1 (801) 804-5800 [email protected]
Facebooktwitterpinterestlinkedinmail

We’re often surprised by how many businesses hire a CPA, believing they’re receiving not only tax services but CFO strategies as well. The reality is that there are many differences between a CPA and CFO. However, it’s no wonder the two are confused, as CPAs will often market themselves as financial strategists as well as CPAs to help bridge revenue gap between tax seasons.

What Is the Difference Between a CPA and CFO?

While both are important, a CPA and CFO have vastly different roles. A CPA is typically more tax-focused while a CFO is more focused on long-term financial strategy. For a CFO, this includes forecasting, budgeting, resolving cash flow issues, optimizing systems, raising capital, and more. For a CPA, this includes minimizing tax burden through thoughtful tax strategies and managing financial records in case of an audit.

In short, CPAs help minimize your tax burden and prepare for an audit, should you face one. Conversely, a CFO helps a company optimize its short- and long-term financial strategies to achieve their financial goals faster—and with less wasted time and money.

Another difference between a CPA and CFO is the cost of these services. A CPA is less expensive than a CFO (but more expensive than an accountant or bookkeeper). This is because a CFO often has a decade or more of high-level financial and operational experience and proven track record of driving company success. A CPA, however, has less depth and breadth to their experience. They require a special license indicating their mastery of tax laws and regulations, but rarely have the same level of financial strategy experience as a CFO.

Because of the expense of CFOs, not all companies need one right out of the gate. Here’s a helpful article we put together on how to know when your company is ready for a CFO.

Here are the main differences between a CPA and CFO:

1. CPAs Manage Tax Strategy

While the role of a CPA varies based on the organization for which he or she is working, one of the greatest benefits a CPA will bring to your organization is their knowledge of tax law and compliance. A CPA will traditionally keep, audit, and inspect financial records, then prepare financial and tax reports. They use their financial expertise to help companies decrease their tax burden while keeping meticulous records and reports to handle an audit, should they face one.

Companies will usually hire CPAs when they need help with the following:

  1. Ensuring their company’s finances are accurate and compliant with tax law
  2. Preparing and filing taxes
  3. Reducing overall tax burden
  4. Managing tax audits, should they arise

2. CFOs Shape & Implement Financial Strategy

While a CPA is usually organizing existing numbers and providing tax or GAAP (generally accepted accounting principles) advice for how to record that information, a CPA is not typically someone who will undertake full financial strategy.

A CFO brings a level of strategy, insight, and execution for which CPAs or small financial teams may not be qualified. CFOs have a wide range of industry, operations, and corporate finance experience. They are focusing on future cash flow more than historical data, and are experts in long-range operational planning and making sure every arm of the company is performing sustainably at peak performance.

Companies will usually hire a CFO when they need help in the following:

  • Accelerate financial strategy & growth
  • Reduce expenses & maximize existing assets
  • Forecasting & long-term planning
  • Measuring & improving profitability
  • Expense control/cash flow
  • Financial relationships
  • Financial risk assessment
  • Establishing systems, policies, and procedures
  • Financial project management
  • Shareholder relationships

3. While a CPA is an expert in tax strategy, a CFO focuses more on the long-term strategy of your organization.

When you choose a CFO vs. a CPA, your CFO is first going to get a deep sense of your business goals and existing strategy. Then he or she will look for the best places to improve your existing strategy, systems, and operations to accelerate your achievement of those goals and to maximize your probability for sustainable success.

One of a CFO’s most important tools is the long-term forecast. A financial forecast goes down to the detail to determine where money should be spent, where money should be coming from, and when. This forecast will guide budgeting, fundraising, sales, marketing, purchasing, and operations.

4. CFOs Help with Fundraising & Capital Structure

Many organizations bring on a CFO when they’re preparing to raise funds. While a CPA may have experience in making sure your taxes are in order and that your books are drawn up in accordance with GAAP prior to fundraising, raising capital is something CFOs have dealt with on a regular basis. They know what investors or lenders are looking for and will help your organization prepare accordingly.

Most lenders and investors want to see more than a sound tax strategy and orderly books; they’re looking for companies they can be confident will achieve success. While passion and a good product/service is important, it doesn’t necessarily provide proof of potential success to investors and lenders. For this type of logic and proof, you need clear books to show current execution of strategy, and a financial forecast to show a sustainable growth strategy.

Your CFO will develop a forecast that will become one of the most important documents in your fundraising efforts, but that’s not the only benefit a CFO will provide you during fundraising:

  • Relationships. A CFO will also have a rich network of relationships with lenders and investors from which they can draw to help you achieve your financing goals.
  • Fundraising Strategy. A CFO will also be able to advise you in the best mix of debt and equity financing for your organization, how much you need to raise, and where the best places will be to raise it. Your CFO will also help you negotiate the best terms for your company.
  • CFO Presence. Having an experienced CFO represent you and your business brings reputation and sophistication to your company. Investors want to know they can rely on the financial data they’re provided, and having a CFO as your capital raising partner gives them confidence in the information you provide, as well as in your overall company structure.

CPA vs. CFO – A Car Metaphor

That doesn’t mean a CPA can’t be qualified to give financial strategy; it means the capacity of a CPA is different from that of a CFO. A CPA’s role and expertise includes analyzing tax strategy and keeping basic financial records. A CFO provides long-term financial strategy, financial relationships, growth, and optimization.

Think of it this way: A CPA is like an auto lube service. They’re experts at taking care of your 6,000-mile oil change every four-six months, which is an important part of maintaining your vehicle. But even if they have great knowledge about cars, in their current role, their main experience and expertise lays in providing reliable maintenance services.

Conversely, hiring a CFO is like intentionally hiring a specialty mechanic + racing coach who will fine-tune and adjust your vehicle, make recommendations for the best products for your vehicle (including where to purchase them and for what price), how to make adjustments to your driving habits to get the most performance out of your vehicle, and more. Not only can they provide this expert level of advice, but they also probably have a long list of references proving their previous success.

Why is There Confusion About the Difference Between a CPA and CFO?

When you consider the financial position many CPAs find themselves in after the tax season is over, it’s no wonder there is confusion about the difference between a CPA and CFO. A CPA’s primary business comes during tax season when they are helping companies file taxes and refine their tax strategy for the upcoming year. However, this leaves 3/4 of the year when business is slower. By marketing themselves as financial strategy experts, they’re able to “fill the gap” during their slow season to help sustain revenues.

This ends up being a good strategy for CPAs, but not necessarily for the companies to whom they provide the financial strategy.

Not all companies need a CFO. If you’re not sure if your company is among these, read  but for those companies who do require CFO services to achieve their financial goals a CPA does not have the experience needed to lead their financial strategy.

Is My Company Ready for a CFO?

“Our company is too small for a CFO—we couldn’t keep him or her busy full time, and it’s just not in our budget right now.” In the case of most small or growing businesses this is probably true! But that doesn’t mean your organization wouldn’t highly benefit from a part-time, outsourced CFO.

A fractional CFO, otherwise known as an outsourced CFO, is the perfect tool for growing organizations. In this model, you achieve the expertise of a highly-reputed CFO, but only hire him or her for the time your company requires.

Since you’re only paying for the hours you need, this is significantly less expensive than adding a full-time CFO to your corporate team. Even more importantly, it provides you a level of expertise and insight that most organizations would be unable to afford with a full-time CFO.

CPA vs. CFO – Final Thoughts

While a CPA is an essential tool for professional and compliant tax strategy, a CFO is your secret weapon for growth. With their tools, relationships, and expertise, your company gains insider knowledge from someone who has already helped dozens of companies just like your own succeed. They are the architect who takes your dreams and shows you exactly how to build them; they help you know who and what you need to get the job done in the most efficient ways possible, and help guide the implementation from start to finish.

How Can We Help?

Preferred CFO is one of the most experienced outsourced CFO firms in the United States. Contact us to speak with a CFO today and explore how a CFO can help accelerate your company’s growth and success.

About the Author

Jerry Vance Outsourced CFO Utah

Jerry Vance is the founder and managing partner of Preferred CFO. With over 15 years of experience providing CFO consulting services to over 300 organizations, and 28 years in the financial industry, Jerry is one of the most experienced outsourced CFOs in the United States.

You may also be interested in…

7 Common Financial Modeling Mistakes

7 Common Financial Modeling Mistakes

In order to make confident and effective business decisions, company executives need good data. They need to know how the business has performed in the past, where it stands financially right now, and what its prospects are for the future. They also need to be able to...

What to Expect During Due Diligence

What to Expect During Due Diligence

Due diligence is the evaluation process used to inform decisions about business opportunities, such as a merger, acquisition, privatization, investment, or other financial transaction. During due diligence, the interested party will request documents, explanations,...

9 Business Finance Lessons We Learned from 2020

9 Business Finance Lessons We Learned from 2020

If there’s one thing we learned in 2020, it’s that change can happen—and it can come quickly, fiercely, and unexpectedly. In 2020, businesses were met with challenges they could never have predicted, and many had to shut their doors for good. Still others were...

What is an Outsourced Controller?

What is an Outsourced Controller?

An outsourced controller is a financial expert who helps keep your books up-to-date. They also provide financial reporting and information in a timely manner. Controllers can be in-house or outsourced. If the controller is outsourced, this typically means they are an...

What is the Difference Between a Controller and Comptroller?

What is the Difference Between a Controller and Comptroller?

The terms “controller” and “comptroller,” as well as the positions they define, may seem strikingly similar. Indeed, the word “comptroller” is believed to stem from a 15th Century misspelling of “controller.” However, despite the similarity in titles and functions,...

6 Signs You May Need a Financial System Upgrade

6 Signs You May Need a Financial System Upgrade

How often do you reevaluate your financial management system? For most organizations, the answer is not very often. After all, the ultimate point of a financial system is to put it in place, then rely on it and the people who contribute to it to help things run...

How to Choose an ERP System for Your Business

How to Choose an ERP System for Your Business

As companies grow and their operations become more complex, they tend to outgrow their existing software. Expanding business units or segments tend to become more independent over time. This makes interdepartmental communications and resource allocation more difficult...

Variable Costs, Fixed Costs, Total Costs: How Do They Differ?

Variable Costs, Fixed Costs, Total Costs: How Do They Differ?

Nearly every business has both fixed and variable costs. To ensure that your business remains fiscally solvent and profitable, it is important to understand the different types of costs and how to manage them. In general, variable costs relate to the number of items...

What is GAAP and Why is it Important?

What is GAAP and Why is it Important?

What is GAAP and Why is it Important? Financial reporting is an important part of business that communicates the financial performance and results of a company. It records and presents information about the company’s financial position, revenues, expenses, and related...

Debt vs. Equity Financing: Which to Choose?

Debt vs. Equity Financing: Which to Choose?

Every business needs financing to fund growth. The old adage is true: it takes money to make money. There are two basic types of business financing: debt and equity. Each has its advantages and its drawbacks, and over time most businesses will need both. Finding the...

Strategies for Improving Vendor Contracts

Strategies for Improving Vendor Contracts

For businesses that are inventory-supported, such as retail, resale, or manufacturing businesses, strategic vendor contracts can greatly enhance your profitability and cash flow. For some companies, vendor contracts are a set-it-and-forget-it portion of the business....

Basics of Business Banking

Basics of Business Banking

Every business needs banking services so they can receive funds, pay bills, and finance large purchases. It may be tempting to just use your personal bank for your business needs. However, a business has much greater need to understand and carefully select its banking...

Facebooktwitterpinterestlinkedinmail