CFO: What are the different profiles and skills?

The position of CFO is an enviable professional perspective for many executives in accounting, management and financial functions. Financial management is a key cross-cutting function that contributes to the company’s economic performance and secures its financing. You obviously don’t start your career as a CFO, you become one on a career path. The purpose of this post is to clarify the background and skills of the CFO.

What titles for the CFO?

Several names exist to designate the head of the finance function (in the broadest sense, encompassing accounting and management control).  He is appointed CFO, Chief Financial Officer in larger companies and even deputy general manager in charge of finance for a large group. On the other hand, in smaller companies the function is carried out by an administrative and financial manager. The person in charge of finance is also sometimes referred to as a financial controller.

Sometimes the CFO is overwhelmed by the non-financial aspects of its function (the C then prevails over the F!) because it is deferred all activities not directly generating revenue (DSI, general services, purchases, legal service, etc.). He then created the position of financial controller, reporting directly to take charge of purely financial matters. The title of financial controller is also awarded to the person in charge of the finances of a group’s subsidiary. As funding is often managed at the group level, its function then focuses on budget management, the animation of dashboards, the reporting of its unit.

CFO, what profile?

The CFO compares himself to a conductor. The latter knows how to play one or more musical instruments but not all of the orchestra. The CFO also leads a team of many expertises that he does not have complete command of (he masters some of them) but which he must have a sufficient understanding of. Sometimes, he must know how to convince an expert to apply a choice in accordance with the interest of the company even if that choice does not always correspond to the rule of art as part of his expertise.

You become a CFO at the end of a career course during which you have developed different expertises. In SMEs, when the position is created, the financial management is sometimes entrusted to the Chief Accountant.

In ETIs, the CFO is more frequently spent by an audit firm or through the management control function. Large audit firms provide very comprehensive training and performance management is often at the heart of financial management. More rarely, the CFO comes from the treasury function because this function is very specialized and focused on the banking relationship or the financial markets. Some of the CFOs of industrial or commercial companies are from the bank.

The company hires a former banker for his expertise in investment financing or merger and acquisition. He then moved into the company as a full-fledged CFO. Finally, some companies entrust financial management to an operational framework, such as a production manager to whom they provide appropriate training.  

The financial and human resources department often collaborates with each other because they have in common the need to be cross-cutting functions throughout the company.

What skills?

The CFO is most often selected for his technical expertise. However, it must develop a know-how in terms of management, communication and leadership. In addition to the classic qualities of hierarchical management and leadership, two skills are frequently needed:

  • Cross-cutting management is about animate a community of people who are not hierarchically dependent on themselves. This is often reflected in finance. Examples: A CFO leads a community of subsidiary management controllers hierarchically attached to the boss of their subsidiary. A credit manager group animates a community of decentralized credit managers, etc., ….
  • The accompaniment of change. There is no shortage of transformation projects in the finance sector. Thus, for the digitization or dematerialization of document flows, the CFO will often rely on an external provider for project management but it is personally his responsibility to have his teams adhere to change, which is by nature a managerial act.

Implementing financial management

It implements the financial policy desired by shareholders and also suggests one when the shareholders are not financial. Financial management, of course, is about financing choices, but not just. It also covers all operational actions that affect both the capital committed and the result. The CFO’s mission is to ensure the medium and long-term sustainability of the company and its financial performance.

CFO’s contribution to improving economic performance

Improving financial performance depends on economic or operational performance. All actions that sustainably improve the return on capital employed ratio (ROCE) contribute to an entity’s economic performance. They are grouped into the name “cash culture.”

The CFO first contributes to improving economic performance by implementing or suggesting specific procedures or tools. Examples:

  • setting credit limits to limit outstanding receivables on at-risk clients;
  • procedure to regulate the negotiation of derogatory customer payment deadlines;
  • requesting customer instalments
  • setting up an amicable collection procedure and active handling of commercial disputes delaying customer receipts;
  • setting targets for inventory and supply management;
  • procedure to control the allocation of premiums paid to salespeople, reimbursement of travel expenses;
  • Centralisation of purchases;
  • implementation of an investment selection procedure based in particular on the cost-effectiveness study. In this context, the CFO is expected to behave not only as a censor (no, the project is not profitable enough!) but as a solution provider: by investing more gradually or by outsourcing such a task that is particularly consuming committed capital, the project is brought to the required standard of profitability).

The CFO also contributes to improving economic performance by making suggestions at executive committee meetings of which he is a full member. To do this, he needs to know the business well, be recognized by the operational staff, and come out of his office frequently to see the reality of the field. Even if shareholders impose high financial objectives, it should not give the impression of being above the other coding members.

Cash culture

The majority of these operational actions go beyond the scope of his position, the CFO may face the refusal of the various operational managers over whom he has no hierarchical leverage. As part of the cash culture approach, it begins by raising awareness among the Directorate General of the importance of taking action to require operational managers to develop proposals for an action plan that will help improve economic performance. These action plans are most often known to all, which is most often lacking in the desire to change habits. To increase the chance of success of these action plans, it is obviously better to have them expressed beforehand by the operational managers rather than imposing them. The CFO then accompanies the operations by helping them to quantify the cost, benefits and profitability of the proposed shares.

Implementation of financing: anticipating and diversifying

The second part of financial management is the implementation of financing, based on two key terms: anticipation and diversification.

The CFO first anticipates the different financing needs by constantly updating the forecasts:

  • The medium- to long-term financing plan (5 to 7 years most often) is the central tool for identifying needs and defining appropriate funding methods;
  • Short-term cash forecasts. The annual cash budget (one-year horizon) is used to assess the need for cash and to negotiate short-term lines of credit with banks. The slippery cash forecast (one to six months) provides liquidity throughout the year. The CFO must be comfortable explaining the source of the information, whether it is certain, moderately safe or unclear, the reprocessing done and the actions in progress to redress the cash flow in the event of a drift.

Forecasting is an art that the CFO must master personally, he cannot simply delegate it. In the past, the CFO was partly evaluated on his ability to certify accounts (the past), he is increasingly judged on the reliability of his forecasts (the future) because they are the support of the majority of financial decisions. Knowing how to convincingly present your forecasts to bankers, shareholders, etc., is a key skill that ensures the credibility of the CFO. 

Then, the CFO ensures the sustainability of the company by diversifying its sources of financing, if one source dries up, he will still have access to other: conventional bank loans, asset financing (lease, leasing, factoring, specific stock financing), disintermediated loans (euro private placement), access to financial markets for the largest companies.

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