What is a chief financial officer (CFO)?

The road to becoming a CFO can be a long one, taking an average of ten to 15 years to reach the position. CFOs typically have a background in accounting or finance and an advanced business degree, generally an MBA. In addition to knowledge of GAAP, budgeting, FP&A, and cash-flow management, today's CFO needs to have solid leadership and management skills, as well as industry knowledge and understanding of the organization’s overall business strategy, and be willing to take the lead on finance transformation.

Individuals in this role must forecast and offer strategic direction to the organization based not only on internal data, but also on the external environment—regulatory, market, and macroeconomic—and be able to advise on industry—specific challenges and opportunities.

Focus on your education within finance

As proof of knowledge in the field, obtaining both a bachelor's degree and a master's degree is essential for demonstrating dedication and ability to complete long-term projects. Consider working toward a degree in business administration or finance to learn as much as possible.

Although a strong finance background is very helpful, having an MBA is increasing in importance. An MBA not only solidifies financial acumen, it also provides a strong knowledgebase for strategy and operations. An MBA can help aspirants jump-start their journey to CFO.

Establish a career in finance

While education is important, hands-on experience in the industry is equally so. Since CFOs are focused on the fiscal aspects of business, they may begin by pursuing internships or jobs related to finance, including:

• Banking
• Accounting, tax, and audit
• Consulting
• Underwriting
• Financial planning

Develop HR management skills

Even with extensive knowledge and experience in the field of finance, a CFO requires proper management skills. Developing soft skills, such as communication, leadership, and problem-solving, while gaining industry experience will set aspiring CFOs apart from the competition.

Learn about agile finance certification from Oracle and AICPA

In many large enterprises, there are several key personnel who directly report to the CFO.

Chief accounting officer (CAO): As the role of CFO has become more demanding and ever-expanding, CAOs often oversee the day-to-day tactical tasks that CFOs once dominated. Chief accounting officers are often tasked with SEC reporting, local and international regulatory compliance, corporate governance, risk management, and environmental, social, and governance (ESG) reporting.

The evolution of the CAO—and what that means for the CFO

Controller: Controllers run day-to-day accounting and finance operations and often hold a certified public accountant (CPA) license or MBA. They are responsible for creating reports that provide insights into a company's financial standing, including accounts receivable, accounts payable, inventory, and payroll. The financial controller often reports directly to the CAO and usually leads a team of accountants, bookkeepers, accounts receivable/payable clerks, and payroll specialists.

Treasurer: The treasurer is responsible for the company's liquidity, debt, and assets—ultimately ensuring that the business remains solvent. That includes any investments the company may have, whether physical assets, such as buildings and equipment, or financial investments.

Director of FP&A: In many large enterprises, the director of financial planning and analysis reports directly to the CFO. Perhaps the most important duty of FP&A teams is to use both current and historical financial data to produce financial forecasts that accurately predict future revenues, expenses, profits, and cash flows. FP&A teams produce reports, both internal and external, to advise the CFO on market expansion, new business models, M&A, divestitures, and capital budgeting, and other areas.

Chief accounting officer vs. controller

The CFO’s role has evolved tremendously over the last several decades, expanding beyond reporting and compliance to include business strategy and digital transformation. The main responsibilities in the past were to reduce costs, optimize finance processes, and “keep score” by gathering data, running reports, and summarizing data. But CFOs now focus on supporting business model transformation—not just optimizing finance processes—but automating them. Today’s CFOs have broad, strategic responsibilities. They report directly to the CEO and have a fiduciary responsibility to the Board of Directors and shareholders. CFOs are expected to be not only stewards of the finance department, but also strategic catalysts of company growth.

This is not to say CFOs have relinquished their responsibility for cash-flow management, regulatory compliance, or financial reporting. The CFO is still ultimately held accountable for the financial health of the business—first and foremost.

The key duties of the CFO also vary depending on an organization’s size, industry, and whether or not it’s publicly traded. CFOs generally support and influence three critical functions: controllership, operations, and strategy and forecasting.

Controllership

Though the role of the CFO has greatly expanded, financial stewardship is still a central responsibility of the position. Many large enterprises employ chief accounting officers, but it is still the CFO who is ultimately responsible for regulatory compliance, closing the books in a timely and accurate manner, controlling costs, and managing cash flow across the organization. Partially assuming the role of the financial controller, the CFO is responsible for ensuring that the day-to-day accounting and financial operations are running smoothly. CFOs will also review and approve reports that provide greater insight into the company's financial standing.

When it comes to financial stewardship, part of the CFO’s job is installing a proper risk management framework to protect against fraud and unauthorized user access. Risk management software helps organizations meet compliance and regulatory mandates, such as the Sarbanes-Oxley Act (SOX) and General Data Protection Regulation regulation (GDPR). Closing the books in an accurate, timely manner is also vital for financial stewardship. CFOs are constantly looking for ways to close the books faster using automated account reconciliation software. Not only does this facilitate faster SEC reporting, but it also gives the CFO more time each quarter for budgeting, scenario planning, and M&A strategizing.

Operations

Liquidity and treasury management are also a central part of the CFO’s role. The treasury aspect of the CFO's position includes responsibility for the company's debts, assets, and liquidity. In terms of assets, this includes both physical assets, such as buildings or equipment, but also financial investments. And as for a company's debt, the CFO works to reduce it while ensuring no more is accrued.

Liquidity refers to an organization's ability to pay off its short-term liabilities—those that will come due in less than a year—with readily accessible, or liquid, funds, namely cash and marketable securities. Liquidity is usually expressed as a ratio or a percentage of current assets to current liabilities. CFOs measure liquidity using several financial ratios, including current ratio and quick ratio.

CFOs must manage both incoming revenues and accounts receivables while keeping an eye on outgoing payments and short- and long-term liability. Real-time analytics and accurate cash-flow forecasting is crucial, not only for long-term planning, but also for ensuring a business can pay its bills as they become due—on time, every time.

Strategy and forecasting

CFOs are in a unique position to partner with the CEO to influence the future direction of the company. Internally, the CFO advises departments in a variety of areas, including product development, new business models, digital transformation, and human capital management. Externally, the CFO analyzes market trends and expansions and influences decisions, such as global expansion, M&A targets, and capital structure.

CFOs rely on FP&A to put complex data—historical, current, and predicted financial results—in perspective in order to answer important questions and help the CEO make sound financial decisions, such as:

• Which products and product lines are driving profitability, and which ones aren’t?
• If revenue declines by 10%, will the company still be profitable?
• How much should we invest in property, plant, and equipment (PP&E), and when?
• Should we raise debt or equity financing, and when?
• What impact will an acquisition or divestiture have on the bottom line?

When creating these forecasts, the CFO considers a variety of factors in their calculations, including:

• Sales trends
• The price of raw materials
• Shifts in market demand
• Macroeconomic data
• Emerging competitors
• Advances in technology
• Risks to the enterprise: market, geo-political, cyber threats, and regulatory changes
• Environmental, social, and governance criteria

CFOs often purchase specialized planning software to develop forecasts and conduct what-if analysis for a variety of contingencies: new products, new business models, acquisitions, divestitures, international expansion, supply chain chaos, economic downturns, and a host of others.

CFOs and their teams rely on technology to analyze the massive amounts of data available to them. Fundamentally, there are two different kinds of applications that CFOs need in order to properly run the finance department: financial management software and FP&A software.

A modern, cloud-based financial management system is a fully integrated suite of applications for core accounting and finance, expense management, risk management and compliance, direct and indirect procurement, and project portfolio management (PPM)project portfolio management (PPM). These cloud-based applications have embedded machine learning, digital assistants, and built-in reporting and analytics. A financial management systems automates manual or labor-intensive tasks, freeing up the CFO’s time to focus on strategy and the critical advisory role. Automatic quarterly updates ensure that these applications never become obsolete.

While often tied to financial management systems, a complete FP&A suite provides management insights in addition to planning, budgeting, scenario modeling, and forecasting. In other words, financial management systems handle the day-to-day transactional activity and FP&A systems help manage the financial and strategic plans for the business—analyzing, understanding, and reporting on the business performance.

With the right technology in place, CFOs can:

• Gain a single source of truth for financial data
• Use embedded analytics to gauge overall financial health, such as cash-coverage ratio, current ratio, quick ratio, and debt-to-equity ratio
• Create and maintain dynamic financial models and forecasts, allowing for what-if scenario planning
• Accelerate the financial close by automating mundane tasks
• Determine which product lines and products are the most profitable
• Ensure local and international regulatory-compliance by preventing unauthorized user access and enforcing separation of duties (SoD)
• Compare historical results against budgets and forecasts and perform variance analysis

Cloud-based FP&A and financial management help CFOs close the technology gap, while real-time data and analytics help CFOs and their teams deliver the right information at the right time for strategic decision-making.

People—winning the war for talent

According to the survey “Money and Machines,” Gen Z and millennial finance professionals expect employers to leverage the same technologies that they’re accustomed to using in their personal lives. This should come as no surprise to employers; after all, Gen Z has grown up in the golden age of technology.

These young professionals are looking to spend less time on traditional accounting tasks and more time on strategy and financial planning and analysis (FP&A). That’s why modern accounting and FP&A software has built-in AI and machine learning to automate many of these mundane tasks.

Cloud-based applications also make it possible for employees to work from anywhere on any device with an internet connection. CFOs need to be sure that the software vendor they select allows their employees to work securely from anywhere, anytime, on any device.

Data—better decision-making using all data

As the role of finance expands and the volume and complexity of data continues to grow at record pace, the most successful CFOs are those who can harness data to support decision-making. But it’s not just about financial data. Finance needs to leverage all data: financial, operational, and external.

Imagine if you could spot trends in customer sentiment and buying behavior across your product portfolio in different geographies and use that data to more accurately forecast demand and financial performance. Modern financial systems use AI, machine learning, and predictive analytics to automate analysis. This delivers insights to help CFOs make decisions and take action faster.

Reporting—confidence from real-time business insight

Cloud-based financial management systems have prebuilt analytics that leverage machine learning and other next-generation technologies, helping CFOs uncover underlying drivers of profitability, improve the use of working capital, and control business costs. With built-in analytics for spend and procurement, companies become more efficient at managing resources. The customizable, ready-to-use metrics, dashboards, and reports give business leaders real-time insight into their organization’s financial health. Having these insights available in real time gives CFOs the ability to react quickly to market shifts, pursue new business models, or engage in mergers and acquisitions.

Growth—a cloud platform that scales with the business

Because modern financial management software runs in the cloud, organizations never have to worry about upgrades, customizations, or server maintenance. The infrastructure underlying those applications scales up and down according to the needs of the business. CFOs who embrace this technology can scale their business with confidence, knowing they have a platform that can easily handle future growth.

With their profile now higher in the organization, there will certainly be even more pressure on CFOs to lead their organizations to sustainable, profitable growth. But with the right technology in place, CFOs can become effective agents of change.