If you have a company of your own or you’re an executive at a company and you’re wondering how to maximize revenue and profits, you understand just how critical your CFO is. However, many people might not know that there are different types of CFOs. Among the different types, operational and strategic CFOs are two of the most common.
But what are the differences between an operational and strategic CFO, and how can you identify which your company needs? In this article, we explain the role of the operational and strategic CFO within your company. We also examine when it’s best to use an operational or strategic CFO. Lastly, we explain how hiring a CFO who combines these attributes is the best path to financial success.
At Fully Accountable, we don’t believe you should have to choose between an operational and strategic CFO. Our team of fractional CFOs can provide both operational and strategic initiatives to ensure your company maintains its financial health for years to come.
What Is Operational Finance?
Operational finance describes a financial strategy that incorporates a deep understanding of a company’s inner workings and how they affect that company’s financial health. An operational finance professional will have an in-depth understanding of a company’s processes and can help you optimize your finances to run your business more efficiently through financial analysis. They leverage financial and operational data to gain deeper insights into company performance and improve decision-making.
For example, an operational chief financial officer can determine what the cost of your new products should be. But that’s not all they do. They should also be able to determine how your budget affects the overall company and how you can change operations within your company to create a more profitable business model.
Operational finance leadership can enhance day-to-day operations, provide valuable insights, and support management during market uncertainties.Operational finance looks at your company’s past and present financial status and can identify where your current operational costs stand. Operational financial leaders specialize in specific business departments, closely analyzing financial reports and understanding operational intricacies.
Operational CFO Responsibilities
An Operational CFO is responsible for managing the company’s day-to-day financial operations. Their primary focus is on optimizing company performance by combining functional and financial data. Operational CFOs must have a deep understanding of the company’s procedures and operations, including financial accounting, financial reporting, risks, and other accounting-related aspects. Their responsibilities include:
- Managing relationships with external auditors and regulatory bodies
- Managing financial planning, budgeting, and forecasting
- Overseeing financial reporting, analysis, and compliance
- Identifying areas of operational inefficiency and implementing cost-saving measures
- Developing and implementing financial policies and procedures
What Is Strategic Finance?
Strategic financial leaders and strategic CFOs take operational finance one step further by providing a roadmap to success for your company. These professionals are more concerned with your business’s financial health in the long term than they are with individual components of your finances and operations. While these professionals have a deep understanding of your company’s operations, they will be able to take financial analytics and apply them to your company’s future to ensure your financial stability. Strategic financial leadership involves long-term planning and collaboration with management to establish financial goals.
In the context of a new product launch, strategic CFOs won’t merely be able to identify the most profitable price point. They will also look into your company’s future to see whether the new product has long-term financial viability for your company. A strategic CFO’s most important responsibility is to look at the future when examining finances rather than the past and present.
Strategic CFO Responsibilities
A Strategic CFO is responsible for developing and implementing the company’s financial strategy. They must have a deep understanding of the company’s financial health, market trends, and industry developments. Strategic CFOs are forward-looking and focused on driving business growth, managing financial risks, and providing valuable insights to stakeholders. Their responsibilities include:
- Developing and implementing the company’s financial strategy
- Providing financial planning, analysis, and reporting to support business decisions
- Identifying and mitigating financial risks
- Managing relationships with investors, lenders, and other stakeholders
- Developing and implementing financial policies and procedures
What Are the Differences Between Operational and Strategic Finance?
As mentioned above, the primary difference between operational CFOs and strategic CFOs is that the latter will look toward the company’s financial future rather than its past and present. Operational CFOs will be able to understand cash flow, your company’s operations, accounting procedures, operational liabilities, and reporting techniques.
A strategic CFO should understand all of these components. However, they should also be able to forecast, benchmark, and evaluate key performance indicators to determine your company’s long-term financial strategy.
When Should You Hire an Operational CFO?
Many business owners ask what type of CFO they should hire. The answer to this question isn’t straightforward and requires a clear understanding of the differences between the two financial approaches. You will typically want an operational CFO if you’re looking for a financial position to mitigate financial risks and deal with your current financial status. If you are worried about debt or accruing equity in the short term, you should consider hiring a CFO with an operational background.
Additionally, operational CFOs can help you reduce your unnecessary expenses, improve your overall ROI, analyze your financial performance, and uncover operational inefficiencies that hinder your company’s growth. They provide operational financial leadership by integrating financial management with operational knowledge to enhance efficiency, reduce costs, and make informed business decisions that contribute to overall success.
When Should You Hire a Strategic CFO?
Ideally, strategic CFOs should be able to handle all the responsibilities of an operational CFO and more. However, strategic CFOs go beyond the scope of an operational CFO and look at how your company can sustain financial growth in the years to come. Another scenario where a strategic CFO is essential is if you have stakeholders. Strategic financial leadership involves long-term planning and collaboration with management to establish financial goals.
The investors who own a stake in your company should understand your long-term financial goals. Strategic CFOs are able to simply communicate your company’s financial strategy so your shareholders feel comfortable with their investment. Clearly identifying a future financial strategy can also attract additional investors.
Strategic CFOs can help with the following:
- Collaborate with executives to plan for the future.
- Evaluate your business’s current financial health.
- Collaborate with the CEO to ensure staffing needs are always met.
- Allocate resources and develop a resource allocation plan.
- Maintain the shareholders’ confidence and attract additional investors.
Strategic CFOs Have a More Hands-On Approach to Your Company
Strategic CFOs are responsible for evolving your organization to meet changing financial conditions. They can’t afford to focus on only the operational aspects of your business. They must understand how your organization fits with the market as a whole and develop future strategies to maintain your financial health.
Strategic CFOs take a more hands-on approach to your company. They understand how each department works within the greater organization. They can involve themselves with mergers and acquisitions, invest in hiring processes to identify the most suitable candidates for future financial strategies, and provide continuous advice on how to allocate funds to maximize profits. They leverage financial and operational data to gain deeper insights into company performance and improve decision-making.
How Can I Tell if I Have an Operational CFO or a Strategic CFO?
Does Your CFO Focus On Innovation?
Future finance leaders will need to apply their operational and compliance talents to company-wide growth initiatives. Strategic CFOs need to provide value across the organization by not only safeguarding assets but also creating them. If you find your CFO marrying hindsight with insight and innovation, securing more funding, and thinking outside of the box for innovation in your finance department, you likely have a strategic CFO.
Strategic CFOs are not as much concerned with how the company performs day-to-day. They are always asking themselves how to better streamline growth in a sustainable fashion. They consider how the company’s performance could radically be changed by small tweaks within the structure.
Does Data Drive Your CFO’s Financial Decisions?
Instinct and data aren’t typically words that we associate with one another. However, a strategic CFO understands how financial analysis affects their instinct. They don’t rely on simple number crunching to uncover initiatives.
Strategic CFOs understand your industry as a whole and how data will change in the future. They harness that data and take calculated risks. Big data has massive amounts of untapped potential simply because CFOs look at it one-dimensionally. Strategic CFOs understand how to unpack big data and apply it to future strategies rather than those in the present.
Is Your Financial Strategy Focused On Agility?
Strategic CFOs don’t focus on business-as-usual initiatives. They are constantly dedicated to modifying operations to fit within the changing business landscape, mastering both strategic and operational finance. Your company’s operational structure might work today, but strategic CFOs understand when to change direction. They also understand how to implement these operational changes efficiently.
Change is never easy, especially when you’re trying to change the way an entire company operates. Strategic CFOs understand their KPIs inside-out. They also understand how to identify new KPIs when your company’s financial strategy shifts.
Understanding the Difference Between an Operational CFO and a Strategic CFO
The difference between an operational chief financial officer and a strategic chief financial officer comes down to a few simple factors. Operational CFOs are more concerned with the past and the present, including how a company’s current operations affect its bottom line. Strategic CFOs care more about the long-term financial viability of your company. In essence, strategic CFOs are more forward-thinking than operational CFOs.
However, this does not mean that your company doesn’t need operational expertise. The best type of CFO is the one who combines both operational prowess with innovative strategies. At Fully Accountable, our team of financial professionals can help you uncover what type of CFO you need most. Whether your business needs a solution as simple as a controller, or one more in-depth, such as a fractional CFO, we’re here to help.
Contact us today to see how Fully Accountable can help your company maintain its financial vitality for the future.
