The CFO is the highest-ranking financial professional and the third-highest-ranking official in an organizational setup, preceded only by the CEO and the COO. The Chief Financial Officer reports directly to the CEO and often works in tandem with the board of directors and other senior members on financial and other matters.
Many CFO responsibilities also extend to external stakeholders. They must periodically report to regulators and tax professionals and state the organization’s financial and other aspects.
In the modern business landscape, companies would struggle if they associate the CFO’s position with reporting more than strategy. While they are still responsible for completing their duties as finance chiefs, their responsibilities have transcended to a more flexible and meaningful role within the organization.
This article discusses the responsibilities of a CFO and how they are vital to a business’s success.
Responsibilities of a CFO
In the past, a host of CFO responsibilities revolved around cost optimization, optimizing financial processes, gathering data, running the requisite reports, and summarizing data. Today, the duties of a CFO in a company have shifted to supporting organizational transformation, not only from the financial standpoint but also by bringing in automation and acting as a strategic consultant.
Here are the key responsibilities of a CFO –
Liquidity
As stated above, the CFO is the financial leader of an entity, and their primary responsibility is to ensure optimum liquidity at all times. Liquidity refers to the proportion of what the company owes compared to what it owns. In other words, it signifies the organization’s ability to repay its short-term dues. The responsibilities of a CFO in a company include ensuring that funds are readily accessible, debtors are paid on time and in full, and there is enough liquid cash to cover any other financial obligations.
ROI (Return on Investment)
Another of the key CFO duties is to manage a sustainable ROI for the business. ROI or return on investment refers to the percentage of return generated from the invested capital. Businesses can also use ROI metrics to compare their costs and revenues and it can be negative or positive depending on the financial performance. However, ROI can often showcase an incomplete picture of the entity’s performance. So, CFOs often use it contextually with other factors as a basis for their decision-making.
Forecasting
The success of a business and its endeavors often depend on its ability to forecast and have adequate measures in place to ride the change. The responsibilities of a company’s CFO involve predicting possible future outcomes, including financial forecasting and modeling.
For this, they are not only required to take past performance into account but also use several interlinked internal and external factors that can impact the financial position of the entity. Internal factors can vary from one organization to another but usually include HR costs, salaries, wages, and sales and purchase trends. External factors can consist of demographic changes, shifts in demands, changing technology, the role of automation, and the rise of competitors.
The duties of a CFO in an organization also include monitoring influential factors and using departmental-level forecasts to predict future revenues and profits for stakeholders.
Reporting
In addition to forecasting, the plethora of CFO responsibilities also includes overseeing the preparation of financial reports, such as cash flow statements, profit and loss statements, and balance sheets. These statements are vital to showcase the organization’s present economic condition and its adherence to the going concern concept to its stakeholders. The CFO is responsible for ensuring that all the accounts prepared are in accordance with GAAP (generally accepted accounting principles) and other rules that the entity is required to follow.
Risk Assessment and Management
The CFO’s responsibilities in a small company or an entity of any size include risk assessment and management. They have an in-depth understanding of finance and how each decision can impact the business’s financial position. This understanding acts as a shield for organizations and ensures that they have the appropriate measures in place to protect them from financial shock.
In addition, the CFO is also responsible for identifying the financial risk associated with key decisions and proceedings within the organization. For this, they are expected to act proactively to identify potential risky activities and their impact on the company’s financial standing. The umbrella of CFO responsibilities extends to developing risk management strategies that enable the entity to cope with any potential risk with greater conviction.
Investment Management
Several CFO responsibilities in a company revolve around investment management too. The entity expects them to optimize their capital structure and enable efficient allocation of financial resources to minimize the burden on their liquidity. For this, the CFO has to assess investment opportunities for financial viability and take vital decisions that optimize returns without having an undue bearing on associated risks.
Capital Management
Alongside investment management, the CFO is also responsible for efficiently managing the entity’s cash flow and liquidity requirements. The company expects them to monitor and analyze current and future cash flow positions to ensure they are in a position to meet their obligations and build on their stability.
In addition, CFO responsibilities also include ensuring financial stability by managing capital budgeting seamlessly. For this, they are responsible for undertaking project evaluation and prioritization based on their economic implications. They also have to keep in mind the strategic alignment while deciding how the projects would be funded (cash, debt, or a mix). Effortless capital management paves the way for seamless organizational growth and building wealth for the shareholders in the long run.
Embracing Automation
CFOs in the past had to wait for the annual and quarterly reports to be published to get access to the organization’s financial data. They then employed these reports throughout the periods and compared them with the previous ones to create an outlook. Therefore, these outlooks often lacked the clarity that businesses needed to make sound decisions.
Today, the times have changed, and the basis of CFO responsibilities has become more proactive than reactive. They have access to real-time data through automation and the rise of tools capable of extracting up-to-date financial information. Today’s CFO also has access to various AI tools that can use a vast multitude of data across data points for improved financial forecasting. Modern-day CFOs are expected to ride these technological changes and use them to enhance their forecasting and decision-making abilities for the business.
Wrap Up
CFOs in the past were often termed boring because of the reactive nature associated with their position. Today, the umbrella of CFO responsibilities is no longer based on instincts but on real-time data. The presence of cutting-edge technology is paving the way for businesses having a new outlook towards how their ideal CFO should be and the responsibilities they have.
Regardless of the entity size and other factors at play, the CFO today is expected to play a more responsible role that extends well beyond their traditional job profile. As technology changes, the role of a CFO would need the individual to be more agile and proactive and play a key role in bringing about organizational changes. The organizations that harp more on their strategic prowess of the position rather than just the financial management aspect of it stand to gain the most in the long run.
Are you looking to find the right CFO for your business? Get in touch with Myfinnar and streamline your finances today!
