Critical Contract CFO Components Most Small Businesses are Missing

ROI Orange-01Continuing with a series that I started writing a few months ago, another component has been on my mind while working with clients recently. Strategically approaching goals and identifying the resources and actions necessary for achieving them is the sign of a truly valuable CFO.  Too many small businesses lack an individual with the expertise to take lofty goals, convert them to strategic targets, outline the gaps in resources and activities for reaching those targets, and put in place an actionable plan for success. But this is what you should expect from hiring a full-time or contract CFO.

Higher Return on Investment

I recently had lunch with a young entrepreneur who has been successful in acquiring and developing hotels and apartment complexes. He confidently reported that they don’t even look at opportunities that are expected to provide lower than a 15-20% internal rate of return over the life of the investment. “Impressive,” I thought. Surprisingly, he later confessed that he lacks financial analysis skills and that they don’t dig into existing financial statements. His approach lacks structure, analysis prior to the investment, and lacks on-going and post-disposition analysis to determine what their true return turned out to be. In reality, he had no idea of the actual returns his business was getting on its investments—okay for a family business like his, but not okay had there been any other stakeholders.

While it’s easier to calculate a specific ROI with real estate examples, every business should be performing regular, structured analysis on their financial decisions. Hiring employees, opening a new branch, purchasing new equipment or vehicles—all are activities in which a CFO’s foresight and expertise should be employed. At least an estimated ROI should be calculated and weighted against other alternatives. Investing in your business should not be taken lightly.

Translating to a CFO’s Qualities

So how does thinking strategically about internal investments translate to what you should be looking for in a CFO? He must be able to think strategically and deliver accurate, timely and clear financial information in relation to the progress of the organization toward its goals.

Unfortunately, many “CFO’s” who lack proper business education or experience are unable to clearly define a business’s goals and further lack the ability to weigh strategic actionable options against each other.

Clearly, a CFO with such strategic experience and expertise is a benefit to any organization—and a small business can readily benefit from such a person on a contract or part-time basis. The knowledge and expertise won’t be part-time, just the time that the small business needs the person to be engaged in their business—a true win-win for both parties.