Hi guys, Chris here. This week I wanted to share a great blog post from our co-founder and Chairman of the Board, Vinnie Fisher (you can meet Vinnie at vinniefisher.com or follow his blog here). In this post, Vinnie talks about how a CFO can be an invaluable asset to you, and how to decide if getting your own CFO is the right move for your business. Enjoy, and if you have any questions about getting your own CFO, leave a comment or shoot us an email! – Chris Giorgio, President
As a business owner, accomplished attorney, and successful CEO for multiple companies, I always thought I could do it all! And because I always heard, “control the checkbook or the person who does in your business,” I regularly wore two hats in my companies. I would serve as the CEO, in charge of all aspects of the business, and as our acting CFO in charge of finance.
Well, that changed for me in 2012 when I decided to hire a full-time CFO for our business. Now I might add that not all businesses need a CFO, and it depends on how dynamic your business is to take that step. For me, I needed to hire a CFO who could function as my business partner and allow me to step away from the books so I could manage other aspects of the business better. And quite honestly, with finance classes in hand, I wasn’t that good of a CFO. If you feel this way too, you are not alone.
One thing many business owners seem to struggle with is the idea of a CFO. Does your business need one? How do you know when the time is right? What does a CFO even do, anyway? If you’ve been asking yourself these questions, don’t fear, you’re not alone! This is one of the most common topics that people bring up when I’m mentoring business owners, so you’re in good company.
What’s the Difference Between a Financial Controller and a CFO?
Deciding whether your company needs a CFO can depend on whether it would benefit more from a controller. To examine whether your company should choose a controller or CFO, you should understand the differences between each role and how they affect companies of varying sizes.
What Is a Controller?
Financial controllers are senior-level executives who head your accounting department. These executives oversee financial report preparation such as balance sheets, and income statements. Financial controllers also fulfill such duties as performing compliance audits, monitoring internal financial controls, developing budgets, and analyzing financial data. Some companies also include these professionals in their financial technology evaluation.
What Is A CFO?
A CFO is an executive on your team who oversees all the financial activities of the business. Their duties include things like monitoring cash flow, financial planning, assessing company liabilities, budgeting and expense control, and building and maintaining relationships with banks, creditors, and so on. At a higher level, your CFO acts as a sounding board and business advisor, helping you look at the big picture and grow your business.
If trained correctly over time, this person acts as a partner in the business, handling various aspects within the operations of your business. It’s important for you to understand the higher-level value of the CFO because many business owners tend to confuse CFOs, controllers, and bookkeepers, so I want to take a minute to address that.
A bookkeeper is simply responsible for recording business transactions (invoices, bills, payments, orders, etc.). Their job is to ensure that they enter complete and accurate information. A controller or staff accountant, on the other hand, is a trained accountant who is responsible for creating timely and accurate financial statements (balance sheets, profit and loss statements, cash flow statements, etc.). These financial statements are based on the transactions entered by the bookkeeper for each accounting period.
Your CFO, though, looks at the big picture, ensuring that there are systems, processes, and people in place to deliver accurate financial information that helps you make smart decisions for your business. Think of it like this: Bookkeepers and controllers look at the past; CFOs deal with the past but also look to the future.
CFOs and Controllers have plenty of overlap, so it’s easy to understand why companies might not need to fill both positions to achieve financial success. Most businesses either have a controller or a CFO, but not both.
The primary difference between the two positions is that CFOs typically handle a company’s fundraising and are more integral in the company’s financial strategy. Controllers’ responsibilities typically refer to more of the internal financial procedures and reports.
Questions to Ask When Considering a CFO
Now that you have a better idea of what a CFO advisory is and what role they play in a business, how do you decide if/when do you need a CFO? Many business owners struggle with this issue, but there are a few simple questions that can help you decide if the time is right to get your own CFO.
1. Do you have the financial information to make good business decisions?
Your financial information is the life-blood of your business. In order to properly manage your company, you need to know your numbers: cash flow, working capital, and other financial information. A CFO collects, analyzes, and interprets data regarding your business’ costs, revenue, and capital, and can fill in the missing information you need to make good business decisions.
Most business owners aren’t accountants, and wading through financial reports and charts can be overwhelming. It’s not uncommon for business owners to get confused by performance indicators. For example, say your accountant told you that your business lost money, but when you checked your bank balance there was plenty in there. So where’s the disconnect? A CFO can take all of this financial information and put it into context for you and summarize your financial position so you understand where you stand and what you need to do to accomplish your goals.
For me, I was missing the value of the CFO. I was experiencing pain in our business that was truly unknown to me. Now, looking back, once the CEO starts to feel the pain, act quickly because a good CFO can provide tremendous support and help avoid some of the growth problems companies face.
2. Is my company big enough to hire a CFO?
No matter how small, any company can benefit from having a finance chief to help organize its finances and track its performance. Typically, however, hiring one does not become essential until companies reach a tipping point – often $10 million to $20 million in revenue. I am usually hesitant to focus on the gross revenue of a business to make such a decision.
And the one qualifier is usually based upon the complexity of the business and how many transactions are going through the company. But through helping many owners and CEOs think about this issue and evaluate the concerns within the company, each one of them that ultimately needs a CFO has at least $10 million in gross revenue. But I know plenty of smaller sized companies that also saw the need for a CFO and moved forward.
3. Is your company being affected by your anxiety?
Another major flag in evaluating the need for a CFO is how much time the CEO is spending on the finance of the business, to the detriment of other areas of the company. As I mentioned earlier, a CFO typically takes responsibility for financial analysis, accounting, and budgets, along with overseeing insurance, banking, real estate, health insurance, accounts receivable, and legal issues. When the CEO is being distracted from critical revenue-generating activities to handle financing or similar issues, it’s time for the CFO to take their place and make these things happen.
Also, in my case, anxiety and stress over our finance department caused not only issues in making good business decisions, but also my health. One of the most common complaints among business owners is lack of sleep, especially when it’s due to anxiety and uncertainty over your business. Maybe you see your bank balance shrinking, but you don’t know why. Maybe you don’t know how much operating capital you need on hand, or if you have enough money in the budget to make that new hire. Whatever financial issues keep you up at night, getting your own CFO can help you get the answers you need and reduce your anxiety about the unknown and allow you to stay focused on the portion of the business where you are an expert.
4. Do you have a plan for the future?
What are your long-term business goals? Are your current systems and processes scalable, or will your business outgrow your capabilities? Do you have a strategic plan for growing your business? A well-laid plan is critical to the long-term success of any business, and a CFO plays a critical role in planning, modeling, forecasting, and preparing for the future.
5. Can I Afford a CFO?
The main reason I held back on hiring a CFO was the perceived and actual cost to bring a good CFO executive on the team. I am sure that is the main concern of yours too! Actually, the main reason companies hesitate, of course, is the cost – most CFOs are paid six-figure salaries. That expense becomes more reasonable when the company has more revenue and the company’s numbers need to be analyzed and communicated.
Companies that do not have the revenue to justify paying someone a six-figure salary may consider hiring someone to play the role part-time, or an outsourced team to fill that role for the business for a fraction of the cost.
Times When Companies Need a CFO
1. During Rapid Expansion
When your company suddenly expands, your company will likely need to implement more automated systems and acquire additional capital and funding. CFOs address fundraising and capital growth. These professionals can interpret data and devise strategies for attaining capital growth.
Without a CFO in position, your company can miss out on critical data analysis such as market trends that secure the necessary cash flow for expansion. INdustries that have frequent disruptions and fluctuations or companies that have aggressive growth policies benefit most from CFOs. External hires often have valuable experience in M&A due to their external networks and strategic insights.
2. When Developing New Products
The new product landscape is more unpredictable than ever. Rapidly changing technology, shifting markets, and adapting leadership models require flexible financial solutions. CFOs understand how to financially pivot at the drop of a hat, creating and communicating an effective corporate strategy.
CFOs account for critical issues to ensure businesses can expand without losing vital financial resources. As businesses continue to shift into more globalized markets, CFOs can answer the financial questions that lead to successful growth.
3. For Mergers and Acquisitions
As businesses prepare for mergers and acquisitions, financial teams need to examine the intricacies to ensure a smooth transition. Outsourced accounting firms thrive in these environments. The outsourced accounting firm performs the financial and regulatory legwork so your company can focus on more of the internal happenings. CFOs should be able to clearly communicate their findings to potential investors and simplify the M&A process.
4. When Analyzing Profit Underperformance
CFOs can cut costs and analyze pricing strategies to improve their profitability. By unlocking insight into the company’s profit model, they make financial decisions easier from top to bottom. CFOs also keep the CEO, board, and investors aware of past and current financial reports, giving them an accurate conception of the company’s financial strategy.
5. Increasingly Complex Tax Plans
Tax obligations can significantly hinder a business’s ability to succeed. You may need to hire a CFO if you consistently have difficulties complying with tax regulations. As your company grows and increases its net worth.
CFOs can respond to the following tax issues:
- Interpret changes in law and which decisions provide benefits.
- Use the correct tax benefits of investment, capitalization, and M&A opportunities.
- Guide financial overlap between owners, shareholders, and the businesses they own.
- Improve tax positions
- Build and preserve assets.
Conclusion: Do I Need A CFO?
Regardless of a full-time, part-time, or outsourced CFO role, the position in any serious business is critical. And I personally learned that it was costing me way too much not to have this role on our team.
Whatever stage you’re at with your business, the addition of your own CFO (full- or part-time) can help you take control of your finances and plan for future success. Bringing on the right CFO for your business can easily be one of the best business decisions you can make.
The bottom line: Hire a CFO as soon as you can.
Contact Fully Accountable today!
Vinnie Fisher, Co-Founder & Chairman
Vinnie Fisher is a businessman, entrepreneur, husband, father, and author. A lawyer by trade, Vinnie practiced business and tax law for almost 10 years before he left his practice in 2007 to pursue entrepreneurship full-time. In late 2014, with a collection of successful startups under his belt, Vinnie started A Better You Publishing. He launched his first book, The Best Investment: A Better You, in February 2015. You can learn more about Vinnie Fisher on his blog at https://vinniefisher.tumblr.com/.