AI is transforming the business world at a pace we never imagined possible. In this brand-new AI-enabled world, CFOs have transcended their age-old role of being guardians for financial records. There is a major shift from historical data to real-time data and analytics in the business world, making yearly financial statements and reports virtually ancient. Gone are the days when CFOs were busy mainly during year-ends when financial performance data were compiled and presented.
Today, CFOs are drivers of a technology revolution steering businesses toward innovation, data-driven insights, and strategic decisions. From number-crunching, they have moved on to leveraging cutting-edge technologies to enhance cost-effectiveness and profitable growth.
Role of Traditional CFOs
Until quite recently, the role of Chief Financial Officers (CFOs) in small and medium-sized businesses mainly involved the meticulous preparation of monthly and yearly financial reports. These reports were necessary for measuring the organization’s financial performance and health, and course corrections for the coming year.
The CFO’s role also involved implementing yearly audits, mitigating financial risks, and maintaining accurate records. CFOs would primarily interact with vendors or with government agencies. Their interactions with employees were confined to ensuring that the payrolls were in order, approving budgets, and purchases. Their duties, while definitely essential to the organization, were often confined to the realm of numbers, not requiring the strategic prowess required in today’s evolving business world.
Traditionally, CFOs played the vital role of generating financial statements on time, managing cash flow, handling accounts payable and receivable, as well as preparing budgets. But their role of being a glorified accountant is now transformed enormously. Let’s have a look at how the CFOs are now required to adapt to a new normal.
The Evolving Role of CFOs
In recent times, the responsibilities of CFOs have undergone a seismic shift, especially in the context of small and medium-sized businesses. The new world of business is marked by rapid changes in technology like AI and automation, unpredictable market conditions, and a new era of enlightened, demanding customers. To keep up with the times, business owners are now increasingly relying on CFOs to drive business growth through better money management, and financial processes.
1. Enabling Owners to Make the Best Business Decisions
Modern-day CFOs act as strategic advisors helping business owners make the right decisions when it comes to financial aspects of business (which is pretty much everything money-related). With the use of advanced financial analytics, budgeting, and forecasting tools, CFOs can provide valuable real-time information on the company’s financial performance. They can identify patterns in fund flow, evaluate and mitigate risks, and prepare the company for sudden economic downturns or unpredictability.
According to a recent Gartner survey, 90% of CFOs surveyed stated that finance strategy and design were their top priority in 2023 and 83% considered finance transformation activities as their top priority, showing how different the roles of the modern CFO are, compared to their earlier counterparts.
2. Crafting a Robust Financial Strategy
Gone are the days when CFOs would act as number-crunchers, producing reports and statements when needed. Their role has now expanded to create a financial strategy for the business to handle its finances effectively, invest wisely, and have spare funds to grow into new markets. CFOs will interact with business owners or stakeholders to understand business objectives and align the financial strategy to meet these objectives. A good financial strategy should be agile enough to adapt to changing market conditions, accept and overcome risks, and provide financial stability to the company.
CFOs will also interact with investors, directors, board members, senior management, and stakeholders in a business to convey the financial strategy for the coming year, or years. And also provide regular updates on the effectiveness of the financial strategy.
3. Providing Real-time Financial Data
Business owners don’t need to wait until the end of the year to get financial information about the company’s performance. Financial software and technologies have grown to a point where yesterday’s data is already stale. CFOs can empower organizations and business owners with real-time financial data and analysis so that business decisions can be taken quickly and efficiently.
Being nimble in decisions will allow an organization to capitalize on new opportunities, as well as tide over uncertainties. The new and improved CFO is expected to stay ahead of the market trends and patterns, guiding businesses with ease to financial stability.
4. Embracing Technology and Automation
The above-mentioned roles require the CFO to be abreast of the latest technology and automation, and not be the person who knows technology the least in the organization, like traditional CFOs. All repetitive tasks like invoice generation, follow-ups for non-payment of dues, payrolls, and recurring payments are now automated to free up more time for doing productive work.
Latest technology also allows the CFO to create financial models that can predict the results of business decisions, and how small changes in fund allocation can bring multi-fold improvements in business outcomes.
Our experienced team at Finavi CFO is empowered with tools like CANVAS for financial analytics, and COMPLY for compliance management enabling them to make rapid financial transformations for your business.
5. Empowering Teams with Financial Know-how
The circle of influence of CFOs is no longer confined to the finance department and vendors; they work across departments to help with setting budgets, checking variances, and aligning performance to business goals. The ultimate aim of any business is to make profit, and all activities of the organization should be aligned with this goal. The CFO has ownership of this metric and hence it’s imperative that the CFO works with teams towards profitability.
Blindly driving teams toward profitability will not get the business anywhere. The CFO has to empower teams with financial data and literacy so that the team members understand how their performance and goals will ultimately help the organization win. Organizing training sessions for employees, automating repetitive tasks, making financial data easily accessible, and working closely with them to help them achieve their goals are all key responsibilities that the CFO has to shoulder.
6. Navigating Regulatory and Compliance Challenges
There are many regulations and compliance requirements, especially for a new business to be incorporated in India. A CFO can help business owners stay abreast of government regulations, tax laws, accounting standards, legal compliances, bank account setup, and so on.
In addition to compliances, while setting up the company, some regular certifications and licenses have to be renewed or procured, depending on the line of business. CFOs can set up processes and systems to ensure that these are done on time, and efficiently so that businesses can run without penalties and warnings from the authorities.
7. Budgeting and Cost Optimization
Most fast-growing businesses do not have the time or resources to do a regular budgeting exercise done by all the teams, agreed upon and rolled out at the beginning of the year. It is an oft-ignored, but crucial aspect of any business.
A CFO can work with different departments to set a budget for the coming year, compile budgets from these teams, and roll out the finalized budget before the financial year begins. Variance analysis is also done regularly to ensure that teams stick to the finalized budget, giving structure and stability to the organization’s finances. A well-designed budget can optimize spending and align expenses to the budgets available, optimize costs, streamline processes, and identify areas where savings can be made, thus improving the bottom line of your business.
8. Financial Planning and Analysis
Financial Planning has always been part of a CFO’s responsibility, but it has moved to another technological realm these days. FP & A is now made easy with the help of advanced tools that can understand patterns, predict trends, create models that forecast financial performance, and provide extensive information to make the right decisions.
CFOs are required to be adept at understanding and handling these tools to generate the best and most useful information out of them.
9. Identifying and Mitigating Risks
Many businesses went through a difficult time during the Covid lockdowns since many had not anticipated the expenses and uncertainty that cropped up when work and life shifted online. A CFO can help you identify risks, be it in the market, economy, or legal aspects, mitigating them to safeguard your business during times of certainty. A financial plan that does not take into account risks like market volatility, sudden economic fluctuations, and extra expenses would fail miserably in these times.
The role of CFOs in small and medium-sized businesses has transformed from traditional record-keepers to strategic partners driving organizational success. By providing valuable financial insights, leveraging real-time data, empowering teams, embracing technology, and navigating regulatory challenges, CFOs contribute significantly to the growth and sustainability of businesses. As new technology continues to evolve, the CFO’s role will undoubtedly evolve further, reinforcing their position as indispensable growth leaders in the modern corporate landscape.