While there is no right answer if you need a CFO, there are certain indicators.
When should a small business owner hire a CFO? While the needs, wants, and opportunities of every business are unique, there are certain indicators.
The first and most critical question we need to ask ourselves is whether information that helps the business make timely and important decisions is being prepared and reviewed. Business owners make decisions at the pace of the business and must be able to rely on the accurate and timely information provided by CFOs.
If the information needed for decision support is currently not available when needed then it may be time to evaluate the need for CFO level services.
What Does a CFO do?
In many small-to medium sized companies, the CFO is responsible for the review of financial results and the interpretation and presentation of results to the team of managers and owners.
Other critical CFO responsibilities include cost control measures, capital acquisition decisions, cash-flow management, inventory control, budgeting and cash flow forecasting.
The CFO needs to be forward thinking due to economic, industry, tax, governmental regulation, and social issues. As you can see, the CFO assists the business to not only oversee the operational accounting needs but also to direct the strategic financial objectives of the business.
In some cases, the CFO can also be the OFO, or Only Financial Officer, and must rely on bookkeepers for accurate processing of financial information. Accurate financial information is critical to the owners and management of the business as well as external stakeholders such as banks, investors, and tax authorities.
Is my business big enough for CFO Services?
The second question which determines the need of CFO level services largely depend on the complexity and transaction volume of the business. A company generating $5 million in revenue may be ready for a CFO while a company generating $20 million may not be. One business could sell its product for $1.5 million each but only sell five units in one year, while another client might need 48,587 transactions to reach $10 million with an average transaction of $206. The complexity of the transactions can also determine the need for a higher level of experience or knowledge.
The critical external point is when respect must be earned outside the company. That could be from customers, suppliers, banks, shareholders, or government regulators.
Growth is another important indicator. Growth requires an expansion of automated systems to handle the growth, and additional capital and/or financing to finance the growth. A CFO is best suited to handle rapidly increasing growth due to the complexity involved. He or she must be able to interpret the investment and technology, and the terms of acquiring capital.
One final indicator is preparing for a merger or acquisition. In this situation, the CFO must be able to choose the correct team to evaluate a target acquisition. In many cases, that will result in outsourcing to a firm to perform the financial and regulatory due diligence.
The CFO is the best person to interpret the report issued by the due diligence team so terms can be tailored to the findings. A very important skill required of CFOs is the ability to present information to a potential investor or lender. Preparing the information and anticipating their questions will speed up the process and reduce additional questions.
A CFO in a growth-oriented small business must be hands-on. Controlling growth and communicating results to stake holders are important tasks. Stake holders include the owners or shareholders, banks, insurance companies and employees. As the business grows, the company and its key customers, suppliers and employees will face new risks.
Managing risk involves not only having insurance, but the CFO must also protect the company from regulatory, environmental and human capital risks.
Over the years, Cook Martin Poulson has identified several issues commonly overlooked by business owners. The Critical Issues Checklist will help you identify and address these critical issues relating to your business. When working with our clients, we believe it’s important to use a team approach that utilizes all involved professionals and consultants of the business to ensure the company is addressing all the critical issues they face. We invite you to use the Critical Issues Checklist to prepare for an opportunity to sit down together and address any of the areas you feel you may need to improve.