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When is the right time to hire a CFO at a small company?

I get asked this question all the time. So much so that I wrote a blog article about it here: https://www.proformative.com/blog/john-kogan/when-right-time-hire-cfo. I am curious what others think about this subject which is near and dear to the CEOs and VCs of the Valley.

Answers

Jeremy Sanders
Title: Vice President of Finance & Operations
Company: Ideator, Inc.
LinkedIn Profile
(Vice President of Finance & Operations, Ideator, Inc.) |

When the question is asked, it is probably time to hire a CFO. Contract CFO's can provide part-time assistance when a full-time CFO's salary cannot yet be justified, but as soon as the question is asked, it means that there is something to suggest that a CFO is needed. We don't just provide oversight of and recommendations for the sources & uses of the company's funds, but pretty much anything having to do with the company's money - including risk management and strategy development. And that can encompass a lot. CFO's can help raise capital, prevent its misuse, and in general help make a business better. This is a simplified generalization, but think about it.

Paul Herron
Title: Consultant (former CFO)
Company:
(Consultant (former CFO), ) |

I agree. When the CEO needs help in formulating and executing strategy, deploying capital effectively, and in seeing the bigger, longer-term picture for the business, it's time to bring in a CFO. To make this a successful addition to the management team, a certain "chemistry" (which includes trust and respect) needs to be in place, and the CFO must quickly acquire a solid understanding for the business and industry he is now serving. When all is said and done, it's time to get a CFO when the CEO realizes he or she needs help in planning, running and problem-solving the business.

David Buslee
Title: Partner
Company: B2BCFO
(Partner, B2BCFO) |

EVERY company needs a CFO, regardless of size. Business owners need to focus on the aspects of their business that make them unique. Other posters here are correct that most business owners - even Presidents of larger companies - don't understand what a CFO brings to the party. ALL companies can have a CFO - I am a partner in the largest CFO services company in the nation, which has grown based on just that premise. The question a CEO or owner should ask is "When should I have a full time CFO?" And as other posters here have noted, it should be based primarily on complexity of the organization - not sheer size. A single location, single product line company may not need a full time CFO even it is $100 million in sales. On the other hand a $10 million dollar multi-location, multi-national company may need to have one full time - a lot of that depends upon the quality of the systems and controls that have been put in place, quality of the controller, etc.
If a CEO is asking the question, the BEST resource to help determine the need is a part-time CFO professional. They can answer, with integrity, if the demands of the organization warrant full-time staff by first looking at the organization, controls, and staff in-depth.

Topic Expert
Mark Richards
Title: VP of Finance & Operations
Company: RBA Consulting
(VP of Finance & Operations, RBA Consulting) |

I have chaired the FENG (Financial Executives Networking Group) in Minneapolis for 2+ years and often hear the stories of being a company's first CFO.

I think it has to do with as much of the company's needs as it does for the CEO and existing management team to bring in a new and full member.

Tying into Paul and Robert's comments below, I agree there is also a confusion of what a CFO does versus a Controller, especially for a CEO has never hired one.

Scott Lane
Title: CFO and CRO
Company: TPG Credit Management
(CFO and CRO, TPG Credit Management) |

Further to your grid that differentiates between CFO and Controller responsibilities, below is a related link at CFO.com

http://www.cfo.com/article.cfm/8876136/c_10711860

Paul Cunningham
Title: VP of Finance & CFO
Company:
(VP of Finance & CFO, ) |

One needs to be cautious of tittles. Many small companies the controller and CFO titles go hand in hand. The time is right when the President/Owner no longer wants to be involved with maintaining the banking, insurance, IT and HR relationships then they need to hire a CFO to handle all of these as that is what most CFO's do in small companies.

Robert Holland
Title:
Company:
(, ) |

I may say that Paul's comment is so true. Titles do not mean that the role of a CFO is missing and the roles of a CFO may not be needed at this junction.

Let's look at the role of a CFO and retermine first if any of these roles and responsibilities are even needed or will add value just like you would do with any future position, then see who in organization is doing the role, or is capable and the time to perform them. You may just be surprised at either response?

See roles and job description from one posting.

The Chief Financial Officer is the top financial position in any organization. His or her role is to carry out the following tasks:

Oversees all company accounting practices, including accounting departments, preparing budgets, financial reports, tax and audit functions.

Directs financial strategy, planning and forecasts; conferring with president, VP of sales and department heads.

Supervises investment and raising of funds for business.

Studies, analyzes and reports on trends, opportunities for expansion and projection of future company growth.

Also these roles may be performed from many consultants retired or companies that offer services on a need by need basis.

Otto Kubik
Title: CFO
Company:
(CFO, ) |

This is a very tricky question and I am afraid I must go against the grain with my answer. I will quote a CEO of a $200M RV manufacturer SHORTLY AFTER IT FAILED.

He said "the last top executive position I hired was the CFO. I didn't realize what they brought to the party. Next time it will be the first hire".

What this simply says is, the CEO or owner doesn't have all the answers, sometimes misses the most important and damaging questions, and business today is too complex for one person to be strategic as well as tactical. All companies start with a Controller/bookkeeper/beancounter. But all NEED the expertice of a CFO, regardless of the size. The founders and entrepreneurs grow the business, the CFO saves it from distruction.

Frankly the most critical time of need is during the earliest stages, when the staff is generally allowed tremendous latitude. Also the time the CFO is least affordable. Our conundrum is WHEN CAN WE SELL THE CONCEPT OF THIS ADDITION as a full-time employee.

Last point. Not all Controllers are created equally. Some are "pure beancounters" and others are mini-CEO's. Companies in the early days settle for the former, eventually growing the salary and title to somewhere in the middle range. Rarely will the CEO founder allow a "Co-god", let alone a co-pilot on the payroll.

Robert Holland
Title:
Company:
(, ) |

Remember the context of the question is "small business" yes the goals of the organization are important and unless they are going to expand with other funding where Earned value and increased shareholder wealth is important, the function of a CFO may be shared or outsourced.
Its role may be performed or may be absorbed in existing positions or called something else.

Giacomo Stefanelli
Title: CFO
Company:
(CFO, ) |

Paul,
your comment is the best one I read about this topic, and I share it totally. Well done
Giacomo

Nate Cammack
Title: CFO
Company:
(CFO, ) |
Otto, I agree with much of what you said. The point is that "accounting" rarely kills a company (ignore Enron). What endangers a company is bad, often early, decisions that stick - EVERY business decision is a financial decision (and many founders/CEO's tend to ignore this). A mature financial professional (CFO or not) brings a maturity of judgement that anchors in the financial discipline but is expressed in operating and strategic terms. That perspective is critical to success.
Ken Kaufman
Title: CFO
Company: Community Dental Partners
LinkedIn Profile
(CFO, Community Dental Partners) |

I wrote a blog post that addresses this issue: http://www.cfowise.com/part-time-cfo/3-common-mistakes-when-hiring-part-time-cfo/

The first part of the post breaks down the three factors - complexity (bank loans, investors, no longer a "lifestyle" business), size, and steepness of growth/shrinkage curve.

Jeremy Sanders
Title: Vice President of Finance & Operations
Company: Ideator, Inc.
LinkedIn Profile
(Vice President of Finance & Operations, Ideator, Inc.) |

Titles can be misleading. Titles can also help to explain a company's structure. While many controllers may do more than control, CFO's, as the title suggests, are expected to do more than control. Finance is a delicate marriage of accounting and economics. Valuation philosophies are a great example of this as EVA (economic value added) and other measures are born out of economic thought.

One more thing to consider: philosophy. While economics professors often argue that the goal of the firm is to maximize profit, marketing professors often argue that it is to maximize market share... and finance professors often argue that the goal of the firm is to maximize NPV. The point is that different professionals bring different things to the table and are driven by various philosophies. Should a small business have a bookkeeping concern, then a bookkeeeper should suffice. If it's a question of controlling costs, funds, etc., then a controller should suffice. But if it's a question of maximizing the value of the firm, then a CFO might be needed... though controllers are often equally well prepared.

A final thought on titles: some firms have 1,000's of VPs. Some use the title "Director" or "Executive Director" to describe the head of a business unit. All rules aside, a small business should do whatever makes the most sense for itself and for its industry.

Laura Colony
Title: Controller/HR Director
Company: BioTech Company
(Controller/HR Director, BioTech Company) |

I've seen a lot of small business owners that do not understand the need to hire a qualified CFO or even a Controller. They believe a bookkeeper or accountant should be sufficient. They just do not understand the significance of the "data gathering" department in order to understand the need to have the visability to make decisions.

Conversely, I've seen small business owners hire a CFO or a Controller and not listen to them. They don't want someone coming in and "telling" them what they should do. And I've seen companies, as a result, go through a lot of Controllers.

What I've seen more often than not is that small companies hitting that growth stride just don't understand how important the function of accounting and the accounting department is to the overall company. Much of it depends on the owner's background (is it in sales, engineering, etc.).

I've also seen some owner's of company's that grew big (or were hitting that wonderful stride) and they were smart enough to understand they didn't want that hassle so sold it and went on to their next project.

Many countless times, I would see my clients' controller's struggle to be understand that they were more than just a bookkeeper.

Jerry Sweas
Title: President
Company:
(President, ) |

This discussion thread has just about exhausted the discussion of this topic. However, I have one other acid-test of when to hire a real CFO. It is typically when manufacturing companies are ready to install their 3rd accounting system having typically graduated from QuickBooks to say Peachtree and now need an ERP system. This selection should not be made until a CFO has been hired--even if they are a part-time outsourced CFO.

David Buslee
Title: Partner
Company: B2BCFO
(Partner, B2BCFO) |

I agree that ERP systems especially point out the need for a CFO. But for a manufacturing firm especially, since that is my forte. Selecting a part-time CFO upfront, early in the genesis of the company, can prevent the painful migrations that you may have experienced, through asking the right questions, depending on his experience and installing a system that can conform to the expected growth over the strategic planning period as opposed to reacting to the business as it happens.

Greg Buckis
Title: VP & Chief Accounting Officer
Company:
(VP & Chief Accounting Officer, ) |
Even a part time CFO is important on the onset of a business to ensure that the financial risks are understood and managed well. An up front exit strategy for all parties needs to be documented and agreed upon with all partners as well.
Steve Breitman
Title: President/CEO
Company: Mindful Business Solutions
(President/CEO, Mindful Business Solutions) |

I believe a CFO should be engaged right at the start. A good CFO brings a balance to the business equation that is necessary to success. Without a CFO, companies tend to be too top line oriented and less realistic about its future. Engaging a CFO doesn't have to mean hiring one full time. There are many different arrangements that will give you the service and expertise you need when you need it most.

J. Ed Neufer CPA
Title: Consultant
Company: CONSULTING
(Consultant, CONSULTING) |

Yes, lots of small companies don't have a need for a full-time CFO, but need someone with CFO skills several days a week to cover high-level Controller duties, analysis, risk management, insurance products, banking relationships and arrangements, auditor and attorney communication, etc. Mid-size companies starting perhaps at $10M up to $1 billion in revenue would seem to need a full-time CFO. Many times the Owner/President is a former CFO but he/she needs to be doing Owner/President-type work. But yes it's always a good idea to engage a CFO when in a bind, due to work volume (budget, year-end audit, etc.), or just because entities really need one.

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