The Difference Between a Chief Financial Officer (“CFO”) and a Finance Director (“FD”)

The-Difference-Between-a-Chief-Financial-Officer-and-a-Finance-DirectorThe pedantic answer to the above question (and let’s face it, we all love an occasional bit of pedantry) is that in very large businesses, where there are teams of people working on financial matters, the CFO is the most senior person within the finance organisation and the FD will be the most senior accountant in charge of day-to-day finance operations. The next two sections of this article will flesh out the key responsibilities of each role.

What Does a CFO Do?

A Chief Financial Officer oversees a company’s financial operations. They work together with the Chief Executive Officer (“CEO”) and sit with the senior management team. The CFO job description varies from one organisation to the next but generally includes the following responsibilities:

  • Developing financial and tax strategies.
  • Monitoring and directing the implementation and execution of business plans.
  • Researching economic trends and identifying revenue opportunities.
  • Forecasting staff and capital requirements.
  • Establishing functional objectives.
  • Analysing variances and identifying areas requiring improvement.
  • Determining investment strategies.
  • Ensuring senior management is aware of trends and challenges within the business

The CFO is required to manage a team of financial managers, set up the company’s finance IT system and manage vendor relationships. Depending on the type of organisation, they may also need to supervise all finance personnel and monitor banking activities. Their primary goal is to drive the company’s strategic financial planning and support its efforts to grow and secure new business.

What Is the Role of a Finance Director?

In organisations where there is a CFO, FDs have similar responsibilities to CFOs, but are not part of the senior executive team. Their role is to oversee and direct the company’s financial operations and report to the CFO. They strive to create a solid foundation upon which an organization can grow. Business professionals who fulfill this role focus on the financial aspects of a business. They are responsible for:

  • Analysing and planning the budgets for each department, feeding back usable analysis to managers within the business
  • Ensuring all the company’s financial activities comply with the law.
  • Monitoring cash flow and financial transactions.
  • Setting up and leading finance teams.
  • Assisting the CFO and CEO with presenting reports to investors.
  • Assessing the company’s spending and implementing strategies to cut costs.
  • Forecasting financial trends based on data analysis.
  • Implementing internal audit programs.

In smaller and medium sized businesses, the distinction between the two roles can become academic as in practice the entity will simply have one person combining both roles.  Those businesses that prefer more traditional titles would have a senior team including a Managing Director (“MD”), an FD and an Operations Director.

For those businesses that prefer more cutting edge job titles, the equivalent roles would be a CEO, a CFO and a Chief Operating Officer (“COO”).

The titles may differ, but the job descriptions would be comparable, and so in the real world, in many cases the titles are interchangeable.  The key thing to focus on is therefore not the job title, but the work that needs to be performed to ensure business leaders have the insight and funding available in order to allow the business to grow and flourish.

Where an Outsourced FD adds value

Many growing businesses may start out by having an in-house Management Accountant or Financial Controller, who will be able to deal with many of the business’ day to day requirements but may not have the strategic overview of analytical skills to fully interpret the management information the organisation produces.  They may also not have the experience to identify what information should be being provided to managers and this is where a part time FD can really add value.

An Outsourced FD provides you with:

  • Oversight – enhancing your understanding of the numbers and helping you see what’s truly going on in your business.
  • Insight – reviewing and challenging management accounts (being a fresh pair of eyes) and analysing historic numbers to provide actionable commentary.
  • Horizon-scanning – considering the results to identify what might be approaching, looking for the risks, threats, opportunities and challenges, enabling contingency planning to take place.
  • Forward planning – working with you to look forward, project your numbers and get a clearer view of the likely landscape 6 months, 12 months or 2 years down the line.
  • Experience – the ability to tap in to expertise built up over a career, avoiding having to re-invent the wheel

Your Outsourced FD and trusted advisor

At EFM, we’re here to help you understand the risk profile of your business. We can support, advise, challenge and mentor your finance team to help the team to develop and for the business to thrive.

You probably won’t need a “pure” CFO on day one when you’re just starting out on your business journey, but as you grow and the scale of the business increases, you will need to delegate and build a team around you if you wish to stay in control of your finances and operations. EFM can help here by providing a cost-effective resource to get you that commercial oversight, allowing you to call off the level of support you require (dealing with ad-hoc project work as well as recurring needs) avoiding the commitment to a full time employee.

Every client is unique, and the FD support EFM provides is tailored to fit each business. We’ll help you get to grips with your business finances and provide the support you need on the ground, up at high level and if required, remotely – giving you the best possible view from all angles.

If you’re interested in finding out how our portfolio, nationwide team of finance professionals can help to support your business, get in touch today!

Do you have a burning question that needs an answer? Our Finance Director on Demand helpline is designed to give you quick and practical guidance so that you know which direction is the right one for your business.

Contact our central team via email or call 01582 256122.