Forming and growing a strong leadership and executive team is a vital and evolving challenge for business leaders. Deciding on the roles, the levels of experience and the capabilities required on the team depend on both the current stage and planned growth of the company. Financial and strategic expertise will always be a part of the equation.
In the early stages of a business, the typical progression of financial needs (by transaction volume) is general bookkeeping, basic accounting, and then controller capabilities and ultimately a CFO. The need for strategic advice is there from the outset but rarely is a part of a founding team. Sometimes strategic financial oversight and expertise is provided by the CEO or a board member at these early stages. As the company grows, a CFO’s expertise will become increasingly important. Below, we look at four ways that CFOs contribute to executive teams.
A foundational function of a CFO is to present and interpret the organization’s financial performance and communicate that information clearly and effectively to others. Doing so includes forecasting, interpreting past performance, focused analysis, and communicating the numbers to others in a way that is useful and actionable. An effective CFO uses numbers in a way that influences decisions and actions. Accounting staff are comfortable with the numbers. Salespeople tend to be more comfortable with stories and words. A good CFO uses numbers to tell a story and spur action.
Business leaders constantly make decisions – both big and small – with financial impact; everything from a major shift in company direction to launching a new product or service, timing of new hires or which copier to buy or lease. It is not uncommon for a visionary CEO to have 10 new ideas, but the company can afford to do two of them. Which two? A good CFO looks at decisions through a quantitative lens of risk, cost, benefit, feasibility, and opportunity. Another way of describing the role is analytical decision support or risk reward analysis.
The CFO either leads or plays a strong supporting role in capital formation and relationships with capital sources. A good CFO has a deep understanding of the various sources of capital and which ones are a fit for a given business at whatever its stage, and he or she often has existing relationships with sources of capital. A CFO can help craft and present a story, find capital, negotiate terms, and coordinate the efforts of a company’s capital raising team. The CFO is normally an important player in maintaining ongoing relationships and communicating with sources of capital, be they Wall Street, a local bank, or friends, and family.
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As an archetypal personality, the CFO can be the voice of reason in the face of exuberance or despair. Businesses are often led by passionate people with big visions, big ideas, big egos, and big emotions. Many CEOs, founders especially, have their economic fortunes and much of their identity tied up in their business. A CFO provides balance and support to a visionary CEO, especially when things are either going great or when the world is blowing up.
The functions noted above by no means fully represent the range of functions, benefits, and value a CFO adds to an organization and executive team. CFOs are a vital player on the executive team, supporting the ability of an organization to achieve its objectives.
Many early and mid-stage companies do not yet have the budget to hire a full-time CFO. Issues that require the expertise of a CFO do not wait for budget. Oftentimes, opportunities to optimize are missed in the absence of CFO oversight.