What Does a CFO Do?

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Last Updated:May 2, 2024

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What is a CFO?

The CFO (Chief Financial Officer) is a high-level executive responsible for managing a corporation's financial operations. A CFO is commonly the head of the finance department and is responsible mainly for financial planning, financial management, risk management, and financial reporting.

The position of a CFO is irreplaceable in terms of developing corporate governance to a new stage. A structure without a chief financial officer is not a sound governance structure in the modern sense.

The word is an acronym that stands for Chief Financial Officer. They are the highest-ranking officer in charge of the financial operations of a company. Their responsibilities include:

Monitoring cash flow
Financial planning
Money management

Under the ever-changing market environment, in the process of increasingly fierce competition and the transformation of enterprises to modernization and globalization, entrepreneurs are thinking more deeply:

How can maximizing enterprise resources, information, financial management, and control methods sustain shareholder value?
Growth and organizational capabilities can be continuously optimized, and enterprise risk management can meet the needs so that enterprise development can be unbeatable.

All of this determines that the transformation of the financial management system is imminent in the current environment. Yet, none of the resources, information, and control methods are related to financial management, which has become the core of business management.

The construction and transformation of the financial management system are crucial to establishing a business model suitable for enterprise development. However, when entrepreneurs seek help from financial directors, they also put forward higher requirements on the ability of financial directors.

As a Chief Financial Officer, are you thinking the same way as an entrepreneur?

Chief Financial Officers build financial management systems that adapt to an enterprise's business model, closely integrate the company's strategic planning, and profoundly integrate the enterprise's business operation model.

Key Takeaways

The CFO plays a critical role in providing strategic financial leadership to the organization, overseeing all aspects of financial management and contributing to the development and execution of the company's strategic plans.
The CFO manages financial risk by identifying potential risks and implementing strategies to mitigate them. This includes managing liquidity risk, credit risk, market risk, and operational risk to ensure the organization's financial stability and resilience.
The CFO manages relationships with investors, analysts, and other stakeholders, serving as the primary point of contact for financial communications.
The CFO plays a key role in strategic partnerships and mergers and acquisitions (M&A) activities, evaluating potential acquisitions, negotiating deals, and overseeing due diligence processes.

In an interview with domestic news agencies, the Executive Vice President and Chief Financial Officer of Kodak Corporation of the United States talked about the responsibilities of the chief financial officer of American companies.

In his view, a US company's chief financial officer oversees a company's financial and accounting affairs.

An essential responsibility of the chief financial officer is to communicate the company's operating conditions and financial settlement reports to investors so that they can understand the actual operation of the company.

The CFOs are responsible for finance, accounting, investments, investor relations, and legal matters. They manage the company's financial, accounting, and information service departments.

In addition to being responsible for the company's public relations with investors, the chief financial officer must ensure that the company has enough cash in development, as well as enough office, production, and operation space.

The company can borrow money from banks or raise money in the stock market. The company's own investment affairs and complex legal affairs are also managed by them.

How to become a CFO?

There are three main tasks of the Chief Financial Officers:

It is to carry out strategic operations through financial means. If the work is excellent, the value added to the company will be more than the value created by business operations.
It is to "sell" the company like a sale and sell the company to investors. The people who decide the fate of listed companies are fund managers and large institutional investors. Therefore, investor relations are a significant issue for them.
Implement the company's strategy at the lowest cost through mergers and acquisitions.

From this, it can be judged that the criteria for an excellent chief financial officer include:

Independent judgment.
Strong business awareness.
Thorough understanding of the business.
Smooth operation in the capital market.
Strategic vision.

Some of the qualifications are described below.

Basic Literacy

The chief financial officers should be courageous in taking responsibility, withstand pressures, and adequately handle various crises. In addition, they must maintain a normal state of mind.

Physical Fitness: A qualified chief financial officer should have a healthy body. It is a prerequisite for being able to perform their job functions earnestly and play their role.
Morality: Good ideological and moral quality is the inherent guarantee for a CFO to perform chief financial officer duties. Loyalty to the company, loyalty is the personality foundation of the officer.
Psychological Soundness: The chief financial officer should have good psychological qualities; that is, a qualified financial director should have a healthy body. This is a prerequisite for being able to perform their job functions earnestly and to play their role.

Professional Skills

The Chief Financial Officer should have accumulated rich work experience in other enterprises, continuous innovative management experience, and innovative operation methods.

First, one must know micro and macroeconomics. It gives the CFO a correct way of thinking, grasps national policies, and analyzes the economic environment so that they can better learn the impact of the financial situation on business operations.
Second, they must be proficient in professional knowledge. This is the foundation required to carry out their work and a thorough understanding of national policies and regulations.
Third, they must also be proficient in the marginal knowledge of finance, trade, law and management, sociology, psychology, and information technology.

Ability To Analyze And Judge

An essential function of corporate finance is to control risks and balance risks and benefits. Therefore, the chief financial officer must have a keen ability to analyze and judge risks and control the risks of the enterprise within a specific range.

Externally, the chief financial officer should be able to analyze and judge the development trend of the entire macro-national economy and the market environment and make decisive financial suggestions for the enterprise based on financial risks.

Internally, the chief financial officer should have a professional judgment of accounting policies and the capacity to find existing problems and propose solutions to the enterprise's various financial activities.

The chief financial officer should not only report directly to the general manager but also to the foreign headquarters so that they can control the subordinate companies. This requires him to have a high degree of integrity and communication skills.

The chief financial officer is a communicator. The production department, the general manager, and the multi-party ideas of the company headquarters participate in communication and coordination.

Communication And Coordination Ability

The CFO has to deal with everyone in the enterprise and communicate with stakeholders such as shareholders and creditors outside the enterprise. Therefore, the chief financial officer must have good interpersonal communication and coordination skills.

Ability to coordinate relations with government departments: They require the ability to properly handle relationships with financial and taxation departments to understand governmental policy.
Ability to coordinate relationships with owners: The chief financial officer's goal is to maximize the shareholders' wealth. Still, the enterprise belongs to the shareholders, and the owner's investment plan restricts the financial management activities of the enterprise.
Ability to coordinate with creditors: When an enterprise invests, the source of capital often requires external financing. Therefore, whether it can obtain debt capital is related to the development of the enterprise.
Ability to coordinate relationships with internal departments: Effectively communicate and communicate with others, reduce differences between each other, and gain support from others and other departments.

Leadership Skills

Leadership is the accomplishment of a goal through the direction of human assistants. The man who successfully marshals his human collaborators to achieve particular ends is a leader. A great leader is one who can do so day after day, and year after year, in a wide variety of circumstances.

Organizational skills: Organizational ability is one of the essential talents of the chief financial officer. As the highest head of the financial department of the enterprise, to obtain ideal social and economic benefits, the ability to manage and control the managed effectively.
Reform and innovation ability: The chief financial officer is the leading promoter of enterprise change. The Chief Financial Officer must be able to discover new situations and new problems, explore new ways, summarize new experiences, and propose new ideas and new solutions.
Team-building ability: As the senior managers of the enterprise, the chief financial officers should be able to cultivate their employees' collective sense of honor. In addition, they should have a team spirit, leading them to accomplish the work required by the business.
Implement internal control capabilities: The chief financial officer should establish the standard internal system of the enterprise and control the most sensitive vital links and positions, such as fundraising, utilization, investment, and withdrawal.

S/he may not possess or display power; force or the threat of harm may never enter into his or her dealings. S/he may not be popular; his or her followers may never do what he or she wishes out of love or admiration for him/her.

S/he may not ever be a colorful person; and may never use memorable devices to dramatize the purposes of the group or to focus attention on leadership.

As for the important matter of setting goals, a leader may actually be a person of little influence or even of little skill; as a leader, he or she may merely carry out the plans of others.

Participate In Decision-Making

Decision-making ability comes from profound knowledge and successful practice. It is formed by the organic combination of comprehensive skills such as character, artistic quality, social and natural science knowledge, and direct and indirect experience.

This is mainly manifested in three aspects:

The ability to investigate, analyze, and predict the future.
The ability to find problems and set goals.
The ability to judge.

The chief financial officer will often participate in various decision-making activities of the enterprise.

The decision-making ability of the chief financial officer has dual meanings. On the one hand, it reflects specific financial management work. On the other hand, it is a requirement to help the general manager and the board of directors conduct business management.

Expression Ability

The ability to express is an essential ability and a fundamental skill of the chief financial officer. In particular, when the chief financial officer refutes the general manager's decision, they need to have solid, expressive abilities to lobby board members in their favor.

At certain international CFO summits, fluent CFOs are mostly CFOs of foreign companies, and native CFOs are more reticent. Language and written expression abilities are indispensable qualities of a financial director.

Develop Employees' Abilities

As a department head of an enterprise, the chief financial officer must turn everyone's wisdom and talent into collective knowledge and talent to drive the smooth development of the entire financial work.

At the same time, it is necessary to decentralize power properly, let subordinates be in charge of work to free themselves from tedious and fragmented specific affairs and concentrate on thinking and doing. Emphasize overall strategic decision-making.

Learning Ability

Enterprises are faced with a rapidly changing world, and new things are emerging one after another. Therefore, the financial director needs to be able to learn and accept new things.

With the international flow of capital and the development trend of world economic integration, the functional status of the chief financial officer and the practical connection between corporate development strategy and finance have been paid more and more attention.

Management, social relations, another multidisciplinary knowledge background, good professional ethics, and strong organizational and coordination ability are gradually becoming the basic requirements for an excellent financial director in today's society.

Responsibilities and Authority of the CFO

To ensure the realization of the chief financial officer's work objectives, companies must not blindly expand their powers; at the same time, companies carefully prevent the CFO from excessive responsibilities. The primary responsibilities should include:

Review essential financial statements and reports of the group company and jointly take responsibility for the quality of the financial statements and reports with the general manager of the group company.
Participate in the examination and approval of the financial management regulations and other economic management systems of the group company, supervise and inspect the financial operations, capital receipts, and expenditures of the group subsidiaries.
Jointly examine and approve decisions with the company’s general manager on matters including business operation, financing, investment, fixed asset purchase, construction expenditure, remittance of overseas funds, and more.

In the United States, for large companies with a value of more than 10 billion US dollars, the CEO's salary composition ratio is roughly:

Basic annual salary accounts for 17%, bonuses account for 11%, benefit plans account for 7%, and long-term incentive plans based on stock options account for 65%.

In 1999, the average stock return of the 50 highest-paid CEOs in the United States accounted for 94.92% of total compensation. In 2000, 87% of the CEO salary of many large internet companies was replaced by equity.