CFO vs CPA: Differences Between Fractional CFOs and CPAs
Does your organization need a CFO or CPA? How do you determine which professional you need and when? Oftentimes, the roles and responsibilities of CFOs and CPAs are confused, making it difficult to pinpoint which expert you need on your team.
In this article, we’ll explore the main differences between fractional CFOs and CPAs, including where each professional excels, to help you determine the type of professional you need to look for.
What is the Difference Between a Fractional CFO and a CPA?
While both CPAs and CFOs are important, they do take on different roles. CPAs are generally more tax-focused, while CFOs care more about the long-term financial strategy of your organization. Before we get into the main areas each professional can help your business with, let’s first define the basics of each title.
Chief Financial Officer (CFO)
A Chief Financial Officer, known as a CFO, prioritizes the financial aspects of running a business, including budgeting, cash flow management, risk management, raising capital, and maximizing efficiency. A CFO can either be an in-house employee or outsourced on a fractional basis, depending on your organization’s needs.
A CFO designation is a job title, not a credential. However, many CFOs have degrees in finance or accounting and hold credentials like a CPA or CFA license. In addition, CFOs have around a decade of work experience.
Chartered Professional Accountant (CPA)
A Chartered Professional Accountant, known as a CPA, focuses on accounting and tax management, preparing tax returns, assisting with audits, creating compliant financial statements, and conversing with regulatory agencies like the CRA. Most companies don’t have the need for an in-house CPA, so this role is commonly outsourced.
The term ‘CPA’ is a credential, meaning that the individual passed an exam and takes continuing education courses each year. The work experience of your CPA can vary. However, all CPAs in Canada need at least 30 months of accounting experience before they can start using the designation.
Now that we’ve outlined the background differences between CFOs and CPAs, let’s get into the main tasks each professional can help your organization with.
1. CPAs Manage Taxes
The roles and responsibilities of a CPA can differ. For example, some companies might have a CPA review their books on a monthly basis and complete reconciliations, while others will enlist a CPA’s services during tax season to file returns. CPAs are experts in both accounting principles and tax strategy, making them a key component for tax and financial statement compliance.
They use their financial expertise to lower your tax bill while ensuring you have the proper records to withstand an audit or inquiry. If you are looking for someone to prepare your tax returns and assist with audits, a CPA is your go-to professional. Although a CFO can have some tax experience and may even have a CPA license, their focus isn’t on taxes.
2. CFOs Focus on Your Long-Term Strategy
While CPAs are focused on your tax strategy, CFOs guide their attention toward your long-term strategy. CFOs work as an extension of your company, meaning they want to understand your strategic business goals. Then, they work to find ways to meet these objectives by improving systems and operations.
Let’s say your long-term strategy is to take your company global. Your CFO would start building relationships with international suppliers, work with marketing teams to expand your product reach, and ensure your facilities have no bottlenecks. These actions help you work toward your long-term strategy.
3. CPAs Help Determine Favorable Capital and Organizational Structures
Each organization selects a structure when the business is formed. However, as your business begins to grow, your initial structure might not be the best avenue for minimizing taxes and leveraging growth opportunities. This is where a CPA comes into play, identifying the tax impact of switching structures and helping you get the process started.
For example, maybe you started your business as a sole proprietorship. Now, you’re thinking about hiring your first employee or taking your business to the next level by offering more products or services. A CPA can evaluate the tax impact of switching to a corporation or a partnership if you plan on bringing on additional owners. Making the switch often involves filing forms, which a CFO might not be able to assist with.
4. CFOs Create and Implement Financial Strategy
Just like a CFO focuses on your long-term strategy, they also pay close attention to your financial strategy. Your financial strategy determines the sources of funds and how those resources are allocated. One common way that CFOs accomplish this task is through forward-looking forecasts. Forecasts determine your budgets, marketing tactics, fundraising, and how operations are run.
Companies usually enlist the help of a CFO to accelerate financial growth, reduce overhead and expenses, create accurate forecasts and planning schedules, manage cash flow, assess financial and market risks, implement effective policies and systems, build shareholder relationships, and improve overall profitability. It’s important to note that a CPA can assist with some of these aspects. However, CPAs like to maintain independence, meaning they can only offer suggestions, not help you with the finite details of implementing a financial strategy.
5. CPAs Issue Financial Statements
One of the key responsibilities of a CPA is issuing financial statements. Issued financial statements contain an “Auditor’s Report” section, which includes an opinion on the accuracy of the statements. Because shareholders and the general public might rely on these reports to make investment decisions, only CPAs can issue this report.
Even if your CFO does have a CPA license, there is an independence requirement, meaning the CPA issuing the report has no ties to the organization. A CFO working with your company would break this clause. If your company needs to issue financial statements, a CPA will be your go-to professional.
Selecting the Right Professional
So, which professional does your organization need? If you are looking to scale your company, need strategic financial guidance, want insights on your budget and forecasts, or need assistance making complex financial decisions, a CFO might be the right fit. However, if you need help with routine accounting tasks, financial statement preparation, compliance with regulators, or an independent audit, look for a CPA. For more accounting and finance tips, tricks, and information, check out our other posts.
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