Does your business need a CFO?
Table of Contents
Introduction: Does Your Business Need a CFO?
Understanding the Roles of Financial Positions
Evaluating Your Business Needs
Exploring Alternatives: Fractional CFO vs. Controller
Making an Informed Decision
Frequently Asked Questions (FAQs)
Seeking Assistance for Hiring a Finance Leader
As a business owner, your primary focus is on running your business, taking care of your customers, and perhaps even enjoying a few rounds of golf. However, it's important to recognize that not every business requires a Chief Financial Officer (CFO), and yours might be one of them.
In reality, nearly every business needs some form of financial expertise, whether it's in the form of a finance lead or a capable accountant. If you happen to be the proprietor or CEO of a privately owned, moderately prosperous small to medium-sized enterprise, the probability of necessitating a CFO is rather slim. Depending on the specific challenges your business faces, you may instead require an interim, part-time, or "fractional" CFO.
Why is that the case? Well, in this type of business, the primary responsibilities typically handled by a CFO are either unnecessary or can be managed by the business owner or CEO. It's also worth noting that hiring a full-time CFO can be a significant financial commitment, with salaries potentially exceeding $190,000 per year, without factoring in benefits.
To better understand whether your business truly needs a CFO, it's helpful to have a grasp of the different roles played by various members of the management team. An example that comes to mind is when people have expressed the notion that:
The CEO's main role is to provide vision.
C-level team members are responsible for devising and executing strategies that support the CEO's vision.
Company managers are tasked with ensuring compliance with controls, policies, and procedures, while introducing valuable business practices to enhance effectiveness and efficiency.
In many businesses, especially those led by their founders, the responsibilities of vision and strategy reside with the CEO or business owner. In such cases, if you own a profitable and successful business generating revenue under $10 million, what you likely need is a competent Controller, not a CFO.
CFO vs. Controller?
When considering the need for a CFO, it's common for small-to-mid-sized business owners to wonder about the difference between a CFO and a Controller. Here's one way to approach it:
Although an accounting background can be helpful for a CFO in terms of experience and training, it may not be essential. Accountants are often trained to be conservative and risk-averse, which can hinder forward-looking strategic thinking. A successful CFO with an accounting background is someone who has transcended the conventional mindset of an accountant.
Do some small businesses have both?
Some companies in the smaller or middle market segment opt to have both a CFO and a Controller on their team, or they may have employees holding these specific job titles. In many cases, the CFO is heavily involved in operations, while the Controller handles accounting tasks. Consequently, the CFO's role may be more akin to that of a Chief Operating Officer (COO). This situation often arises when a CFO initially holds the position of Controller, gets promoted to CFO, hires a new Controller, and then transitions into operational responsibilities. However, it's important to note that this arrangement doesn't truly reflect the role of a CFO.
So, what do you really need?
Clearly, this question has significant implications for your business. It helps determine the type of finance leader you require, both now and in the future. Your decision depends on how you perceive and utilize your business information to discuss the trajectory of your company.
A good company knows where it stands, but a great company knows where it's headed. Unfortunately, a struggling company usually knows neither. If you find yourself engaged in activities such as business acquisitions or divestitures, significant financing transactions, or corporate reorganizations, the expertise possessed by a CFO can prove to be invaluable. Nevertheless, even in these circumstances, a permanent, full-time CFO might not be necessary. Engaging a fractional CFO could be a suitable alternative.
Making the right choice involves a basic process:
Understand the attributes and characteristics associated with each type of finance position.
Align those characteristics with your current business needs.
Anticipate future changes in those needs.
Select the position that best aligns with your requirements and ensure that the person filling that role possesses the necessary competence within the available budget.
Whether your business is successful, underperforming, or you're planning for a transition, you may find that a part-time finance leader is what you need. If you decide to seek an interim or fractional CFO, Controller, or Accounting Manager, you can reach out to us for assistance.
Conclusion
In conclusion, not every business requires a full-time CFO, especially small to medium-sized enterprises with specific financial needs. Understanding the roles of different finance positions and aligning them with your business requirements can help you make an informed decision. Engaging a fractional CFO or a competent Controller might be a more suitable option, considering the financial commitment and responsibilities involved. By carefully evaluating your business's current and future needs, you can find the ideal finance leader to guide your company towards success.
Frequently Asked Questions (FAQs)
What is the average salary of a CFO?
The average salary of a CFO can vary depending on factors such as the size of the company and its industry. However, salaries for full-time CFOs can potentially exceed $190,000 per year, not including benefits.
Can a CFO handle accounting tasks?
While CFOs may have an accounting background, their primary role is strategic financial management rather than day-to-day accounting tasks. However, in some cases, a CFO may be involved in overseeing the accounting function within the organization.
When should a business consider engaging a fractional CFO?
Businesses should consider engaging a fractional CFO when they require financial expertise for specific activities or projects, such as business acquisitions, divestitures, significant financing transactions, or corporate reorganizations. A fractional CFO provides specialized financial guidance without the need for a full-time commitment.
How can a part-time finance leader benefit a business?
A part-time finance leader, such as a fractional CFO or Controller, can provide expertise and guidance without the cost and commitment of a full-time position. They can help businesses make strategic financial decisions, improve financial processes, and ensure compliance, all while working within the available budget.
Where can I find assistance in hiring an interim or fractional CFO?
If you're seeking assistance in hiring an interim or fractional CFO, Controller, or Accounting Manager, you can reach out to our organization. We provide professional services to help businesses find the right finance leader to meet their specific needs.
