There’s a stark contrast between an effective finance chief and an ineffective one. Here are the major differences, reports Cfo.com.
Good CFOs are voracious readers, and we’ve had the pleasure of reading Ben Horowitz’s Good Product Manager/Bad Product Manager awhile ago. As an homage to Ben, we borrowed his format and applied it to the CFO in 2020.
A good chief financial officer (CFO) knows how to communicate, manage teams, and knows the details behind the numbers. A good CFO manages all the areas no one else wants but still needs, including accounting, tax, facilities, insurance, financial planning, and treasury — to name a few.
A good CFO paints a financial picture of the company’s next 12 to 24 months to help the senior executives see the future and plan accordingly.
A good CFO is responsible for cash. He or she understands when the balance will be low and what to do about it (whether to slow down cash burn or raise capital).
A good CFO obtains input from other senior-level executives, helps them understand the needs of the company versus the executive, and architects a financial plan that balances those needs. A good CFO reads the tea leaves of the sales team and the overall market, then helps course-correct to ensure the company has future viability. A bad CFO blames others. “The executives spent too fast.” “The CEO is too optimistic.” “Our board members always think of me as the bad guy.” “VCs won’t give us funding.” “Our strategy doesn’t work.”
A good CFO does the opposite; he or she understands the root cause of what goes wrong by highlighting the issue and proactively providing information to the board of directors, CEO, and other executives who will help them see the path forward.
A good CFO is a great manager. He or she hires all-stars in their respective fields (e.g., accounting, tax, facilities). He or she trusts them to do a great job while maintaining open communication and having regular check-ins — trusting but verifying. He or she has a network of professionals to hire or solicit feedback from in order to make the organization better. A good CFO knows how to delegate since it would be impossible to be an expert in each area under the CFO’s purview.
A good CFO provides a vision of where the finance organization should be in 18 to 24 months to help the company scale and then he or she supports the finance team to get there. Other executives do not consider a good CFO as an accounting expert or a tax expert but as a strategic partner.
A bad CFO gives engineering, product, or marketing advice to the respective executive. A good CFO provides valuable data, insights when another executive is over or under budget, and unbiased analytics that will help solve problems and respect boundaries.
A good CFO speaks visually, with pictures and analogies, not just analytically. Using short, pointed, nontechnical accounting or financial explanations are key to making a point. A bad CFO wraps himself or herself in jargon and focuses on what people can’t do and is always ready to say, “no.”
A bad CFO looks for loopholes and manipulates the numbers to tell whatever story they want. A good CFO has high integrity and factually reports the numbers. He or she is a risk manager and helps manage the lows and highs by anticipating them and providing warnings to the company.
A good CFO plans ahead and encourages staff to tell the truth quickly — whether it’s good or bad news — without retaliation. A bad CFO is continuously in a state of chaos and never wants to hear bad news from their staff. A good CFO acknowledges they don’t have all the answers and engages their team in solving any issues. A bad CFO feels best about themselves when they have all the answers.
A good CFO explains overages and shortfalls methodically, utilizing waterfalls to show the ins and outs of how actuals vary from expectations. A bad CFO will not roll up their sleeves and dig into the nitty-gritty. A good CFO will pick up a piece of trash on the floor when they walk by without saying anything to anyone. A bad CFO acts like a cop and wields his or her power over others.
A good CFO has the highest ethics and acts as the moral compass for the organization, calling out bad behavior without focusing on the individual, all the while holding their team to the highest standard.
A good CFO focuses on shareholder value balanced with employee and societal needs. Discussing the company’s financial picture with all employees creates transparency, helps inform decision-making, and provides context to decisions that were already made.
Rob Krolik is a managing partner at Burst Capital, serves on the board of directors and audit chair of The RealReal and Sun Basket and is an Aspen Institute Finance Fellow. He also teaches a CFO course called, “How To Be A Great CFO.” You can contact him at email@example.com.
Jeff Epstein is an operating partner at Bessemer Venture Partners and a lecturer at Stanford University. He specializes in marketplaces and B2B software companies. He serves on the boards of directors and audit committees of Kaiser Permanente, Twilio, Shutterstock, and several private companies.