Does Your Business Need a CFO?

When growing a successful business, business owners often reach a point when they realize that what got them to where they are is not enough to get them to the next level. That often happens when they recognize the moment when their accounting software and bookkeeper may actually be holding them back. When the next level requires critical forward planning, when you’re spinning a lot of plates to keep your business running, and when you’re unsure where to take it next, it may be time to hire a CFO.

When an Accountant or Bookkeeper is No Longer Enough

Taking a business to the next level requires vision and a plan. It also requires actionable data so business owners can see clearly into the future as they navigate the challenges of growth. The accountant or bookkeeper, while critical to a business’s operation, focuses on the past. The information provided can’t show you the way forward.

When the business begins to barrel ahead, historical data doesn’t allow you to adjust to a rapidly changing landscape. The tipping point comes when the information a business needs to make timely and critical decisions is unavailable. Opportunities are lost, and the business can hit a brick wall.

At a certain point, business owners begin losing their grasp of the business when their gut is no longer sufficient for making critical financial decisions. They are too involved in the business and do not see the overall dynamics. That is when their growth begins to outrun their capacity to manage it, which can lead to a very bad outcome. At this point, they need someone to make sense of the financials—someone who really understands the economics of a business and what makes it work.

How a CFO Can Help Change Your Course

At its core, the primary function of a CFO is to help the CEO make sense of the numbers. CFOs have unique skills and expertise that allow them to peel back the onion where you are most likely to discover you are not making money in certain parts of your business. They are hands-on and able to get into the weeds to closely examine staffing and expenses vs. revenue. Their ability to evaluate manufacturing costs and product sales cycles can provide the information needed to project true ROI.

A good CFO assesses business costs and manages financial risk by analyzing data, tracking performance outcomes, and developing proactive strategies. The CFO ensures that the company is protected from regulatory, environmental, and human capital risks.

The CFO’s duties also include:

  • Supervising the financial operations, including accounting, reporting, cash management, and tax preparation
  • Planning short- and long-term financial goals
  • Implementing sound financial practices as a structure for decision-making
  • Streamlining operations
  • Managing business expansions
  • Guiding the company through changes in business structure and operations
  • Determining how to invest company assets

CFOs are also responsible for the company’s financial future. They are strategic thinkers who can forecast market trends and devise strategies for capitalizing on them. It’s their job to understand why business markets perform the way they do and position the company strategically.

How Big Should a Company Be Before Hiring a CFO?

In terms of revenue, there is no standard rule of thumb to determine when it’s time to hire a CFO. A company that generates $8 million in revenue with 30,000 transactions could probably use a CFO, while a company generating $15 million annually on 20 transactions may not.

The complexity of the business is a vital indicator of the need for a CFO. If your business has multiple product lines and sells to hundreds of customers around the world, it is a more complex operation that could require the service of a CFO.

Complexity also becomes an issue for businesses experiencing rapid growth, which can become convoluted and unpredictable. It usually calls for expanding operations, systems, and processes, as well as the need for financing – all of which must be managed simultaneously while avoiding the financial risks of rapid growth. That generally can’t be done without the onsite guidance of a CFO.

Can a Smaller Business Afford a CFO?

Many small businesses avoid hiring a CFO either because they don’t know they need one or because they don’t want to spend the money. However, in reality, the money they don’t want to spend is already being lost to cost overruns, lost opportunities, operational inefficiencies, poor inventory management, and mispricing of products. In other words, any business with true growth ambitions can’t afford not to hire a CFO.

Fortunately, hiring a CFO can be more affordable than business owners realize. Many retiring CFOs would rather remain in the workforce and would seize an opportunity to work on a project where they can see the importance and impact of their work. It’s not uncommon for these CFOs to work for several similarly situated companies, which makes them even more affordable.

Read other Business situation analysis articles