Controller vs. CFO: Which One Do I Need?
What’s the difference between a controller vs a CFO? Many business owners and CEOs have a common misconception that the role of a chief financial officer (CFO) and a controller is more or less the same. Even though both have their own unique skill sets, many people confuse their roles and end up hiring the same professional for both roles to keep the administrative costs low.
Both controllers and CFOs come from an accounting background and start off as accountants, but they part ways later in their careers. When an accountant becomes exceptional in financial reporting and becomes capable of handling many activities and managing people, they might be offered the position of a controller. A controller’s role extends beyond the skills of a bean counter or simple functional tasks, yet it remains confined to the accounting department.
An accountant can’t become a CFO just because he spent years working as an accountant. A person may have developed incredible accounting expertise with experience, but to advance to a CFO position, their skillset must be much broader.
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It’s important to understand the differences between the two roles to realize the value created by each. Before we dig deeper into the controller vs. CFO debate, let’s study the description of each role individually:
The Role of a Controller
A controller is a senior-level executive who serves as the head of the accounting department and supervises financial reporting, such as the preparation of financial statements.
They assign duties to accountants, make sure that reports generated are accurate, analyze data, and issue reports to the CFO for decision-making.
Apart from this, they are also responsible for monitoring internal controls, carrying out compliance audits, taking part in the budgeting process, and reviewing the financial data at varying depths.
In fact, they may also evaluate and select the technology to be used for accounting or other related functions in the company.
Hence, you need to possess extensive experience in accounting to become a controller. To demonstrate your expertise in the field, you typically also need an advanced degree in accounting.
The Role of a CFO
A CFO, or chief financial officer, takes care of the complete financials of the company. They’re involved in financial planning and are responsible for tracking the cash flow situation and examining the organization’s financial strengths and weaknesses.
A CFO is like a treasurer as they manage and control the financial health of the company, proposing any corrective actions as and when required. Since it’s a strategic role that requires critical thinking, an accountant needs a broader skill set to grow and become a CFO.
The role of a CFO is not confined to the finance department. Their financial and accounting expertise allows them to make decisions that impact the business as a whole. Therefore, they work with all departments to decide how the financial system and operations go hand in hand.
A CFO examines the accounting data issued by the controller, offer financial oversight, and make decisions that will help the business grow and manage risks.
While the exact duties of a CFO vary from one company to another, they typically take care of financial analysis, forecasting, planning, devising solutions, raising funds or financing, coaching other financial professionals, and implementing planned strategies.
Hence, CFOs are forward-thinking strategists rather than just financial reporters. To become a CFO, you need to demonstrate that you’re a critical thinker and strategist that the organization needs for growth and long-term success.
Differences Between Controller and CFOs
Here are some key differences between a controller and a CFO:
Differences in Costs
According to PayScale, the average salary of a controller in the US is $81,627. The estimate is made using the anonymous salary submissions by small and large enterprises on PayScale.
Yet, it’s important to know that salaries can vary, depending on the location, education and professional qualifications, and work experience. Apart from the base salary, controllers are also compensated through profit sharing, commission, and cash bonuses amounting to $20,000 a year, on average.
A CFO, on the other hand, is paid $130,872 a year in the US, on average, as stated by PayScale. Again, the average varies based on the education and experience of the professionals as well as the geographical location. The average additional compensation for CFOs in the form of profit sharing and bonuses is around $40,000 a year.
Thus, a full-time CFO costs 1.5 times more than a full-time controller. As future-oriented strategists, CFOs add more value to the company and work toward business growth.
Not only do they oversee the accounting and finances of the business, but they also have a say in how other departments can contribute to the long-term growth and success of the company. So, it shouldn’t come as a surprise that they are better compensated than controllers.
Differences in Duties
While we already looked at the roles of a CFO and a controller, let’s compare them closely. While CFOs have a strategic stance, the role of controllers is tactical.
A controller manages the functions and people for everyday bookkeeping and produces reliable and accurate financial statements for a specific period. On the other hand, a CFO supervises the financial as well as the operational side of the business and uses the financial statements to predict business outcomes and devise a growth strategy.
The main focus on a controller is to ensure accuracy in financial reporting and tax compliance and may, at most, manage certain aspects of HR and IT, whereas a CFO needs to have a bird’s view of the business and advises the rest of the senior management, including the CEO.
A controller oversees routine audits, whereas a CFO drives the overall planning and budgeting process as well as identifies risks and develops mitigation plans.
It’s also important to understand that the role of a controller varies from industry to industry, whereas the responsibilities of a CFO remains consistent across all sectors. For instance, in project-based organizations, controllers often assist in the purchasing process to align the expenses to project goals and monitor project profitability by establishing reports.
A business with recurring revenues, such as subscription billing companies, like SaaS, often requires a controller to manage the sophisticated subscription billing metrics. This allows for transparency into revenue composition and helps them ensure sound unit economics.
In low-margin firms such as product manufacturers or commodity contracts, controllers may be responsible for managing razor-thin margins to ensure sustainability.
Although CFOs have more or less the same role in all industries, they are hired more in certain sectors. For instance, tech companies will most certainly hire a CFO as a lot of investor money is at stake and growth expectations are high.
A CFO reports directly to the CEO of the company, whereas a controller is answerable to the CFO. The three common positions reporting to the CFO include controller, tax manager, and treasurer.
On the other hand, the four common individuals that report to a controller include an accounting manager, accounts receivable manager, financial planning manager, and accounts payable manager.
Hence, the controller’s position in an organization is comparable to a treasurer or a tax manager, whereas the CFO’s rank is similar to those of a chief marketing officer (CMO), chief operating officer (COO), and chief information officer (CIO), all of whom report to the CEO.
Differences in Qualifications
When it comes to hiring controllers, employers normally look for a professional who has experience in heading multiple accountants at the same time. They should be flexible enough to handle some of the responsibilities of a bookkeeper or CFO under difficult circumstances.
A good controller should be able to talk through processes they’ve established, such as making sure that the monthly closing process is comprehensive and documented.
In case they miss a closing date, they should be bold enough to ask for a target close date they can commit to each month. If a candidate can demonstrate they have previously reduced a timeline by providing evidence, that’s a bonus.
In contrast, anyone aspiring to become a CFO should be able to demonstrate skillful oversight of finance professionals. They would be willing to step down to handle the responsibilities of a controller when required. A great CFO will also possess great networking skills and will quickly be able to establish chemistry with the CEO.
The best CFOs also have great stories to share. Employers should use behavioral-based questions during interviews and ask for instances when they inspired a team, managed people well, solved business problems, enabled growth, and so on.
Both controllers and CFOs should be able to grow with your organization. Not only should they be experienced in the same industry as yours, but they should also have worked in a similar company like yours.
Both should be able to present useful and readily consumable reports containing graphs and charts. The best candidates for both positions will provide evidence of having positively influenced the CEO’s decision by defining, analyzing, and improving the key business performance metrics.
Differences in Understanding
While controllers only have an incredible understanding of accounting, CFOs also understand the operations of the business as well as how the financial system relates to operations. They have a clear understanding of business funding and capital structures and how to manage cash efficiently.
Controllers may be able to suggest ways to minimize debt, but they don’t understand business risks as much as CFOs do. CFOs have a tremendous understanding of both financial and non-financial risks as well as ideas to mitigate them. They’re able to see the big picture, lead the strategy, and make critical decisions.
Finally, one of the most important traits that set CFOs apart is that they understand people and are effective communicators. As a controller, you just need to ensure accuracy, compliance, etc., in financial reporting but as a CFO, you have to inspire and counsel people, influence their minds, and convince them of how certain decisions will lead to growth and success.
Controller vs. CFO: Which One Is Right For You?
Now that you are aware of the key differences between a controller and a CFO, you might be wondering whether it makes sense to hire a CFO for your business. Well, it depends on your business size.
As per industry trends, the minimum threshold to hire a part-time CFO or contract CFO services is $1m dollars in annual revenue. However, some companies that earn $500,000 in annual revenue also hire a CFO to satisfy their hunger to obtain and use financial insights.
Once your business hits $50m in annual revenue, you may consider switching from a part-time CFO to hiring a full-time CFO. High tech companies such as SaaS firms consider hiring a full-time CFO as soon as their revenues hit $35m as they have more sophisticated needs than others.
Until your business earns those revenue levels, you can keep the two roles combined. If your business is very large with more than $1m in annual revenue, having a separate CFO will certainly pay off.
Final Words – Controller vs CFO
To sum it up, both CFO and controller positions are financial leadership roles that start off with accounting, but they greatly differ in terms of significance, duties, rank, costs, and various other aspects. The controller vs. CFO debate makes more sense to a large company than a small business.
Many companies, especially small businesses, tend to combine the two roles simply because it’s not feasible to hire for the two positions separately.
If your business is large and you’re planning for further growth, you must hire for both positions.