You’ve been working hard to grow your business. Loads of late nights, weekends, and holidays have passed you by as you tried to figure out what would be the best way to scale your business, and it’s paid off.
Now you’re ready to make things work and pull your processes in line. Things are starting to come off the rails just a little as your growth exceeds your capacity and now you’ve got quality control issues, employment management challenges, cash flow management problems, and compliance and risk breathing down your neck.
You need help and you’ve cast your thoughts to either a COO or CFO. But which one is right for your current challenges? In this article, we explore the differences and provide you with some ideas about which senior executive should join your team.
Ever thought about trying fractional CFO services as a different approach to having a financial expert in your corner? Read more about it here.
What does the Chief Operating Officer do?
Let’s look at Ella’s day. She’s the Chief Operations Officer of a retail and manufacturing company. Her job is the internal arrangements that would make the operations more efficient. She tasks her senior managers in reorganizing production lines, staying up-to-date with automated equipment, and training staff so they know how to handle new processes.
As the COO, Ella would also make sure the supply chain is streamlined by optimizing logistics and implementing an inventory management solution that would minimize costs and ensure products are efficiently restocked.
This may not be the same case as Arthur, who is the Vice President of Operations for a tech start-up. He may be the COO but his job entails more than just making the flow of daily activities as steady as possible.
With the growth of their business, he makes sure he’s on top of his game by ensuring the company’s operational strategies can support an increase in workload. He coordinates with human resources to hire and train additional staff and set up new offices. Arthur also monitors that the staff performance, marketing, and sales management, still follow the same standard and give the same high-quality software services.
Aside from seeing to it that normal internal activities are carried out in an organization, the COO also:
Handles production management, especially for manufacturing-intensive businesses
Coordinates with the different departments to make sure maximum performance of each personnel is achieved
Develops and implements processes partnering with the Chief Technology Officer (CTO) for innovative solutions to improve efficiency
Ensures that COO reports are accurate and submitted timely to the CEO
The chief for operations can be found dealing with almost anything because of their wide range of tasks complementing the CEO. They can go from setting goals to talking to suppliers, spearheading policy-making, and even gauging the company's readiness for expansion activities.
When do you need a COO?
Getting a COO may be considered when there are expected changes in the company. These changes might be overwhelming for the CEO and other executives to handle on their own and could impact the company’s growth.
Organizations may include a COO in the team when daily work lacks an overseer. Although sometimes their tasks are divided between the Chief Marketing Officer (CMO) and the Chief Information Officer (CIO), the COO may still be needed when a company is undergoing general changes like expansion activities, moving into new markets, or planning a merger.
At times, when a company is experiencing rapid business growth, the COO steps in to manage an unexpected opportunity and create successful growth strategic plans together with the CEO. (1)
Because they are next in line in the organizational structure, it is also expected that they take over whenever the CEO is away. This is where their extensive work experience comes in to provide leadership and initiative when attending to the needs of the company.
How much does a COO make?
A COO’s average base salary is $147,247 in 2023 (2) excluding additional compensation that includes bonuses, profit sharing, commission, and other earnings in a year. The basis for the salary is dependent on their professional background, the size of the enterprise, and the industry they are working on. Their total pay may range from $177,000 to $296,000 with an hourly rate of around $118-125.
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What does the Chief Financial Officer do?
The CFO is the C-suite executive who is in charge of financial matters in the organization. The CFO roles typically involve financial planning and overall financial management of the company.
The chief of finance conducts and communicates routine financial analysis and review of the organization’s financial data. The CFO reports are then relayed to the CEO and the Board of Directors, and together, they create strategies to improve the company’s financial performance and align them with the business goals.
More than just financial reports, the CFO role may also call for the following responsibilities:
Establishing accurate financial modeling and efficient forecasts by taking into account relevant corporate finance data
Coordinating with the Chief Human Resources Officer (CHRO) when it comes to the administration of personnel payroll, benefits, and pensions
Leading members of the accounting team by conducting proper training and developing personal career growth in the financial department
Mitigating risks and determining which challenges may impact the company’s financial growth
When do you need a CFO?
A business may consider taking in a full-time or a fractional CFO on board when handling financial information is starting to get complicated which happens when a company is starting to scale up. The business needs a detailed ‘money strategy’ to reach its financial goals now that the company is in its growth phase.
Getting the services of a fractional CFO also provides cash flow and cost management for your thriving business. They make sure your expenses is under control and the business liquidity is secured.
Investment planning is tricky especially if the company’s growth depends on its funding. But because the business has a CFO on board, it gives the CEO, board of directors, and other senior managers peace of mind knowing that an expert is present to negotiate the best deals with potential investors.
Remember always to ask questions to your CFO, not only to get to know them better but also to let you know how capable they are of running the business finances.
A full-time CFO can make an average salary of $488,088 although the amount they may receive may vary. (3) The top financial executive of a large corporation may receive larger compensation compared to a mid-size business CFO in a smaller town. Typically, it may range from $328,000 to $555,000. In contrast, it will be around $152,000 for the services rendered by an outsourced CFO.
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Ready to explore the unique roles of a COO and CFO further? Keep reading to check out notable differences and similarities between these crucial leadership positions.
Does the COO differ from the CFO?
Yes, there are several differences and similarities between these two high-level positions. Both chiefs need an educational degree and diverse experience to be up for the executive role. However, their qualifications, skills, and the functions they perform may be different from one organization to another.
COO: They focus on the day-to-day operations of the company. This includes taking charge of the minute details involving staff management, production, sales, and ensuring efficient internal processes.
CFO: They oversee the financial aspects of the company, from financial planning to taking initiatives to raise capital while reducing expenses. They also help minimize financial problems and wastage of resources by making sure efficient resource allocation is observed and in effect.
Education and Professional Background
COO: Most industries seek individuals with finished undergraduate studies in business or economics. Bigger companies also require a master’s degree centered on organizational leadership.
CFO: Having a bachelor’s degree in finance or accounting and relevant certifications gives graduates an edge over other candidates. Some industries require 5+ years of financial managerial experience while others require an MBA focused on financial strategies, planning, and risk management.
COO: Responsible for a wide range of responsibilities from setting goals and making policies to coordinating between departments, and internal and external stakeholders for operational excellence. Their role requires social leadership skills because of its executory and enforcing nature.
CFO: Typically involved with the company’s financial health. They perform financial analyses, plan budgets, and coordination with investors and financial institutions. Their role is more analytical and strategic.
Skill Sets Required
COO: Needs excellent business administration and large-scale operational skills. They should also be proficient in managing teams, implementation, and process improvement to handle an entire company.
CFO: Needs to have advanced critical thinking abilities and financial modeling skills. It is also important that they are capable of fostering strong investor relations. They must also be on the lookout for changes in regulatory compliance and market trends for accuracy in risk management and financial forecasting.
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Factors to Consider When Hiring
COO: Must have notable accomplishments in operational and internal strategies, and adept in change management. They must be able to work under immense pressure and should have powerful time management skills. Extensive relevant work experience is also highly recommended.
CFO: Should have led and participated in roles involving finance and cash flow management. Long-standing experience in dealing with investors and staying updated with economic trends is also crucial for this role.
If you need help making up your mind, take a look at our comprehensive guide of fractional CFO services.
Importance of collaborative work of the COO and CFO
The COO and CFO provide expert insights from separate but interdependent roles. They balance both strategies and decision–making processes which ensure both operations and financial matters are taken into consideration each time.
Their collaboration also optimizes the distribution of resources and alignment of functions and goals because all activities and projects are adequately funded. With today’s digital growth, COO and CFO collaboration also takes care of choosing appropriate technological solutions. With proper execution within the organization’s operations and setting appropriate limits on budget allocation, they can secure maximum return of investment.
In addition, a solid collaboration of two high-level executives also sets a good example for company culture and establishes a powerful statement inside and outside the organization which leads to increased employee engagement and boosts investor confidence.
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In this article, we discussed the differences and similarities of the COO and CFO functions. Here is a quick snapshot of our findings.
If you have the following challenges, choose a COO:
Operational Inefficiencies: Struggling with streamlining operations, reducing costs, and improving productivity.
Scaling Issues: Difficulty in scaling the business, including managing increased staff, facilities, and operational complexity.
Lack of Strategic Direction: Absence of a clear operational strategy to guide the business towards its goals.
Quality Control: Problems maintaining the quality of products or services as the business grows.
Employee Management: Challenges in team management, including training, development, and retention.
If you have these challenges hire a CFO:
Financial Planning: Lack of expertise in budgeting, forecasting, and financial planning.
Cash Flow Management: Struggling with maintaining a healthy cash flow, and understanding when and where the money is coming and going.
Investment and Funding: Difficulty in securing investments, managing debts, and other financial obligations.
Compliance and Risk: Challenges in meeting regulatory requirements, tax obligations, and managing financial risks.
Strategic Financial Decisions: Need to make informed financial decisions that align with the business goals, such as mergers, acquisitions, or pivots.
Both roles can be crucial for a small business, especially at different stages of growth. While a COO will focus more on day-to-day operations and efficiency, a CFO will be more concerned with the financial health and long-term sustainability of the business.
We hope this conversation has been helpful and remind you again that if you want the expertise of a COO or CFO and yet don’t want a full-time employee, then a fractional CFO is an excellent alternative. Contact us today to talk about your needs
Fractional CFO services are a great alternative to a full-time COO or CFO. Our team would love to work with you on a financial strategy that will propel your business forward. Call us today and secure the future of your business.