Is your business growing and evolving?
You’ve worked hard to get your business to this point, but you’ve suddenly risen to a level where each decision becomes more difficult because it’s attached to higher stakes and larger consequences.
One of those difficult decisions: Is now the right time for the company to hire a Chief Financial Officer (CFO)?
But before you can answer that question, you first need to understand exactly what a CFO does (and how their role differs from a bookkeeper or accountant). Or, more specifically, value a CFO bring to your business that those other roles cannot.
We get this question frequently, especially from CEOs whose companies are growing past the basic bookkeeping and cash management needs.
Before we tackle the all-important description of what a CFO is, it’s just as important to be informed on what a CFO is not. Let’s explore the differences between CFOs, Controllers, Accountants, and Bookkeepers.
Early-stage businesses often survive with a bookkeeper on staff (or outsourced) rather than an accountant. A bookkeeper should be familiar with accounting software and common sense accounting principles, but is not required to have a degree or any accounting designations.
Typically, bookkeepers are responsible for recording all of the company’s transactions – tasks such as customer orders and invoices, bills, check receipts, and check payments. If they are competent in their role, they perform various processes and procedures to ensure that the transactions are being entered both accurately and completely.
As the business owner, you review the bookkeeper’s work to ensure accuracy and give final approval.
As businesses grow, their financial needs change and it’s no longer sufficient to solely rely on a bookkeeper to be responsible for all data entry and receipts (upon review by the owner). This is often when an accountant is brought onto the team.
The accountant essentially takes over where the bookkeeper leaves off. For instance, while the bookkeeper can still handle the simple tasks of paying bills, preparing payroll, and creating invoices, an accountant steps in for more complicated tasks such as depreciation schedules, reconciliations, and other non-transactional activity.
As the business owner, you trust the accountant’s work and may seek their assistance to understanding the financial impact of past decisions.
As your business grows in complexity – whether through adding multiple locations, more services, or lines of operation – you will need a controller.
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 and verified by the accountant.
The controller is often a formally trained accountant with a degree in accounting and may also have professional certifications. The controller’s job is to ensure that all the company’s transactions are being recorded properly and that the financial statements are being prepared in accordance with the appropriate accounting principles (GAAP or other).
As the business owner, you rely on the experience and knowledge of the controller to keep all of the company finances in order.
CHIEF FINANCIAL OFFICER (CFO)
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.
A CFO is the financial expert focused on executing the strategies of the company. They analyze carefully crafted financial reports, seek out operational inefficiencies, monitor key performance metrics, and create forecasts that are critical for decision making. Cash flow can be especially critical in funding growth and investment as a company takes itself to the next level.
Put simply, whereas a bookkeeper, accountant, or controller look to the past, your CFO looks to the future to help determine how the organization can reach its full potential.
A simple comparison is to think of the difference between a manager and the CEO. Both roles are important and both are necessary leaders within the organization, but they serve different functions.
A manager looks after the day-to-day and the CEO is in charge of future-casting and vision. A CFO works in much the same way. While the bookkeeper and/or accountant takes care of the day-to-day financial tasks, the CFO is responsible for the future-casting and vision of the financial health of the company’s finances.
In general, the CFO looks at the same future that the CEO does and ensures that the finances of the company are both properly aligned AND driving toward specific targets.
HOW TO KNOW IF YOU NEED A CFO…
Now that you know the main differences between the roles of a bookkeeper, accountant, controller, and CFO, how do you know when the time is right for your company to hire a CFO?
If you’ve spent any amount of time researching the topic of hiring a CFO, you’re likely confused and frustrated because there is too much variation in the answers you find.
But before looking at specific metrics or milestones for hiring for such an important position here are some questions to be posed that will give a strong indication on whether or not a CFO could be a valuable part of the team:
- Do you think about cash flow to the point where it is distracting?
- Do you find that you are increasingly making decisions with your “gut”?
- Do you feel more and more like you can’t keep a handle on all the things you used to?
- Are you anxious about dishonest employees?
- Are you concerned about the accuracy or timeliness of your financials?
- Do you feel like you are often the only one who can see what the company “could be”?
Need help with growth? How about operation and execution? See a big change ahead? You need an experienced accountant to manage it. These are just a few of the key roles a seasoned CFO or controller can play.