Rose Report: Issue 26
CEO and CFO Relationship – True Partners
Your company has grown from a one-person shop to an office with employees and a number of clients. You have a good sense of the accounting numbers and you know where you’d like your business to be in five years. However, as your business grows, you’ll want a sounding board for your financial decisions from an expert with a fresh perspective.
A Chief Financial Officer, or CFO, acts as this sounding board. The CFO is a good partner for a CEO who may not be as financially minded, or for a CEO who needs to shift his or her focus to other parts of the business. Traditionally, the CFO serves as the company’s financial gatekeeper, interpreting historical accounting data and financial projections to help the CEO understand the financial state of the company. The CFO also helps keep the company compliant with bank covenants and furnish the bank with up-to-date records that are timely and accurate, to establish and maintain good credibility with the bank. The CFO also focuses on risk management, identifying areas of risk throughout the company and minimizing those risks.
According to a white paper by the International Federation of Accountants, the traditional CFO role has evolved from financial stewardship to partner of the CEO, serving as a right-hand man in strategic and operational decisions. The CFO today supports and challenges the CEO to lead the business, and communicates the business performance and its issues to the board, to other company leaders, and to subordinates. The CFO integrates the processes and challenges of strategy development, management and execution while applying economic, environmental, and social factors at all levels of decision-making. In addition, corporate responsibility and sustainability is becoming a more important aspect of decision-making, and the CFO is responsible for driving this strategy.
When choosing a CFO, it’s important for the individual to have a strong understanding of accounting and of finance, and how the two disciplines work together in growing a business. He or she should also be a good communicator—with you, with the board, with your employees, with banks, and with stakeholders. He or she should be familiar with your business industry and have some experience within it. The CFO is also a trusted partner and business confidant to the CEO, so personalities should mesh well. The CFO should not be afraid to confront the CEO with concerning issues, but at the same time, the CEO should welcome these opinions for the health of the company.
A full-time, in-house CFO is not always necessary, particularly in smaller companies. It’s possible to work with a part-time contracted CFO to handle these matters as well. Regular communication with a part-time CFO is key to a strong partnership, as with a full-time CFO. Regular meetings and written communication keeps both individuals informed and builds a lasting relationship. A good CFO will provide the CEO with guidance and stewardship over their financial decisions and overall business strategy.