We get this question a lot at Credo, especially from business owners or CEOs that have businesses that are growing past the most basic financial needs that involve bookkeeping, cash receipts, and cash payments.
First, I think it is important that you understand what a CFO (Chief Financial Officer) does that is different from the role of a controller or bookkeeper.
Bookkeepers (often times called accountants or staff accountants) are responsible for recording all of the company’s transactions, such as customer orders and invoices, bills, check receipts, and check payments. If they are competent, they perform various processes and procedures to ensure that the transactions are being entered both accurately and completely.
A controller is responsible for creating timely and accurate financial statements, such as income statements, balance sheets, and cash flow statements. All of these statements are based on the transactions that are entered by the bookkeeper(s). The controller is often a formally trained accountant with a degree in accounting and sometimes has certifications. The controller’s job is to ensure that all of the company’s transactions are being recorded properly and that financial statements are being prepared in accordance with the appropriate accounting basis (GAAP or other).
A CFO looks more at the big picture. They make sure that the systems, processes, and people (including hiring the right people and ensuring complete yet efficient levels of staffing) are in place to produce timely and accurate financial information (accounting reports, KPI dashboards, forecasts, etc.) so that the owner or CEO of the company can make better, more informed decisions. Put simply, the controller looks to the past, while the CFO looks to the future to help figure out how the organization can reach the company’s goals as set forth by the company’s owner or CEO. A CFO is also responsible for managing the company’s cash flows, which can be especially crucial in a new company or a company transitioning from a small company to a larger, more successful one. Cash flow can obviously be especially critical in funding growth and investment as a company takes itself to the next level.
To summarize, the CFO should pay meticulous attention to the following areas:
- The Controllership Function
- Cash Flow & Investment Decisions
- Managing the Capital Structure (financing the company’s operations)
- Financial Analysis and Business Intelligence
- Coordination & Execution of Large Transactions or Contracts
- Managing the Executive Reporting System
- Governance and Compliance
- Getting Results
Here are some questions that can be posed that will give a good indication on whether or not a CFO could be a valuable part of the team:
- Are you often worried about cash and do you deal with cash “shortages” more often than you would like?
- Do you sometimes have “extra” cash that you are not sure how to invest back in the business to get a good return on the investment?
- Do you find yourself worrying about the direction of the business and feel as though you lack direction or information to execute the strategies you have developed?
- Do you work more hours than you would like in areas that are unrelated to growing the business, such as stressing over which bills to pay, tax planning or tax mitigation, customer collections, preparing for bank meetings, etc.?
- Are you concerned about the accuracy or timeliness of your financials and the security of your company’s assets (like cash, property, or other)?
- Is your business not making enough margin and profits to both pay you a fair level of compensation as well as make strategic investments for future growth?
Quite honestly, a company that can answer any of these questions “yes” should hire a CFO in some capacity to help their business succeed. It is true that most small businesses cannot afford a full-time CFO – a good CFO can command annual compensation of $250k and above. However, just because a company cannot afford a full-time CFO does not mean that the company doesn’t need someone performing the CFO function. This is a critical function in any business and it needs to be done well.
CEOs should not waste their energies and talents on areas they are not good at. Most CFOs, especially part-time CFOs, have a lot of experience in a variety of industries and with many different management styles. They can also help CEOs by sharing their experiences so that the CEO can avoid making mistakes that others have made. A good CFO should be a trusted business advisor that works hard to ensure the company and the CEOs visions are realized.