What’s the Difference between a CFO and a Controller?

Owner-managers who are thinking of either upgrading their head of finance or hiring a qualified professional to head up the accounting function for the first time often aren’t aware of the distinctions between the various titles associated with that position.

Let’s say you’re an owner-manager attending a networking event full of industry peers who you assume will be able to give you insights into this particular subject. You may talk to some of your fellow owner-managers and find that one person has a controller heading up finance, while another employs a Vice President of Finance. A third may respond that they’ve got a Director of Finance in the top spot, and yet another declares that her accounting team is headed up by a CFO.

What’s the Difference?

All of the respondents may say that they’re perfectly happy with how their finance function is being run, possibly leading you to assume that there isn’t much difference between the various titles.

In fact, there’s a world of difference between VP Finance and a Controller, although either person could head up a finance function. The distinction lies in the size and complexity of the company that financial professional works for.

As an aside, the title CFO just refers to the most senior person responsible for the finance function. Although CFO is most commonly associated with the title VP Finance (as in VP Finance and CFO), it can also be associated with a Controller or Director of Finance.

It’s useful to think of the Controller as someone who, in terms of accounting matters, manages the present and reports on the past.

The Five Major Components of the Controllership Function

The Controllership function can be broken down five general areas:

1. Management: the overseeing the operations of the accounting department including accounting management infrastructure such as accounting policies, procedures, controls and calendars of activities.

2. Transactions: the proper processing of transactions including payables, receivables, payroll and disbursements. It includes the use of a system of controls to ensure transactions are processed properly and a system that ensures that transactions are recorded and archived.
3. Reporting: the preparation of monthly, quarterly and annual financial statements as well as required management reports.
4. Planning: coordinating the creation of the annual budget as well as investigating and reporting on any variances.
5. Compliance: compliance with tax reporting requirements, government agencies, debt covenants and accounting standards.

In a nutshell, if you need someone to keep on top of all things accounting and don’t need this person to get involved in areas such as strategic decisions, operations or financing, then a Controller is the right hire for you.

Four Key Components of the VP Finance Function

By way of contrast, a VP Finance oversees all of the functions listed above, and in addition, is actively involved in these four areas:

1. Planning: helping to formulate the strategic direction of the company including the tactical plans, budgeting systems and KPIs required to achieve the agreed-upon goals.

2. Operations: financial and tactical support to areas outside of finance such as logistics, sales or manufacturing. This could also include the selection, acquisition and integration of other businesses or lines of business.
3. Risk Management: understanding the current and potential risks to the business and recommending steps to mitigate those risks.
4. Financing: monitoring cash balances and arranging additional financing or investment options as required. This could also include helping taking the company public.

Who Should Run Your Finance Function?

Typically, owner-managers start out with a bookkeeper. When their business gets to the point where their bookkeeper is overwhelmed and things start falling off the table, they usually decide to bring in a more qualified accounting professional and hire someone who’s had experience as a Controller. And often, as an owner-manager’s business levels off, so do the demands on the accounting department, and they’re perfectly happy with having a Controller head up finance.

It’s when an owner-manager starts getting the feeling that their Controller’s bandwidth isn’t keeping up with the demands a growing business puts on the finance department that they start to think about upgrading to a VP Finance.

Making the Decision to Hire a CFO

The decision to hire a VP Finance can be prompted by any number of factors. Senior management may be demanding more and better financial analysis and reporting to help them run their departments. Operations may be suffering from a lack of integration of information systems. Or the owner-manager may be facing a suite of opportunities and/or threats that require sophisticated analysis and strategic input.

And typically, if an owner-manager is thinking about hiring a VP Finance as their CFO, that decision will gestate over a number of months as they try to come to grips with what they should be looking for from that person.

Once an owner-manager has a good sense of what they want their VP Finance to do, then comes the thorny question of how to determine who would be the best person for the job.

What Next?

At the risk of coming across as shamelessly self-promoting, this is where an owner-manager should seek the advice of a professional (me, of course). Recruiting your first CFO is a lot harder (and riskier) than replacing an incumbent because you don’t have an established template to work with.

Unless you know exactly what to look for, you run the risk of over-hiring, under-hiring, or just plain badly hiring.

Working with an experienced recruiter will help you define the job for your business as it is today and map out what your CFO position should look like five years from now. Further, a recruiter will help you differentiate between all the variables in education, designations and technical experience that you’ll find in this particular market. It’ll take some time and some work, but if you go about it correctly, you’ll eventually end up with a VP Finance who’s just right for you.