added layer of analysis would save your suitcase company a lot of money.
What is a Strategic Chief Financial Officer?
Like an operational CFO, the strategic CFO will understand the financial operations of your business inside and out. Beyond this, strategic and operational CFOs have different objectives. Where an operational CFO is concerned with past and present financial analysis, a strategic CFO must be forward-thinking with their strategy, providing valuable insights that can initiate positive changes within the company.
For example, imagine you want to increase revenue for your suitcase company. The strategic CFO will play a major role in how you grow your company. They will work closely with the Chief Executive Officer (CEO) to develop a goal for where the company should be in the next three, five, and even ten years. The executives will work together on a plan to reach these goals, perhaps by launching a new product or redesigning its flagship suitcase.
How Are Operational and Strategic CFOs Different?
Although an operational and a strategic CFO do have some shared responsibilities, there are some differences:
An operational CFO can help you to:
- Fully understand the operational functions of the company
- Long-term financial planning
- Eliminate unnecessary spending
- Increase ROI
- Identify and improve inefficient operations
- Understand the full financial functioning of your company
A strategic CFO can help you to:
- Understand your company’s profit trends and how these will impact the future of the business
- Determine areas where your business should expand or trim for future growth
- Provide information and analysis regarding all strategic decisions
- Assess the benefits and disadvantages of alternative models and distribution channels
- Analyze areas for further expansion
- Develop predictions for the company’s future growth
When Do You Need to Hire an Operational CFO?
The most obvious reason to hire an operational CFO is if you need someone to help you assess your company’s efficiency and make changes to improve production and save money.
An operational CFO will provide you with business intelligence, which can help you mitigate financial risks. They will also help you if you are dealing with a merger or acquisition.
Dealing with liquidation, or equity and debt negotiations are two other scenarios where an operational CFO is the right choice.
When Do You Need to Hire a Strategic CFO?
The most obvious reason to hire a strategic CFO is that they will be able to project your company’s future, provide a strategy for the CEO to run with, and focus on improving profitability.
Your company will also benefit from strategic CFO services because, among their other responsibilities, they will provide stakeholders with assurance that your business finance is in safe hands.
This level of trust means existing stakeholders will want to invest more money into the company, and it will also help to acquire new investors.
What Can You Do If You Are Not Ready for A Full-Time CFO?
It’s clear to see the advantages of hiring an operational or strategic CFO, but if you are running a small to medium-sized business, you may feel an executive is beyond your budget. You may not want to give away equity or, you may simply already know that outsourcing is a great way to scale a business.
At Signature Analytics, our Business Advisory CFO services provide the boots-on-the-ground operational CFO service with the forward-thinking strategic CFO guidance all rolled into one. Working with us as a fractional resource has many benefits, including:
- Avoiding the expense of advertising, interviewing, vetting, and training a new staff member
- A faster, more efficient hiring timetable
- The knowledge that you are working with a fully qualified, experienced finance professional
- Always having Business Advisory CFO services available, even in August when most in-house C-Suite professionals are on vacation
High-level CFO insights are essential to growth, scalability, profitability and even succession and exit planning. If your business is ready to take planning and finance to the next level, contact us today to discuss how our expert team can help your company succeed.