What Are the Top Three Skills of a CFO?

Author: Larry Chester, President

At CFO Simplified, our President Larry Chester receives the same question over and over: “What does it take to become a great CFO?” Or, what about people who don’t themselves want to become a CFO, but perhaps are business owners looking to hire one permanently or on a fractional basis?

What are the qualities that you should look for that will help guarantee success in that role to guide you as a senior financial executive in your company?

Well, there are three key required qualities. Let’s pass things over to Larry Chester, to speak about the three top skills of a CFO.

A CFO Must Be a Skilled Financial Executive

Before we get into talking about the three top skills of a CFO, we need to preface with this: This individual, moving into a CFO role, has to be a skilled financial executive.

They need to understand not only accounting but also finance—how money moves within a company, how it moves within a bank, and how to develop relationships with suppliers, customers, and your bank.

This way, you can be successful financially. But that’s a given. No one would even talk about being a CFO if they didn’t truly understand finance.

This considered, let’s talk about three other key qualities.

A Great CFO Needs to Understand Operations

A CFO needs to understand operations.

A great CFO isn’t just a finance-oriented person sitting in a room playing with spreadsheets all day long, or looking at financial statements and moving numbers from the income statement to the balance sheet and back again.

There’s only one way you change profitability in a company and that’s by changing operations.

An Example of Understanding Operations

Let’s illustrate with a client case study. We worked with a printing company that was having difficulty making a profit.

One of the things we did was dive in to understand what was happening with that company’s production; this way, we could understand why they weren’t making any money.

One of the elements we took a look at was the profitability of every single product they produced. We looked at every single production run to determine what the actual cost of operation was and whether or not they were making money, then asked if this figure matched their estimates or not.

If you don’t understand operations, how can you possibly judge whether a company will be profitable?

A Great CFO Needs to Understand Technology

Technology is the key to collecting data for any company. This isn’t just a matter of understanding what a particular software package does. Often, we get calls from companies asking, “Are you familiar with this particular software? We’re looking for a CFO who understands our software inside and out.”

There are, however, so many unique financial software packages out there, the key is not about knowing one specific piece of software inside out. It’s understanding how technology operates to gather the necessary information to provide answers to how a company is operating.

Basically, every software package operates similarly. It is how they do it that makes them different. 

An Example of Understanding Technology

We had a client that was selling products through Amazon.

One of the problems they encountered was that they had developed a technological tool that calculated the price they should sell any product at based on what it was sold for by competitors.

The use of this tool was fine. However, there was a problem with their model. It didn’t take into account all of the ancillary costs, channel costs, marketing costs, or charges from Amazon.

Eventually, we found out that they were selling 50% of their products for less than it cost them to acquire them.

The key was being able to understand how that software worked so we could understand how it calculated profitability and determine what the selling price should be.

If you don’t understand how the technology and software work to calculate the results, you’ll fail to understand what the profitability and selling prices should be.

A Great CFO Needs to Be Creative

The third skill necessary for a CFO is creativity.

Why? Being a CFO is not simply a matter of looking at financial statements and understanding where variances occur. The key is to look at those variances and determine what it is that’s keeping a company from being profitable. You need to take that information and work with customers and suppliers to get the best result for your company.

An Example of Being Creative

A client we were working with had a large accounts payable balance with their primary supplier.

At one point, the primary supplier told our client that they needed to pay their balance immediately. The balance, however, was several million dollars.

Instead, our team put together a plan to turn the open Accounts Payable balance into a short-term note. This way our client could make regular interest and principal payments, allowing them to pay down the note over time, and continue to buy merchandise

This way, they were still able to maintain a line of credit with this supplier and continue to do business. Sitting down and negotiating with that supplier allowed us to get the information we needed about their approach in dealing with their customers, and how best to work with them.

Ultimately, we were able to convince them that this was the best way of doing things for both them and our client—which allowed us to keep the company profitable, returning to the strong company it had once been.

A Final Word

As we look at what it takes to be a great CFO, there are certainly those three things that are important.

1. An understanding of operations
2. An understanding of technology, and
3. The ability to be creative to find solutions to problems that the company is facing

Interested in learning more? Read on to find out how to avoid financial complexity in your business.