Traditionally, the role of a CFO is one involved with reporting, controlling the treasury, preparing for an audit, supervising capital structure, and compliance. Today, those roles have expanded to include capital allocation and portfolio management, investors relations, and performance management.

In recent years, the role of the CFO has broadened. Lines between certain responsibilities have blurred, resulting in a more diverse role falling generally between two broad categories, those of financial and strategic. In other words, the CFO is not only concerned with overseeing finances but has evolved to be responsible for improving those numbers.

In this article, we differentiate the financial CFO from the strategic and understand what kind you need in your business.

Operational Financial Leadership

An operational CFO is someone with a thorough understanding of the operations of the company. They focus on company processes and how you can optimize your finances and lean out your processes. Their role includes understanding cash flow, sales revenue, government payments, or inventory costs. An example of the application of their role is when you want to determine product costing. An operational CFO is able to create a budget and provide insight into the widget cost for the company. They can calculate the profit at year-end and spot opportunities for cost-cutting. 

Their main function is to take historical and present data, translate them into valuable reports to determine the financial position of the company and reduce operational costs.

Strategic Financial Leadership

This CFO is focused on formulating an all-around financial plan for the company. While they are able to perform the functions of an operational CFO, their focus is on applying financial information and analysis to future goals.

A Strategic CFO works closely with the CEO and is the bridge to the rest of the company. The data they use is collected from internal and outside sources to make strategic and competitive advantages to the company.

This role includes making decisions such as product pricing, developing new partnerships, making supply chain innovations to reduce unit cost, and prioritizing the company’s long-term growth.

Distinctions

While the Operational CFO handles past and present data, the Financial CFO is forward-looking.

The purpose of an operational CFO is to understand the operations of a company, identify redundancies and create efficient operational processes. This is accomplished by spotting areas for improvement and cutting costs. The strategic CFO on the other hand, sets futuristic goals by providing insights and analysis to direct the growth of the company.

The operational CFO focuses on the daily operations of the business, the strategic CFO focuses on the overall financial position of the company. One focuses on short periods of time while the other focuses on the long-term.

While the operational CFO focuses on one department at a time, the strategic CFO focuses on the whole.

Choosing the one right for you

Before you decide, you need to understand what your company requires. If your company needs someone who can assess its efficiencies, go for an operational CFO. If you need someone to evaluate financial risks or develop resource allocation strategies, a financial CFO is a better fit.

Either way, with Mehanna Advisors, we can help you arrive at an initial diagnosis of your business and help prioritize what your business needs.