CFOWise

Did You Win or Lose?

Sports teams compete against each other and they keep track of the score.  They know who wins and who loses, and each player on the team has more statistics on their performance than they know what to do with.  Individual sports athletes, like golfers and runners, meticulously measure their performance against themselves and others and use their numbers to find ways to improve.

Is running a business any different?  Is there a way to know if you win or lose each day?  Each week?  Each month?  Each year?  The answer to all of these questions is yes, and I write about how to accomplish this in my recent American Express OPEN Forum Article: 4 Reports that will Keep Your Business Thriving.

Are Your Numbers as Deceptive as an Eclipse?

[Author's Note: This post is not about the Twilight Series' release of its third movie.  I do, however, admit that my wife took me to the first two and will likely take me to the third soon.]

At 4:17am on Saturday, June 26th 2010 I saw the beginning of a lunar eclipse.  I was on an early-morning (or more like a middle of the night) hiking trip and we stopped to watch this rare occurrence (this was the first of only two this year).  What we initially saw was unimpressive.  At first, a dark cloud seemed to cover the upper arc of the moon.  The earth’s shadow was barely beginning to interfere with what appeared to otherwise be a full moon.

As the morning carried on, the eclipse continued to black-out a quarter and then an entire half of the moon.  I have never seen anything like this before – it was amazing to watch.  If I was not aware that we were expecting a lunar eclipse, I may not have even noticed this phenomenon.  I wondered how many people, not knowing it was supposed to be a full moon, might have looked at the moon in those early morning hours without realizing what they were seeing.

Then, I couldn’t help but relate this to one of the common business problems I see.  Many businesses will occasionally look at their numbers (in the form of financial statements or some other form of dashboard/KPI data) but the data and information they are looking at is not meaningful and is not helping them improve their business.  Why?  Because they lack context and comparison.  I took several “snapshots” of this event throughout the morning and ultimately I could comprehend what was happening.

Just as I grew to appreciate the eclipse as I saw it progress, others who perhaps only briefly looked at the moon once at any time that morning likely missed out on the eclipse altogether.  So, how do we solve this?  We have to put the numbers of the business into context against where we have been, where we are going, and what our competitors and industry are doing.

We refer to this as comparative analysis, and it works as simply as this.  If we generated $250,000 of sales this month, is that good or bad and what can we do to improve it?  First, we should understand what we have done in the past (last month, last year, same month last year, etc.) to understand if we are growing or shrinking.  Then we should compare it to what we were hoping to accomplish that month and if those sales are helping us to or hindering us from getting where we are headed.  Here’s an example: if we had sales in the same month of the prior year of $200,000, and last month we had sales of $230,000, and we were planning on $240,000 to achieve our goals for the year, then we can call $250,000 in sales a very good month.

While this revenue example may seem very simple and like most businesses do some type of similar analysis, we need to consider if they are doing the same analysis on their lead generation, conversions, operational efficiencies, and other financial metrics.  This will truly put the entire month into perspective in terms of our performance with one exception – industry benchmarks.

How are we doing relative to others in our industry?  As much as we may claim to have an innovative business model, the truth is that business models have been around a long time and there is very little innovation possible (although there is at least a little).  Even if we feel we are better than our competitors, we can still learn from their numbers and we can use them effectively as benchmarks for our own performance.

Are your numbers deceptive like a lunar eclipse?  Avoid the deception with comparative techniques that will make your numbers more meaningful.  Ultimately, the more meaningful your numbers are the better decisions you will be able to make, which will help you improve your cash flow and profitability!

Feedback is a Gift

About 4 years ago I was approached by a man who wanted to give me some feedback – and none of it was positive. 

20 Indicators Your Financials are Wrong

I have looked at a lot of financial statements over the last five years from at least 250 different companies in almost every industry imaginable.  They all had one thing in common – they were, in some way, wrong.  This is a major challenge of most start-up, emerging, and medium-sized businesses.

3 Components of Financial Clarity

Some of my blog writing time has been directed to fulfilling a request to provide articles for the American Express Open Forum®.  The first one is titled “3 Components of Financial Clarity” and it went live on their website yesterday. 

3 Benefits of Financial Clarity

INTRODUCTION

Clarity in business has to do with three things – the past, the present, and the future.  Where we’ve been, where we find ourselves today, and where we are going – our final destination.  Like a three-legged stool, removing any one of these elements would damage our ability to see the whole picture of our business.  When we achieve this clarity, here are the three main benefits we receive:

BENEFIT 1 – MINIMIZE ANXIETY

Anxiety in a business is usually associated with fear, worry, and uneasiness about potentially undesirable outcomes.  For example, a business that is nine months behind with its financial statements may generate some anxiety in those who are running that business.  They might know what the balance in their bank account is today, but they have no idea if they are actually profitable and if they can sustain the business in the future.

I was recently introduced to a business experiencing financial difficulties.  It did not surprise me to learn that they had not received accurate or timely financial statements in years.  They lacked any way to measure their performance historically other than the cash in their bank account, which is often a false indicator of how the business is doing.  They lacked a way to measure their current productivity and success, and they had no clarity on where they were going and how they intended to get there.  Anxiety in this business was high.  It was not until they gained clarity in their past, present, and future that they could create a plan to turn their business around and return to profitability.  Not coincidentally, this clarity, even though it painted a very grim picture, reduced everyone’s anxiety and reinvigorated the entire company as they worked together to save the business.

BENEFIT 2 – IMPROVE TACTICAL DECISION-MAKING

We obtain clarity in the past with timely and accurate monthly financial/managerial reporting.   We obtain clarity in the present with weekly dashboard reports and other productivity and cash management tools.  Our clarity in the future comes from a combination of short-term cash flow projections, an annual budget, a 5-year plan, and an up-to-date financial model.   Knowing that tactical decisions involve the day-to-day functions in a business, here is an example from one of my clients on how we improved our ability to make tactical decisions with clarity.

In our monthly executive team meeting in which we discuss the past, present, and future of the firm, the President shared that one of our largest customers was requesting a new Request for Proposal (RFP) from all of its vendors for some of the services we provide.  Included in this request was an entirely new tier of services for which we had never had to provide unbundled pricing.  Within 30 minutes we constructed an entire financial model to determine the lowest possible prices we could offer without damaging our margins.  This information was powerful, especially when the President realized that her competitors would likely have much higher prices than our minimums.  The result – we won the business with prices that increased our margins but still came in at or below our competitors.

BENEFIT 3 – IMPROVE STRATEGIC DECISION-MAKING

In addition to improving tactical decision-making, financial clarity may bring its greatest benefit in terms of driving the strategic direction of a business.  Here is just one example:

Another growing company for who uses our CFO services became dissatisfied with the performance of its distribution strategy.  Sales growth had been less than stellar, to put it nicely.   We began to explore different distribution strategies, desiring to be open to all options and suggestions.  Because of our already-existing financial clarity, the process was quite simple – evaluate all of our options and find the distribution strategy that would add the most value to the shareholders.  We modeled each option and eventually chose the one with the most promise.  Although we are still in the development and implementation phases of this strategic change, we have already received several points of validation that we are moving in the best direction.

CONCLUSION

This post focuses on the benefits of financial clarity.  I will be publishing another article with some tips on how to obtain clarity on the American Express Open Forum site shortly.

Revenue Recognition Updates – Clarity and Complexity

Anytime a presentation starts with “Implementing EITF 08-1 and EITF 09-3,” we know we may be in for a long meeting.  Gregory P. Randall, Partner with KPMG, made a very technical topic interesting yesterday.  The topic – the changes in revenue recognition guidelines for software companies and others with multiple deliverables packaged in the same revenue arrangements.  If you are wondering why a CEO should care about revenue recognition, then please read my blog post from a few months ago: 2 Reasons CEOs Have to Care about Revenue Recognition.

Here were my main takeaways:

- Revenue recognition is still complicated and clear policies need to be established and strictly followed.

- Some additional clarity is provided and it appears that more revenue is likely to be recognized earlier by many companies affected.  This will be welcome news to some, but could cause some tax and other issues for many.

We also briefly discussed the legislation just passed that allows net operating losses (NOLs) to be carried back 5 years through the end of 2009.  There are some complexities to this allowance, so you should consult with your tax CPA to see if you can benefit.

These complex issues represent a very small percentage of all of the issues that entrepreneurs face in today’s business environment.  CFO WISE helps entrepreneurs solve these and many other problems.

Staffing Accounting/Finance Department from Start-up to Medium-Sized Company

I have had a lot of conversations recently about staffing the accounting and finance function in the company.  As companies grow and shrink, their needs in this area change.  We certainly do not want to be over-staffed, and we also want the most cost-effective staff doing as much of the work as possible.  For example, we typically do not want our Controller or CFO entering payables – this task can easily be delegated to a much lower cost employee.

This is a simplified organization chart of the different accounting and finance functions in an organization.  The reality is that most start-up and emerging companies cannot afford all of these positions.  My purpose in this post is to explain how to fulfill all of these necessary functions throughout the life-cycle of a start-up company.  I am making the assumption that we all understand the purpose of the accounting/finance function as well as the assumption that the company has or will hire the appropriate outside professional(s), like a tax CPA, to help the company remain compliant.

Even at the earliest stages of a start-up, it is usually best to hire a part-time bookkeeper to fulfill all of the roles listed above.  They usually do not have the expertise of a high-level controller of CFO, and they will be slightly over-paid for doing some of the more clerical tasks.  But the bookkeeper gives an affordable and flexible option to start-ups.

As the company grows and has revenue, the company should begin to look to hire full-time clerical staff to handle most of the AR, AP, and payroll tasks while the bookkeeper remains part-time and delegates everything they possibly can to the in-house staff.  One of the major challenges that usually emerges during this process is that the part-time bookkeeper will begin to struggle to keep up, especially with the monthly financial statement preparation and analysis as well as other management reports on how the business is doing and what improvements should be made to maximize cash flow.

Often the next best step is for the company to consider engaging the services of a part-time CFO.  This individual will be a strategic direction to this department and may only be needed about a half-of-a-day per month.  As the company continues to grow, the part-time bookkeeper will need to be replaced by a full-time Controller or Accounting Manager.  All of the full-time accounting staff will report to this person.  In addition, this position will take direction from the CFO. 

The last full-time hire should be to fill the position of CFO.  Often companies can do very well leaning on the part-time CFO services to exceed $50 or even $75 million in annual sales.

Written by Kenneth Kaufman at CFO wise

I Cannot Predict the Future…Budgeting is Worthless!

I have heard this statement more often than I care to admit: “I cannot predict the future so a budget would be worthless for my business.”

An article entitled How to Create a Budget in BusinessWeek prompted me to recollect some of my experiences with helping people who have the above attitude towards budgeting gain a new appreciation for the process and, more importantly, the results the process can generate. 

I have and will continue to make this guarantee to any business in any industry anywhere in the world: if you follow the “best practices” steps to creating a financial plan and operating budget for the next twelve months and you track your monthly progress against that plan, you will know more about your business than 80% of your competitors know about theirs.

Why can I make that promise?  Because the things learned in that twelve months are so revealing in terms of the most effective business model and other competitive advantages that the company cannot help but begin to develop and implement the right strategies for making the business more successful. 

Why do most businesses fail to implement this process?  I have found that the two main reasons are lack of discipline and lack of resources.  This process requires a great deal of disciplined time, including the discipline to review your results against your budget EVERY month.  The budget is worthless if we do not do this.  The focus of this monthly analysis should be on the variances in the budget.  We need to know WHY we varied from our budget.  What can we learn from that?  What can we change to improve our performance in that area?

Some companies lack the resources to be able to analyze their historical data and then easily track their progress.  Perhaps they do not have an accounting system in place, or perhaps they do not have anyone that knows how to properly operate their system.  The accuracy of the numbers is certainly a critical element to making the budgeting process a successful experience.  So, having the right staff and a functioning accounting system are critical to this process.  Even QuickBooks allows its users to enter in budget information and then run reports to track the monthly progress and variances.

If anyone reading this post doubts me, I challenge you to try it for 12 months.  In my experience as a part-time CFO for many emerging companies, the value derived from our busgeting process and reports has improved the bottom-line dramatically.  I think you’ll experience similar results.

CFOwise founder, Ken Kaufman, Appeared on SMB Radio Show Oct 13th

CFO WISE founder, Ken Kaufman, appeared as a Guest on the Small Business Trends Radio Show that aired October 13 at 1:30pm EST

PLEASANT GROVE, Utah, Oct 13, 2009 – CFOwise founder, Kenneth A Kaufman, appeared as a guest on the Small Biz Trends Radio Show that aired on October 13, 2009 at 1:30pm EST. Ken was intereviewed on the following topic: Unlocking the Cash and Profit Hidden in Your Financial Statements.

Ken Kaufman stated, ”Anita Campbell has turned Small Business Trends into one the foremost authorities on starting and running a business.  It was an honor to be a guest on her weekly radio show.”  In addition, Ken mentioned that listeners to the program will have an opportunity to visit the CFOwise website to receive a free industry report.

Staci Wood, the Operations Manager at Small Biz Trends described Ken with the following excerpt,”In addition to his role as Founder & CEO of CFOwise, a regional Chief Financial Officer (CFO) firm with over two centuries of senior-level executive experience, Ken Kaufman also currently serves as the part-time CFO for a dozen start-up, emerging, and medium-sized companies in many different industries.  Ken will share the insights he has gained from helping entrepreneurs and small business owners use their monthly accurate and timely financial statements to drive cash flow and profitability to new levels.”

Click here to visit podcast website

Click here to listen to the podcast

About CFOwise With over two centuries of senior-level executive experience, CFO wise is the premier provider of permanent part-time CFO services to start-up, emerging, and medium-sized companies in the United States. For more information, please visit: www.cfowise.com or contact Kim Waldron at 801-380-5615.

About Small Business Trends Small Business Trends is an award-winning comprehensive online publication for small business owners, entrepreneurs and the people who interact with them. They offer a variety of features to help you stay informed about the small business market.

3 Reasons Your QuickBooks Statement of Cash Flow is Wrong

The statement of cash flows is the most valuable, the most under-used, and the least understood of the three main financial statements (profit & loss, balance sheet, statement of cash flows). Since a lot of businesses use QuickBooks, I feel it is critical to make sure we all understand what needs to happen to make this reporting feature more accurate. It is likely that our QuickBooks-generated statement of cash flows is incorrect for the following three reasons:

CLASSIFICATION OF ACCOUNTS
Each time a QuickBooks user creates a new account the system looks at the type of account and, if that account type is on the balance sheet, it is classified into one of the three sections of the cash flow – cash from operations, investing, or financing. QuickBooks is often right in its inclusion of accounts on the statement but it can be very wrong on the section of the statement in which the account should be included.

For example, a working capital line of credit is often coded as a current liability. QuickBooks assumes this account should be in the operating section of the cash flow, but that is not always the case. A line of credit is usually reported in the investing section of the statement.

The classification of all accounts can be manually changed in QuickBooks by going to Edit, Preferences, Reports and Graphs (Company Preferences), and then click on the Classify Cash button in the Statement of Cash Flows section. An account is placed on the report when a checkmark is next to the account in one of the three fields, which represent each section of the report.

DEPRECIATION
The whole purpose of the statement of cash flow is to adjust the net income reported on the profit and loss to the cash position of the company. Depreciation is a non-cash expense, and, therefore, is added back to net income as a first order of business on the statement of cash flow. Since depreciation is not a balance sheet item, QuickBooks, by default, does not even include it on the statement of cash flows. QuickBooks does, however, include accumulated depreciation on the report, but it is reported in the investing section (depreciation is technically part of the operating section).

To correct this situation, two things must be done. First, follow the instructions above and remove the accumulated depreciation account from the report. Second, add the depreciation account to the operating section.

CHANGES TO PRIOR PERIODS
This issue causes problems with all three of the financial statements. Once a period is complete, all of the accounts are reconciled, and financials have been issued, there should be no more changes to that period or earlier. By simply using the Closing Date and Password functionality of QuickBooks, the company can lock prior periods and protect them from any attempts to add to, delete from, or change any transactions in the closed periods. This is easy to use and can save the business from a lot of headaches in the near and long-term, not to mention safeguard the accuracy of it’s reporting.

This is done by going to Edit, Preferences, Accounting (Company Preferences), and then clicking on the “Set Date/Password” button in the Closing Date section. This will allow you to set the date of the close as well as only allow people to make changes prior to that date if they know the closing date password.

CONCLUSION
If I could only receive one of the three financial statements, I would always pick the cash flow statement. It is the most valuable for any business, especially start-up and emerging businesses. It is the best indicator I have in my role of part-time CFO and business finance consultant for any business, especially start-up and emerging businesses.  By setting up QuickBooks correctly and then using it correctly it is capable of cash flow reporting that will help entrepreneurs and CEO maximize their cash flow.

3 Common Mistakes When Modeling Your Balance Sheet

Every sensible financial model projects the results of all three major financial statements – the profit & loss, balance sheet, and statement of cash flow.  The balance sheet, not the profit and loss, is what drives the cash flow of the business.  If the balance sheet is not correctly modelled, then the cash flow forecast is most likely inaccurate and worthless.  Yet the balance sheet is the part of the model that is usually the most neglected and least understood.

In order to help get the balance sheet forecasting correct, we have identified three common mistakes that entrepreneurs, CEOs, business owners, and even business financial consultants make: NO balance sheet projections, failure to correlate operating activities on the P&L to changes in the operating assets and liabilities on the balance sheet, and disregard for the debt and equity transactions of the firm.

BALANCE SHEET IS MIA
The most common mistake made is the exclusion of a balance sheet forecast from the financial model.  The balance sheet represents the most complex transactions of the company and may be left out of the model because the company lacks the expertise of a CFO or a CFO firm to assemble this critical part of the model.

CORRELATION OF OPERATING ACTIVITIES AND OPERATING ASSETS AND LIABILITIES
The major operating assets include accounts receivable, inventory, pre-paid items, and more.  The major operating liabilities include accounts payable, taxes payable, and other accrued expenses.  When sales go up, accounts receivables go up, and cas goes down.  But does the model capture that?  If sales go up, can we expect our inventory level to stay the same?  Most likely it will need to increase.  The increments of these changes are dependent upon the relationship between our days sales outstanding and our inventory turnover. 

As sales increase, our accounts payable usually increase as well.  The timing of our payments against our accounts payable is a major outflow in the cash flow puzzle that is called working capital.  We need to define the relationship that payables have with our operating activities and implement this relationship in our balance sheet model. 

There are several other operating assets and liabilities that dramatically impact cash flow.  We will avoid all of the details of each, but it is fair to say that without properly forecasting them, our cash flow forecast will never be accurate.

DEBT & EQUITY TRANSACTIONS
Are we bringing in any more equity investments during the period we are modelling?  What is our dividend policy for shareholders?  Is some or all of the active shareholders compensation coming through equity?  All of these items can have a significant impact on cash flow, although none of them show up on the P&L. 

In addition to equity transactions, the structure of all of the company’s debts and obligations need to be correctly reflected on the balance sheet.  An interest only line of credit will keep the same balance until more is withdrawn or some is paid back based on the cash flow of the firm.  Term loans need to show the correct amount of principal being reduced every month. 

Obviously these items can seriously change our cash flow, and they need to be included in the financial model so we can correctly forecast our cash flow.

CONCLUSION
This list of common mistakes is certainly not comprehensive (you’ll notice we did not address capital expenditures at all), but should create a positive foundation to build the balance sheet model.  Our CFO services firm has built hundreds of complete financial models that have helped our clients get a handle on their companies, make the best strategic decisions possible, raise necessary capital, and perhaps most importantly, track their progress so they can correct problem areas and make more valid assumptions in the future.

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3 Critical Supplemental Worksheets to Your Financial Model

A good financial model should feed into three main pages, which happen to match the three main financial statements of a business – profit & loss, balance sheet, and statement of cash flow.  These three components of the model should never be circumvented nor should we ever try to short-cut the need for all three.

With these three pro forma statements as the final deliverable, there are at least three additional worksheets that need to be part of the model. They include assumptions, marketing/sales/COGS, and payroll.

ASSUMPTIONS
Every working financial model should have one page that contains a majority of the assumptions for the model. Assuming we are using Excel or another spreadsheet template to create the model, these assumptions should be linked throughout the model. This gives us the ability to make a change to any one of our assumptions and then see how that changes our profitability and cash flow outcomes.

MARKETING/SALES/COGS
We need detail! It is not sufficient to say we are going to grow sales by 50%. What are the marketing activities that will drive that growth? How many leads will we need to generate a sale? What is the cost of these leads and other marketing activities? Which product or service lines will grow more than others? How does our gross margin differ on these lines as compared to slower-growth or even obsolete lines? Is there a difference in both the collections and the payment for costs of goods sold between these lines? How will this impact cash flow? These are the questions we look to this worksheet to answer.

PAYROLL
How many people is it really going to take to accomplish what out financial model projects? What are the salary and wage costs to hire all of these people? Are our hiring practices in line with the sales per employee financial ratio according to our industry benchmark? Have we correctly factored in all payroll burden and benefit costs, including FICA, FUTA, SUTA, worker’s comp, other state payroll taxes, health insurance, 401(k) match, etc.? Have we correctly forecast all of the costs associated with adding these new employees, including recruiting, HR, and new office and computer equipment? These need to be factored into our plan so that we can demonstrate a realistic cost for growing our firm.

While there are many other supplemental worksheets that may be used to help build a formidable working financial model, these three are a requirement. We either need to create and maintain this model ourselves, or we need to look to finance and strategic planning professionals like those who fill the CFO job for either one company or for many companies in the capacity of part-time CFO.

2 Biggest Flaws with Break-Even

Most of the folks who read our blog know we write from the CFO advisor perspective on start-up, emerging, and medium-sized businesses.  This post will be no different, and its intent will be to clarify the two most significant flaws entrepreneurs, business owners, and CEOs experience when trying to understand their break-even point, both in terms of sales volume and units.

FLAW #1 – OWNER COMPENSATION

The traditional method for calculating break-even requires us to separate the fixed and variable costs.  These come from the profit & loss statement, or statement of operations.  Often a significant portion of the active owners’ compensation, meaning the “wage” for their time and effort working in the business day-to-day and excluding profits and dividends, is pushed through the balance sheet for tax purposes.  Specifically, an S-corp often pays a reasonable salary to the owners to meet IRS requirements and also has a regularly scheduled distribution to make up the difference.

Here is an example.  Let’s assume a business that is structured as an S-corp has one owner who requires $150,000/year to pay her bills and do the things she wants and needs to do.  She is advised by her tax advisor to only pay herself $90,000 as a salary.  This flows through the profit & loss and will be included in the break even analysis.  She is additionally advised to take the other $60,000 as a dividend to avoid unnecessary payroll taxes.  So she schedules a $5,000/month dividend to herself and counts on that not as a distribution of profit but as her regular and expected wage.  The challenge is that this $5,000/month flows through the balance sheet and is not part of the break-even calculation, even though it is, for all intents and purposes, just like a fixed cost.

The way to solve this is to add another $5,000 per month to the fixed cost total for running the firm each month.  This will being the break-even calculation to a more correct place.

FLAW #2 – DEBT PAYMENTS

Another fixed outflow of money that is often missed in the break-even calculation is reduction of the principal balance of outstanding notes and loans.  The interest portion of all debt payments shows up on the profit & loss and should be part of the fixed costs of the break-even calculation.  But the principal only flows through the balance sheet. 

In some cases the amount of depreciation being recognized as a fixed cost is about equal to the principal reduction, but often it is not.  For example, we are the part-time CFO for a business that is paying an extra $3,000 per month towards one of their equipment loans.  The owner has set this as a requirement that the business must meet every month.  When this owner thinks about break-even, she is hoping that this extra $36,000 of principal reduction is considered.  In addition, she is also hoping the fixed dividend of $6,500 she takes every month from the company is included as well.

CONCLUSION

Hopefully you picked up on the place where break-even flaws occur – transactions that only hit the balance sheet.  In some ways, start-up, emerging, and medium-sized companies need to look very closely at both their operational break-even and their cash flow break-even to truly understand the minimum level of sales they can experience and still stay at a break-even from a profitability and a cash flow perspective.  Business finance textbooks teach only operational break-even and they fail to mention the inherent flaws to its calculation.

What good is knowing your break-even?  Besides the clarity and peace of mind it will bring, it can become essential in helping you price your products and services and help you refine your business model to its most efficient and effective state.  There is a power in being able to say: “We need to sell 100 units to break-even this month.” By correcting your break-even calculation for these issues, the clients for whom we serve as CFO consultants can express their break-even with great confidence!

CFO & Controller – The Differences and Why You May Need Both!

I have met many great and intelligent people on Twitter.  Ben Paramore is a great CFO mind who uses his financial savvy to guide companies to success.  I especially enjoy his blog, and want to briefly discuss a recent post that made on his blog BEYOND BEANS.

Ben wrote a post he titled: Difference Between CFO & Controller.  Here are some additional thoughts to add to his:

There are really a limited number of CFOs worthy of that title.  The reason is because it take a special breed who can master the technical elements of the accounting and finance trade, but also be visionary about how everything will work together and how the organization can best maximize its value in both the short and long term.  Many long-time CPAs get a rude awakening when, after 20 plus years in public accounting, they take their first CFO role in private industry.  Many have commented to me how it is a profession unto itself that has certain elements that can only be learned through experience.

Here is an experience I had that may help to clarify just one of the differences.  The Controller of an organization was overwhelmed by a particulalry difficult month to close.  The trial balance was all out of whack and several major balance sheet accounts were not reconciling very easily to the detail statements.  After much work on her part, she successfully balanced and closed the month.  She was so excited she rushed to the CEO’s office and exclaimed: “The month is closed.  I am finally done.” 

After thanking her for all of her diligent efforts, the CEO asked: “So, how does the month look?  How did we do?”  The Controller’s response, “I don’t know, but it finally balances.”

This gap in communication was not intentional, but it highlights the difference in both perspective and priority of between the CEO and the Controller.  I have found that CEOs, founders, business owners, and entrepreneurs can sometimes become very frustrated with this gap between the Controller and their perspective. 

A CFO fills this gap in a very unique way.  You see, a CFO knows how to speak in the language of accounting, and a CFO also knows how to speak the language of business ownership and CEO.  We sometimes call this the language of entrepreneurship, too.  This is the reason I made the statement earlier that there are really a limited number of folks who can successfully and productively fill this role.  It is rare when someone can understand and even perform all of the technical aspects of a CFO, let alone the strategic vision and leadership to help the executive team guide the organization to success, too. The combination of these two skills makes anyone ideal for a CFO career. In fact, there are many CFO consultants who deliver CFO services in the role of part-time CFO and business financial consultant.

We often hear that CFOs become CEOs.  I know that this is probably not as frequent as some would hope, but hopefully you can start to see why a great CFO is often a great candidate for a CEO role, and sometimes the best for that role.