Chapter 17
What does a CFO or controller look for?

What does a financial expert review in a company’s financial statements? Is it any different from what non-financial managers look at? Hand your financial reports to a chief financial officer, a company controller and a certified public accountant in public practice, and they probably see most of the same things. But each looks at the financial statements from a different perspective and with a different priority.

To understand what someone looks for in your company’s financials, it helps to understand his training and background. Many people think financial managers are pretty much the same as accountants. That’s not always true. There are varying degrees of specialty in finance, just as in medicine or law.

Controllers are chief accountants employed by a company. A CFO often has a finance rather than an accounting background. And a CPA is usually a generalist who has spent his entire career working with hundreds of companies, but in a more limited capacity than the other two positions.

Controllers
Controllers are accountants who have one client — the company. They often concentrate on the accounting department’s performance rather than looking at the financial results strategically. Their primary job is to make sure someone pays the bills, invoices the customers, reconciles the bank account and prepares the budget and monthly financial statements. Rarely will you find a controller who has managed anything except the accounting department, if there is a department.

When a controller looks at a financial statement, he first checks the calendar to see what day it is. He typically checks how many days it took to report the month-end close. He also looks at the budget comparisons to see that the company is on track to reach the owner’s targets.

Controllers compare this year’s P&L versus last year’s P&L and budget. They might also monitor the accounts receivable totals and the overall working capital position on the balance sheet. They forecast cash balances and shortfalls and keep the bankers happy, so the bank lines of credit stay open. And they spend lots of time with the company’s CPA working to forecast cash for tax payments.

Chief financial officers
CFOs may have an accounting background, but often have degrees and experience in finance or management instead. Although controllers and CFOs serve different purposes, in most smaller companies, one person tries to fill both roles. In larger public companies, the CFO’s job is to push stock prices higher and keep Wall Street happy. In smaller companies, the CFO is really more operational, and often has the job of helping translate the owner’s vision for the company into a profitable reality.

A CFO generally takes a more strategic view than a controller. They spend more time listening to the owners and wondering if it makes business sense to pursue the proposed expansion. Will there, for example, be enough cash flow to cover the proposed debt service on the new additions to the fleet?

When CFOs read financial statements, it’s as if they are part investor, part manager and part banker. They are interested in a return on equity, providing managers the information they need to make decisions and watching for red flags that need attention.

Certified public accountants
CPAs in public practice work for literally dozens at a time, usually preparing financial statements and income tax returns. They take the internal financial statements of a company, compile, review or audit them, and turn them into annual reports. CPAs are usually experts on presentation and disclosure rules and often in auditing procedures. They also prepare corporate or business income tax returns and personal tax returns for owners and their families.

Many CPAs often look first at the type of accounting report, the overall formatting and presentation, and the disclosures. Then they check out the overall financial health of the company. Next will come the income tax review for tax-saving opportunities.

Increasingly, some CPAs are becoming more management- and strategy-oriented, and are working more closely with company owners, CFOs and controllers to help the company achieve financial success. In this role, they wear more hats — sometimes as a part-time controller or part-time CFO — in an effort to help companies increase their profitability. This trend is often at odds with the profession’s auditing and attest function, which mandates that they be completely independent of the companies that they review or audit. They must take no role in management if they are to remain truly independent. Still, there is a transformation taking place as technology, competition and merging of disciplines cause CPAs to seek other ways to be of value to companies.

In Summary
Financial professionals look at financial statements in much the same way others do. But the primary role they play in their occupation influences what they see. Controllers look at day-to-day issues, primarily how the company is performing versus budget and whether it’s meeting its various obligations. CFOs take a more strategic and forward-looking view, although in small companies they may act as controllers as well. CPAs, too, are concerned with the company’s financial health, but they tend to focus on preparing financial reports and tax returns.