I am a bass player in a band. Anyone who has played in a band will understand when I write that the bass player is the least popular member of any band, with very few exceptions.
There is a scene in the movie Almost Famous in which the band stops at a convenience store and, as the lead singer leaves the store, the tour bus is pulling away; they have forgotten him and left him behind. In real life, it would have been the bass player who was left behind, not the lead singer.
Often the Chief Financial Officer role is misunderstood by the CEO and other team members. This is especially true for inexperienced CEOs and with startups and early stage companies.
These CEOs typically view the CFO role as a glorified (or not so glorified) accounting role to be filled by a CPA or even a bookkeeper. While the accounting function is certainly critical to the operations of any company, the CFO performs a vital role within the executive management team structure — that is far more important than simply keeping the books up to date.
While in the startup and early stage company phases of development there is often limited financial resources, so that the company may only have money to pay a single individual in the CFO/accounting role, the true value of a competent CFO lies in his or her ability to provide strategic guidance with regard to all executive management decisions.
Having a professional, expert financial perspective, with active knowledge of the current and forecasted future performance of the firm, is absolutely essential to the efficient and successful operation of the business. All too often CEOs and other team members are flying blind with regard to the financial implications of their decisions, and/or the implications of the various options they are considering.
What most CEOs view as the role of the CFO, in a larger organization, is typically the role of controller. The key difference between a CFO and a controller is that the controller is focused on overseeing the day-to-day accounting functions and creating the financial statements, while the CFO’s focus is on using the accounting information that the controller and other accounting team members generate to make strategic decisions within the executive management team structure.
Again, with startups and early stage businesses, these two roles are often merged, but the important point I am making is that the CFO-specific part of this combined role is often ignored, and it is the more important of the two functions.
This is the reason I described the status of the typical bass player as the least popular, often overlooked member of the band. The bass player is usually the last guy the girls are interested in — the lead singer is usually the most popular, then the drummer, maybe the lead guitar player, but never the bass player (unless you are John Taylor; I know I am dating myself here).
Anytime and major decisions is made by the executive management team, whether it is a strategic hire, negotiating a contract with a supplier or customer, expanding to a larger facility, investing in new equipment, entering a new market or any other major decision, the input of a qualified CFO is critical to making the best possible decision.
Providing this kind of knowledge-specific financial input is not in the wheelhouse of the typical controller.
More specifically, the forecasting expertise necessary to making these decisions is not something the average CPA or accountant is trained to do. Accountants and CPAs work with historical data, not with creating detailed forecasted based on the large number of assumptions necessary to creating a meaningful forecast that the executive management team can use to make strategic decisions.
The reality is that, because there is a misperception that CFOs are glorified accountants, the corporate world is filled with CFOs who started out as accountants or CPAs. My brother is one such CFO who was a CPA and investment banker for PricewaterhouseCoopers. This is the norm.
The typical path for the average CFO is to start out as an accountant or CPA, get hired in a CFO role for a small company, learn the ropes, and eventually grow into the role over time, with experience. While this is again the typical path, it certainly does not mean that every accountant and CPA has what it takes to become an effective CFO.
CEOs would benefit greatly from understanding the key differences between the CFO role and the controller role, and, based on those differences, identify qualified candidates for the CFO role.
Most important, understanding the value of a skilled CFO and engaging one very early in the development of the firm, can make a huge difference in the chances of the company’s success. More than 80 percent of all startups will fail within the first two years of operations.
Anything the CEO and other management team members and board members can do to lessen the odds of failure should be a top priority, and that includes engaging a qualified CFO as early as possible in the development of the company.
— Craig Allen, CFA, CFP, CIMA, is president of Allen Wealth Management, and has been managing assets for foundations, corporations and high-net worth individuals for more than 25 years. He can be contacted at craig@craigdallen.com or 805.898.1400. Click here to read previous columns or follow him on Twitter: @MPAMCraig. The opinions expressed are his own.