Hiring a Chief Financial Officer (CFO) is a daunting activity for many organizations. Understanding when to bring someone on board, what kinds of options are available to fill the CFO role, how to look for the best candidate, and what to expect after making a hiring decision are complicated topics that weigh heavy on many CEOs.
This comprehensive guide to hiring a CFO aims to answer the most common questions we hear when working with new recruiting and executive search clients to find a fractional, interim, or full-time CFO.
Fractional versus Full-Time
Before understanding your options for hiring a CFO, you first need to get to the very nature of the role.
A CFO is the position at the top-end of the spectrum of financial leadership that is outward-facing and forward-looking. Once you frame the role in this way, you can start deciding how much time you need someone focusing on that area of your business.
Understanding Fractional Work
While revenue size is a rough differentiator of whether a company should take advantage of a fractional CFO, that is certainly not the only determining factor.
Deciding which kinds of activities a CFO should be responsible for also helps inform whether you will need to bring someone in on a fractional basis or into a full-time role. For instance, if a company is not growing very quickly it may not need to talk to investors or bank underwriters because it does not have significant funding needs. In a situation like this, a fractional CFO may be a better option.
Fractional CFOs can act in various capacities, including doing:
- Interim Work
An interim CFO keeps the organization running smoothly in a less than full-time capacity while a permanent CFO role is defined and filled.
- Project Work
A project CFO is brought on for a limited-time engagement with an end date in mind to support a project that requires more significant executive activities, such as:
- A transaction in the business
- Building a forecast model
- Identifying cash flow deficits
- Planning for the revenue and cash flow implications of a downturn
- Creating a reporting platform to give insight into how the business is functioning
- Conducting risk analysis across potential areas of exposure like insurance liability, internal controls, staffing deficits, and system upgrade needs
- “Part-time Permanent” Work
Fractional CFOs in this type of role are performing CFO functions on an ongoing basis but with less than full-time demands. Depending on the details of the engagement a fractional CFO may work for their client one or two days a week or even as little as one day a month, whatever is needed.
The most salient benefit of hiring a fractional CFO is cost savings over hiring, onboarding, and retaining an in-house CFO. A fractional CFO provides access to a senior executive skillset without the cost of investing in a full-time role.
Additionally, fractional CFOs also provide the benefit of objectivity. Unlike someone who is interested in equity stake in the company, a fractional CFO can offer an independent opinion because they are not tied to the outcome. The result is unvarnished advice to the CEO based on skill and experience instead of advocacy for a particular strategy.
Identifying the Need for a Full-Time CFO
Companies that have more significant ongoing financial demands need a full-time CFO. Additionally, organizations with executive leadership teams that do not have a strong understanding of the numbers being provided to them through financial statements need a CFO. In this capacity the CFO will support the CEO by answering their questions about the current and future state of the business through the lens of a financial perspective.
Whether the CFO being brought in is fractional, project-based, or full-time, they will spend their time working on the business instead of in the business.
A fractional or project CFO will bring methodologies to performance objectives that are focused on enhancing and growing the company to execute on the CEO’s vision. As a result, the company will immediately notice an improvement in the rigor of analyzing and assessing how their business is performing. Compared to an accountant, a CFO will bring greater depth of analysis on decisions that have financial implications as well as a new level of financial execution, improving consistency across reporting and strategic planning. This upgrade changes how the business is perceived both internally and externally. The result is greater alignment across finance, accounting, HR, and IT teams around organizational objectives.
When a full-time CFO is hired into a new role, they will immediately begin identifying risk and uncovering areas where the company is spending money needlessly. They will also analyze where the business is making money to help transition CEOs from making gut-based decisions to data-driven decisions. As a result, the CEO will have more confidence when making strategic decisions, creating a firm foundation for growth. Within a year the rest of the management team should be more comfortable reading the financials as well, giving them better understanding into the numbers that are being presented.
Searching for a CFO
When searching for a CFO, the CEO, management team, and board of directors should reach out to their contacts to network and let them know the company is looking to bring someone in. Start conversations with trusted business colleagues and current service providers to determine if they know anyone who would be a good fit.
If your HR department has the internal resources to conduct the search on their own, you can utilize your own in-house personnel to look for your next CFO. Otherwise, it is best to seek external help. Engage with recruiters to hire a fractional CFO or controller or an executive search firm to hire a full-time CFO.
Defining the Role
Before the hiring process can begin, the CFO role must be clearly defined. This is a key step regardless of which level of CFO you are looking to hire; however, it is especially crucial when the company needs help determining whether the role should be full-time or whether a part-time option would suffice instead.
Enumerate the organization’s financial needs and decide which areas of the business the CFO will be responsible for and how much time these activities will take to flesh out the role. A full-time CFO will oversee the overall financial management of the company, spanning accounting and finance. They may also have responsibilities that overlap into IT, legal, and HR.
Once the role has been constructed, determine if there is a particular career path that is preferable for the specifics of your CFO role. Most often, a CFO will have started out in one of the following areas:
- Public Accounting/CPA
- Investment Banking
- Company Accounting/Corporate Training
Next, articulate what you are looking for in the way of relevant industry experience, cultural fit, and availability. While industry experience may not be essential from a skillset perspective, it may be strongly preferred to ensure an organizational fit.
Prioritizing Industry Experience
Some organizations may require that candidates have relevant industry experience, which is where utilizing a recruiter can be especially beneficial. A company may have specific regulatory requirements to adhere to or specialty financial skillsets to consider that make looking for a candidate with previous industry experience essential.
For instance, nonprofit organizations using fund accounting will likely want to hire a CFO that has significant experience in this area. Similarly, manufacturing, construction, or professional services may require that a CFO has a strong background in cost accounting.
However, industry experience is not simply a conversation around the types of accounting that a CFO candidate has used previously. It may also involve the activities that a company is currently engaged in because of its life stage. For example, a high-growth venture-backed start up will have very specific needs that they are looking for in a CFO.
Remember to consider the capabilities that are already present within the company. In some cases, having a controller who has significant industry experience may be enough to compensate for less industry experience in the CFO role.
Finally, industry experience often has more to do with the culture and personality of the industry than the financial components. Think about the difference between an entrepreneurial high-tech software company versus a vertically integrated agricultural company. Finding the right style match for either of these types of organizations is essential to ensure mutual satisfaction on the part of the company and the candidate.
The Hiring Process
Once the role is defined and the extent of required industry experience is determined, the active process of hiring a CFO begins.
Key Decision-Makers to Include
Decide who the decision-makers will be and include them throughout the hiring process. In an owner-run business the CEO is often the sole decision-maker, consulting with others when needed but making the final hiring decision independently. However, in other cases, more people may be given a voice.
Identifying who to lean on when making a hiring decision will depend on who has a controlling interest in the company. The CEO will typically get the final say on who to hire into the CFO role, but any of the following groups may be included as well:
- Essential members of the leadership team
- Board members may also be included
- Other owners or investors
- The head of HR, audit, or finance
- Key committees (in nonprofit organizations)
Remember, the more decision-makers you have, the longer the hiring process will take. So, include as many perspectives as are needed to make the right hiring decision, but do not just frivolously include additional people.
As you might expect, a fractional or project CFO can be hired much more quickly than a full-time CFO. While a part-time CFO hire takes an average of one week, a full-time CFO typically takes three to four months.
When a fractional CFO or controller is brought in to address an urgent pain point like cash constraints, a hire can be made very quickly to get the problem resolved (sometimes in as little as 24-hours). However, in other cases the hiring process can take as long as 10-14 days. A longer hiring timeframe for a fractional CFO can occur when:
- They are hired to address a broader underlying issue like a lack of financial visibility
- The scope of the engagement is larger
- Multiple stakeholders are involved in the decision-making process
Similarly, the hiring process for a full-time CFO can take longer than usual when:
- The role requirements are so exhaustive that the pool of candidates is very small
- Many people are involved in the decision-making process
- Some or all of the candidates are out-of-the-area
- The person being hired is not available immediately
The more of these complicating factors that a company is facing, the longer the hiring process will take. When dealing with most or all of these, the company may need to hire an interim CFO until a permanent hire can be brought into the role.
Using a Recruiter or Executive Search Firm
Executive recruiting firms are accustomed to working with CEOs so they understand a CEO’s needs in their next CFO. Additionally, an executive search firm will have far more experience than anyone inside the company in communicating with, interviewing, and evaluating executives, making them the best choice for finding your next CFO.
But even among executive search companies, specialties exist. Look for a recruiting firm that has specific experience in the executive role you are looking to fill. When it comes to hiring a CFO ask yourself, “Who knows CFOs better than a team of CFOs searching for a CFO?” Seeking out this kind of specialization ensures that you will be able to communicate your unique needs while the firm imparts its expertise in looking for someone for that role. Without both sides of this equation a strong partnership cannot be created.
Recognizing a Good Fit
When a CFO is a good match for the company, a comfort level quickly develops among the individual and the rest of the organization, building rapport internally. This sentiment will often echo up to the CEO with reports that the CFO is helping other leaders manage their departments more effectively. Furthermore, investors, bankers, and other external parties will indicate that they trust the CFO as well.
The CEO, especially, will build a mutually trusting relationship with the CFO in which they can broach almost any business topic and get honest feedback. A CFO that is a good fit for the role will candidly contribute feedback on how the company is operating and what can be done to improve it.
The Cost of a Bad Hire
Like any bad hire, there is a significant cost associated with finding a new CFO when the individual and the role or the company are a mismatch. However, when it comes to a key financial role, the cost can be much steeper because if a CFO is doing sub-optimal work, poor decision-making can occur, resulting in poor financial outcomes.
The cost of a bad hire in a CFO role is also wide-reaching, negatively affecting business perception, efficiency, and morale across the accounting and finance groups.
A damaged company reputation is the most significant cost to the business.
When a CFO comes in with a strong positive reputation and a good network of contacts and ends up not being a good fit, the public perception is that the company is the problem, not the CFO. While this could be true of any executive leadership role, it is far more damaging in the CFO role because the CFO is viewed through a lens of integrity so when a CFO does not work out, it casts doubt on the integrity of the entire business.
Aside from brand perception, there is also a very tangible administrative cost when a CFO ends up being a bad hire. The CFO role is so engrained in business infrastructure through banking agreements, insurance, and other business policies that it creates a huge corporate headache when the CFO leaves.
The CFO is given the keys to the kingdom, so when they leave the locks need to be changed, which creates a massive administrative hassle.
When the CFO is a fractional or project CFO that has been placed by a recruiting firm, a mismatch can be managed by working with the consultant or the client (or both) to facilitate better communication and address their needs more effectively. If a fit still cannot be achieved, the client may be transferred to another consultant at the firm to avoid a disruption. This is a benefit of working with a recruitment firm because companies that use their own HR teams to hire for the role will need to start their search again from the beginning, requiring a substantial time investment and incurring additional expenses.
Whether an actual expense or potential liability the steep cost of a bad hire in the CFO role is reason enough to work with a recruiter or an executive recruiting firm to assist in the hiring process. When you are ready to start the conversation around hiring a CFO, in either a full-time or interim capacity, please reach out to us. We would love to help get you started on the path towards stronger financial leadership to fuel your future growth!
About the Authors
Kevin Briscoe is the Executive Manager of CFO Selections®, responsible for establishing and implementing goals and strategies for the firm. His professional career includes over 25 years in finance, accounting, and operations in publicly traded corporate and small closely held settings. His extensive experience in business strategy, management, and operations makes him a great leader for the firm.
Alex de Soto anchors the CFO Selections® search practice. He brings over 25 years of experience in accounting, finance, human resources, and executive search to his role as leader of the search team. Since 2008, he has spent most of his time helping CEOs and CFOs of Pacific Northwest based companies find that unique match they seek for a CFO or Controller.