What Does A CFO Do? Modern Vs Classic Analysis

Where CFOs were historically just technical authorities, they’ve now taken on a more well-rounded role, to the point where they now play a part in developing a business’ strategic outlook.

The modern CFO vs. the classic CFO

The CFOs primary functions have always had to do with a company’s books.

Separated into three categories, these roles are, broadly: reporting, cash-flow management, and financial planning and analysis.

To elaborate,

• reporting involves compiling and publishing a company’s historical financial data
• cash-flow management consists of managing a company’s cash balance to ensure it can clear liabilities and meet present cash-flow requirements
• while financial planning and analysis are future-oriented and work on forecasting and predicting future cash flow and outlining potential avenues for investment, securing the corporation’s bottom line.

The CFO’s role, at least historically, involved loosely overseeing all three of these functions while also ensuring statutory compliance.

In essence, it was a purely managerial, if somewhat financially technical, job description.

But the job description and responsibility have changed as the CFO’s role has evolved to meet modern challenges.

The CFO has remained a key player in the domain of finance, that much has not changed, but the scope of their role has changed drastically.

The modern CFO advises and supports the CEO just as the other C-level executives do and is more strategic than a number-crunching.

This is not to say that historical tasks such as statutory compliance are no longer critical.

They are still relevant and are mostly still within the purview of the finance team and thus within the CFO that leads that team.

However, these tasks no longer form the majority of the CFO’s duties and are usually treated as the bare minimum of what a CFO should handle.

The crux of the modern CFO’s duties now resides in their ability to influence operational decision-making and strategy.

They aim to use a financial perspective to achieve greater operational efficiency and optimize profits.

Financial data is simply the point of inquiry through which a CFO attempts to encourage organizational change, a role that affords them much more strategic importance.

Focus Areas | What makes a great CFO

Given the rapid evolution of the CFO role, there is now greater emphasis on traditionally considered irrelevant skills to the role.

Hard skills like technical expertise and in-depth knowledge of accounting and reporting practices are still officially essential, but these skills take the backseat to softer, wider-focused skills.

You may break down these skills into the following broad categories:

Leadership – The modern CFO will often find themselves tasked with overseeing the transformative processes and programs relevant to an organization’s growth over time.

An ability to communicate effectively is essential to these processes, as a CFO formulates and interprets strategic directives to arrive at concrete operational goals, which are then communicated down the hierarchy.

To be an effective business partner, today’s CFO must have the necessary leadership and communication skills.

Aside from this, a CFO must lead the finance department from the front, take an active role in staff considerations, promotions, and ensure operational sustainability.

Operations – A CFO must possess in-depth knowledge of a particular company’s internal practices and the domain that it is active within.

They must leverage this knowledge along with their fiduciary duty to ensure that a business does not shortsightedly take measures that jeopardize its long-term financial interests.

This will often involve extensive communication with other departments within the company, as a CFO seeks to inform and critique the actions and plans of action laid out by those departments, all with a mind to maximize profitability without compromising organizational integrity.

A CFO must tread this fine line adeptly while also maintaining a hold on functions within their own department.

Controls – A hand-me-down from the classical CFO, this domain of influence acts as the officer’s locus to enact policy-making and ensure statutory compliance.

An exceptional CFO must foresee how an organization’s operations and scale will grow and lead a change that preempts any compliance-related issues that may arise in the future due to this growth.

This is by no means a simple task. Still, a CFO’s ability to mitigate risk from a legal and compliance perspective, and to instill controls that sustainably reduce this risk, will often be what ends up saving a particular company from some expensive lawsuits in the future.

Strategy – the broadest and arguably most critical aspect of a CFO’s job description involves a business’ strategic outlook.

A CFO must look at any and all strategy goals as outlined by other departments, and decide if these goals are fiscally viable, and how any particular campaign must be funded.

They must figure out how to ensure and enact growth within the company without compromising on-going functions.

Once growth is achieved, they must accurately determine the scale of this growth, and then report them to the relevant stakeholders via the appropriate financial reporting instruments.

Taking the role to new heights | Advancing finance as an institution

Aside from the given broad function-domains, a CFO must represent certain interpersonal qualities to help ensure successful fulfillment of the role.

This is another way in which the modern CFO differs from their former counterpart.

Gone are the days when the CEO would be the only ‘Rockstar’ on the executive floor; now there is far more of a level-playing field between the ‘chiefs’ in an organization, at least in terms of prestige.

Today’s CFOs must not limit themselves to the finance domain, and instead maintain a grasp upon the wider functions of the company.

Obviously this will involve extensive communication with other departments and across hierarchies.

Their ability to successfully leverage their interpersonal talents to achieve a “big picture perspective” and then use their technical knowledge to shape this picture to benefit the organization is one of the most obscure and underrated skills in a CFOs repertoire.

Interpersonal effectiveness and initiative aside, A CFO must also strive to keep up with the times.

The lack of emphasis on technological aptitude within the finance domain was a factor in stunting the growth of finance as an essential function. 

This has begun to change in recent years, as enterprise resource planning (ERP) and AI becomes the norm, and organizations acquire the ability to instill oversight over previously unimaginable scales.

This obviously comes with drawbacks, as many organizations struggle to staff their finance departments with appropriately specialized individuals.

A CFO must solve this problem on both fronts. On the technological end, they must welcome and adapt to change, at times even accelerate it, in order to ensure that the practices and tools being utilized within a company remain relevant, and that the company does not fail to innovate.

On the staff end, they must ensure that they’re hiring and grooming professionals that can lead in the wake of disruptive growth.

No executive function exists as a “one-man show” in the present day.

The highest performing executives are invariably those with the strongest teams, and learning how to populate and support the growth of those teams is as critical to tomorrow’s CFOs as any amount of financial know how.

Mentorship and tutelage play a clear role in those processes.

In the times to come, the most important factor in deciding the fate of any organization will invariably be technology related.

Giants in the Financial Advisory field predict that technological advancements will be key in shaping the growth of tomorrow’s finance departments.

As the people at the helm, it will fall on the CFOs of tomorrow to decide how well their departments acclimate.

Recent studies have shown a link between improved financial performance and greater strategic influence for CFOs; CFOs who had greater strategic importance tended to act in different capacities across multiple departments and were better equipped to handle sudden change across the board.

Final Thoughts

While we cannot predict how the role of a CFO will evolve in the future, we can be certain that it’s already far outgrown its original roots in accountancy.

Today’s CFOs are more strategists and leaders than accountants and their importance in deciding whether a business sinks or swims can no longer be questioned.