In modern business, having a CFO in your corner has become essential. CFOs or Chief Financial Officers are executive-level employees of a business. They are the financial controllers of the business.
They manage the company's financial activities, focusing on its financial future. They handle matters like cash flow, financial planning, budgeting and taxation issues.
They analyse the company's financial strengths and weaknesses. They advise the board on important matters.
Section 203 of the Companies Act of 2013 makes it mandatory for certain companies to appoint a CFO. The following companies should appoint a CFO as per Act:
- Every public company with a paid-up share capital of ₹ 10 crores or more.
- Every listed company.
CFOs contribute a lot to the financial success of the company. The position of the CFO is the highest financial position in an organisation.
The roles of a CFO vary based on the nature of the business and the scale of operations.
Here, we look at some general responsibilities of the CFO. From managing financial objectives to making strategic decisions, CFOs have many roles.
Responsibilities of the CFO:
- Managing the Financial Objectives:
Every company has its financial objectives and goals. The financial blueprint of the company is at the disposal of the CFO. With this resource, the CFO has to chart a course that maximises profits and reduces the risk of losses. With the financial data, the CFO helps the company to achieve its goals. A CFO knows the source of expenses and income of the company. They can use this knowledge and suggest cutting costs and increasing sales. For example, if there is overspending on raw materials, the CFO should look at cost reduction. Or if the company is falling behind on sales of a certain product, the CFO should make sure to address the concern. In case of larger decisions like expansions or acquisitions, the CFO has to advise the right move. They have to assess these moves' financial risks and devise a solution. The company spends a lot of money on programs like employee training and workshops. These are significant expenditures which impact in the long run. The CFO should study the trend and advise on the best time to take up such ventures.
- Assisting with Planning and Forecasting:
To achieve an aim, the company has to plan beforehand. A CFO is a person who oversees the financial division on a day-to-day basis. They can help in making financial plans for decisions like investments and borrowings. A CFO should do due diligence on the proposed project and advice on its feasibility. They should decide where and when to invest the business' money. They should come up with investment strategies by considering cash and liquidity risks. They should come up with a forecast for each financial move of the company, drawing up a budget. The CFO has to perform risk management. That is by analysing the liability and investment of the company. For every decision, the CFO should perform a cost-benefit analysis. To determine if an investment is sound and if its benefits outweigh its costs. And to provide a basis for comparing investments based on expected cost vs benefit. They should also decide when it is the right time to get loans or other outside financing. A clear policy on borrowings will help a company to be stable. In expansions, the CFO should research the proposed project and advise the CEO. The CEO can act on it accordingly. A detailed approach in these matters will help to make the right call.
- Lead Financial Processes:
As mentioned earlier, CFO is someone who leads the accounting and finance division. As a division leader, he acts as a manager by delegating tasks and overseeing the team's activities. They usually oversee the day-to-day activities and step in if the situation requires them. The CFO's daily tasks include building financial models and preparing financial statements. They also do a reconciliation of incomes and expenses. They also work on cash flow planning and cash management. Many departments, like accounts and HR, report to them. So, the CFO attends several meetings. Their end-of-the-day tasks include resolving questions and disputes. The CFO should be a good manager. More importantly, they should be good listeners. It is a fact that managers spend most of their time listening. Understanding all the facets of an issue to resolve it is important. The CFO should maintain an amicable environment in the division they supervise. It relieves pressure on both the CFO and the team under his supervision.
- Work with Other Executives:
Knowing where the CFO is on the hierarchical structure or the pecking order is important. He is an executive employee who reports to the CEO or the Chief Executive Officer. There are several other executives like the COO, CTO and CIO. CFO is most familiar with the company's financial activities. Hence, interact a lot with other executives. They act as a strategic partner to the CEO. A CEO and CFO should share the company's ambitions and devise a strategy to achieve them. The executives should understand the CEO's vision to have a proper relationship. The CFO will face several questions at meetings, as he is the executive of financials. They should be prepared with answers and information that the other executives need. They should also notify the department heads if any department or team has not been up to the mark. They should consider if a team needs more attention. They should also look into divisional spending and come up with cost-effective plans. It is important to take a collaborative approach to these tasks. The CFO should have a good rapport with the other executives. There should be an understanding of their viewpoints before weighing in. This will set an example for smooth working at the top. It will help all departments to work together as a unit.
- Follow Regulations:
The CFO should have the skill of organisation. They deal with financial information and documents. They have to follow all the rules and regulations. Several laws govern companies. They are bound by national and state laws, apart from laws made to govern companies. As such, a CFO has plenty of regulations to follow. And they should make sure that statutory compliance is no less a priority than any other task. The CFO must be fair in all financial reporting, whether to the authorities or the stakeholders. They should also follow tax compliances. The CFO should ensure that the required documents are provided to the authorities. They should work with all departments to ensure that the regulations are followed. Any discrepancies in statutory compliances will have serious consequences for the company. It is the CFO's duty to make sure that no such glitches happen. The CFO should comb through all the financial documents and make sure that they are error-free.
- Other Responsibilities:
In the modern business world, executive employees should be stacked with information. The more knowledge they have, the better it is for the company they serve. Though their expertise is in finance, they should be familiar with other operations. They should be able to provide information to the CEO and other board members when asked. They need to provide the lawyers with the necessary information in case of legal issues. They should meet with investors to show them progress and provide assurance. They should meet with potential investors and provide them with concrete details. The CFO can also assist the company in the matter of intellectual property. Their knowledge of finance helps with the acquisition and valuation of intellectual properties. They can also advise on matters like asset management. They can help the management to decide which machinery to procure. If the company is expanding overseas, the CFO should be involved throughout. Expansion is a huge step for any business. And the financial expertise of a CFO can do a lot in making it a smooth operation.
Businesses spend money on many projects and in many avenues. One of the primary purposes of the CFO is to ensure that the money is well spent.
And they should ensure that there's a credible return or reward (monetary or non-monetary).
The research and inputs from the CFO will put the business on the right track. CFO is a vital member of the modern business.
They manage and control the finances of an entire company. That is a huge need for any business. They provide valuable inputs on investments and borrowings.
They test the financial feasibility of projects and advice on the best course of action. They also assist in asset management, legal issues and intellectual properties.
If a company hires a CFO that fits their bill, they can thrive in their field. Therefore, every business has to think through and pick a CFO that helps them achieve their goal.
We know how crucial a CFO is for the success of a business. Contact us at Especia for help in hiring your new CFO!
1. What can a CFO bring to the table?
To give it short, a lot. A dedicated CFO will chart out a viable path for the company to succeed. They provide budgeting and forecasting, taxation, financial planning, and statutory compliance services. They can also assist in making crucial business decisions based on their research. They can also help in purchases, sales, and intellectual properties.
2. What factors should be considered while hiring a CFO?
Many things should be considered. A CFO should bring experience, fresh ideas, perspective, energy, and dedication. They should be a team player and understand what drives the business forward. A person who has contact with experts in various fields can always be helpful for the business in the long run.
3. Who is the ideal CFO?
The answer to this varies. Every business is different, and every person is different. Generally, the CFO does a lot of research and work. An ideal CFO understands what the company is and stands with its objectives.
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