Posted by The Bowdoin Group on October 9th, 2018
Originally written on LinkedIn in partnership with Paul Manning (Managing Director, Software & Technology) at The Bowdoin Group.
The biggest difference between whether an organization needs a CFO or could stick with a VP of Finance role generally lies in the complexity of the business and where it is on its growth trajectory.
What is the Difference Between a VP of Finance and a CFO?
Let’s start by laying out the distinctions between the two roles.
VPs of Finance often have a hands-on role in managing a company’s finances. They are rolling up their sleeves and putting controls in place, making sure payroll is done on time, and managing the balance sheet. Often, they are a CPA who may have experience as a Controller.
CFOs, on the other hand, are more involved in the strategic financial future of a firm. The role is less about accounting and more about how to reach longer term goals. They are thinking about (and acting upon) what it takes to get businesses to the next level financially – whether that is by raising capital, making acquisitions, or growing organically.
To put it simply, we often say that a VP of Finance works with the numbers and the CFO works beyond them. This is not always true—some VPs of Finance are playing the role of a CFO and vice versa. That being said, when organizations are considering the two positions, we lay out these distinctions to give them the best shot at finding the right candidate in a tight talent market.
We connected with Sean Bridgeo, former CFO & SVP of Operations at TimeTrade, to help illustrate the difference between the two roles in practice. He has been both a VP of Finance and a CFO in his career. He explains that “As a VP of Finance, you’ve got both hands in the operations of a business. You’re a subject matter expert on all things finance and forecasting. CFOs, on the other hand, understand the debits and credits, but can tell the financial story of the organization. As a CFO, you’re thinking through what strategic decisions mean from a financial perspective and plotting the course for the company alongside the CEO.”
But what if both skill sets would be beneficial for your organization? How do you choose?
Case Study: How a SaaS Company Made the Call
One of our clients, a $10m PE-backed SaaS provider made an interesting decision. The company had been bootstrapping its financial systems and standards for nearly a decade, and although it had served them well to date, things would need to change in order for them to grow. The PE firm was looking for someone who could get the company on track financially, but (like any PE firm) the ideal candidate would position the business to fast track from $10 to $50 million.
Within a short time, we had found an excellent candidate. This individual had an undergraduate degree in accounting, received an MBA at a prestigious university, worked at one of the big four accounting firms, on Wall Street, and for a startup that was acquired by a PE firm. Upon meeting the candidate, the executive team agreed that this person was “a perfect match.”
Their challenge was that the candidate had the accounting chops to be a VP of Finance and the experience growing and selling a business to be a CFO. While they had found the right person, upgrading this individual from a VP of Finance to a CFO was not as straightforward as a simple title change. To get the go ahead to upgrade, they needed board approval, more funds, and the kind of work that would make the title legitimate.
So, which role did they choose?
The answer was in their growth plans. The company was considering some significant acquisitions. If any of them occurred, they would need this person’s brainpower as a CFO, not as a VP of Finance. They needed the candidate to think beyond the numbers.
The good news is that two of these acquisitions have happened in the ninety days since the candidate’s hire, so they made the right call.
To “Sum” It Up
If you’re trying to make this call for your business, Bridgeo says, “You’ll want to hire a CFO if you’re going through hyper growth or if you need someone to interpret the numbers (not just process them). That role is especially important if you’re looking to do something in capital markets – raising money, buying companies, or selling companies.”
What we’ve found is that in some cases, organizations already have a Controller in house who can step into the role of VP of Finance. Other organizations are two years away from needing a CFO, so while they need someone to be thinking more strategically, there are other priorities that need to be taken care of first.
When the time is right, ask yourself: Do you need someone who works with the numbers or beyond them?
Does this align with your experience with VPs of Finance and CFOs?
If you want to take this a step further, read our blog post on the different skillsets of VC- and PE-backed CFOs.