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Elina
12 June, 2024
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Have you ever wondered how companies or organisations manage their finances? How do they save or invest their money, secure their assets, and expand their business by increasing their monetary strength? Organisations function according to a hierarchy. If they reach a certain height, they divide their work and hire professionals with the desired expertise to handle that responsibility. From the ground-level clerical staff and interns to the highest authorities, the company adheres to a division of labour principle. This principle explains that the work should be segregated into several tasks, and each task should be performed by a separate person or a group of skilled people. Generally, this principle applies to companies or organisations that function on a larger level with a considerably large employee size.
Financial decisions play a crucial role in directing any business’s strategies regarding investments and resource allocation. A business has to meticulously decide where its resources need to be directed to generate the optimum level of return. Therefore, any decision taken by the company on monetary terms is essential. There may be Chartered Accountants, Corporate Lawyers, and Accountants who largely seek company funds and financial profile information, including profits and losses. An organisation may also require the support of a CFO or a Chief Financial Officer.
It is a long and cumbersome process for any organisation to plan its finances. This requires expertise, risk management, financial planning, financial analysis, budgeting, and financial strategies that pave the way for a company. When an organisation decides to convert itself from a Private Limited Model to a Public Listed Model, it involves a heavy amount of paperwork, and the role of SEBI also makes it tricky for them to launch their IPO. As a company goes through that conversion or even a simple expansion, it has to monitor its financial planning and work on risk management carefully. A CFO understands where budgeting should play a role for the organisations, which departments require what kind of budget, and where the finances should be utilised, which concerns sound financial planning.
A CFO or a Chief Financial Officer can be understood as the craftsperson of an organisation for its finance-related matters. A CFO is responsible for the following factors:
Crafting the appropriate Financial strategy
Looking into a well laid Financial planning
Financial management
Financial analysis
Budgeting
Risk management
If you have ever invested in the stock market or schemes such as mutual funds, you would know that they all come with a warning. They are all subjected to market and financial risk. Despite full-proof financial planning, you are at risk of losing your money. You still decide to take that plunge because you meticulously calculate the financial risk. Similarly, a Chief Financial Officer may not be completely aware of the results and simply take the plunge but knows the calculated risks that can potentially hinder the organisation’s growth.
Therefore, the CFO can only forecast and strategise to maintain financial stability while identifying the company’s growth opportunities. If you are a chess player, you would know what it is like to visualise your competitor’s next move and accordingly plan your own but also acknowledge the risk involved. A CEO is a senior executive mainly responsible for the company’s financial actions while considering its strengths and weaknesses. When the decisions do not yield results, they take action with immediate effect to control the potential damage they can cause. Historically, Indian kingdoms used to have a treasurer to look after their financial assets.
In a nutshell, a CFO can be understood as:
A Chief Financial Officer (CFO) is a top-level executive.
The CFO is a financial controller who manages cash flow, financial planning, and taxation issues.
Often the highest financial position and the third-highest executive role in a company, the CFO plays a crucial role in strategic initiatives.
Financial reports prepared by the CFO must comply with established financial standards.
Aspiring CFOs should possess a strong academic and professional finance, economics, and/or analysis background.
The Chief Executive Officer holds one of the most essential designations in a company. It can be said that a CFO belongs to the C-suite. There are other roles, too, such as the COO—Chief Operating Officer, CEO—Chief Executive Officer, and CIO—Chief Information Officer. As mentioned earlier, the roles are divided according to the expertise each professional can offer to the company.
Additionally, depending on the company and job profile, they may or may not be required. A company that has just begun may not have a well-built team of such professionals. On the contrary, companies such as Reliance, Tata, McKinsey, and many more hire professionals for such positions.
Let us understand the daily roles a Chief Financial Officer has to play for a company.
Financial Planning and Financial Analysis: Developing and overseeing the company’s financial strategy. This includes managing the company assets, busing or selling them; depending on the job profile, they may vary.
Budget Management: Indian households have followed the principle of budgeting for years. This principle works wonders for companies on such big levels, too, when they know how to budget their finances well. This not only saves their money from being spent on unnecessary decisions but also uses that share for better growth. Creating and managing budgets to ensure financial stability and growth is, therefore, a crucial responsibility.
Risk Management: Despite a well-laid blueprint and planning, a company is bound to face challenges. Unforeseen circumstances, such as the COVID-19 pandemic, dragged several businesses toward their downfall. It is, therefore, essential to identify and mitigate the financial risks promptly.
Cash Flow Management: Overseeing cash flow to maintain liquidity.
Investment Management: Making decisions on investments to maximise returns. Sometimes, these companies may turn into investors where they either invest in the small growing businesses or the already established ones. This also plays a role in promoting the aggregate growth of the organisation.
Regulatory Compliance: Finances require diligence. Any organisation that takes the conditions for granted is bound to be threatened with challenges. Ensuring adherence to financial laws and regulations is, therefore, an extremely important responsibility. The CFO has to maintain the transparency required in order to avoid any questionable actions taken against them that can tarnish the image of the organisation.
Stakeholder Communication: No company that skyrockets itself to such a high position in the market finances itself completely. It has to pick money from outsiders, including venture capitalists, angel investors, and other companies. If they are publicly listed, then through IPOs, where the public would invest in the company stocks in exchange for a promising return.
Even though a Public listed company may welcome several benefits, the privacy of a company goes for a toss as it has to maintain transparency with the entire public. Investors, on the other hand, might take that plunge on their own, but they do need answers for where their money is going and what the results are being yielded. In a nutshell, it is very difficult for such high-level companies to remain bootstrapped for such a long duration. Once investors are on board, it is important to communicate financial performance and strategy to stakeholders, including investors and the board of directors.
Regulations: The CFO must provide accurate information as many decisions rely on the data they offer. They manage the company’s financial activities and ensure adherence to generally accepted accounting principles (GAAP) set by the Securities and Exchange Commission (SEC) and other regulatory entities. CFOs must also comply with regulations like the Sarbanes-Oxley Act, which includes provisions for fraud prevention and the disclosure of financial information.
| Chief Financial Officer | Chartered Accountant | Financial Controller |
| Senior executive responsible for managing the financial actions of a company | Professional accountant who provides financial advice, audit services, and tax services | Oversees the preparation of financial reports, budget planning, and implementation |
| Manages the Strategic financial planning, risk management, financial reporting, investor relations | Manages the Auditing, tax planning, financial consulting, compliance | Manages the Financial reporting, budgeting, maintaining accounting records, internal controls |
| Required qualifications- Typically, an MBA, CPA, or related advanced degree | Required qualifications- Must pass a series of exams and meet experience requirements set by a professional body (e.g., ICAI, ACCA) | Required qualifications- Often has a CPA, CMA, or equivalent, with a strong background in accounting or finance |
| Interaction- Frequent interaction with investors, board members, and other executives | Interaction with clients, auditors, tax authorities, and sometimes internal stakeholders Interaction- |
Interaction- Interaction with internal departments, external auditors, and senior management |
To become a CFO, substantial industry experience is essential. Most individuals in this role hold advanced degrees and certifications, such as a master’s degree in finance or economics and the Chartered Financial Analyst (CFA) designation. Additionally, having a background in accounting, investment banking, or financial analysis is highly beneficial. The CFO reports to the CEO but is a crucial company leadership team member. In the financial sector, the CFO is a top-tier position, while in other industries, it typically ranks as the third-highest role within the organisation.
As a CFO, nearly every task involves a degree of leadership. CFOs must be strategic thinkers, capable of executing strategies and staying informed about changing markets and competitor actions. Additionally, a solid understanding of accounting and tax is essential for a CFO.
Leadership
Risk management
Strategic thinking
Accounting
Business acumen
Communication skills
Decision-making
| Country | Salary Structure |
| India | ₹20,50,000 per year |
| United States of America | $235K-$436K/yr |
| United Kingdom | £90,466 |
| Canada | $225,015 per year |
| Japan | JP¥10,711,500 per year. |
The CFO is the highest-ranking executive responsible for managing a company’s finances. This role encompasses overseeing all aspects of financial and cash flow planning and analysing the company’s financial position. A CFO is similar to a treasurer or controller, but unlike these roles, which focus on bookkeeping and financial statements, the CFO is primarily responsible for financial planning.
As a responsibility, the role of a CFO is perhaps quite daunting and irreplaceable. It requires education in the finance field, the right qualifications and considerable experience. The job demands a keen eye for detail related to financial decisions. No such steps are taken in haste under the influence of any outside force. Henceforth, the demand for this job also remains at an all-time high. Additionally, the contribution of a CFO is responsible for how long the company will be sustained. If it knows how to direct its money, it knows how long it will survive. The money that any organisation makes acts as fuel to the car. As long as it is being spent judiciously, it will help the company move.
Q.1 Are a CEO and a CFO the same thing?
No, a CEO and a CFO are not the same. However, CFOs work closely with other senior executives, including the CEO, collectively known as the C-Suite, representing the company’s highest decision-making level. While the CFO is usually subordinate to the CEO, they are the primary decision-makers for all financial matters within the company.
Q.2 Is the CFO also the accountant?
No, a CFO is not the same as an accountant. Accountants handle bookkeeping and tax filings, while a CFO focuses on the company’s financial future and creates forecasts.
Q.3 What are the benefits of becoming a CFO?
The CFO role has evolved from focusing on compliance and quality control to encompassing business planning and process improvements. As a strategic partner to the CEO, the CFO plays a crucial role in shaping company strategy.
Q.4 What does a CFO need to know?
They must understand risk from both a commercial and financial perspective. This involves managing risk as the business implements its strategies and initiatives while maintaining robust internal controls and financial reporting processes.
Q.5 What is the most important factor for a CFO?
A CFO’s top priorities are to drive profitable growth and meet the CEO’s financial performance expectations. With increasing pressure from boards to advance digital initiatives, CFOs must also be ready to navigate the path toward autonomous finance.
