The thought of needing to hire a CFO often doesn't come before there is some sign of trouble. Most companies try to operate using the “bank account formula” for as long as possible and then make a change only when the pain becomes too great. “Let me look at my bank account… if I have money, I must be OK!”
Fortunately, this no longer a black and white choice. The most successful businesses are built on a collaborative foundation, and a growing number of companies are embracing the concept of hiring a part-time CFO. Instead of being just a sunk operating cost, this move is now widely viewed as a smart business investment that is delivering positive returns.
The Catalyst for Hiring a Part-Time CFO
It only takes one unexpected event, good or bad, for your company's financial situation to become unmanageable. Let's assume that you own a hiking products startup company that has seen steady growth with retail sales throughout the PNW, reaching $3.5 million in 2017.
Then, in early 2018, some amazing things began to happen. You appeared on the cable shopping network QVC (it's still popular) and sold $250,000 worth of merchandise in one night. Your products were picked up by Dick's Sporting Goods, and you began listing items on Amazon.com.
This may all sound like a dream come true, but your company is also faced with an unprecedented dilemma. It has to come up with nearly $200,000 in capital to fill orders, which is money that won't be recouped for months. This situation could be the kiss of death for a company that has only been managing cash flow through QuickBooks.
After Hiring a Part-Time CFO
Managing growth can be difficult enough, but the complex financial situations that can arise from that growth need the skills of a seasoned professional. In the above example, hiring a part-time CFO was the best way to get an experienced financial manager on the scene quickly who could accomplish several things for the business.
In the short-term, a CFO could renegotiate more favorable terms with suppliers so that the company could fulfill its orders. They could also help the company access new sources of working capital so that it wasn't working from a position of being cash-poor.
In the long-term, a part-time CFO could help this company negotiate contracts with new manufacturers so that it could meet the demands of its higher sales volume. They could perform detailed analysis of each product to recommend the best pricing strategies. A part-time CFO can also help screen candidates for full and part-time finance or accounting positions.
How to Know if Your Company is Ready for a Part-Time CFO
The above example was fairly black and white, but not every company has this sort of financial a-ha moment. There may signs that range from the obvious to the more subtle that are your own catalysts for hiring a part-time CFO.
As a general rule, most companies that have over 25 employees or greater than $3 million in revenue should consider hiring a part-time CFO. Regardless of your company's size and make-up, you might want to consider making this move if any of the following apply:
- You can't find simple answers to your questions. Do you find it easy or difficult to make business decisions? Many major business decisions have short and long-term financial implications and require in-depth financial knowledge. If your current financial resources or team are not able to give you the answers and support you need, it might be time to make a change.
- You suspect that your company is hemorrhaging money. Is your company's spending out of control or are you just not sure where all the cash is going? While there is some truth to the statement that "you have to spend money to make money," you will only be successful if you are spending strategically. A skilled financial manager can analyze your company's cash flow and help you make any necessary cost cuts. They can also make recommendations to optimize the timing of your outflows.
- You are raising any kind of capital. If your company has begun raising capital, it will probably be helpful to have the guidance of a part-time CFO. This is particularly the case if you aren't sure how much capital you should raise and lack a strategy for optimizing your debt-to-equity ratio.
- You are selling your business or buying a new one. Buying and selling a business can be a complex financial arrangement. If you are thinking about selling your business, merging with another company, or making an acquisition, it's a good idea to have a CFO assist with this transition.
- You have gaps in your AR or AP. Your company probably has some broken systems if there are any gaps in its accounts receivable or accounts payable. Do you have cash flow issues that need to be addressed? Are there disconnects in the billing, collections, or payment processes? If any of this rings true, it's past time to bring in some help.
- You believe your departments lack checks and balances. If it feels as if other departments within your company are operating as a separate business with their own set of rules, or no rules at all, this is a dangerous situation. Successful companies operate as a cohesive unit, and a CFO can help bring some order to a disjointed situation.
- You have a Board of Directors asking tough questions. If you have a Board of Directors that is asking questions you can't answer, you'll need to formulate a quick solution. Whether the inquiries relate to a problem, opportunity, or past decision, a CFO can help put together the financial figures to validate your responses.
- You lack a long-term financial strategy. You may have put together a strategy when you first started your company and then failed to keep it updated. If you don't have a sound financial strategy for your business, you are making decisions in the dark. A part-time CFO can help you with these vital forecasts based on your historical data, industry trends, and other relevant information.
What to Expect from a Part-Time CFO
A part-time CFO is a cost-effective choice to deliver a high level of financial insight and services to your organization. Assuming your business already has a Controller, Accountant, and/or CPA on staff but no CFO, what other benefits can you expect from hiring one of these financial professionals on a part-time basis? A few perks, in addition to what we mentioned above, include:
- Get to know you and your business. A part-time CFO will want to know what the biggest source of financial pain is for your business so that they can help resolve those serious financial issues.
- Understand your breakeven point. Your part-time CFO will quickly figure out your company's breakeven point - hours of service or products - so that they can create a target for profitability.
- Improve your margins. Since margins are drivers of profits, your CFO will help your company manage and improve margins over time.
- Oversee compliance issues. A part-time CFO will ensure that your company complies with local, state, and federal regulations.
- Provide information, not just data. A CFO will ensure you have the best information about your company and finances to facilitate making strategically advantageous decisions.
The Bottom Line on Part-Time CFOs
As a small to mid-sized business, one of the most important things you will manage is your company's finances. Since every dollar counts, it only makes sense to protect your organization's assets by using the services of a skilled and experienced financial manager.
Putting off hiring a CFO because of cost could only make matters worse, but you can economize by hiring a part-time CFO until you are ready to hire one full-time. Contact CFO Selections now to speak with one of our consultants about how we can help your company achieve its goals.
