Friday, February 12, 2010

The unique role of the CFO

A critical team member for the success of an emerging growth company is the chief financial officer. However, in many early stage companies, the rolling contribution of the CFO is not clearly understood and this missing function is frequently a major factor in the Enterprises under performance or failure.

Most entrepreneurs understand the necessity and contribution of the controller and frequently confuse it with the CFO's role. However, the roles are very different.

The role of the controller is reporting and control. This involves the design and monitoring of systems for the recording of transactions entered into by the company. These transactions are then summarized into standardized accounting and tax reports.

The role of the chief financial officer, however, is that of the business/financial advisor to the CEO, the Board of Directors and the members of the senior management team. As such, the CFO has three principal duties:

1. Providing the analytical framework for the management of the business.

2. Assuring the efficient use of capital within the organization.

3. Managing the right-hand side of the balance sheet.

Frequently, emerging growth companies have limited resources and limited or temporary need for these services. This limited or temporary requirement may be driven by a need for additional capital, acquisition, disposition or expansion opportunity or from the strain of rapid growth.

This reality has created a market need for professional CFOs who offer their services on a part-time basis. This need is being satisfied by retired financial executives as well as full-time practitioners. Such professionals can offer the skill level of sophistication needed by the enterprise.

We will discuss each of the key CFO responsibilities in subsequent posts.

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