What does a CFO do? Role, responsibilities and how it differs from a controller

What does a CFO do? In short, the CFO is the senior executive who manages where a company’s money comes from, where it goes and where that flow is taking the business. Accounting and reporting are the foundation of the role, but they are not the whole of it. Financing, cash, risk, internal control, investment decisions and testing strategy against the numbers are also the CFO’s responsibility. In this article I set out the CFO’s role area by area, explain how it differs from the controller and the finance manager, and discuss the stage at which a company needs one.

The short answer: three core functions

The CFO’s work can be grouped under three headings:

• Stewardship: protecting the company’s assets, making sure financial information is accurate and timely, meeting legal obligations and running the control system.
• Business partnering: bringing a financial perspective to management decisions, and making the consequences of pricing, investment, hiring, growth and financing options measurable.
• Resource management: managing cash, the debt and equity structure and funding relationships so that the resources the strategy needs are available on time.

The International Federation of Accountants (IFAC) emphasises the same balance in its discussion paper on the CFO role: one of the five principles it sets out is that the CFO should balance stewardship responsibilities with business partnership. The paper also describes the CFO as an effective member of senior management, the organisation’s “integrator and navigator” and the leader of the finance function. These descriptions make it clear that the CFO is not simply the person who reports the numbers.

The CFO’s areas of responsibility

The scope varies with size and sector, but the areas a CFO is usually accountable for are:

The CFO does not have to run every item personally. In large companies each area has its own head and the CFO coordinates them. In small and mid-sized companies the CFO runs some areas directly and delegates others to the accounting team and outside advisers. What matters is that every area has an owner and the CFO can see the whole picture.

CFO, controller and finance manager: the difference

Titles are used inconsistently from one company to the next. A “finance manager” may be the head of accounting in one company and the de facto CFO in another, so it is better to look at responsibilities than at titles. The distinction below follows role definitions common in international practice.

The CFO’s job cannot be done without the controller’s: without reliable data there are no reliable decisions. In a healthy finance function the controller (or head of accounting) reports to the CFO and owns the recording and reporting chain. The CFO connects the information that chain produces to management decisions and to the company’s funding structure.

The practical consequence is this: if all a company needs is clean books and filings on time, it needs a good accounting team and a qualified accountant, not a CFO. If it needs to manage its financing structure, plan growth, negotiate with lenders and test management decisions financially, that is CFO work.

What does a CFO’s week look like?

How a CFO spends their time is a good way to understand what the role covers. In a typical week at a mid-sized company the following tend to stand out:

• Cash and liquidity: updating the weekly cash forecast, reviewing collections and payments for the coming weeks, deciding on facility drawdowns if needed.
• Management meetings: contributing to sales, operations and purchasing decisions from a financial angle; assessing pricing, discount and payment term requests.
• Reporting: interpreting the monthly management report and discussing the causes of variances with the managers concerned.
• External relationships: bank meetings, coordination with auditors and tax advisers, briefing investors or shareholders where relevant.
• Projects: periodic but intensive work such as an investment case, a systems change, a restructuring or an acquisition analysis.
• The team: setting finance team priorities, improving processes, developing capabilities.

What stands out in this picture is that much of the CFO’s time is spent outside the finance department, with other executives. A CFO who spends almost all their time recording and preparing reports is in effect doing a controller’s job, and the company’s need for a CFO is not being met. I discussed this distinction in is the CFO’s job to prepare reports or build the decision system.

The CFO’s role in decisions

The CFO creates the most value before important decisions are taken. Reporting the results of a decision afterwards is necessary but of limited value. Making the options financially visible beforehand directly improves the quality of the decision. That contribution usually takes these forms:

1. Making options measurable: “Should we open a new branch?” can only be debated once the investment, the time to break even, the cash requirement and the possible scenarios are on the table.
2. Making assumptions visible: every plan rests on assumptions. The CFO’s job is to write them down and show which ones drive the result most.
3. Showing the funding consequence: a decision that looks profitable can create a cash squeeze because of the working capital it absorbs. The CFO shows the effect on cash and debt as well as on the income statement.
4. Tracking execution: following how results come in against the plan once the decision is taken, and raising an early warning when they diverge.

A hypothetical example: one decision, two views

The example below is entirely hypothetical and is intended to show how a CFO’s view changes a decision.

A distribution company receives an offer from a large retail chain for new business worth TRY 60 million a year. The sales team assesses it like this: a gross margin of 18%, so TRY 10.8 million of gross profit a year. At first sight, attractive.

The CFO adds these questions:

• The customer wants 120-day terms; the company’s current average collection period is 60 days. Annual sales of TRY 60 million on 120-day terms mean roughly 60 × 120 / 365 ≈ TRY 19.7 million of additional receivables.
• Suppliers allow 45 days. With cost of goods sold of TRY 49.2 million (60 × 82%), trade payables rise by roughly 49.2 × 45 / 365 ≈ TRY 6.1 million.
• If 30 days of stock are held on average, additional inventory is roughly 49.2 × 30 / 365 ≈ TRY 4.0 million.
• Net additional working capital: 19.7 + 4.0 − 6.1 ≈ TRY 17.6 million.

If that requirement is funded with short-term borrowing at an assumed 45% a year, the annual financing cost is about 17.6 × 0.45 ≈ TRY 7.9 million. Once extra logistics and operating costs are deducted, the contribution of the deal is far lower than the sales team calculated. The answer need not be “reject the offer”, but it is clear that the terms, the price or the funding structure need to be renegotiated. The CFO’s contribution here is to make the whole decision visible. (The interest rate is chosen only to illustrate the calculation; a real analysis should use the company’s current cost of funding.)

I explained in more detail why profitable growth can cause a cash squeeze in why profitable companies run out of cash.

How the CFO role varies by sector

The core responsibilities are similar everywhere, but the centre of gravity shifts with the economics of the sector. The breakdown below is a generalisation; every company has its own risk and value drivers.

• Manufacturers: cost accounting, inventory, capacity utilisation and capital expenditure come to the fore. Accurate product costing underpins pricing and product mix decisions, and machinery investment calls for long-term funding.
• Trading and distribution: working capital is at the heart of the role. For a low-margin distributor, a few days’ change in collection and payment terms can equal a large share of annual profit.
• Project-based businesses (construction, engineering, software projects): project profitability tracking, billing and collection milestones, performance guarantees and project-level cash planning dominate.
• Services and subscription models: people cost efficiency, customer acquisition cost, churn and the predictability of recurring revenue are the key indicators.
• Import- or export-heavy companies: measuring and managing currency risk, the link between pricing and the FX position, and trade finance sit near the top of the CFO’s agenda.

This matters when choosing a CFO. Experience gained in one sector may not transfer directly to another. When selecting, it is more useful to look at how the candidate has solved problems similar to the company’s current priorities than at sector knowledge alone.

Independence and ethical responsibility

The CFO reports to the CEO, but by the nature of the role is also accountable for the accuracy of financial information to the board, auditors, lenders and the tax authority. These two responsibilities can sometimes pull in different directions: management may want to appear to have hit its targets, while the CFO must make sure the numbers reflect reality.

The healthiest way to manage that tension is to put the rules in writing from the start: accounting policies, how estimates are made, who may approve which transactions and how significant matters are escalated to the board. IFAC’s discussion paper likewise stresses that professional qualities such as integrity, objectivity and due care are an inseparable part of the role. A trustworthy CFO’s most important asset is that everyone can rely on the numbers they sign off.

When does a company need a CFO?

The need for a CFO is driven less by revenue than by how frequent and complex the company’s financial decisions are. If several of the following are true at the same time, the finance function clearly needs to move beyond accounting:

• The company is growing but cash is constantly tight, and it is unclear how growth will be funded.
• There is no management report, or it arrives late, and decisions are taken on instinct.
• Bank borrowing is a significant source of funding and lender relationships are managed ad hoc.
• Exchange or interest rate movements materially affect profit but are not managed systematically.
• A significant investment, acquisition, change of ownership or restructuring is on the agenda.
• The company has become subject to statutory audit or is looking for investors.

I listed these signs in more detail in signs your company needs a CFO.

Full-time CFO, fractional CFO or a finance manager?

When the need arises there are three options: hire a full-time CFO, work with a fractional CFO for a defined share of time, or develop the current head of accounting and grow the role gradually.

I described the fractional model in what is a fractional CFO. Which option is right depends on the kind of problem the company needs to solve today.

How do you measure a CFO’s success?

No single indicator captures it, but a few questions are revealing:

• Can management see last month’s results reliably in the first week of the month?
• Is the cash position for the next 13 weeks known, and are there fewer surprises?
• Are the financial effects of significant decisions measured before they are taken?
• Do banks and investors trust the company’s financial information, and have funding terms improved?
• Are audit findings and control weaknesses falling?
• Does the finance team have a system that can run without the CFO?

What these questions have in common is that each asks whether a system exists. The most lasting mark a good CFO leaves is a documented, reliable finance function that works independently of them.

Frequently asked questions

Is “finance director” the same as CFO?

In many companies the titles describe the same position. What matters is the scope of responsibility: a finance director who is not involved in financing, strategy and risk decisions is in practice running accounting.

Does a CFO need to be a qualified accountant?

There is no legal requirement. But accounting, tax and reporting knowledge is the foundation of the role, and a professional qualification supports credibility on audit, tax and reporting matters. The CFO also needs financing, planning and leadership skills.

Can an external accountant replace a CFO in a small company?

External accounting services are needed for compliance and bookkeeping. The CFO role requires being inside management, before decisions are made. The two roles complement each other; one does not replace the other.

Conclusion

Beyond preparing the numbers, the CFO manages the company’s financial resources and risks, makes options measurable before decisions are taken and protects the reliability of financial information. The difference between a controller and a CFO is the difference between recording the past accurately and managing the future financially. I describe how I take on this role on the financial management page, and I cover how to build the finance function in how to structure the finance team.