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...
Financial Expert Roles & Responsibilities
It’s not uncommon to have difficulty differentiating between the main financial professionals. Not only are the names similar, but they are also often unintentionally used interchangeably. However, despite how the titles may be used colloquially, there are distinct...
Choosing the Right Vendors for Your Business
Nearly every business requires supplies and services. To keep your company moving forward smoothly and to ensure optimum profitability, you need to find vendors who are trustworthy, consistent, and correctly priced. An ideal vendor is more than just a supplier; they...
How Much Does a Virtual CFO Cost
A virtual CFO, also called a VCFO or fractional CFO, is a consultant or company that provides CFO services to one or more businesses on a part-time or ad-hoc basis. In the past, a true CFO was usually a highly paid, full-time employee that only large corporations...
What Is Gross Profit and Why is it Important?
Gross profit is one of several key profitability metrics that help companies evaluate their financial health. It is necessary to determine gross profit before you can calculate other important figures such as net profit, EBITDA, and the company’s bottom line. Gross...
20+ Mistakes to Avoid when Selling Your Business
Selling a business, especially in the current economic climate, can be a complicated process. You want to get the best price from the right buyer and smoothly transition the business to the new owner. The process takes a significant amount of planning, negotiation,...
Elements of Financial Forecasting
An essential factor in business management is the ability to discern where the company is headed and what course to chart for maximum profitability. Intuition and guesswork are not sufficient to create a rational roadmap for the future. For that, the process of...
How to Improve Business Cash Management
Cash management is the lifeblood of any business. It can make or break any company regardless of how great the product or service is. In fact, cash-flow related challenges are the reason 82% of small businesses fail. Cash flow is a metric that every company should...
Is Your Business in Athletic Position?
In sports there is a stance known as the “Universal Athletic Position,” or “ready position.” Feet apart, knees bent, hips back, chest forward, arms extended-with minor variations, this stance is favored by athletes as a starting position for many different sports....
6 Reasons SaaS Companies are Choosing Outsourced CFO Services
It’s becoming increasingly common to see companies turning to an outsourced CFO instead of a traditional in-house CFO. This is especially true for the dynamic, high-growth SaaS industry. SaaS companies are finding that outsourced CFOs specializing in SaaS are often...
7 Common Financial Modeling Mistakes
In order to make confident and effective business decisions, company executives need good data. They need to know how the business has performed in the past, where it stands financially right now, and what its prospects are for the future. They also need to be able to...
Basics of Mergers and Acquisitions
There are many reasons why two companies may choose to combine into a single entity. Expanding into new territories, adding technologies, reducing costs, eliminating competition, boosting revenue, and increasing market share are just a few examples. The legal joining...
Questions to Ask Your CPA about Business Tax Strategy
The purpose of a business tax strategy is to maximize income by legally reducing the amount of taxes owed. Because tax laws and government regulations are constantly changing, your tax strategies need to evolve as well. A Certified Public Accountant (CPA) is a tax...
