As a company matures, controlling its finances and driving the business forward becomes a complicated equation. Even scaling a small business into its next iteration can be the equivalent of moving from algebra to advanced calculus.
From managing your books, identifying growth opportunities, and protecting your bottom line, it is suffice to say that even your general bookkeeping can feel like solving pi. At some point in your evolution, you will need to hire an individual whose primary focus is on financial planning and analysis.
And at a certain stage, you will need to hire a chief financial officer (CFO). But when does that touchpoint occur? Why do you need a CFO? And how do you go about hiring one?
Let’s discuss.
How, When, and Why Should I Hire a CFO?
What is a CFO?
A CFO is a senior executive who acts as the business’ financial leader. Similar to the offensive and defensive coordinator of a sports team, their job is to study the field (marketplace), manage the players (accounting and FP&A teams), and plan a course of action. In this financial campaign, their primary obligations include forecasting, planning, and analysis—all of which help you scale strategically.
Typically, a CFO will report to the CEO and the board of directors. As the chief financial spokesperson, a CFO works alongside the chief operating officer (COO) to identify opportunities and potential risks.
As senior managers, CFOs are tasked with the supervision of all the company’s financial activities while ensuring that all financial reports are accurate and completed on time.
This role involves several primary duties, including but not limited to:
Financial planning and reporting
- Record keeping
- Financial risk management
- Data analysis
- Fundraising
- Reporting to stakeholders
A CFO and their team are like a CEO’s crystal ball—they use previous data to inform internal positioning, build roadmaps for financial growth, and help guide the decision making process to yield positive outcomes for the development of the business.
When Should I Hire a CFO?
Deciding when to hire a CFO has always been a tricky balance. Hire too soon, and you may not be able to afford them—hire too late, and you may miss out on chances to catapult the business forward.
Traditionally, a company would not hire a CFO until they were making $50 million in annual revenue. At least, not in-house.
If you plan to hire in-house, you will usually first hire a controller if your annual revenue is between $1 million and $10 million. Typically, at this stage in a company’s lifespan, they will need a controller to handle oversight of all the business’ accounting activities. This controller will then manage the bookkeeper and accounting teams while acting as a de facto CFO for the CEO.
However, at this revenue threshold, companies typically have the budget to also hire a part-time CFO from an outsourced firm.
In that case, a business making $1 million in revenue can benefit from these expert financial insights. But knowing when to hire a CFO depends largely on the specifics of the business’ financials, its competition, market, and growth expectations, as well as your team’s financial skills and experience.
If you’re wondering when to hire a CFO, a few guiding questions to ask yourself include:
- Would you be able to secure and progress beyond a Series A without a CFO?
- Could you manage corporate tax compliance and sustain revenues over $10 million per year?
- Would an accountant assist with your workflow and increase your bandwidth?
- Do you have the know-how to model future planning based on previous data?
- Do you have an intimate knowledge of cash flow, profit and loss, bottom line, etc.?
Although you have access to the same financial data, you may not know how to actualize the information and use it to drive growth. That is absolutely within reason, as the separation between a CEO and CFO is both healthy and natural.
So, for most companies, contracted CFO services will remain a cost-effective solution for years on end. In many cases, partnering with an outsourced CFO can be the difference between making it to the championships and never reaching the playoffs.
You’re the head coach.
You need an offensive coordinator.
Why Should I Hire a CFO?
A CFO studies and analyzes your ledgers, staffing, and cash flow. When they are capable of modeling your finances across every facet of your enterprise, they can calculate an accurate ROI (or lack thereof) on your business’ output. As Inc.com notes:
There are many hidden costs in doing business, such as the cost of maintaining a demanding client. Its margin on variable costs may be the same, but because of the additional management time and hand-holding, it’s different. It’s hard to see without actually running the numbers, which many people don’t really know how to do.
Aside from general cost-benefit decision making, a CFO handles five critical tasks:
- Financial strategy and forecasting – CFOs work with an FP&A team to analyze the company’s current and previous financials and then make strategic investments or reallocations of funds.
- Management – CFOs supervise both the finance and accounting departments, ensuring that all of the proper accounting procedures and policies are in place and adhered to.
- Reporting – CFOs ensure that financial reporting is error-free, compliant, and prompt.
- Treasury – CFOs look at the company’s financial standing and then chart the best course for utilizing resources in relation to debt and equity.
- Transactions – CFOs monitor payroll and accounts payable and receivable, ensuring that they are accurate, up-to-date, and paid promptly.
Despite these tasks, many financial experts would argue that a CFO’s most important duty is to identify business risks and mitigate them. Through an ongoing analysis of financial data, a CFO needs to identify where a team is underperforming, why margins are suffocating, and what potential pitfalls could derail the business’ success.
After the information is charted, a CFO advises key stakeholders about the right steps the company should make.
If you’re still wondering why a CFO is important, let’s refer to Harvard Business Review, as their definition of the role embodies its ethos and functionality:
CFOs act as: a strategist, offering financial leadership; a catalyst, instilling a financial approach and mindset; a steward, protecting and preserving the organization’s critical assets; and an operator, fulfilling the finance function’s core responsibilities.
