CFOChief Financial Officer (CFO) is no longer the only “keep the money” or approved financial statements. In modern business, CFO’s who design and operate the entire system of financial control from cost, cash flow, to risk and compliance, and provide reliable data to the CEO and board leadership decisions.
This article help you properly understand the nature, role, CFOS, by CFO management the process core financial and the way the platform as SmartFin support CFO shipping Finance – accounting from passive to actively control.
CFO is what and Chief Financial Officer responsible for what in business?
CFO (Chief Financial Officer) is Chief Financial officer – the person responsible for the entire financial system of the business. The role of the CFO does not stop at the reporting or guarantee book “standards”, which is ultimately responsible (accountability) for the way money is used, risk be controlled, and financial data is transformed into strategic decisions for the CEO and The board.
In actual operation, CFO’t “do accounting change accounting”, which design and supervision of the financial mechanism for business to operate safely and effectively. The focus is first financial governance – including financial regulation, authorization, approval flow control and principles hosted stain (audit trail). When governance is weak, the risk lies not in individual transactions, which is located in the business can’t prove who is responsible for the financial decisions when there’s a problem.
Parallel with governance is cash flow management and liquidity (liquidity). CFO must ensure that the business is not only profitable on the reports, which have enough money the right time to operation and growth. This is why the CFO can’t just look the P&L, which must track the tight working capital through the index of core as:
- Cash Conversion Cycle (CCC) = DSO + DIO − DPO, reflecting the speed switch from the cost of cash.
- Free Cash Flow (FCF) = Operating Cash Flow − CAPEXand shows the ability to create real money after you’ve invested to maintain and expand operations.
In the array management costsand responsibilities of a CFO is not “cut any price,” which is to establish the discipline of the budget (budget discipline) and to ensure that cost way right of the target strategy. This requires the CFO to look at is the relationship between the budget – actual spending – business results, rather than just aggregate the data after the accounting period.
One pillar to another integral is risk management, financial and compliance. CFO is responsible for ensuring that business ready for audit, tax inspection and the required disclosure. Here, the audit trail is not only required to comply with, which is “proof” protection CFO ago the legal risks and personal responsibility.
Difference between CFO and modern ways of understanding the tradition lies in: CFO not been evaluated by the report can keep up or not, which by the financial system can help businesses make the right decision and early or not the. CFO is ultimately responsible for the system that – from data input, process, handle, until the output information service executive.
When properly understood CFO who is and responsible for what, we can clearly see that the CFO , not the synthetic data, which is the designer and responsible for the entire financial system. From here the natural question is next: CFO stand now in the business and what other than the CEO, chief accountant or Financial Controller on authority and responsibility?
CFO other CEO, chief accountant and Financial Controller at any point on authority and responsibility?
Point core differences between the CFO to CEO, chief accountant and Financial Controller is not located in “who did what”, which is located in , who is ultimately responsible for the financial risk, and efficient use of funds of the enterprise. CFO is the person carrying accountability overall financial; the role remains primarily responsible for in each layer operation, or specific compliance.
CFO and CEO: financial strategy vs strategy overall
CEO responsible supreme about orientation and business results general: growth, market share, organizations, and culture. CFO’t change CEO strategic decisions, but is responsible for “turning strategy into numbers can be in control”.
In other words, if the CEO decided to “go A”, then the CFO must answer is: go that direction, how much would it cost, risk, cash flow, where, when touching the dangerous and need mechanisms to control how. the CFO is responsible when the right strategies, but cash flow separations, covenant is violated or financial risk is not timely warning.
CFO and chief accountant: system administrator vs recorded & compliance
Chief accountant focused on recognition of professional reporting, and compliance with standards – tax – accounting. Responsibilities of the chief accountant often end up in the “data correct, complete and valid”.
Meanwhile, CFO responsible for design control system to ensure the numbers that reflect the business reality and not hide risks. If reporting standards, but businesses still spend over the budget, payment, wrong or not seeing tax risks from early on, the responsibility lies not in the chief accountant, which is located in the CFO.
CFO and Financial Controller: accountability vs control operation
Financial Controller often plays the role control to operate your daily finances,: closing, reconciliation, compliance testing, internal. Controller “ensure the system to run properly”.
CFO is different: responsible if that system is not sufficient to protect business. CFO decided to model control (governance model), decentralization of power, the threshold for approval as well as accept or not accept the financial risk whatsoever. This is the difference between the “operational control” and “responsible for risk”.
Compare quick view liability risks
| Role | Main responsibilities | Liability risks |
| CEO | Overall strategy, business results | Risk strategy |
| CFO | Financial performance, cash flow, control | Financial risk overall |
| Chief accountant | Recorded, reporting, compliance | Risk of accounting errors |
| Financial Controller | Control operation and closing | Process risks |
Look under the prism of RACI and Governance Model, CFO is often Accountable for the financial decisions critical, while the chief accountant and Controller is Responsible for each specific professional. Principle of Segregation of Duties (SoD) is designed not to “make difficult to operate”, which to CFO can demonstrate that risks have been separated layers and control the right place.
When the difference of authority and responsibility are clearly defined, the next question becomes more realistic: to enforce the right that role, CFOS need to operate the core functions in business?
The role of the CFO in cost management business and budget control what is?
In modern business, cost management is no longer “see the end of the month spent how much,” which is to design a mechanism to money only to leave the business when it is in control,. this Responsibility belongs to the CFO. At the system level, CFO not directly browse each item of expenditure, but is ultimately responsible about the all expenses are within budget, is it true purpose and can create value or not.
In essence, the role of the CFO in cost management revolves around a chain closed: budgeting → approved → track food expenditure → the projector and warn. the Budget is not just a number plan, which is “financial contract” between the CFO and the department. When the budget is designed according to cost center, project, or program, CFOS can attach responsibility to spend with each owner-specific, rather than to the cost of becoming “collective responsibility” no one is responsible for the end.
The crux lies in relationships Budget vs Actual. CFO not only look at the total cost, which track deviation cost (cost variance) to understand spending is skewed where and for what reasons. This deviation is usually quantified by the index:
Variance (%) = (Actual − Budget) / Budget × 100%
But numbers only really make sense when CFO look is deviation over time and according to the structure cost of. An account exceeds the budget by 5% in the early states could be signaling greater risk more than exceed 10% at the end of the period, because it shows inertia spending are formed. This is the point where many businesses fail: they discovered beyond cost when the budget was “done”.
The concept of spend under management therefore becomes important gauge of the CFO. Not the total cost of how much that is how much percent of the spending is in flow control standard: have the budget, approval, have the tracking data. Cost is in addition to this section – expenditure incurred folding, chi advance, chi no PO or not associated cost center – was a source of loss and a domestic quarrel.
The big difference between CFO active and CFO is located in the time control,. If the CFO control only after costs have been incurred and are recorded on the books, all measures are fire. In contrast, when control is put up before the time of expenditure, the budget becomes the operating tool not report post-test. When an expenditure about to pass the budget, the system must signal to CFO-level or management decision: adjust the budget, delay costs, or stop completely.
When the budget is operated in this way, CFOS not only “squeeze chi”, but also improve the quality of decision-spending. The parts understand the term financial management has data to prioritize resources, and CFO have a painting costs vivid to connect with cash flow and forecasting. From here, cost management is no longer accounting functions pure, which became a core part of the role financial executive CFO’s.
And also therefore, control the cost effective integral control bills and tax risks – where every item of expenditure should be verified, collated and saved trace in order to ensure medium enterprises optimal money, just safety compliance.
CFO control electronic invoice and tax risk, how to avoid errors and arrears?
In the environment bill electronic mandatory and bars – check tax increasingly tight, the risk of CFO is not located in the “young bill”, which is located in the bills but are not eligible legal, no joint business, or not prove to be the nature deals. so take control bill for the CFO is not administrative work, which is a core part of risk management, finance and compliance.
In the corner of the system, CFO control bills through three main layers: the validity of legal correctness service and tracking capabilities when auditing.
First of all is the validity of legal. A valid invoice not only the right model, the right tax code or tax rates, but also must be associated with a transaction are real and are approved from the competent authority. CFOS need to ensure that the business is not recorded or paid the bill, “the correct form, but the wrong nature” – this is the source of risk arrears, and types of expenses when tax settlement.
Layer control Monday – and is also where created biggest difference compared to the traditional way – is for lighting industry service by the 3-way matching. Instead of just checking bills independence, CFO put the bill on the relationship with the orders (PO) and proof from receipt of goods/services (GR). When this data is no arthritis about the price, quantity, condition, delivery or tax rate, the system must stop and ask for clarification before recorded cost or payment. The mechanism of this help CFOS reduce significantly the risk of fraud, wrong payment and expenses are not tax deductible.
The important point is that CFO can not – and should not – do 3-way matching craft. With hundreds or thousands of bills each month, how to make crafts only guarantee the “can test”, it does not guarantee control the consistency. so much CFO switch to model invoice risk scoring: bill is classified according to the level of risk based on criteria such as suppliers new history deviations, the value big difference in comparison with PO, or other wrong tax rate. The bill high risk inspection is required depth; invoice standard is processed fast not to slow down cash flow.
Grade Tuesday’s audit trail and audit readiness. From the perspective CFO, a bill “safe,” not just bills in the current, which is the bill can exposition back after 1-3 years when the tax or audit questions to. This requires the entire flow of processing – from receiving the invoice, for screening and approval to payment – must be hosted stain full: who handle, when, based on certain grounds. If there is no audit trail, the risk lies not in accounting, which go back CFO with ultimate responsibility.
When the bill be controlled in this way, CFOS achieve two goals at once: reduce the tax risks and accelerates the processing of cost. Businesses no longer have to choose between “secure” and “fast”, because the system has automated the test section to repeat, for people to focus on judgment and decision.
And also from here, the role of the CFO continues to expand to the payment of the greater of: cash flow and debt. Because even though the bill has the right to where, if the slow money or pay the wrong time, financial risks still exist – that is the next challenge that the CFO must solve.
CFO management receivables – payables to optimize cash flow like?
In the corner look CFO, public debt is not just “list a customer hasn’t paid” or “supplier unpaid”, which is the lever directly of cash flow and liquidity, business. Administration, public debt effectively synonymous with the CFO control is time money in – money out, instead of just looking profit figure on the report.
In principle, CFO approach the problem of public debt through two main axes: the credit policy and discipline for income and expenditure. With public debt receivable (AR), CFO design credit policy according to each customer group, sales channel or level of risks, clearly define the term of payment, conditions of the discount, as well as consequence when overdue. With accounts payable (AP), CFO balance between taking advantage of maturity to hold cash and maintaining credibility, avoid a disruption in the supply chain.
To administer two axes this in a quantitative, CFO can not ignore the indicator core. DSO (Days Sales Outstanding) reflecting the average number of days business earned money from customers, while the DPO (Days Payable Outstanding) to know the business how long does it take for payment to suppliers. When placing these two metrics in paintings Cash Conversion Cycle (CCC), CFO seen clearly businesses are “custody” where the money is, and for how long. A DSO quickly increase or DPO sudden decrease are warning signals about pressure on cash flows, even when the revenue is still increasing.
However, the difference between CFO operate well and CFO slow response lies in the way data handling public debt. If AR/AP only be updated by any accounting, CFO always a decision based on data latency. Conversely, when public debt is for constant control, mounted with bill status and payment schedule fact, the CFO can actively adjust credit policies, prioritize recovery of the account, high risk, or re-negotiate terms with suppliers to protect liquidity.
In fact, the biggest challenge lies not in recipe DSO or DPO, which in transaction volume and dispersion data. , issuing invoices from multiple systems, payment status heterogeneous historical exchange with customers scattered, causing the control medium slow medium easy wrong. This is the reason CFO increasingly rely on automation to turn governance debt from work post-test of the operating mechanism.
More importantly, when the DSO is continuously monitored and associated with each credit decision, CFO’t just “collect money faster”, but also more accurate forecast future cash flows. This creates a bridge directly to the FP&A and forecast, place CFO no longer look at the debt as historical data, that as a variable, active in the financial plan.
From here, governance, public debt is no longer the mission, the career of accounting, which become strategic tool to help CFO optimal Cash Conversion Cycle and maintain liquidity in all growth scenarios.
Why CFOS need FP&A and EPM to connect the actual data with the forecast?
In many businesses, ERP doing so good a work: recorded data has occurred. , But the problem of CFO rarely lies in the question “months ago we spent how much”, which is located in the question “with the current trajectory, 3-6 months the business will be in a state of money and risk and how”. This gap is why CFOS need FP&A and EPM.
In essence, FP&A (Financial Planning & Analysis) is the function help CFO variable data accounting past (actuals) into decision-making information for future. EPM (Enterprise Performance Management) is system support FP&A to operate at a large scale, with the ability to plan, forecast, analysis of disparity and simulation scenarios in a more flexible way than ERP.
The key point that many businesses overlook is the relationship Plan – Actual – Forecast. plan (plan) is only valid when was collated continuous with the actual data (actual) and forecast (forecast) only when exactly reflect the inertia operating current. ERP is usually just stop at “actual”, while the CFO need an intermediate layer to reply: this gap to where there are structural or just one time, and if this trend continues, then the impact on cash flow, profitability will happen to you?
Therefore, rolling forecast become important tools of CFO modern. Instead of setting up fixed budget once a year, CFO constantly updates the forecast by quarter or by month, based on the latest data. This is especially important in the context of cost fluctuations, revenue, difficult to predict and line pressure high. Rolling forecast help CFO not “locked” into a plan was outdated, that the regulator’s decision, according to ongoing practice.
Further, scenario planning allows CFO answer the question “if – then” that ERP is not designed to handle: if the revenue decreased by 10%, if the financial cost increase, if the time to collect money extended by 15 days, the business will impact what and the need to act now. This is at FP&A and EPM transfer CFO from role reaction to the active role that direction.
To FP&A and EPM promote values, a prerequisite is the actual data must clean enough, fast enough, and enough consistency. In fact, many CFO trouble because of cost data, bills, debts and fragmented, updates are slow or do not properly reflect the operating status.
When data actuals have been controlled and updated near real-time CFO can connect them into EPM to analyze, Plan vs Actual construction, rolling forecast and simulation script directly on the same background data. At this time, FP&A is no longer “exercises Excel end of month”, which becomes the system of decision-making live, fastened to operate your daily business.
In summary, CFO need FP&A and EPM is not to replace the ERP, which to stretch the value of ERP data into the future. When actuals are well controlled and forecast is updated constantly, CFO new really has the ability to forecast risk, allocate resources and support CEO decision-making in a dynamic environment. From here, the conversion of Finance is no longer the slogan, which became a competitiveness really.
CFO modern need the capacity to lead the transformation of financial?
CFO modern no longer be judged only by the accuracy of the reports or the ability to control short-term expenses. Core competencies of today’s CFO is located in the design and operation of a financial system able to adapt, where data, processes, and technology are connected to serve a decision fast and right.
First of all, CFOS need capacity in strategic finance – instant ability to see finance as a strategic tool, not the support department of logistics. This manifests itself in the way a CFO involved in the decision to expand the market, investment, the price structure or business model, based on the impact to cash flow, risk and profitability long-term. A CFO good not only answers the question “how much does it cost”, which must answer is “change the business received and what the risk is, where is”.
Besides, data literacy becomes the capacity required. CFO without writing code or building model complex data, but to understand the data generated from where reliability to any extent and is used in the decision. When businesses have multiple systems – ERP, CRM, banking, electronic bill – CFO must understand to asking the right questions: this data reflects reality or is only the result of a process input is not in control? The ability to “read data” this helps CFO distinguish between the dashboard and dashboard reliable.
Factors that Tuesday is the automation mindset – of thinking automation. CFO modern non-optimal Finance by increasing the personnel to handle the volume of work is growing, which by process design stars for the repeat is automated, people still focus on analysis and control. Thinking this help CFO shipping Finances from a state of reaction (running under the bill, the debt settlement) to mode active (difference detection, early intervention, forecast).
In summary, CFO modern is the intersection of three competencies: financial strategy, understanding data and thinking automation. Switch financial does not start from the purchase of additional software, which start from the CFO redesign of the enterprise, control of money, risk and information – and use technology to turn that design into operate every day.
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Source: bizzi.vn
