It’s usually easy for an organization to identify when they need a little more expertise managing their finances, but it’s not always easy to identify exactly what type of help they need. We often get asked whether an organization needs a CPA or CFO.
While both CPAs and CFOs are financial experts, they have vastly different specialties and roles.
One mistake we’ve seen companies making is assuming a CPA can provide them the same benefits and strategies as a CFO. In reality, a CPA and a CFO both have important—but very different—roles within an organization.
Do you mostly just need someone to prepare your taxes for you?
Then you need a CPA
While the role of a CPA has some variation 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.
Companies will usually hire CPAs when they need help:
- Ensuring their company’s finances are accurate and compliant.
- Preparing their taxes and understanding tax law.
Do you need someone who can help shape and implement a financial strategy?
Then you need a CFO
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.
CFOs focus on:
- Financial strategy and growth
- Efficient, scalable operations
- Measuring and improving profitability
- Expense control/Cash flow
- Financial relationships
- Financial risk assessment
- Establishing policies and procedures
- Financial project management
- Shareholder relations
Tax Strategy (CPA) vs. Financial Strategy and Forecasting (CFO)
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.
If You Need Fundraising/Capital Structure, You Need a CFO
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 or 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 role includes analyzing tax strategy and keeping basic financial records over providing long-term strategy, financial relationships, and operational strategy.
Think of it this way: A CPA is like an auto lube service. They’re experts at taking care of your 7,500-mile oil change every six months, which is an important part of maintaining your vehicle. But even if they have great knowledge about cars, in their current role they aren’t hired in a capacity to focus their attention on more than the maintenance and general care strategy.
Hiring a CFO means you’re intentionally hiring a specialty mechanic + racing coach who will fine-tune and adjust your vehicle, make recommendations for the best products (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.
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 or 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.
This article was originally published on May 16, 2017 and updated on November 18, 2017