Trouble when your Finance Manager is masquerading as a CFO

Cautionary tales from an experienced CFO who has spent the last 20 years cleaning up the mess of inexperienced wanna-be CFO title holders.

 Over the last 20 years I have had the satisfaction of participating in many successful turnarounds. Invariably, one of the key issues to address is the finance function and the failure of the individual charged with managing this crucial hub -  the CFO.

Sadly, a lot of what occurs prior to a company sliding into the abyss is completely preventable. The Finance Department is the engine room of any business, and if you have a finance professional with their finger on the pulse, and with the creativity and skill to enact change when its needed, then there are usually steps that can be taken to identify and avoid disaster.

However, my experience has found that there are many well-meaning Finance Managers who have been promoted well beyond their capabilities. Or even worse, Finance Managers of limited skills who are masquerading as professional CFOs. And believe me - even experienced Chief Executive Officers can be fooled for some time, until it all starts to unravel, by which time, it is often too late.

The main issue is that not all CFOs are professionally qualified, experienced or prepared for the role. There is no CFO school, no Bachelor of CFO degree, no professional body specifically for CFOs or minimum experience requirements. In fact, you don’t even need to be a qualified accountant to call yourself a professional CFO.

Disturbingly, CFO is a title many accountants give themselves without earning their stripes. Naturally, for many accountants, an aspiration to become a professional CFO is a commendable pursuit, and for many, it is the culmination of all their years of study and practice. But they need to do their time or they won’t be ready, and this is dangerous for them from a professional liability standpoint, and more importantly, for you as a business owner. You may think you have a CFO, but what you really you have a finance manager.

Now don’t get me wrong, this article is not meant to reflect poorly on anyone who is a Finance Manager. Many large corporations are literally held together by the sheer tenacity of their hard- working Finance Managers, doing the jobs no one else in finance wants to do, like chasing recalcitrant debtors, fending off aggressive creditors, and chasing clueless sales people for proper expense reconciliations. But the job of a professional CFO goes well beyond these commendable attributes.

A private equity partner once told me his most successful investments were the ones where the CEO and CFO knew their respective roles and worked together running the business. Behind every successful CEO you will find a strong independent CFO, acting as key advisor and most importantly, providing a ‘devil’s advocate’ role, and not afraid to speak their mind. A good CFO will provide insight, cautious counsel, and have their finger on the financial health of the organisation through the use of sophisticated reporting systems. And most importantly, be prepared to lose their job in order to argue for what they believe is right, legal and profitable for the business

Working in tandem with the CEO in preventing disaster is always preferable than a post-disaster fix up, and as CFO you need to worry in advance about all possibilities and have up-to-date reporting and strategic plans modelled in place, in order to deal with them accordingly.

I recently saw a CV from a proposed CFO candidate, who claimed to have worked for a well-known listed company. Knowing this company, I asked him how he could claim to be the CFO, when I actually knew the real CFO. His answer was that he was “in charge” of a specific division, so decided his 10 years there was merit enough to upgrade the title on his CV to CFO. No doubt to give a better impression to would-be employers, but was he really qualified to be CFO? Maybe, but as a business owner would you take that risk?

I believe that to successfully carry out all of the tasks required to be an effective CFO, you need a range of unique skills acquired over many years of studying, as well as being mentored by clever people; plus as a fair degree of hands on experience in multiple companies, industries and environments. I was privileged (and very lucky) to have had over a decade working for some of the best CEOs and CFOs, both here and abroad. And without this, I doubt I would have been able to have successfully restructured many of the businesses I have done to date.

A good CFO needs more than a passing understanding of multiple disciplines within an organisation, including marketing & sales, manufacturing, human resources, supply chain and delivery, and watching and learning from their years of experience gives you insight you can’t learn from a book or at university. Believe me, nothing beats time in the trenches and on the battle field with real life situations.

Business owners who assume that a candidate with the title of CFO on their CV and some Accounting qualifications makes them ideal for the role, and this grossly underestimates the key role of the CFO.

 The role is not to simply complete the month end accounts and make sure your wages and bills get paid.  A finance manager does that. The CFO role begins after the accounts are finalised, analysis, recommendations on strategies, modelling scenarios and implementing change to ensure the continued creation of value.

So, if you are looking for a CFO, take your time, interview many and ask them lots of questions about their specific experiences. Maybe find an experienced CEO that has worked with successful CFOs to interview them as well, they will know the key traits to look for such as Initiative, leadership and commercial acumen. As a business owner, be very selective of who you choose for the CFO role. The right person will add significant value to your business, a Dud (with an over-inflated ego) could kill it.

If you plan to sell your business in the future, then find a CFO that has been through the process more than once, they will know how to prepare for what could be the most critical period of your life’s work and how much you will have to retire on. If you are expanding your business internationally then find a CFO who has worked overseas and knows how to deal with foreign exchange, transfer pricings and compliance requirements.  

The selection of your CFO may make or break your business, so choose wisely, and seek other opinions. Don’t assume because they have the title, they are what your business needs.