There is no one better positioned to create sustainable financial success inside a business than the CFO. A CFO takes their financial expertise and channels it into a strategic leadership role to create financial success for the company and its stakeholders. As such, their responsibilities include: budgeting and forecasting, managing mergers or acquisitions, and handling compliance issues.
A CFO has a deep understanding of your business model and your banking relationships, works with your board of directors, prepares detailed financial and management reports, works with auditors, oversees tax planning, and sets policies around controls and payroll. The CFO role is forward-thinking as they consider economic, industry, tax, government regulation and social issues. As such, a CFO is especially valuable for a company that is growing quickly, employs a large number of employees, and/or has complex product lines. CFOs also bring tremendous value to a company when it is considering making an acquisition, preparing itself to be acquired, or has its sights set on obtaining funding.
However, knowing what kind of value a financial leader can provide doesn't answer the question, "Do I need a CFO yet?" So, how do you know when it is the right time in the evolution of your business to bring in a CFO?
Determining the type of CFO or what level of skill is needed is dependent on the state of the company, and where it expects to be in the near term. For companies experiencing more rapid growth, a common trigger for hiring a CFO may be related to a decision to acquire investment capital. In this case, the finance chief often becomes the liaison charged with keeping investors updated on how the company is performing. The type of organization, whether it is in the public or private sector, and its history and culture will also influence the type of CFO required.
Check Out "A Roadmap to Hiring a CFO"
The shifting markets, advancements in technology, and globalization have stretched the definition of the CFO role. It is not productive to stretch the role of a CFO too far, as it is obvious not to expect a CFO will be good at everything.
CFOs perform a number of essential tasks. These can include:
- Acting as a right hand and sounding board for the CEO to grow the business.
- Ensuring timely collection of revenue to keep the business funded.
- Nurturing relationships with sources of capital and helping relieve the CEO of the burden of managing relationships with investors, lenders, and key partners.
- Providing data analysis and offering key insights.
A CFO may be needed:
- During periods of rapid growth
Rapid growth is an important indicator that a CFO is needed. Growth requires an expansion of automated systems, and additional capital and financing. A CFO is well suited to handle rapid revenue growth as well as significant YOY (year-over-year) growth due to potentially increased complexity. They will interpret the investment and technology, and the terms of acquiring capital.
For a company to grow more quickly, a CFO will also analyze the company’s current financial position, market trends to implement the best strategies, and improve cash flow and profits.
For industries with frequent disruptions that require dramatic changes in the allocation of resources, and companies that have a rapid growth or aggressive M&A plan, external CFOs have become an important resource. External hires are especially valued for their experience in M&A, their external networks, independent thinking, and strategic insight. Many CFOs with growth expertise have served in professional services firms such as investment banking, consulting, or private equity for a large portion of their career.
- To develop new products, markets, or offerings
The future is more unpredictable than ever. Disruptive technology, shifting market dynamics, and new leadership models require change, an ability to adapt. As a result, the CFO looked to as a change specialist.
The CFO helps to identify new opportunities and transform the company’s products and markets, capitalize and plan for future growth, create and effectively communicate the corporate growth story.
- For M&A, outside investors or debt facilitation
When a business is preparing for a merger or acquisition, a team is needed to evaluate a potential acquisition. In many cases, this will be outsourced, and the firm will also perform the financial and regulatory due diligence.
The CFO will interpret the reports from the due diligence team to tailor the terms according to the findings. A CFO should have the ability to communicate these finding to a potential investor or lender. A CFO will be well prepared and anticipate questions to shorten the process.
- When profitability is not at a desirable level, and you don’t know why
Controlling costs, improving productivity, and analyzing pricing strategies are three ways the CFO can improve profitability. By improving visibility into profitability, better decisions can be made across the company. Through oversight and management of the financial departments, the CFO can keep the CEO, board, and investors informed with past and current financial reports.
A CFO will drill deep to evaluate the productivity of employees to determine if bottlenecks or slowdowns in operations exist. Financial reports from the CFO allow the CEO to get a better overview and analyze net income from sales revenues and operational expenses.
- As tax planning has become complex
A business’s integrity is based on its ability to prepare and disclose accurate financial results and uphold its tax obligations. When a company is unable to so do, it may be time to hire a CFO to ensure compliance and regulatory needs are being met.
High net worth companies often face complex tax rules and regulations. A CFO acts as an advisor, helping to:
- Interpret changes in the law and which decisions can provide benefits.
- Analyze the tax benefits of investment, capitalization, and M&A opportunities.
- Provide guidance for any financial overlap between owners, shareholders and the businesses they own.
- Improve current tax positions.
- Build and preserve assets.
- To have a financial model that represents your strategy
If strategic planning is a priority, a company needs to invest financially in its people and technology to support business processes such as budgeting, reporting, forecasting, and long-term planning. An effective CFO understand this and will balance their role of strategist across the business. This is especially important if the business is considering entering a round of business funding or approaching new investors in the immediate future.
- To provide financial leadership and oversight as a business partner executes strategy
Ultimately, the CEO is at the center of developing a strategy process. However, the CFO is a key participant in the planning process by expanding on the CEO’s strategies. The CFO can ensure that the financial constraints surrounding the strategy are not unrealistic or too risky.
A good CFO will be the right hand of a CEO, ready to support and challenge him or her in leading the business. The CFO will communicate business performance and issues to the board. They will share key information and concepts to their peers to facilitate discussion and decision making, and to subordinates to ensure efficiency and keep them motivated.
CEOs and boards would like CFOs to not only deliver timely and accurate financial information but also partner with them in shaping the company’s strategy.
The CFO is more knowledgeable about the finances, processes, and risk mitigation needed to achieve the strategic vision of the CEO. The CFO can outline the details of a strategic plan, test it, review its viability, and advise on potential changes to the plan to achieve the desired result.
CFOs are an invaluable ally to the CEO and often occupy a seat on the board, bridging the gap between day-to-day operations and the company’s strategic direction.
A CFO may take over the strategic planning direction if the execution is complex.
- Need for visibility of future cash flows
If there is a need for someone to take charge of your business capital because your money is not growing, it is an indication that you need a CFO to oversee cash flow. This includes determining the specific investment strategy and the asset classes to be considered. As the financial complexity of an organization grows across inventory, payroll, and tax-related expenses, a CFO will be well suited to manage these strategic needs.
The CFO will perform an accurate forecast, evaluate your terms, set up and enforce a payment discipline and segment your customers, suppliers, and inventory.
- A desire to better understand your margins
One example of how margins can be impacted is pricing strategy. Your company leaders may be unaware of the cumulative impact of the potentially thousands of pricing decisions made on a daily basis. A lack of discipline in price execution can, over time, be more damaging than a poorly-defined pricing strategy. Pricing strategy can be a significant lever for expanding profit margins and monitoring execution to encourage long term growth.
- You lack detailed financial data that is critical to making sound business decisions
Without detailed financial data, decision-making relies on intuition and gut. It can also lead to conflicts within an organization where everyone has their personal version of ‘the truth.' The lack of information might be key data about cash flow, working capital, or a forecast of liquidity. You may lack awareness of economic, industry, and regulatory changes that could drastically affect your business. Or you are unable to generate financial reports required by bankers, suppliers, shareholders, investors, and partners. Any of these examples can be reasons you need a CFO.
CEOs are empowered with a financial executive in place who knows how to solve problems and run the business financially. CFOs are perfectly positioned to help create a company that is financially strong, and creates wealth for its owners.
And yet, you don’t necessarily have to invest in a full-time CFO right away. When it comes to bringing in a CFO, you have a variety of options to suit your needs. At first, someone who comes in one or two days a week in a part-time CFO role might suffice until your needs expand enough that you need to hire someone in-house.
Review: A Guide to Hiring a CFO
If you believe there is a need for a CFO in your organization, please contact us for more information. Our experienced team can provide part-time CFO services until you're ready to hire a CFO full-time. We would love to schedule a complimentary consultation to discuss your needs and business challenges whenever is convenient for your schedule.
Originally published: June 2017
Updated: November 2024
