I would take the question one step further: Is the CFO role still relevant today?
The answer is the usual: YES, NO and MAYBE.
YES: traditionally the CFO heads the money-related function within a company, which can be divided in 3 fundamental activities:
BOOKKEEPING: or the tao of recording money-related events, the rule here is simple: “record what happens as it happens”, while it is simple enough you’ll be surprised how difficult it is to implement.
ACCOUNTING: or the tao of rules and regulations. which assures that bookkeeping entries are made according to GAAP and all the other alphabet-soup governing bodies. Good accounting practice ALSO keeps an eye of the management of the company, developing and maintaining ADDITIONAL reporting (GAAP or NON-GAAP compliant) for the purpose of looking on how the company is functioning (more on this in future posts). Again, I do get a lot of heat at times, GAAP reporting are sacred, and ought NOT to be fooled around, but in today’s companies that are a LOT of money-related activities that ought to be reported, and who better than the FINANCE department?
However ACCOUNTING is all about history, what happened last year, last month, last week, and comparisons. All great, but . .
DO YOU DRIVE USING EXCLUSIVELY THE REARVIEW MIRROR?
I THINK NOT!
FINANCE: this is where a newCFO shines is in the ability to plot a chart to the company’s future, by combining historical data with the strategic vision, and reporting on forecast of both financial and business performance based on:
- FACTs: can the CFO distinguish between Facts and fictions? While ASSUMPTIONS (see later on) are important and significant, the base ought to be FACTS;
- documentable ASSUMPTIONS: this is the translation of the vision into expected data: what is the ratio of expenses to FTE headcount? At what point we can attain economies of scale? At what point a major infrastructure upgrade is needed?
- and modifiable RULES: if you want to play what-if scenarios with the touch of a button (OK, a few buttons), the expected changes have to be documentable, even if (in the case of start-ups) it is just guestimates.
The role of the CFO has changes, so has the role of any functional leader within the company. And while the CFO functions cannot be a profit center (Enron tried), it must thrive to be a value-added center, not only recording transactions and producing meaningless reports, but producing the tools so that the Executives, Strategic and Operative function can make informed decision, and can get unbiased progress report cards.
As a CFO, are you an historian or a futurist?
Is your CFO an historian or a futurist?
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