Chief financial officer

What it means

The CFO, chief financial officer, is the executive responsible for all of a company's financial matters: planning and budgets, funding, cash management, reporting, tax, risk and relations with banks and investors.

Unlike the chief accountant, who ensures records and statements are correct, the CFO looks ahead: preparing the financial plan, appraising investments and helping directors decide on the basis of numbers.

Accounting, controlling, treasury and often IT or purchasing report to the CFO. In smaller firms the managing director covers these tasks with an external accountant or a fractional CFO.

How it works in practice

A company needs a CFO mainly when it grows, seeks a loan or investor, or prepares an acquisition or sale. Knowing last year's figures is no longer enough; the future must be modelled and funders negotiated with.

The CFO sets up monthly closes, cash flow visibility and the indicators management steers by. They work with auditors, tax advisers and lawyers on significant transactions.

The CFO's pay is a personnel cost. If the CFO is also a managing director, remuneration for the office and for employment must be distinguished because of contributions.

What to watch out for

The most common mistake of growing companies is strengthening finance too late. By the time a cash shortage is noticed it may be too late for a loan, so financial management is best built before a crisis.

The CFO is responsible for the accuracy of information given to banks and investors. Embellished plans or hidden risks can breach contractual representations and create personal liability.