When Do You Need a CFO? 4 Important Questions Every Entrepreneur Should Ask

The question of when do you need a CFO is one that will eventually pop up as your company grows, so it helps to know just what might lead to your need for a chief financial officer.

Since the role of CFO is not always clearly understood by new entrepreneurs, many businesses find themselves without one until the need for someone to fill that spot suddenly arises.

So, throughout this post we will look in depth at the question of “when do you need a CFO,” outline what such a person does for your company, and how it can help you on the path to success.

  1. What Does a CFO Do?

    If you’re thinking, “Do I need a CFO?” then it’s no surprise that you might be questioning just what a CFO does.

    A good chief financial officer has to be able to do a number of things that include, but are not limited to:

    • Managing financial risk
    • Financial planning
    • Financial record keeping
    • Financial reporting

    These are four aspects of your company’s finances that only become more important the larger the enterprise becomes.

    Therefore, you want to ensure that everything else that comes under the umbrella term of “business finance,” is managed as efficiently as possible.

    It may seem like, in some ways, the duties of a CFO overlap with those of a controller or a finance VP, but the titles can have completely different responsibilities, depending on the company’s organizational structure.

    When asking about the difference between a CFO and a Controller, it helps to know that the CFO’s role often involves development and implementation of practices, while the Controller’s role might focus more on execution of those practices.

    It’s important to note that an organization can have many different people filling each of the roles in the accounting and finance areas. Using a simple analogy, a bookkeeper tells you where you have been, a Controller tells you where you are now, and a CFO tells you where you are heading.

  2. What Are Some of the Things a CFO Might Do During the Course of a Day?

    In order to gain a full appreciation for what a CFO does, let’s take a look at some of the typical tasks one might see to over the course of his or her day.

    You’ll see just how a CFO’s actions might affect your company’s development

    • Create a Historical Financial Report – It’s important to know just what kind of shape your company is in, and this can often come in the form a comprehensive financial report. This information affects everyone from top-level management down to the employees who interact with customers, so it needs to be as accurate as possible.Historical financial information can also be important for maintaining continuing bank and business-to-business relationships, because your company might rely on these from time to time in order to thrive.
    • Assessing Investment Opportunities – If you’re asking the question of when you need a CFO and you’re considering investment opportunities to help your business grow, then now might be as good a time as any.One important role that a CFO plays involves knowing just what to do with the company’s money. Many times, the answer to that question comes in the form of potentially lucrative business opportunities through investing.A strong CFO will have enough financial acumen to determine when an investment opportunity looks like something that your company will be able to benefit from.

      Because there is always a potential for loss, it pays to have someone who can carefully weigh factors like risk in order for your company to benefit as much as possible.

    • Helping the Company Move Forward – You already know that no one gets anywhere in the world of business by resting on his or her laurels, which means that you need to look toward the future.One of the answers to the question of “When do you need a CFO?” should involve eventual growth and expansion of your company.Whether this means expanding product offerings or opening locations in additional areas is up to you, but growing takes strong foresight that you can only get from someone with the right level of experience.

      This involves everything from looking at the feasibility of expanding, to knowing just how strong each of your business processes are and how they will contribute to the effort.

    • Controlling the Company’s Spending – As a company grows, it’s easy to see how some costs might grow before they can be caught.With a knowledgeable CFO, you can keep this from happening.This can cover everything from your own company’s cash flow to the means by which creditors and vendors are paid, making this aspect of the CFO’s job a versatile one.
  3. What Are Signs that You Need a CFO

    The fact that your company will need a CFO to help handle its finances is something that happens gradually, not overnight.

    Take a look at some of the signs that you need a CFO and you’ll just how that’s possible:

    • Your Company’s Finances Take More of Your Attention than Ever – In the early days of your company, it was easy enough managing every aspect of the business.As time passed, however, you took on more clients and expanded your operation, meaning that you had to delegate tasks to others.This all comes with increased expenses and other associated costs that are natural side effects of a business in growth mode.

      When it gets to the point where keeping track of that money, where it goes, and whether or not its being put to the best possible use becomes the equivalent of full time work, that’s a pretty good answer to the question of “When do you need a CFO?”

    • You Don’t Recognize Some of the Finance Related Correspondences You Receive – It could be a bank statement here or a tax penalty there, but if you get things like these regularly and are at a loss for what caused them, then it’s time to bring a CFO on board.Items like these don’t improve your business in any way and need to be avoided at all costs, and the actions needed to make sure these things are avoided are exactly what a CFO excels in.
    • You Are Considering a Project that Has Large Financial Implications – You have a product that you think will do extremely well in the market, but the money that would need to go into making it a reality constantly comes into question.If ever there was a time to ask: “When do you need a CFO?” this is it!Any project that has a large amount of your company’s money tied to it needs to be scrutinized extremely closely and in many different ways to ensure that it will be a success.

      You may think that you’ve covered everything, but the right CFO will likely be able to cover avenues that you never would have considered, making such a person essential to a project that important.

  4. How to Hire a CFO?

    At this point, it goes without saying that having the right CFO working for you is extremely important. When the question of “When do you need a CFO?” becomes one of “How to hire a CFO?”, you want to look at things like:

    • Background – Like any other hire, you want to make sure a good CFO has both the educational and professional background to provide the services you need.In the case of professional experience, you ideally want someone who has worked in your industry or one similar to it so that he or she is already familiar with the characteristics.Having someone with that experience will guarantee a quick assimilation into your organization so that any finance-related issues can be resolved almost instantly.
    • Managerial Qualities – A good CFO isn’t just good with numbers, he or she is good with people as well.Because the information that a CFO deals with affects people at all levels, it has to be shaped in such a way that it’s easily understood by all.More than that, the CFO needs to be able to successfully manage a team of professionals who also deal with your company’s finances.
    • A Passion for the Work – All the skill in the world won’t mean a thing if the person you hire only does what he or she does for the money.When looking at potential candidates, you want to make sure that you choose an individual who can convey a level of enthusiasm that will indicate dedication and desire to fulfill the role you have open.This will guarantee that you have a professional who will always have your company’s best interests in mind when making the decisions that need to be made.

Hopefully, the information above provided what you need to think about when asking the question of when you need a CFO. As your company grows, its finances will grow more complex and maintaining them will take someone who has the skill-set to manage it.

As the leader of your business, it’s your obligation to make sure you find the best person possible for doing so. When you make the move to hiring a CFO, it will ensure that you put yet another piece in place that will guide you to success in the future.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Follow us on Twitter @portalcfo

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