Whether your business is a startup or an established enterprise, you need a strong, agile financial team with a highly competent leader. Some companies think they can get by without a Chief Financial Officer (CFO) until they start preparing to go public. Other companies wait too long to hire a CFO simply because they don’t want to spend the money. This can be a mistake. A good CFO can be a huge asset at almost every stage of business development. This article is intended to help you determine when and how to bring on a CFO that can best help you with your business needs and goals.
What Can a CFO Do for Your Business?
As a key player in a company’s decision-making process, a CFO may be considered a steward over company assets and finances. A CFO adds value to the business by looking forward with a long-term strategic view and balancing it with the short-term needs of the company and its stakeholders. A CFO helps optimize company profitability by finding ways to increase efficiency, make the best use of resources, and identify viable opportunities.
The COVID-19 pandemic has made the CFO’s role more important than ever. In a June 2021 interview with Forbes Magazine, Trintech CFO Omar Chouchair said,
“Over the last fifteen months, the role of the CFO has become significantly more complex. In fact, according to Deloitte’s recent North American “CFO Signals” survey of CFOs in Q1 2021, more than half of respondent CFOs (54%) reported ‘having higher demands from their executive/leadership teams since the beginning of the pandemic.’ Now, as we move towards a post-pandemic reality, CFOs are a key voice in determining their firms’ topline strategies. CFOs are involved in efforts across the business, from enhancing processes that support talent acquisition and retention to ensuring business resiliency and preparing for the future.”
Typical responsibilities of a CFO may include the following:
- Financial forecasting
- Building financial models
- Raising capital
- Managing the financial team
- Preparing financial statements
- Optimizing product lines and sales strategies
- Managing cash flow
- Preparing exit strategies
What Makes a Good CFO?
When looking for a CFO, you should seek an experienced, visionary financial executive who fully understands finance and funding, and is both a leader and a collaborator. You need someone who can work well with people and stay calm under pressure. Here are some other qualifications you may wish to consider include the following.
Breadth of Experience
A qualified chief financial officer will, of course, be proficient in the basics of accounting and finance. The CFO should also be experienced in other areas such as strategy, raising capital, risk management, forecasting, investment, and cash flow optimization. A CFO with a diverse background can be very valuable as a source of creative ideas and strategies. The right CFO will be able to quickly gain an understanding of the unique environment in which your business operates and the kinds of employees, clients, vendors, and stakeholders you work with.
Although the basic principles of accounting and finance are largely the same everywhere, each industry has its own standards and particularities. Your CFO should be familiar with your industry and its financial challenges. A CFO who has experience with other businesses in your industry or similar industries will be able to recognize issues and opportunities as they arise and prepare accurate financial forecasts.
The modern CFO must be tech savvy and know how to use technology to optimize effectiveness. This includes helping the company to select and use the best financial systems for their needs and to offer effective reporting and tracking tools. The CFO needs to be able to evaluate new technologies not only for cost versus benefit, but also for potential risks such as data privacy and vulnerability to hacking.
A CFO needs to be a people person as well as a numbers person. As a leader of the financial team and an influencer of the executive team, the CFO must be able to build solid working relationships and motivate individuals without undue pressure. The CFO also needs to be a good cultural fit for the organization.
A CFO must be able to express ideas clearly and concisely and back them with data. Both oral and written communication skills are important. Teamwork is particularly important both in the executive suite and in the financial department. The CFO should be able to work well with personnel at every level.
A CFO must also be able to explain the business articulately to investors, bankers, and other stakeholders. This is especially important when the company is seeking financing or preparing an exit strategy.
Every business experiences difficulties and emergencies from time to time. When financial issues arise, you need a CFO with a cool head who has overcome crises in the past and can recommend creative strategies for conquering current challenges.
The CFO needs to be able to maintain internal controls regardless of circumstances and ensure that financials are double-checked to prevent errors and fraud.
Risk Management Ability
Management of both internal and external risks is a key component of the CFO’s job. Internal risks may include such factors as bad data, inadequate controls, and unreliable technology. External risks might include supply chain issues, competition, and other factors unique to the industry. The CFO needs to recognize and evaluate risks and provide contingency plans to deal with them. This process involves financial forecasting, budgeting, negotiations, and more.
An experienced CFO who has worked successfully with multiple companies will be able to provide connections to financial institutions, suppliers, investors, and others. This can be a great benefit, especially when a company is in the early stages of business.
When Is It Time to Hire a CFO?
Finding a good CFO can be a daunting process, but you will probably find it well worth the effort. Don’t assume that just because your company is a startup or hasn’t reached a specific revenue goal that it is too early to consider bringing on a CFO. Smaller companies will benefit from outsourced or fractional CFO options that will offer a high level of financial expertise without the full-time, in-house cost.
If your company needs to raise capital, wants to expand, lacks financial oversight, or needs help with financial reports and forecasts, it may be time to hire a CFO. If your financial team is overloaded with work or struggling to keep accurate records, it may be time to hire a CFO. If you want to move into new territory such as international markets or more sophisticated accounting software, it may be time to hire a CFO.
Where Can One Look to Find a CFO?
Networking is often a good place to start. Trusted acquaintances who have a knowledge of your industry may be able to recommend competent prospects who have the right experience and are open to new opportunities.
Posting on job boards and on the company website will probably bring you a fair number of candidates, but be prepared to sift through a lot of resumes and sit through a lot of disappointing interviews.
A paid recruiter or employment agency can help you find a more qualified pool of candidates, but this option can be very costly in the long run.
Another option is to hire a part-time or “fractional” CFO.
Why Should You Consider a Fractional CFO?
Not every company has the need or the resources to hire a full-time CFO. An excellent alternative is to hire a fractional CFO. A fractional CFO provides a high level of strategy and financial expertise without the associated costs of salary, benefits and bonuses that would be expected by a full-time employee.
A fractional CFO is typically hired on a contract or retainer basis. Many fractional CFOs can handle challenges on a per-project basis or can oversee financial strategy with your internal team or their own team of controllers and bookkeepers. A fractional CFO can help the business develop forward-facing financial visibility, create financial forecasts, manage growth, prepare for upcoming events, and achieve company goals. A fractional CFO can be given as much or as little responsibility as you wish, depending on the needs of your company.
How do you hire a fractional CFO? For the best results, we recommend the use of a fractional CFO company. In doing so you can reduce the headaches and risks of the hiring process, get a more seasoned CFO, end ensure continuity of service in the event that the assigned CFO is unable to perform the required tasks. A fractional CFO company will usually support its CFOs with a team of competent controllers and bookkeepers to ensure good service.
Whether your company is new, well-established, preparing for an IPO, or pursuing an exit strategy, having an experienced Chief Financial Offer can be a big financial advantage. If your company is not in a financial position to hire a full-time CFO, you may wish to consider fractional CFO services such as those offered by Preferred CFO. A good CFO can not only keep your finances in order, but also can provide the insights and strategies that will help your business grow, overcome obstacles, and prosper.
About the Author
David Guyaux brings over 25 years of experience as CFO, VP of Finance, and Controller roles within both public and private enterprises. He has organized finances for companies to turn around operations and meet compliance and governmental requirements, as well as to prepare for mergers and acquisitions.
You may also be interested in...
Deciding whether and when to sell your business is a significant and complex decision that should not be undertaken lightly. If the timing is right, the offer is right, and the necessary work is done correctly, selling your business can be highly beneficial. However,...
12 Things Investors Look for in an Investment Opportunity Being funded by a VC fund has been glamorized in the past 10 years—and it’s no wonder why. Venture capitalists not only provide funding for young and innovative businesses, but also bring a partnership with...
Business growth requires both organic and inorganic growth. Each method carries its own set of advantages, challenges, and implications for the trajectory of a company. Whether you are a startup or established enterprise, understanding the dynamics of organic and...
This episode of Management Development Unlocked marks the 50th episode! Eric’s guest is Tom Applegarth. Tom’s entire career has been spent in human resources at multiple companies, both big and small. Today, he is the Vice President of Human Resources for Preferred...
Recognizing Cash Flow Problems & How to Solve Them We know that the majority of small businesses fail within the first five years, but a study by Jessie Hagen, previously with U.S. Bank, drilled down into the reasons why this occurs. In her study, she found that...
In today's dynamic business landscape, having a strategic financial perspective is more crucial than ever. However, not all businesses can afford to have a full-time Chief Financial Officer (CFO) on their roster. Many choose instead to utilize virtual CFO services – a...
Financial Key Performance Indicators (KPIs) are crucial measurements of a company’s fiscal health. These metrics provide a window into the current and projected profitability of an organization, enabling managers and stakeholders to make informed decisions. By...
For many businesses, product inventory is their biggest asset. Effectively managing the inflow, storage, and outflow of inventory is critical to the financial success of the company. When inventory management is done right, customers can place orders with confidence,...
Preferred CFO recently added Human Resources Veteran, Tom Applegarth, to the Preferred CFO team to offer outsourced HR services in addition to or standalone from outsourced CFO services. In this video, Tom introduces his experience and key benefits he offers Preferred...
Your employees are the lifeblood of your business. However, labor is also typically the highest cost for most businesses. Costs associated with hiring, training, compensating, retaining, rewarding, and managing employees can easily spiral out of control when there is...
A financial audit serves as a valuable tool for ensuring a company’s compliance with legal and regulatory requirements, building credibility with stakeholders, managing financial risks, and maintaining transparency in the financial operations of the business....
A SaaS CFO is a chief financial officer with specific experience in the Software as a Service (SaaS) industry. A SaaS business is different from traditional businesses that require a one-time purchase or otherwise brief relationship transaction as a SaaS company...