What Is the Difference Between an Operational CFO and a Strategic CFO?
Strategic CFOs and operational CFOs can both be valuable additions to your company. But while both positions occupy many of the same responsibilities, there are some key differences you should be aware of when deciding which one fits your company best.
Operational CFOs typically aid your company in the procedural and operational aspects of your finances. They examine what methods are working for the business and the methods that are failing. Strategic CFOs, on the other hand, are more concerned with your company's overall financial strategies and how they will play out in the long-term to affect your business. Both of these positions have critical functions, and this article examines some of the differences.
What Is an Operational Chief Financial Officer?
Operational CFOs develop more holistic approaches to your company operations rather than strictly focusing on cash flow. This is because operational CFOs have a deeper understanding of how your company creates processes and systems. This gives them a deeper understanding of how cash flow can be affected by operational risk, reporting methods, and accounting functions.
Financial management skills are critical for the long-term success of any company. Traditional CFOs can tell you the exact costs you stand to incur from business decisions but operational CFOs will be able to give you more context around what the figures mean for the overall financial health of your business. They can check for inefficiencies and search for ways to reduce expenses. This added layer of analysis will save you time and money.
What Is a Strategic Chief Financial Officer?
Just like an operational CFO, strategic CFOs will understand your financial operations inside out. However, strategic and operational CFOs will have different objectives and job initiatives. Operational CFOs are concerned with past and present analysis but strategic CFOs are more concerned with future objectives. Strategic CFOs work closely with chief executive officers to develop goals for companies for their next three, five, and ten years. These financial initiatives come in the form of launching new products and services or deciding what capital the company should focus on procuring.
How Are Operational and Strategic CFOs DIfferent?
Operational CFOs and strategic CFOs share some responsibilities but they are quite different in a lot of respects. Operational CFOs help companies fully understand their procedures and how they affect the overall financial health of the company. Operational CFOs can help you:
- Understand your company’s operations.
- Provide you with long-term financial planning.
- Eliminate unnecessary spending.
- Increase your ROI.
- Identify ways to improve the efficiency of your operations.
- Understand the full scope of your company’s financial operations.
Strategic CFOs can help in the following ways:
- Understand your company’s profit trends and how they can impact the future of your business.
- Determine areas where your business should either contract or expand.
- Provide information and analysis regarding all of your strategic objectives.
- Provide information and analysis for strategic decisions.
- Analyze areas where your business can expand further.
- Predict company future growth.
When Should You Hire an Operational CFO?
You should hire an operational CFO during times when you need to assess your company’s efficiency and production methods. The business intelligence operational CFOs provide can help mitigate your financial risks and they will also help you deal with merger or acquisitions. Dealing with liquidation or equity and debt negotiations will always be a challenging situation. Operational CFOs can help simplify these processes.
Why Do You Need Strategic CFOs
Strategic CFOs can provide a roadmap to your company's future while providing a strategy for your CEO to improve your company’s profitability. Strategic CFO services also provide stakeholders with the assurance that your finances are stable. With a strategic CFO, existing stakeholders will be able to invest more money into the company while helping you acquire new investors.
Signature analytics identify the advantages of hiring operational or strategic CFOs, but if you run a small to medium-sized business, you might feel like an executive is beyond your budget. One solution is outsourcing your CFO position, which gives you the opportunity to scale your business. With strategic outsourced CFO services, you avoid the expenses of advertising, interviewing, vetting, and training new staff members. You also gain confidence that you’re working with fully qualified professionals who specialize in various industries.
Deciding whether a strategic or operational CFO is right for you will come down to where you need the most attention. If your company is having trouble preserving its cash flow and operational inefficiencies are hindering its profitability, an operational CFO might be the best option. If your company is lacking foresight into the strategic initiatives that will help it take control of its future progress, then a strategic CFO should offer the most benefits.
What Questions Should You Ask Your Strategic CFO?
Below are some of the questions you should consider asking your CFO if you plan to optimize their services.
How Can They Help You Grow Your Company?
You should ask your prospective CFO whether they plan to grow your company using organic growth, M&A, or a combination of both. Your prospective CFO should understand the plan that fits your growth needs. After choosing the right plan, your prospective CFO should ensure the capital is available at the right cost for your choices to be profitable.
What Constraints Hold Your Company Back from Achieving Success?
The dominant issues your company faces must be brought to light if you are going to achieve success. Prospective CFOs should be able to identify these constraints and communicate them to you clearly and effectively. For example, if your company has a heavy debt burden and is paying interest rates at more than twice the rate available to your competitors, it should consider shifting. The prospective CFO should be able to lay out the plan in a clear and concise manner.
What Is the Greatest Uncertainty Your Company Faces?
Prospective CFOs should be able to look at your company and identify the weakest point so you can achieve results quickly and measurably. Whether your company faces problems with its operations or overall financial strategy, a CFO such as Fully Accountable should be able to identify your weak points and create strategies that eliminate those weaknesses.
Conclusion- What Is the Difference Between an Operational CFO and a Strategic CFO?
Operational CFOs are more concerned with how your operational inefficiencies and procedures can hinder your financial progress. Strategic CFOs, on the other hand, will be more concerned with your overall financial strategy. They will identify long-term financial directives that can improve your company’s financial stability and performance.
Choosing one or the other comes down to how well you can identify where your company lacks. If your company has efficient operations and procedures but struggles with financial vision, a strategic CFO will likely be the most important need. On the other hand, if your company has a well thought-out vision for the future but struggles identifying operational inefficiencies, an operational CFO will likely be the more important need.