Demystifying the CFO role

There’s a very clear trend among my business coaching clients. As they expand from small, owner-operated ventures of under $1M to mid-sized companies of $5M to $50M, the need for a good team becomes evident.

Quite simply, the owner cannot wear all the hats, or their head would begin to look like a Dr. Suess book cover, with hats upon hats reaching high into the clouds.

The further the entrepreneur’s company moves up the Mid-Market scale, the more C-Suite (Chief officers) they begin to hire. One of the most common questions I get asked as a CEO Coach is, “Okay, now what? I hired people smarter than me in the Chief Financial Officer role, but how do I know what they should really be doing every day or what reports they should be providing me?”

This is common: You Are NOT Alone! You don’t know what you don’t know, right? There’s no shame in it. It’s all a part of the entrepreneurial journey learning curve.

So, let’s demystify some of these C-Suite titles, including the ever-evolving role of the CEO themselves. Because as you grow, your role advances as well. A small-business CEO does not have the same day-to-day functions as a larger company CEO who has already surrounded themselves with a C-Suite of executives, such as a CFO – Chief Financial Officer, a COO – Chief Operations Officer, or a CMO – Chief Marketing Officer. 

This is Part 1 of a three-part article series from Scaling Up with Coach Stacy Eads. This month, we’ll cover the CFO in depth. Next month, we’ll cover the CEO key focus for 2024. And in March, we’ll unveil how the CEO relies upon the COO and CMO.

McKinsey has a great article series detailing key functions for many leadership roles, and how they support the overall goals and growth of the organization. Browse through my CFO synopsis list to see if it aligns with your 2024 Chief Financial Officer expectations for your company.

Role of CFO:

Today’s CFO’s play a crucial role as financial leaders. They shape portfolio strategies, make major investment decisions, and maximize value creation for your firm. The Chief Financial Officer acts as a strategic partner to the CEO/Entrepreneur/Owner.

• CFOs communicate with key stakeholders to build credibility for the company’s strategic direction.
• They lead finance teams who are up to speed on the latest technology.
• They should be able to pull together the right A/R (accounts receivable) and A/P (accounts payable) talent to round out their team.

CFOs need to adopt a bias for action, make bold bets, teach, and translate financial matters to the leadership team so they are well understood. They should focus on translating the impact of financial reports to ensure clear communication without jargon!

As CFOs step into their roles, they should adopt seven key mindsets and practices for long-term success.

• They need to scope the company challenges by forming a fact-based view of resources and support costs.
• They need to align stakeholders (CEO, COO, Board of Directors/Advisors) toward the financial health of the company.
• They must avoid biases. Stick to the facts and “manage by metrics,” not manage by gut instinct.
• Adopt a bias for action. See something; say something. 
• They should be constantly seeking ways to create more value for the future.
• Commit to innovation by adopting a “grow or go” mentality.
• Make space for bold bets to ensure that every aspect of the business is subject to evaluation and a willingness to take risks.

Resource Link to Dive Deeper into the CFO Role: https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-are-the-roles-and-responsibilities-of-a-cfo

In addition to the McKinsey role clarity, as an experienced business coach of Mid-Market companies, I would also like to add that the CEO (Chief Executive Officer), CFO (Chief Financial Officer), and COO (Chief Operating Officer) should work in partnership with one another to develop systems, process, and checks and balances to avoid fraud throughout the company.

Ideas for checklists and systems that can reduce fraud within your firm, include:

• Use a system of checks and balances to ensure no one person has control over all parts of a financial transaction.
  • Require purchases, payroll, and disbursements to be authorized by a designated person.
  • Separate handling (receipt and deposit) functions from record-keeping functions (recording transactions and reconciling accounts).
  • Separate purchasing functions from payables functions.
  • Ensure that the same person isn’t authorized to write and sign a check.
  • When opening mail, endorse or stamp checks “For Deposit Only” and list checks on a log before turning them over to the person responsible for depositing receipts. Periodically reconcile the incoming check log against deposits. 
  • Require supervisors to approve employees’ time sheets before payroll is prepared. 
  • Require paychecks to be distributed by a person other than the one authorizing or recording payroll transactions or preparing payroll checks.
  • Require accounting department employees to take vacations!!! This one is a biggie. Most fraud is found when someone in the accounting or finance department takes a week-long vacation and someone else steps into their duties. While overseeing their day-to-day, they uncover red flags.
• Reconcile agency bank accounts every month.
  • Require the reconciliation to be completed by an independent person who doesn’t have bookkeeping responsibilities or check signing responsibilities or require supervisory review of the reconciliation.
  • Examine canceled checks to make sure vendors are recognized, expenditures are related to agency business, signatures are by authorized signers, and endorsements are appropriate.
  • Examine bank statements and canceled checks to make sure checks are not issued out of sequence. 
  • Initial and date the bank statements or reconciliation report to document that a review and reconciliation was performed and file the bank statements and reconciliations.
• Restrict the use of agency credit cards and verify all charges made to credit cards or accounts to ensure they were business-related.
  • Limit the number of agency credit cards and users.
  • Establish a policy that credit cards are for business use only; prohibit the use of cards for personal purposes with subsequent reimbursement.
  • Set account limits with credit card companies or vendors.
  • Inform employees of appropriate use of the cards and purchases that are not allowed.
  • Require employees to submit itemized, original receipts for all purchases. 
  • Examine credit card statements and corresponding receipts each month independently to determine whether charges are appropriate and related to agency business.
• Provide Board of Directors or CEO/Owner oversight of agency operations and management.
  • Monitor the agency’s financial activity on a regular basis, comparing actual to budgeted revenues and expenses.
  • Require an explanation of any significant variations from budgeted amounts. 
  • Periodically review the check register or general ledger to determine whether payroll taxes are paid promptly.
  • Document approval of financial procedures and policies and major expenditures in the board meeting minutes.
  • Non-profits and Government entities regularly require independent auditors to present and explain the annual financial statements to the Board of Directors or Executive Director; however, businesses often opt for less-rigid independent audit reports to the CEO/Owner/Entrepreneur. I pose this question: why?
• Prepare all fiscal policies and procedures in writing and obtain Board of Directors/CEO/Owner/Entrepreneur approval, including:
  • Cash disbursements
  • Attendance and leave
  • Expense and travel reimbursements
  • Use of agency/company assets
  • Purchasing guidelines
  • Petty cash
  • Conflicts of interest
• Ensure company assets such as vehicles, cell phones, equipment, and other agency resources are used only for official business.
  • Examine expense reports, credit card charges, and telephone bills periodically to determine whether charges are appropriate and related to agency business.
  • Maintain vehicle logs, listing the dates, times, mileage or odometer readings, purpose of the trip, and name of the employee using the vehicle.
  • Periodically review the logs to determine whether usage is appropriate and related to agency business.
  • Maintain an equipment list and periodically complete an equipment inventory.
  • If your company has WIP (Work in Progress) or Inventory, ensure you’re performing regular cycle counts along with physical inventory confirmation at scheduled intervals.
• Protect petty cash funds.
  • Limit access to petty cash funds. Keep funds in a locked box or drawer and restrict the number of employees who have access to the key. 
  • Require receipts for all petty cash disbursements with the date, amount received, purpose or use for the funds, and name of the employee receiving the funds listed on the receipt.
  • Reconcile the petty cash fund before replenishing it. Limit the petty cash replenishment amount to a total that will require replenishment at least monthly. 
• Protect checks against fraudulent use.
  • Prohibit writing checks payable to cash.
  • Deface and retain voided checks.
  • Store blank checks in a locked drawer or cabinet, and limit access to the checks. 
  • Require that checks are to be signed only when all required information is entered on them and the documents to support them (invoices, approval) are attached.
  • Require two signatures on checks above a specified limit. Require Board of Directors/CEO/Owner/Entrepreneur signature for the second signature above a higher specified limit. (Ensure that blank checks are not pre-signed.)
  • Mark invoices “Paid” with the check number when checks are issued.
  • Enable hidden flags or audit trails on accounting software.
• Protect cash and check collections.
  • Ensure that all cash and checks received are promptly recorded and deposited in the form originally received.
  • Issue receipts for cash using a pre-numbered receipt book if necessary. Centralize cash receipts whenever possible.
  • Conduct unannounced cash counts.
  • Reconcile cash receipts daily with appropriate documentation (cash reports, receipt books, mail tabulations, etc.)
• Avoid or discourage related party transactions.
  • Require that a written conflict of interest and code of ethics policy is in place and that it is updated annually.
  • Require that related party transactions be disclosed and approved by the Board.
  • Require competitive bidding for major purchases and contracts. Many city, state, and federal governments, as well as 501(c)(3) non-profit entities, require a minimum of 3 bids before awarding a vendor or sub-vendor contract. Most place expiration dates on the relationship to ensure it’s re-bid every 3-5 years. Why don’t corporations or small business owners do the same?
  • Discourage the hiring of relatives and business transactions with Board members and employees.

Resource Link to Dive Deeper into Fraud Protection Checklists: https://omh.ny.gov/omhweb/resources/internal_control_top_ten.html

Thank you for reading “Part 1: Demystifying C-Suite Roles: CFO Leadership Responsibilities Unveiled.” This article is Part 1 of this 3-Part article series. Follow the Edmond Business online magazine to ensure you get an email of our next article series in February 2024. Sign up at the bottom of the Edmond Business homepage screen.

Next, the Scaling Up with Coach Stacy Eads column will cover Part 2: Demystifying C-Suite Roles: CEO Key Accountabilities for 2024 (Part 2). After that, our column completes the series with Part 3: Demystifying C-Suite Roles: COO, & CMO Accountabilities Revealed.

If your team needs a facilitator for your annual retreat, please visit my website for more information on how to get started: www.StacyEads.com. Email me directly if you’d like to request a 30-minute personalized CEO coaching session about this month’s article topic: stacy@stacyeads.com.