Menu

When Should You Hire a CFO To Manage Your Business Finances?

by Michael Burdick, on May 17, 2016

At some point, managing your finances will become a full time job, so it’s not a question of “should” you hire a CFO but rather “when.”   How do you the determine the right time? Before we dive into that, let’s define a CFO’s responsibilities.

What does a CFO do?

In simple terms, a CFO’s responsibilities can be divided into two categories: “looking-backward” and “looking forward”.  The “looking-backward” part involves

  • Controllership duties like overseeing the creation of compliant financial reports
  • Communicating the financial health of the company both internally (to the rest of the leadership) and externally (to investors, shareholders, etc.).

The “forward-looking” part encompasses things like

  • Capital structure and investment decisions
  • Budgeting / forecasting

For example, a CFO would need to decide if the company should raise money via loans (debt) or stock (equity) and then predict what to do with the cash in order to get the best return. Essentially, a CFO oversees both the management accounting and financial accounting divisions of the business (more about that here).

So, how do you determine when you need a CFO?

Situation #1: The CEO doesn’t have time to do CEO things

The CEO should spend most of his or her time on the revenue generating strategies of the business.  If the CEO is overwhelmed and dealing with the financials, then critical decisions are being delayed. This is the perfect time for a CFO to swoop in and add significant value.  

A CEO must ask himself / herself, “Do I have all the financial information I need to make strategic decisions?”  If the answer is “No”, he / she needs a CFO.  For example, a candidate that the CEO has had his / her eye on is now available, yet the CEO isn’t confident that the current growth rate warrants the hire. Without a CFO, the CEO might still be crunching numbers while the ideal candidate accepts a job elsewhere.

Situation #2: You’re growing like crazy

If you’re a small company, you have the potential to expand extremely quickly.  This period of accelerated growth can be one of the most complicated times for the leadership team.  You’re often changing your offering or going after customers that are outside of your core demographic.  Navigating these uncharted waters makes it extremely difficult to forecast for the future.  But what percentage of growth qualifies as “growing like crazy” and therefore warrants a CFO?  We agree with Mairtini Dhomhnaill, who, in a Business Insider interview, recommended hiring a CFO if you are growing at 20-25% per year or hit over 50 employees.

Situation #3: You want investment capital

A CFO can be especially helpful if you are ready to go into funding mode, whether that’s preparing to woo venture capital or planning a foreseeable IPO.  Additional funding brings on new stakeholders - dealing with them is a full time job in and of itself.  A CFO handles these relationships and puts together performance and forecast reports in a manner that stakeholders are accustomed to seeing.

If you are unsure whether you need a CFO, consider hiring one part time.  This gives you the chance to see first-hand what kind of value a CFO can bring to your business while saving a considerable amount of money. If all goes well, he or she will help you expand your business until you need to bring one on for the long haul.

Topics:Finance