How Do I Measure the Performance of a CFO?
Your CFO is responsible for overseeing your company’s finances. They help with budgeting, forecasting, cash flow management, and more.
But how do you measure your CFO’s effectiveness? Keep reading to find out.
How to Measure a CFO’s Performance
A CFO’s job is full of challenges. One way to evaluate their performance is to look at how effectively they overcome these challenges. For example, when tough financial times arrive, how does your CFO guide the company through them?
You might also consider:
- How consistently your CFO closes the company’s books within 10 days of the end of the month
- How the CFO explains changes in profitability and costs
- How the CFO handles failure
- The churn rate of employees working for the CFO
Ultimately, you have to decide which performance factors matter most to your company and evaluate your CFO based on them. This can sometimes be a subjective process, but there are also key performance indicators (KPIs) you can look at to arrive at a more objective measurement for CFO success.
KPIs for Evaluating Your CFO
Tracking KPIs can help you understand how your CFO performs in different parts of their job. You can figure out their strengths and weaknesses while also reviewing their progress over time. The best KPIs to track will depend on the areas of performance you want to measure.
For example, if you want to learn how your CFO is performing in terms of revenue and profit, you could look at metrics like:
- Compound annual growth rate (CAGR)
- Gross profit margin
- Revenue growth rate
Or maybe you want to measure your CFO’s operational efficiency. If so, you could analyze metrics like:
- Turnover on accounts payable and receivable
- Operating cash flow
- Cash conversion cycle (CCC)
What To Do About an Underperforming CFO
When you measure your CFO’s performance, you may find they’re not doing as well as you would like. When that happens, you have a few options.
First, you can work with the CFO to improve their performance in areas where they struggle. That might mean paying for training or investing in a new tool that can support the CFO in their work.
If you try to improve your CFO’s performance and it doesn’t work, you may need to let them go. This can be easier to do if you can point at objective statistics showing the CFO’s underperformance.
That being said, you should have a new CFO solution in place before letting your current one go. Otherwise, your company may experience a turbulent period of financial instability.
How to Find Your Next CFO
Finding a highly-skilled CFO isn’t easy. But you’ll have to put up with underperformance until you do. One alternative is to look into outsourcing your CFO role – or at least parts of it.
When you partner with an outsourcing firm like CFO Hub, you get instant access to financial experts who will help your company thrive. This can be a long-term solution for your business or a short-term way to bridge the gap until you find your next full-time CFO.
Whether you’re interested in accounting services or help with financial management, CFO Hub can help you take the next step toward your goals.
Get in touch for a free consultation.