Why I don’t call myself a CFO

(And, why you should be careful when hiring a CFO)

Being a Chief Financial Officer is trendy

Being a fractional Chief Financial Officer is really popular right now. Five years ago, it was practically unheard of. Everyone was accountants, bookkeepers, controllers, tax practitioners, or CPAs. Then, suddenly, everyone became a small business CFO.

The shift started when the industry began moving towards higher-value advising services, a few years ago. Accounting tech had simplified a lot of basic, tedious tasks. And, accountants had more available time to take on more interesting advising work and needed to differentiate themselves from the DIY tech.

A few accounting gurus (yes, accountants have gurus too) took it a lil too far. They suggested that accountants should call themselves CFOs because it sounds more impressive, forward-thinking, and higher-value than accountant does.

But, CFO (and CFO services) has a definition. And, a lot of these newly minted CFOs don’t actually provide CFO-level services. They provide the same outsourced accounting services, basic reporting, and rudimentary advice that your average accountant does, but they call themselves CFOs and charge more. They’re playing dress-up and billing clients twice as much.

This rebranding is similar to how marketers suddenly became ninjas, Jedi, and growth hackers. But, there’s one big difference: CFO is a real title with a real definition and real clout. The average business owner can’t tell that the CFO they hired isn’t a real CFO, but just a tongue-in-cheek rebranding. Meanwhile, they could probably tell that their marketer isn’t really a Jedi.

At best, co-opting the CFO title is a well-intentioned shift in the accounting industry as we transition toward consulting services. At worst, it’s intentionally misleading clients to increase fees without providing additional value.

Either way, I think it’s a load of nonsense😒

What exactly does a Chief Financial Officer do?

Wikipedia defines a CFO as:

The chief financial officer is the officer of a company that has primary responsibility for managing the company’s finances, including financial planning, management of financial risks, record-keeping, and financial reporting. In some sectors, the CFO is also responsible for analysis of data.

Let’s unpack that a bit tho. A CFO does 6 things (reordered from basic accounting to CFO-specific service):

  • Recordkeeping

Recordkeeping (frequently called bookkeeping) is the most basic level of accounting. Without good recordkeeping, you can’t make educated financial decisions, apply for loans, take on investors, or file your taxes. Even the most basic, tongue-in-cheek CFO will do your recordkeeping.

The big difference is that a true CFO will almost never do the recordkeeping themselves. Recordkeeping is way below a CFO’s pay grade and large companies will usually have multiple bookkeepers on staff to do it. Even CFOs of smaller companies (or part-time/virtual CFOs) won’t do the recordkeeping themselves. These CFOs will typically employ a part-time bookkeeper or outsource the work to a bookkeeping/accounting firm.

  • Financial Reporting

Financial reporting is the next step up from recordkeeping. The data that was previously organized by a bookkeeper will then be assembled into financial reports. Nowadays, most accounting software can generate basic accounting reports from your financial data. Most fake CFOs will provide just these reports.

A real CFO will provide much more extensive and thorough financial reports. The reports assembled by CFOs will strictly follow either GAAP or IFRS rules and include cover letters, footnote disclosures, and other required additional information. These reports are much more advanced than the reports generated by basic accounting software. (Although, those basic reports may be more than enough for your business!)

  • Analysis of financial data

Analysis of financial data is what it sounds like: taking those reports and underlying financial data and analyzing them.

This is where we’ll start seeing the divide between fake CFOs and real CFOs. Your average small business accountant does not analyze financial data for clients. They won’t help you understand what your reports mean, they won’t explore more complicated reports, and they won’t give you their educated opinions. At best, they’ll sit with you and read through the reports with you.

Financial analysis is where CFOs really start to shine. They will walk you through your numbers, get into the nuanced details, and help you better understand your finances. They’ll also assemble and analyze some of the less prevalent reports (like cash flow forecasts) because they provide important information.

  • Financial planning

Financial planning is taking all the previous reactive steps and creating a proactive plan. Your accountant or fake CFO usually won’t help you financially plan unless you’ve specifically requested and paid for it. But, it is a crucial part of a real Chief Financial Officer’s job. They’re expected to make proactive financial decisions for the company.

A true CFOs financial plan will be very in-depth. At a minimum, it will include budgets, cash flow forecasts, and other forward-looking reports. They may also do scenario planning and calculate the return on investment of potential new ventures. They’ll also help raise funds for these future investments by securing loans or courting new investors.

Lastly, they’ll help make decisions about issuing new shares of stock or declaring dividends.

  • Manage financial risks

Managing financial risks is an important part of financial planning. And, even if you’ve asked your fake CFO to help with financial planning, they probably won’t help with managing risks. Managing financial risks requires an in-depth understanding of your business, its finances, and the economy.

A CFO will always be on the lookout for potential financial problems. They’ll plan for economic downturns, financial emergencies, and cash crunches. Their plans can be as simple as making sure your business has an available credit line and as complex as detailed reports on surviving a crisis.

  • Part of the management team, board, and responsible for financial decisions

Chief Financial Officers are part of the management team and, in a lot of cases, sit on the board of directors. They don’t just provide information and advice. They play a very active role in making decisions and have a much greater vested interest in the company’s future.

Because they play such a large role in the company, CFOs are also responsible for their decisions, the company’s finances, and the employees they oversee. If something goes wrong, it’s their job to correct it.

How do I differ from a CFO?

I fall somewhere in between the average accountant and CFO. On one hand, I’m in the trenches handling compliance work (eg, taxes, accounting, payroll) for my clients. But, on the other hand, I’m also giving advice and part of the decision making process.

But, let’s get specific. Like, really specific. What IS the difference between me and a Chief Financial Officer?

  • Recordkeeping

I handle recordkeeping for many of my clients. I call it outsourced accounting. That means I’ll categorize all your transactions, reconcile your bank and credit card accounts, and organize your data

  • Financial Reporting

I prepare basic reports (eg, Profit and Loss, Balance Sheet, etc) for all my outsourced accounting clients and more advanced reports (eg, Growth Forecast, A/R Aging, etc) as clients need them.

When I prepare financial reports, they are management reports. They’re intended to be used to make decisions and prepare your taxes. They are not GAAP or IFRS reports, attested and signed reports, and don’t include any of the myriads of disclosures you may need when providing reports to potential investors or for very large loans. (The majority of my clients will never ever need those kinds of reports tho.)

  • Analysis of financial data

Accounting and financial data gives you amazing insight into your business. That’s why I go over my clients’ accounting and financial data with them and help them truly understand what’s going on behind the scenes. Typically, I’ll touch on the major revenue and expense categories, talk about the trends I’m seeing in them, and what that might mean to your business. 

 By understanding your financials, you can make better-educated decisions based on facts about your business instead of blindly guessing.

  • Financial planning

I help create proactive financial and strategic plans. My financial plans typically include: a growth forecast, cash flow best practices, and quarterly rocks to help improve your finances. My strategic plans typically include: a strategy roadmap, one-page business summary, and a list of action items that we’ll build on as you execute the plan.

My plans are not super-duper CFO in-depth. I don’t create a bound booklet of reports and projections that run through all the possible scenarios. I think those presentations make sense in big business, but are overwhelming and unnecessary for most small businesses.

Also, while I help some clients raise funds through loans or investors, it’s on a case-by-case basis for clients I have a history with. If you want to raise serious funds through investors, venture capitalists, or large loans, you may need a CFO or someone who regularly helps with those situations.

  • Managing financial risk

I push clients to save, build emergency funds, save for retirement, and put their businesses in healthy, financial positions. But, since I’m not embedded in your business, I can only lead a horse to water. Clients will also need to take steps to manage their financial risk.

A CFO would create and oversee a more detailed financial risk management plan. They’d introduce more detailed preparedness for specific situations while I create general, overall financial health so you can weather a storm.

  • Part of the management team, board, and responsible for financial decisions

I help with the decision-making process. But, I’m never a responsible member of the management team (under one of the standard monthly plans). You’ll probably still be making plenty of decisions without involving me.

I am a part of some management teams and boards (board of directors or advisory boards), but those are custom engagements.

Wrapping it all up

The point is, be careful who you hire. Make sure your CFO is really a CFO and not just a glorified accountant with a big invoice.

I don’t call myself a CFO because I don’t provide CFO-level services and using the moniker would just be disingenuous.

What I do is a great fit for many agencies, but I’m under no illusions about my services. And, frankly, I don’t have to misrepresent myself to create fake expert authority. If you want to learn more, please check out the other articles on this site and join my free newsletter!

P.S. If you’re one of those fake CFOs, you can send your hate mail here: michael@restingbusinessface.com 😘

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