What, Why, and When is it essential for a business to employ a CFO?

Handling your finances when you first start your business is difficult enough, but as it grows, it becomes exponentially more difficult. It is now time to hire someone whose sole responsibility is to handle your financial analysis and planning.

You ought to hire a chief financial officer (CFO) at some point. Why do you need a CFO? And how does one go about choosing one?

But First, What is a CFO? 

A CFO, or Chief Financial Officer, is a senior executive who is in charge of the company’s financial operations. They serve as market analysts and forecasters. They also manage departments such as accounting and financial planning and analysis, where they discuss the company’s financial situation and plan a course of action.

A CFO reports directly to the CEO and the board of directors. A CFO, as the chief financial spokesperson, collaborates with the COO to identify opportunities and potential risks within the company.

They are in charge of keeping track of all financial activities at the company, ensuring that they are all documented, reliable, and finished on time.

A CFO’s primary responsibilities include, but are not limited to:

• Keeping records
• Management of financial risks
• Data analysis
• Fundraising
• Correspondence with stakeholders

A CFO and his or her team assist the CEO by providing accurate information and a framework that can help guarantee transparency within the company and provide a foundation for making decisions that can help the company grow and develop.

Next Question is: Why should I hire a CFO?

A CFO studies and analyzes a company’s finances, including ledgers, staffing, and cash flow. They can simulate your company’s finances in all aspects in order to provide and calculate an accurate ROI for your company, or lack thereof.

According to Inc.com, there are many hidden costs in doing business, such as the cost of maintaining a demanding client. This can be difficult to see without running the numbers, which many people don’t know how to do.

Here are the five most important responsibilities of a CFO:

• Financial forecasting and strategy – CFOs alongside the FP&A team analyze financials to make strategic investments and reallocations.
• Reporting – The CFO is responsible for ensuring that financial reporting is error-free, compliant, and timely.
• Management – The CFO is in charge of both the finance and accounting departments, ensuring that proper accounting procedures and policies are followed.
• Transactions- Payroll and accounts payable and receivable are monitored by the CFO to ensure that they are accurate, up-to-date, and paid on time.
• Treasury- The CFO evaluates the company’s financial situation and then charts the best path for utilizing resources in terms of debt and equity.

Despite all of these responsibilities, the most important duty of a CFO is to identify business risks and mitigate them through ongoing financial data analysis. This includes identifying underperformance, margins, and potential pitfalls within the team.

A CFO advises key stakeholders on the next steps the company should take after charting the data.

Last but not least: When should I hire a CFO?

Making the decision to hire a CFO is a difficult balancing act.

Hiring one too soon may mean you can’t afford one, and hiring one too late may mean you’ve already missed out on an opportunity to advance your business.

Traditionally, a company would not hire until its annual revenue reached $50 million. If they intend to hire in-house, they specifically hire a controller if their annual revenue is between $1 million and $10 million. This controller will be in charge of the bookkeeper and accounting teams, as well as acting as the CEO’s de facto CFO.

When to hire a CFO depends on the company’s financials, competition, market, and growth expectations, as well as the team’s financial skills and experience. Companies with $1 million in revenue are usually able to afford a part-time CFO from an outsourced firm.

If you have thoughts about hiring a CFO, here are some things you need to think about

• Would you be able to secure and progress past a Series A without the assistance of a CFO?
• Could you manage corporate tax compliance while maintaining annual revenues in excess of $10 million?
• Would you like an accountant to help you with your workflow and increase your bandwidth?
• Do you have the expertise to forecast future events based on historical data?
• Do you understand cash flow, profit and loss, the bottom line, and so on?

You may have access to the company’s financial data, but that does not mean you have the knowledge or expertise to use that data to propel your business forward.

You may be concerned about hiring someone to handle your finances, and you may believe that doing so diminishes or reduces your power and control in the company; however, separation between a CEO and CFO is healthy and natural, and contracted CFO services are a cost-effective solution for most businesses. Working with an outsourced CFO can mean the difference between making it to the championships and not.

If you need more convincing that it is time to hire a CFO, consider the following seven indicators:

• Communication has become more difficult. If you are working with many consultants, they can be difficult to communicate with, as they may not understand the work and position of other consultants and can lose direction when working autonomously.

• Contracts are falling behind. Growth in businesses often requires multiple loans to expand, hire key players, and invest in infrastructure. However, keeping up with all of the details can be difficult.

• Risk Management Worries You. Hiring a CFO can help business owners identify red flags and provide timely solutions to “what if” scenarios. A CFO can drive and monitor strategy and plans and provide timely responses.

• Your business is growing. When a company reaches a certain size, additional legal and compliance rules come into play, and they require the assistance of a CFO to manage these regulations. A CFO is a professional who can assist a company in adhering to government regulations and dealing with potential risks associated with its rapid growth.

• The Auditing Process Appear to Be Exhausting. Audits can be intimidating for business owners who are not finance experts, but a CFO can create and monitor accounting systems with internal controls to make them easier to manage and reduce stress.

• Investors Want More Information. Hiring a CFO is an excellent way to ensure that investors are satisfied with the amount of information you provide. A CFO will be able to review and prepare reports for everything from corporate minute books to internal financial controls.

• Tax compliance has become more difficult. Because tax compliance mistakes can be costly and dangerous to your company’s financial health, your CFO should design tax systems that are simple to manage and facilitate accurate reporting.

If you’re still curious to know why a CFO is important, consider this definition from Harvard Business Review, which embodies the role’s ethos and functionality:

“CFOs act as: a strategist, offering financial leadership; a catalyst, instilling a financial approach and mindset; a steward, protecting and preserving the organization’s critical assets; and an operator, fulfilling the finance function’s core responsibilities.  “

Harvard Business Review

Now, when you first hear the term CFO, you probably think of large corporations like Apple, Tesla, and so on, and as a small business owner, you might wonder, “What about me?” “What about my company?” “Who would help me manage my company’s finances?” Then we have the solution for you:

Virtual CFO:

A virtual CFO allows small businesses to obtain CFO support that they could not previously afford.

Small businesses now have too many options, resulting in the commoditization of services such as compliance, tax preparation, and bookkeeping. This lowers the value of these services.

Cloud technology reduces the value of basic accounting services, making them more efficient and productive.

Virtual CFOs provide an experienced financial professional at a fraction of the cost of a full-time CFO. 

• They handle all the duties of a traditional CFO, but work remotely and on a part-time basis.

• They offer financial insight and guidance,

• They use cloud technology to monitor the company’s financial health and well-being.

• They also handle back-office functions such as managing accounts ledgers. 

So, if you want to learn more about how a CFO or a Virtual CFO can benefit your business or if you need someone to specifically manage your company’s financial responsibilities, feel free to reach out to us for a complimentary discussion on how we can assist you and your business today.