Because of the shift toward placing a greater emphasis on leadership in CFO roles and responsibilities, the definition of a great chief financial officer has evolved over the course of the years.
A capable chief financial officer is one who is savvy enough to see beyond the statistics and act as a reliable strategic business partner to the CEO in order to maximise investments, capitalise on big data, and react quickly to changing circumstances. In order to be a good chief financial officer, one needs to have a strong eye for minute details, a better grasp of the company's finances, a mindset that is forward-looking, and a macro view of the competitive market.
The following is a list of 9 attributes that make an excellent CFO.
1. A forward-looking strategist
A strategic focus on the future is one of the most important qualifications for a chief financial officer. The maintenance of records is the responsibility of accountants, bookkeepers, and controllers. They maintain order in the financial records and ensure their accuracy while also creating performance reports. It's possible that they'll also contribute to the development of budgets based on historical data, but it's essential to keep in mind that their duties are inwardly focused.
On the other hand, a CFO is someone who is adept in strategic planning for the future. A forecast is one of the most important tools in a chief financial officer's toolkit. A forecast is a blueprint that can assist a firm in achieving its financial goals. This blueprint is developed using historical data, trends in the industry, a study of competitors, and strategic modelling. It is extremely future-oriented, with the objective of proactively and deliberately moving a firm closer to achieve its goals, as opposed to just predicting and/or documenting that progress, and it is extremely forward-looking.
2. Acts as a Strategic Partner
A superb chief financial officer will be able to function as a strategic partner beyond nearly any other characteristic they may possess. This requires being able to suggest activities that would "move the needle" in terms of a company's progress toward its goals, in addition to giving financial data and reporting on the company's status.
A great CFO has a comprehensive understanding of the business, with monitoring, insights, and strategy that extend from R&D through partnerships with vendors. They are a valuable asset to each division of the company, contributing to the optimization of performance and the implementation of strategic changes in order to achieve optimal growth and profitability.
For instance, a CFO will assist in carrying out a comprehensive product line analysis. In the case of those items that are not meeting expectations, they will be able to decide if the poor performance can be improved by making changes to the vendor agreements, price, or sales and marketing strategies, or whether the product should be eliminated entirely.
3. Real-World Operations Experience
Unlike many other financial professionals, a good chief financial officer has experience working in real-world operations. This might be in the capacity of COO or mentored CFO. This is a significant difference between novice and experienced CFOs, as it enables the latter to give essential strategic advising services that go beyond budgeting and cost reductions.
4. Significant Expertise in the Financial Sector
The position of CFO is often attained by individuals who have worked their way up through the ranks of an earlier company's controller department. On the other hand, in many instances, this promotion does not come with a change in the expertise, coaching, or mentoring of the employee. If your CFO made this change a long time ago, it's probable that they've built up this high level of financial experience over the course of their career. However, if your CFO is relatively new to the financial industry, has only recently been promoted to CFO, or if you have promoted a previous controller to CFO, you may be missing out on a much-needed experience. This is especially true if your CFO has only recently been promoted to the position of CFO.
It's not the same for every chief financial officer. If you do have a new or inexperienced CFO, having another chief financial officer who is highly competent to serve as a mentor to your new CFO can assist them to improve their skills. On the other hand, if you have to choose between an inexperienced full-time CFO and an experienced part-time CFO, it is nearly always better to go with the latter option. This is because part-time CFOs tend to have greater experience.
5. Cutting-Edge Modeling Instruments
Experts in finance make use of a wide variety of financial instruments, such as balance sheets, income statements, cash flow, profit margins, and EBITDA. Some of these tools are included below. The majority also provide information on how closely the budget was followed. However, a fantastic CFO has access to a far wider variety of modelling tools. This contains projections for the short term (three months), the medium term (rolling twelve months), and the long term (five years). In addition to that, it should have tools such as:
• An examination of the contribution margin
• Calculating the breakeven point
• Analysis of the product line
• Analysis of the revenue bridge
• Pro forma cap table & liquidation
These materials contribute to the process of advising on more complex financial solutions.
6. Relationships of the Highest Quality
A network of high-quality contacts is another strength that exceptional chief financial officers bring to the table. In the business environment, the quality of one's connections may have a significant bearing on the success of an organisation. This is the case in a variety of scenarios, including financing, investing, enhancing connections with vendors and strengthening contracts.
Over the last several months, we have also observed how these contacts have benefited a company's capacity to get COVID-19 stimulus financing more quickly and successfully than other financial and business experts who have fewer connections.
In most cases, a CFO with less experience will have a weaker or nonexistent network, whereas a CFO with more experience will have an excellent network.
7. Effective Leadership in Place
A superb CFO not only possesses solid financial capabilities but also possesses good leadership abilities. The majority of people who work in finance have the image of being reserved and quiet. However, a CFO should be able to manage their finance staff as well as offer direction to the operations team in order to fulfil their responsibilities effectively.
A good CFO should be able to offer strategic recommendations that are supported by data and should also be able to put those recommendations into action.
8. Comprehensive Insights Into the Industry
Although it is not required for a CFO to have direct industry expertise in your profession, having such experience is most definitely beneficial. When contrasting analytics, the CFO will benefit from having this frame of reference at their disposal. It also usually indicates that the CFO is more likely to have contacts in the sector, as well as knowledge of competition analyses, industry benchmarks, and other relevant information
9. Expert Financial Team
Having an experienced financial staff to back them up is one of the last but most critical attributes of a strong chief financial officer. There is a legitimate rationale for the high cost of chief financial officers. They should not be responsible for lower-level responsibilities like as processing payroll, closing the books at the end of the month, or creating financial statements. If such is the case, the corporation is losing both time and money due to their actions.
A fantastic CEO has to be supported by knowledgeable financial staff. Under the direction of the Chief Financial Officer, this group should be able to provide accurate financial reports and functions in a timely way. These reports will provide the CFO with a foundation upon which to build financial plans, conduct risk analyses, and move the organisation closer to achieving its objectives.