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Financial Management: CFO vs CONTROLLER - WHAT'S THE DIFFERENCE?

So your company is growing? Our hearty congratulations, because unless you’re in the handful of industries that are rapidly expanding, you have been bucking the downtrend in California that began in 1991. One of your greatest challenges arises from your people - employees, managers, executives, because some of the people who helped you get this far will be unable to go much further. So, what happens when your company grows to the point where you need management judgment and expertise beyond what you have needed before? In particular, what if that need is for financial management skill? Owners and CEOs of growing companies at various stages in their growth go through the inevitable need to upgrade their company’s management team. This occurs not because they chose people poorly, but because the skills they need for the next step in its growth are different from those needed before.

The accounting department, perhaps managed thus far by your controller, is a special challenge in that regard. It is a largely technical function in an area unfamiliar to many CEOs, so it’s not easy to evaluate. Yet its services and information are critical to keeping you informed and managing the company’s progress. A company that starts with a competent accountant, if it is moderately successful, will grow and probably promote the accountant to the position of controller, and maybe even CFO. Well, at least to the title, because frequently the position itself hasn't changed much. There’s just more of it.

• What do you do? First ask yourself these questions:
• Can you continue to carry the extra load in addition to your rapidly growing responsibilities in every other area?
• What will you do about the stream of financial policy issues that will affect the company now and into the future?
• Who will assist you with the expanding involvement of bankers, investors and other outsiders?
• How will you protect the company from the greater risks of financial decisions as the company grows?
• Does Accounting really understand today's reality that every employee in the company, let alone every executive, must be a customer service advocate?

Your company’s controller may have been sharpening professional skills tailored to what you needed in the past, not what you will need in the future. He or she has frequently not even had exposure to what the company will need tomorrow, let alone developed expertise at it. Nearly all their management experience was gained at your company, or at several small companies similar in size. The asset of familiarity becomes a liability of inexperience. Or perhaps you hired an inexpensive person rather than a seasoned one because you couldn’t justify the added cost in your mind, and you felt the person you hired would "grow into it." But somehow they didn’t.

What’s the difference between a controller and a CFO? It depends on where you draw the line. If you draw your own line in the above triangle to show how far up the triangle your financial person performs effectively, and the line is somewhere in the middle, you have a controller-level person, regardless of their title. If you’re personally doing everything except the accounting and financial reporting, you don’t even need to raise the question. Of course if you’re satisfied with where the line is, then there is no need to change anything. But then you probably wouldn’t be reading this if you were satisfied.

You must decide if your controller is able to grow into new responsibilities, or if additional expertise must be brought into the company. You have several available options:

• Assign larger responsibilities to the controller and help her grow into them with outside seminars and patience.
• Supplement the controller’s skills with outside tutoring from a financial management expert.
• Add a part-time CFO to your staff to handle what you and your controller can’t.
• Replace the controller with a more experienced one, which could include hiring a full-time CFO instead.

While there is no simple answer to these questions, a good way to start might be for you and your controller to discuss and agree on what must be done for the company today, and what you will need tomorrow. The clear definition of your financial management needs will give a smart controller the opportunity to learn and grow. It will also avoid the classic kinds of misunderstandings about what was expected vs what was delivered. The benefits from this whole process should be clearer and more relevant financial information, sounder management decisions, and greater profits. And that, as they say, is the ball game.

If these concerns strike a familiar chord, if you want to make a change and you are unsure how to proceed, consider expert assistance. Call Gene Siciliano, Your CFO For Rent^® at (310) 645-1091.

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