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.
Industry Knowledge
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.
Tech Smarts
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.
Leadership Ability
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.
Communication Skills
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.
Problem-Solving Ability
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.
Connections
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.
Final Thoughts
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
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...
Does My Business Need a Financial Advisor?
The wise business owner will “know what they don’t know,” and will seek the appropriate experts such as financial advisors to fill those gaps.
3 Reasons you Need a Financial Forecast
If Your Company Doesn't Have a Financial Forecast, You're Wasting Time and Money Every company has goals. Where do you want your organization to be 5 years from now? 10 years? Most even have a general idea of the benchmarks you need to hit to get there—"By increasing...
Know the Significance of Payback Period
Whether implementing a new software system, adding office space, acquiring another company, or any other substantial investment, companies want to know how long it will take to recoup the money they spend on major purchases. The way to determine this is by calculating...
10 Steps to Prepare for Raising Capital
Finding funding for your business is a process that takes a lot of time and effort, especially during the startup phase. Many entrepreneurs fail in their first attempts at fundraising because they are poorly prepared. Others get themselves into trouble by choosing the...
How Can a Fractional CFO Help You Save Money?
In these days of economic challenges and changes, many companies struggle with uncertainty about the future, seeking tools and resources to best position their businesses for financial success. Often it can be beneficial to bring in a financial advisor who has...
What is a Capitalization (Cap) Table and Why Does it Matter?
What is a Cap Table? Capitalization tables, commonly called “cap tables,” are highly useful spreadsheets maintained by companies that have multiple owners or investors. Cap tables are especially important for private companies at startup and in the early stages of the...
Benefits of Finance & Accounting Staff Augmentation
Many companies experience times when they find their accounting departments short on staff or short on expertise. Sometimes emergencies and financial needs arise that are beyond the capability of their financial personnel to address. This is particularly true in times...
Qualities of an Effective Profit & Loss Report
A Profit and Loss (P&L) Report, also called a Profit and Loss Statement, is a key financial document that details a company’s income and expenses over a specific period of time. This time period is typically a month, a quarter or a year. Depending on company needs...
What Is a Quality of Earnings Report?
When a business sale, acquisition, or major investment is contemplated, one important step in the due diligence process is the generation of a Quality of Earnings report, sometimes abbreviated as QOE. Even though a company may have strong financial statements, those...
Complete Guide to Accrual Accounting
There are two methods of accounting: cash and accrual. In cash accounting, transactions are recorded when payment occurs. In the accrual method, revenues and expenses are matched and recorded at the time the good is delivered or the service is performed, regardless of...
3 Things to Know Before Choosing a Supplier
Choosing the right supplier for your business can be complicated, especially if a large portion of your product comes from a single company. For many companies, supplies are secondary only to labor in their expenses. But choosing the right supplier has even more...
A CFO’s Role in Strategic Decisions
In every company, there are important decisions to be made on a daily basis. Some decisions are mundane and have only short-term consequences. Others are strategic and can affect the company’s performance and profits for years. Too often, these critical decisions are...
