CFOs vs. Controllers: What Are the Differences?

Effective financial management helps businesses succeed as they grow and change. Companies face a variety of challenges including competitor pressures, changes in customer tastes, and inflation risk. 

If your firm is growing, you may need a controller or a Chief Financial Officer (CFO) to manage accounting and finance, and some companies staff both positions. To make the decision, business owners must understand the duties and responsibilities for the CFO role and the controller role. 

Many business owners start off by handling accounting and recordkeeping tasks themselves. As an example for this discussion, assume that Sarah is the founder of Reliable Construction, a startup home remodeling company. She posts accounting transactions and generates financial statements (balance sheet, income statements) using QuickBooks Online.

Starting With a Bookkeeper

As Sarah’s business grows, so do the number of accounting transactions. To free up her time, Sarah hires Jim to be her bookkeeper. Here are the responsibilities of the bookkeeper role:

• Managing source documents: Jim gathers and files all company source documents, including bill received, invoices sent, and other financial data from day-to-day operations.

• Posting transactions: Jim uses the source documents to post transactions. When a sale occurs, for example, Jim increases accounts receivable and the sale account. He posts expenses when Sarah purchases supplies, and increases a fixed asset account when Reliable buys a new piece of equipment.

To segregate duties and prevent fraud, Jim is not authorized as a check signer on the bank account, and Sarah performs the bank reconciliations. Finally, Sarah reviews Jim’s accounting transactions and generates the financial statements. This arrangement is common for a small business.

Over time, Sarah grows revenue to over $2 million annually. Jim is working full-time as the bookkeeper, and Sarah no longer has time to handle accounting duties. 

Hiring an Accountant

Smaller companies often move from a single bookkeeper to both a bookkeeper and an accountant. Sarah hires Bruce as an accountant, which allows her to focus on business operations and sales. The accountant manages these tasks:

• Manage the bookkeeper: The accountant reviews all of the bookkeeper’s transactions, and posts any required adjustments to the financial information.

• Complex accounting tasks: Reliable has both full-time and hourly employees, and the accountant manages the payroll process. The accountant also monitors accounts receivable and reports late payments to Sarah, who follows up on collections. 

• Financial statements, taxes: Bruce generates the monthly financial statements, and provides financial records to the Certified Public Accountant (CPA) who prepares the annual tax return.

Sarah’s only financial operations tasks are reconciling the company bank account and signing checks. She reviews the financial reporting, in order to make informed business decisions.

Reliable Construction continues to expand, and the business has multiple crews performing remodeling work. Reliable starts to provide other services, including roofing and landscaping work. At $3 million in sales, Sarah adds a financial controller to the accounting department.

Moving up to a Controller

The controller’s responsibilities include managing all of the accounting functions of a business, and this role combines the skill sets of an accountant and a manager. A controller is expected to assist with company planning, financial analysis, and decision making.

Controllers manage bookkeepers and accountants, and the number of professionals in the finance department will vary, based on the size of the business. The controller reviews all accounting transactions, and the financial statements. These are some other controller duties:

• Compliance with accounting standards, including Generally Accepted Accounting Principles (GAAP)
• Provide management reports to the executive team for decision-making purposes. Reliable, for example, monitors the profitability of each job using a management report
• Work with outside experts, including tax preparers and possibly the CPA firm that performs audits of the financial statements
• Budgeting: Reliable implements an annual budgeting process, and the controller gathers the budget data and creates the budget
• Internal controls: The controller assesses internal controls, and makes changes to improve controls. Reliable has a large investment in equipment and tools, and the firm has controls in place to prevent theft of assets

As the company grows, so does the complexity of your business. At some point, your company needs may include CFO services.

When Do You Need a CFO?

This article explains some metrics that business owners can use to make a CFO hiring decision. Some firms start by adding a part-time CFO to the finance team. If a financial team is considering a controller vs. CFO decision, they should understand several key differences in the roles.

Company revenue

One measure of a firm’s complexity is total revenue (sales). As your sales increase, you may offer more products and services, add more staff, and carry more inventory.  When a company reaches $5 million to $10 million in sales, the board should look for a full-time CFO. Larger companies often have a COO to manage operations, and a CFO to oversee finance and accounting.

Business growth

Consider both the firm’s growth rate, and the type of growth that is occurring. If revenue is growing 20% per year or more, the size of the business will double in less than five years. The fast rate of growth requires financial planning and forecasting, which are skills that CFOs can provide.

Think about how the enterprise is growing. If the company is expanding by purchasing other businesses, there are a number of financial strategy issues a CFO can address. You need high-level expertise to tackle human resources, profitability, and the capital fundraising needs of the combined business. 

Ideally, you should hire a CFO before rapid growth or company purchases complicate business operations. CFOs add value by planning for change, rather than reacting to change after the fact.

After generating $4 million in annual sales, Reliable has the opportunity to purchase Sunshine Landscaping, a transaction that will increase Reliable’s annual revenue to $7 million. After consulting with her banker, CPA, and her newly-formed board of directors, Sarah decides to hire a CFO.

CFO Duties and Required Skills

Broadly speaking, a CFO wears two hats. First, the CFO manages a company’s financial and accounting operations. In smaller businesses, the CFO may oversee a group of accountants, while in large corporations, the CFO manages a controller, an accounting staff, and a financial analyst staff. 

Second, a CFO is a trusted advisor to the board of directors and senior management. CFOs provide higher-level analysis and provide recommendations. Here are some specific CFO duties:

• Capital expenditure planning includes analyzing cash flows, and forecasting capital expenditure needs. If Reliable needs to replace $120,000 in equipment and vehicles over the next two years, the CFO plans for the purchases.

• Business transactions: CFOs advise the board and management regarding proposed company acquisitions, or the sale of company operations. CFOs determine how purchases can be financed, and the tax implications.

• Communications: The best CFOs are great communicators who can recruit talented workers and explain the company’s direction to stakeholders. Investors, creditors, regulators, and employees are all stakeholders.

CFOs spend most of their time solving problems, including the challenges of operating a business during the pandemic. Your CFO must be detail oriented, and have the ability to effectively manage people.

The role of a CFO is complex, and many CFOs work long hours in order to complete their duties. These professionals need the ability to focus, particularly when under pressure to meet deadlines.

The business environment changes constantly, and CFOs must adapt to change. A company may be impacted by changes in consumer preferences, supply chain issues, and pricing pressure from competitors. 

A CFO addresses risk management, which is the process of identifying risks and minimizing them. The board and management will look to the CFO to provide direction as circumstances change.

CFOs can use technology to perform more work in less time, and to reduce the risk of error. As an example, Stampli’s end-to-end accounts payable (AP) automation platform gives you full control and visibility over all your corporate spending from cards to invoices to payments—all in one place.

Don’t Just Manage Spend, Control It

Take control over invoice and bill processing with smart, intuitive, and actionable AP Automation from Stampli. 

Stampli’s AP Automation software that brings together accounts payable communications, documentation, corporate credit cards, and ACH or check payments all in one place, allowing AP to have full control and visibility over corporate spending. 

Don’t just manage spend, control it with Stampli.