Over the past ten years, the chief financial officer (CFO) role has changed significantly.
Traditionally, a financial leader’s role comprised reporting, controlling the treasury, preparing for an audit, supervising capital structure, and compliance.
Today not only does the CFO handle those traditional responsibilities, but the role has evolved to include duties such as capital allocation and portfolio management. In other cases, the CFO manages relations with company investors and performance management.
This financial leadership role typically falls into one of two broad categories: “operational CFO” and “strategic CFO.”
What exactly are the differences in their roles, and when do you need them?
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 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 will 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 will 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.
Meaning, they will be able to provide valuable insights that can push 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, the roles are also quite different.
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.
How Signature Analytics Can Help
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.
One solution is to outsource your CFO operations. Outsourcing a CFO position to a fractional resource has many benefits, including:
- Avoiding the expense of advertising, interviewing, vetting, and training a new staff member
- The ability to hire a CFO if and when you need one
- Feeling confident that you are working with a fully qualified, experienced finance professional
- Not worrying about your CFO taking time off, because there is always another professional available to step into their shoes
Don’t wait until it’s too late to hire a Chief Financial Officer or other finance professionals that could help your business. It could mean the difference between a thriving business or one that goes under in the next few years.
Take a long, hard look at your company and decide whether an operational or strategic CFO would be best for your finance department. Contact Signature Analytics today to discuss how our expert team can help your company grow now or look forward to growth in the future.