The 5 Different Types of CFOs
November 5, 2021 •ROARK
If you’re looking for a new chief financial officer, do you have an idea of what kind of CFO you need?
The average CFO tenure is between two to five years and is declining. There’s lots of turnover. It used to be that people stayed in the same position for their entire life. Well today, a seat like CFO is constantly changing. Now companies are hiring CFOs who have skills that match with the stage of growth the business is in.
In this article, we’ll be looking at the five types of Chief Financial Officers.
Type of CFO#1: Startup CFO or Capital Raising CFO
The first type of CFO is the startup or capital raising CFO. These CFOs typically work for venture capital-backed companies or investor-owned companies, and often in industries such as life sciences and software. And the reason why is because they need to raise money. That’s key. They have to focus on fundraising because they’re building intellectual property.
So they’ll be obligated to continue raising multiple funds. And the key is to be able to manage that money as efficiently as possible and preserve it up until you can get to a final product that you can take the market. The quicker you’re able to do this, the more value that you provide for the investors. And how they plan to get their return is very critical in that stage. They also have to be good at running a lean shop while being able to provide timely information externally.
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#2: Growth CFO
Our next Chief Financial Officer will be focused on growth. In many cases, that role can only come into play once you pass the initial challenge and grow your business.
A CFO who is good at the operational skills in a company and is less involved with fundraising. He or she will work closely to help give employees what they need to do their jobs.
On KPI’s and information, it is important to grow the company and explore new markets. These CFOs are very good at working with the internal management team, work on operations, and setting strategy. It is equally important for the company and its investors to make sure that there is a clear path towards sustainable growth while also generating savings or profit from current operations. You’ll be more efficient that way. As a CFO, I’ve been able to reduce many of the wasteful spending habits that often exist in organizations. They are responsible for scaling up the systems in order to lay the foundation for increased growth, as well as working with banks and investors.
#3: Public Company CFO
Our next CFO is a very specialized CFO. This is a public company’s CFO. when doing an IPO or when already public, CFOs face tremendous pressure from the SEC, investors, and analysts alike. They also face significant regulations. They’re knowledgeable in public companies and markets.
And there’s an extreme amount of reports and liabilities that go along with it. So they know how to work with investors, investor relations, and the SEC while growing the company. And if we look at liability, the CFO or CAO is tasked with signing off on Sarbanes-Oxley 3 0 2 and 9 0 6 certifications. In order to hold just the executives accountable for a company’s accounting, this bill only allows suits that pierce the corporate veil and hold C-level staff personally liable. And when we look at these regulations, you have the 33 Act, Securities and Exchange Act. You have the 34 Securities and Exchange Acts and are compliant with those.
You have the Sarbanes-Oxley Act. You have Regulation FD. The list can go on and on, with the specialization that is required at a certain level. And because of the stakeholders, it is key that you have the right person in this position.
#4: M&A or Exit CFO
One type of chief financial officer is the M&A or Exit CFO. M&A transactions are some of the biggest deals a company can have.
If you’re an owner of a privately held business, chances are that there’ll be the most significant transaction in your life-whether it’s buy-side or sell-side. These transactions have to be spot on otherwise there are big dollars at stake. Sellers need to succeed, so we need to plan and prepare for the transaction.
Acquisition due diligence is a complicated job that can be time-consuming. Hiring someone who has experience working with M&A transactions and investment bankers will help you to maximize your profit, as well as ensure the deal goes through successfully. So many people think about the immediate transaction when in reality it’s how prepared you are that will make or break this process.
That in turn will cause prospective buyers to walk away and result in lower prices for you. If you want to buy companies, that experience is absolutely essential. And the reason why is if you buy the right company, it can be very synergistic. If you choose the wrong company, it can lead to significant financial strain.
There are many different tasks to complete while working on an acquisition. These include going through the due diligence process, looking at applicable projections, securing financing for the investment, and finding a way to integrate the acquired company with your own organization. And there is a risk.
And experienced professionals will help reduce the risk inherent in this type of investment and get you better profits, so consider bringing in a consultant who specializes in this type to do it for you unless you’re already an expert.
#5: Turnaround CFO
And as we go through our curve, lastly, as firms mature or markets change, products and technologies are subject to change.
You have your turnaround CFO. Your turnaround CFO is specialized to help companies work through difficult situations. These people must be able to understand the company’s revenue and expenses, make critical changes, and have a very fast turnaround with changes.
Along the way they may have to deal with specialty issues, such as working with the bank and working in the special assets groups, they may have to work in receivership. They may have to deal with bankruptcy. There is a lot of specialization on this, and you can’t make mistakes anywhere in the process. Any step that fails could be disastrous for the organization.
Finding turnaround strategies and managing cash flow during this stage can help an entrepreneur’s business to stabilize.
Conclusion: The 5 Different Types of CFOs
So, if you’re in the process of hiring a CFO, make sure they have experience in your company’s stage. We’ve described five different types of CFOs today, but the best one for your company will depend on your needs.
If you have any questions, please schedule a free consultation.