But, let me explain further.
On first thought, you may think that there is no way that my tiny business could possible need a CFO. That sounds like a position only meant for huge corporations that are housed in skyscrapers, right? Not necessarily. Let’s discuss what the role of a CFO is and look at why they are important before deciding on whether or not your business should hire one.
What is a CFO?
CFO stands for Chief Financial Officer. Investopedia defines it as, “…the senior executive responsible for managing the financial actions of a company.” This includes overseeing bookkeeping actions, payroll, financial data, and financial projections. A good CFO should be able to give valuable insight and advice into how a company is doing financially and what actions it should take in the future.
CFO vs Controller
In some businesses, the CFO and the controller are the same person. That said, the job description of CFO and the job description of controller are different. To illustrate, another name for controller could be Chief Accountant. The controller oversees all of the accounting for a business. The controller analyzes financial data and generates reports.
A CFO, on the other hand, uses those reports as well as his or her knowledge of other aspects of the business to make decisions that impact the future.
DIY Attitude- Why Business Owners Try to Do it Themselves
When just starting out, many small business owners have a DIY attitude about most aspects of the business, including accounting. Usually this is for one or more of the following reasons:
- They are hesitant to let anyone else touch their “baby.”
- They are worried about trusting anyone else with the company’s financial data.
- They are trying to save money
- All of the above
These are all valid reasons, but in many circumstances the pros of hiring professional help in the financial field outweigh the cons. Why? First of all, business owners trying to do it all can more quickly experience burnout. Furthermore, as a business owner you have responsibilities within the business other than accounting to attend to, and lastly, hiring an accountant means that you will have an expert in the field to help you.
The Signs that a Small Business Needs a CFO
I recently stumbled across an older article from Forbes entitled, “Signs a Small Business Needs a CFO” by Jeff Thomson (2013). In the article, Thomson interviews Mark P. Palker, the director of CFO Consulting Partners LLC. Some of the signs of needing a CFO that Palker describes are:
- “…when information that helps the business make timely and important decisions is not being prepared.”
- “Rapid growth is another important indicator.”
- “…when a business is preparing for a merger or acquisition.”
If we take a look at the first point, that is easily an area where many DIY business owners can get stuck. They just have too much going on and reports that need to be prepared are not getting done, which in turn means that decisions about the future can’t be made. Stuck in the mud.
The second point: growth is a fantastic thing for any business. But, when it happens quickly, it can be really hard on the business, especially if you don’t already have the infrastructure in place to deal with it. A business will need a CFO to help handle things and keep it under control during a period of intense growth.
Lastly, not all small businesses will deal with mergers and acquisitions, but it is a good idea to have a professional be able to help you waddle through all of the financial details involved. And, as Palker points out, “…the CFO must be able to choose the correct team to evaluate a target acquisition.”
Alternative CFO Options
Well, after a brief look at what a CFO does, an examination of why many businesses don’t have one, and a discussion of when a business should get one, you may have changed your mind about whether or not your business needs a CFO.
One of the biggest hurdles to hiring a CFO is, of course, the expense involved. Perhaps your business is not in a position to carry the weight of a CFO. But, on the flip side, is your business in the position to NOT have one? Thankfully there are other options. You can hire a part-time CFO, or outsource the position and hire a virtual CFO. This way your business can reap all the benefits of a qualified CFO without paying a full time salary.
Contact us at Lumen Advisory and Finance to learn more about our virtual CFO services.