fbpx
Learn the difference between a CPA and a CFO - how they are different and how their roles overlap

What is the Difference Between a CPA and CFO?

Contents

A small business may have the conundrum, do we need to hire both a certified public accountant and a chief financial officer? Perhaps one person could handle all the tax and financial responsibilities? 

When comparing a certified public accountant (CPA) versus a chief financial officer (CFO), it is important to remember that both are crucial for a company’s success, but they have quite distinctive functions. The CPA has successfully achieved state and education requirements and passed the CPA exam, a highly respected accounting designation. 

A CPA usually focuses on administering and filing corporate taxes, while a CFO manages long-range financial strategy and planning. The CPA’s main roles include minimizing a company’s tax burden through comprehensive tax strategies and taking care of financial records if a company is audited. In contrast, the CFO responsibilities include formulating forecasts, developing budgets, resolving cash flow issues, enhancing systems, raising capital, and many other functions. 

What is a CPA?

All CPAs are accountants, but the reverse is not true: not all accountants are CPAs. The difference between the two includes education, experience and opportunity. CPAs are certified through the CPA Exam. In addition to the exam, CPA’s must also meet an experience obligation and report continuing education requirements to their state licensing board to keep up their active licenses.

No two CPAs will share the exact same responsibilities. CPAs can work at corporations, state or federal government, or for the public and have knowledge of many spheres of finance such as estate planning or financial or governmental accounting. A CPA compiles financial information based on data provided by the business owner, and then draws up monthly and quarterly accounting overviews. When comparing a CPA versus a CFO, it is crucial to state that a CPA’s main contribution is his or her extensive expertise in tax law and compliance. 

A CPA is responsible for keeping, auditing, and inspecting financial records and then putting together financial and tax reports. They focus on reducing a company’s overall tax burden and taking care of tax audits if they arise. 

What is a CFO?

A CFO may have his or her CPA certification, but they do not necessarily possess an accounting background. In addition to financial knowledge, their responsibilities require a macro understanding of business and leadership. They often have experience in areas such as business administration, operations, and resource management.

A CFO does much more than managing finances; they are also responsible for projecting and forecasting trends within the economy and niche markets to boost overall financial growth and to ensure future success. 

A CFO provides a sophisticated level of strategy, insight, and execution that CPAs or small financial teams may lack the training and expertise. CFOs also generally possess an extensive range of industry, operations, and corporate finance experience. They focus more on future cash flow more than historical data. They are expert in long-range operational planning and ensuring that all company divisions are performing properly at top execution.

Companies will usually contract a CFO to solve the following issues: trim expenses and improve existing assets, enhance financial planning and growth, forecast long-term goals, and assess financial risks. 

Just about all large companies have a CFO on their executive team, but small and medium-sized businesses and start-ups may decide to hire a virtual CFO.

What is the Difference Between a CPA and a CFO?

When comparing a CPA versus CFO, the CPA’s main role is to take care of routine bookkeeping and month-end accounting as well as tax returns. The CPA usually works closely with the CFO to provide tax insight and advice that the CFO will use to help make financial decisions about the company’s goals and objectives. The CPA generally provides insight based on his or her knowledge of taxes, and not necessarily strategic insight to improve the business’ long-term goals. 

In contrast, a CFO is part of the C-suite, or a company’s executive team, and in charge of managing all financial facets of the business. CFOs often have a background in corporate finance and have the know-how to assess financial risk, manage budgets, and create standards for the company’s fiscal performance. A CFO is also focused on the development of an asset and increasing a company’s profit and wealth. Thus, the CPA’s main duties are to develop a company’s suitable tax strategy, while a CFO prepares for the company for future growth and helps formulate the best ways to achieve strategic goals.

Another difference between a CPA and CFO is how much they charge for their services. A CPA’s salary or hourly rate is usually less than a CFO’s (but higher than an accountant’s or a bookkeeper’s). That’s because CFOs often have achieved a decade or more of sophisticated financial and operational experience and have proven track records of accomplishing company success. 

CPAs Manage Daily Accounting and Tax Strategy

CPAs will traditionally keep, audit, and inspect financial records, then prepare and file tax returns. They tap their financial expertise to help companies decrease their tax burden while keeping meticulous records and reports to handle an audit if one should arise.

Small businesses will usually hire a CPA for assistance with many tasks and responsibilities such as making sure that their company’s finances are accurate and comply with tax law, lowering a company’s tax burden, and handling tax audits.

CFOs Shape and Implement Financial Strategy

CFOs examine and evaluate future cash flow more than historical financial statements to create financial forecasts, and are experts in long-range operational planning. They ensure that all parts of the company are performing well. 

In a small business, the CFO’s main focus is on strategy, analysis, and the company’s future direction. Other roles for the CFO include trimming expenses and making the best use of existing assets, developing forecasts and long-term plans, evaluating and enhancing profitability, assessing financial risks, and putting into place systems, policies and procedures.

A chief financial officer will evaluate your company to obtain an in-depth understanding of your company’s goals and existing strategy. Other CFO services include evaluating the best ways to improve your existing strategy, systems, and operations to speed up the achievement of those goals and to boost your profitability for long-term success.

One of a CFO’s most important instruments is the long-term forecast. A financial forecast is an extremely detailed report designed to help decide where a small business’ funds and resources should be spent, the source of these funds, and the timing of when they flow into the company. This forecast will provide guidance for developing budgets, boost fundraising, increasing sales, marketing, purchasing, and improving operations.

A CFO can keep a scorecard about your company’s performance by examining your return on investment (ROI) to measure how well a company generates profits from an investment. A small business can hire a full-time or temporary CFO who can set up the right accounting and financial systems to help the business to cope with many new customers and employees as it expands and grows.

CFOs Also Help with Fundraising & Capital Structure

Many companies hire a CFO as part of their plans to raise funds. CFOs are experts in raising capital because they manage this process on a regular basis. They have knowledge of what investors or lenders want and will assist your organization to prepare properly.

When lenders and investors examine and evaluate companies, they look for companies with more than just suitable tax strategies and well-organized books; they want to lend to and invest in companies they believe have the right characteristics and operating know-how to succeed. A company may have a great product or service, but that is not necessarily a predictor of future success for investors and lenders.

Instead, a company must also present dynamic books that demonstrate current excellent execution of strategy, and a vibrant financial forecast that indicates a sustainable, long-term growth plan. Thus, the CFO will be responsible for creating a detailed forecast that will become one of the most crucial documents in your fundraising efforts. The forecast will guide all aspects of a company’s operations including budgeting, sales, purchasing, and operations.

Is My Company Ready for a CPA or CFO?

Many small businesses may lack the resources to hire a full-time financial specialist, but these companies could still profit from outsourced financial consulting services. For example, your company has bookkeepers or accountants who are doing an excellent job of managing tax and compliance issues, but they may not have the experience and knowledge to create the reports and numbers necessary to elevate your business to the next level of growth and expansion.

As a result, you may be determining if it is time to hire a chief financial officer who has experience in your industry and can give you valuable information and financial strategy to boost your company’s growth; but your company does not have the budget to hire a full-time CFO. 

A fractional or outsourced CFO is an excellent solution for growing companies. With this solution, your company obtains the part-time expertise of a CFO to complete projects at a much lower cost than a full-time CFO.

Contact Punch Financial today to find out how our team of experienced CPAs and CFOs can provide you with the financial guidance, planning, and strategy you need to take your business to the next level.

Join hundreds of small business owners who trust Punch

Let’s have a quick, no frills chat to discuss how we can help you.