If you are asking this question, chances are your business is growing to the point where you are realizing that you need someone trustworthy to handle the money side of your operations.
First, it is important that you understand what a Chief Financial Officer (CFO) does and why their role is different from that 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. This executive makes 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.
Now that you have a basic understanding of what a CFO does, you need to ask yourself the next obvious question: Do I need one? And – Do I need a full-time CFO or would a part-time CFO provide better overall value?
Here are some questions you can ask yourself that will give you a pretty good indication on whether or not it would be a wise investment for you to bring aboard a CFO:
- Are you often worried about cash and do you deal with cash “shortages” more often than you would like?
- 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, if you answer yes to any of these questions, you should hire a CFO in some capacity to help your business succeed. Most small businesses cannot afford a full-time CFO. A good CFO can command annual compensation of $250k and above. However, just because you cannot afford a full-time CFO does not mean that you do not need someone performing the CFO function. This is a critical function in any business and it needs to be done well. You should consider hiring a part-time CFO as soon as you can afford to, even if they only spend a few hours a week on your business. The sooner you have a seasoned professional taking care of the company’s money, the much higher the probability your business will succeed. A good “rule of thumb” is if your business has revenues less than $25M, get a part-time CFO. If you have more than $25M but less than $75M, consider a full-time controller and a part-time CFO. If you are more than $75M, then it is highly likely you need a full-time CFO.
Once you have resolved yourself to getting help from a CFO, you will find a lot more time to deal with the growth of your business and will find yourself stressing a lot less about money issues. Do not waste your good energies and talents on areas you are not good at. Focus on the things you are 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 coach you and share their experiences with you so that you can avoid making mistakes that others have made or even prevent you from “reinventing the wheel”. Better to have knowledge now than to gain it through expensive and time burning mistakes. A good CFO will be your trusted business partner and will work hard to ensure you meet all of your goals.
Dan Lucas, CPA/ABV, Five Star Professional©
Managing Partner, Credo Financial Services