The Changing Role of the CFO

Today, finance departments are no longer filled with CPAs who simply crunch the numbers. More frequently, finance departments and their leaders are taking on a more dynamic role. We sat down with Bill Tobia, LLR Partners’ Managing Director of Strategic Finance, to discuss how the role has changed. Bill recently published an article, A CFO’s Ideal Approach to Talent Management, which discusses best practices when hiring professionals in and around the finance function. Bill is a former CFO of several private equity-backed businesses and currently supports the growth of LLR’s portfolio companies. Middle Market Review had a chance to sit down with Bill to understand what has changed, how managers are reacting to those changes, and what CEOs and CFOs should be looking for when hiring for various finance positions.  

MMR: How has the finance discipline changed over the years?

Bill: The CFO position has become much more important for small and medium-sized businesses. There’s been an evolution. In the past, many companies had a chief operating officer and a chief financial officer. Today, many are choosing to combine those roles with the understanding that the CFO needs to be more familiar with the operations of the business.

“In the past, many companies had a chief operating officer and a chief financial officer. Today, many are choosing to combine those roles.”

While CFOs and finance teams have historically focused on reporting and accounting, now it’s critical that the CFO bring more to the table, including insight into what the company’s financial and operational metrics mean for future results. Finance folks now have an ongoing, strategic role in the operational side of the business.  

MMR: Are you surprised by the evolution of the role?

Bill: Some finance people don’t understand it or appreciate it, so they can be reticent to the evolution that’s taking place. Small companies are used to having a bookkeeper and then maybe a controller, but CFOs today really need to provide insight, not just the data. Data needs to be turned into actionable items today. Good CEOs will gravitate toward CFOs that are ready for this change. CEOs should look for CFOs who are curious by nature.  

First time CFOs can struggle with this change and for years their role was stigmatized. People used to think the CFO was there to tell you there isn’t enough budget when you needed something or to simply report financial results after the fact. Today’s CFOs must break away from the number-cruncher stereotype and think of themselves as more of a strategic player in the company. CFOs today need to be creative, understand best practices, and know how to create more value for the company. There will always been a need for someone to balance the books, crunch the numbers, and perform critical routine tasks but the CFO role is much more dynamic today.

MMR: What is required of today’s CFO?

Bill: I like to say that a CFO should make it their mission to elevate the performance of everyone else in the company. They have access to all types of data. The question CFOs should ask of the other business leaders is, “How can I help you do your job better?”

For one thing, this forces the leaders to think about what information they could use to be more successful. More importantly, it opens the dialogue between finance and operations, and it fosters better flow of data between areas of the business.

In the past, a CFO may not have tracked things like how many phone calls a customer service rep can take in an hour or the defect rate in the R&D software delivery process. However, when you start talking to people, asking questions and delving into operational matters, you learn and come up with ideas to help. Also, if your operational business leaders have a partner in crime when solving a problem, it just feels better. You stop feeling like the problem is insurmountable.

MMR: What are the key qualities you want in a CFO?

Bill: Everyone needs to have the technical capability to do the job. Beyond that, I think curiosity is the most important attribute. You want a curious person who will challenge the status quo of the whole organization. They should not be afraid to ask questions and talk to everyone in the company.

Data savviness is my next favorite subject. It’s not just about getting the numbers anymore. It’s about understanding them and turning the data into actionable items. The data will tell CFOs what’s working, what isn’t and perhaps guide the company on the path forward.

People skills are also so important. CFOs don’t have to be the life of the party, but they need to be chatting with people throughout the organization. It will help them better understand what is going on within the company and could generate ideas on how they can help. The CFO is really the facilitator of the business and they must have a relationship with others across departments. As an example, understanding what it’s like to take an angry customer call and then the underlying issues that caused the complaint may spark ideas on how the finance team — or the data they have access to — can help solve the problem.

MMR: How do you spot these qualities?

Bill: It’s not easy, but if they aren’t asking questions during an interview process that’s a bad sign. I also think if you aren’t making mistakes you aren’t trying hard enough because the truth is many ideas will fail. Look for a CFO who is smart and humble enough to revector when things aren’t working, and seek out examples of how a CFO candidate has done that in the past. CFOs have a stereotype of being smart. They should still be smart, but not arrogant. If you have to work with someone all day, you want it to be with someone you want to be around.

MMR: How can having the right CFO in place help when it’s time to sell your company?

Bill: The right CFO will guide the company during the process. They should start preparing for an eventual exit from Day 1. Keeping the data room current is particularly important so you can communicate with certainty that you understand the business and allow the buyers and sellers to focus on the big picture, the core reasons to complete the transaction. This provides more confidence in value and time certainty.