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Financial Leadership: Who’s in control?

By Gail Kinsella

Date:

Recently, a client business called in search of advice on how to transition its accounting department in light of a loyal and long-tenured employee nearing retirement. Just earlier this summer, a separate discussion centered around the right kind of hire for a department that is outgrowing the current chief of accounting and the related potential transition challenges.

Both interactions were productive because the business leaders were planning for future needs instead of being merely reactive. Let’s face it, any time that employee turnover happens, even for the most joyous of reasons, it causes upheaval. By planning ahead, business owners can strategically position the finance function to be more effective and integral to enterprise success.

In each situation, a portion of the discussion centered around the title that would be used, which led to a bit of clarification — on both enterprise needs and candidate experience. We hear a variety of terms bandied about: clerk, controller, VP of finance, chief financial officer (CFO), comptroller, chief accountant, financial analyst, to name just a few. The titles are broadly used, and many times the duties to be performed spread beyond the title, while often the title itself doesn’t necessarily match the responsibilities.

Let’s focus on the two specific types of financial leadership found in top organizations: the CFO and the controller.

The controller is often thought of as the head of the accounting department or function. The controller is not a bookkeeper, however. The primary role of the controller is to maintain and operate the books and records of the business, looking back at data that has already been generated. The controller also maintains standard operating procedures and internal controls for accounting and bookkeeping activities.

The CFO, on the other hand, uses the financial data that has been produced in order to accurately predict the financial future of the organization. While a clear understanding of past financial performance is necessary, the CFO’s key responsibility relates to strategic and tactical planning.

To illustrate the differences between CFO and controller, consider that the controller is responsible for producing financial statements that reflect historical activity. Suppose these financial statements reflect a shift in gross profit or productivity. The CFO’s role is to evaluate and articulate the causes behind these changes. Armed with this understanding, the CFO must establish the corrective actions needed to address the risk of continued negative results or employ procedures to support the continuation of positive trends.

In addition to financial and strategic planning, the CFO is responsible for cash-flow management, credit and collections, budgeting, internal controls, and compliance. In a nutshell, the CFO provides financial oversight and management, forecasting, and data-based decisions. By correlating financial, operational, and regulatory data, the CFO advises the executive team and provides the basis for financial impacts of decisions in a real-time manner.

The CFO is a member of the executive management team, planning and implementing growth and profitability strategies and acquisitions. The CFO handles financial analysis and formulates financial, tax, and risk-management strategies.

Whereas CFOs are responsible for developing management reports, financial statements, budgets and financial plans, capital and cash-flow projections, performance measures, and internal controls, the controller’s role is focused on preparing reports and budgets, processing capital requests, and maintaining performance measures.

What does your enterprise require? It likely depends on your size, complexity, and vision. Certainly good financial information is a must, so start there. Controller is like a necessity. As for a CFO? While you may not require or be able to afford a full-time CFO, the value should not be overlooked. Perhaps a part-time, consultative relationship makes sense? Or maybe an accounting department overhaul is needed.

Whatever your circumstance, a conversation with your CPA is an ideal way to get headed in the right direction — toward success.

Gail Kinsella is a partner in the accounting firm of Testone, Marshall & Discenza, LLP. Contact Kinsella at gkinsella@tmdcpas.com

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